Delhi High Court
Bernstein Litowitz Berger And ... vs Union Of India And Ors on 18 September, 2014
Author: Badar Durrez Ahmed
Bench: Badar Durrez Ahmed, Siddharth Mridul
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 18.09.2014
+ W.P.(C) 6167/2012
BERNSTEIN LITOWITZ BERGER AND GROSSMANN
LLP AND ORS ..... Petitioners
versus
UNION OF INDIA AND ORS ..... Respondents
+ W.P.(C) 7774/2012
BERNSTEIN LITOWITZ BERGER AND GROSSMANN
LLP AND ORS ..... Petitioners
versus
UNION OF INDIA AND ORS ..... Respondents
Advocates who appeared in this case:
For the Petitioner : Mr M.S. Syali, Senior Advocate with Ms Husnal Syali,
Mr Mayank Nagi, Ms Reeta Mishra, Mr Harkunal Singh
and Mr Tarun Singh
For the Respondents : Mr Abhay Prakash Sahay
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL
JUDGMENT
BADAR DURREZ AHMED, J (ORAL) W.P.(C) No. 6167/2012 & 7774/2012 Page 1 of 5
1. These writ petitions impugn the Ruling dated 27.08.2012 made by the Authority for Advance Rulings under the Income-tax Act, 1961.
2. A few basic facts are necessary for disposal of these writ petitions. Certain shareholders of American Depository Shares have filed suits against Satyam Computer Services Limited (Indian Company) as well as against Pricewaterhouse Coopers, Bangalore and Pricewaterhouse Coopers LLP, USA claiming damages on account of the alleged admitted fraud in the representations to the Authority governing the stock exchange under the Securities Exchange Act, 1934 and the Securities Act of 1933 (both USA Acts). Those suits were consolidated as a class action suit and the petitioners herein were nominated as lead counsel.
3. In those suits a settlement was arrived at whereby the Indian company was required to pay damages to the extent of USD 125 million and Pricewaterhouse Coopers (Bangalore) and the Pricewaterhouse Coopers LLP (USA) were required to pay a total amount of USD 25.5 million. For this purpose, a Qualified Settlement Fund was to be created. The settlement was also subject to the approval of the court in New York. Before the final approval of the court in New York, the funds equivalent to USD 125 million were transferred by the Indian company to a Segregated Account in India (with Citi Bank). Similarly, the Indian component of Pricewaterhouse Coopers also deposited the equivalent of USD 15.5 million in the said Segregated Account. W.P.(C) No. 6167/2012 & 7774/2012 Page 2 of 5 The lead counsel thereafter took a preliminary approval from the court at New York and the funds deposited in the Segregated Account in India were transferred to the Initial Escrow Account in the New York Branch of Citi Bank NA. On 13.09.2011 the court at New York finally granted approval and confirmed the settlement which had been arrived at between the Indian company, Pricewaterhouse Coopers and the holders of the American Depository Shares. Thereafter, the money lying in the Initial Escrow Account in New York was transferred to the Qualified Settlement Fund which was to be operated by the lead counsel for the purposes of disbursement to the various parties in favour of whom the settlement was arrived at.
4. We may point that shortly after the settlement was arrived at, as a condition of the settlement, an advance Ruling was invited from the Authority for Advance Rulings with regard to the taxes to be withheld in respect of the transfer of funds from India to US.
5. While the matter was pending before the Authority for Advance Rulings, the entire funds available in the Segregated Account were transferred to the Initial Escrow Account in New York. However, thereafter the Authority for Advance Rulings, by virtue of its Ruling dated 27.08.2012, determined that the said amount was taxable in India and therefore tax ought to have been deducted at source prior to the payment to the beneficiaries. Consequently, 30% of the funds which had been transferred from the Segregated Account to W.P.(C) No. 6167/2012 & 7774/2012 Page 3 of 5 the Initial Escrow Account were returned to India and they continue to be deposited with the Revenue Authorities. It is thereafter that the remaining funds were transferred to the Qualified Settlement Fund.
6. The primary question which was there before the Authority for Advance Rulings was whether the amount of the settlement funds which had been transferred from India to USA were chargeable to tax in India. In order to answer this question a primary issue that arose was whether the receipts in the hands of the beneficiaries were in the nature of capital receipts or revenue receipts. The Authority for Advance Rulings had proceeded on the basis that they were revenue receipts and it had so observed on the basis of an alleged submission to this effect made on behalf of the petitioner. That is not the correct position inasmuch as from the impugned Ruling itself it would be evident that the stand of the petitioner was that they were not revenue receipts but capital receipts not chargeable to tax. It was the further case of the petitioner that the settlement amounts would only go towards reducing the cost of acquisition of the American Depository Shares.
7. We are of the view that the Authority for Advance Rulings has rendered its ruling based upon the wrong premise that the petitioner had accepted the receipts to be in the nature of revenue receipts. Thus, the Ruling cannot stand. Consequently, we set aside the Ruling dated 27.08.2012 and remit the matter to the Authority for Advance Rulings to examine the position, first of all, in the W.P.(C) No. 6167/2012 & 7774/2012 Page 4 of 5 light of whether the receipts were in the nature of capital receipts or revenue receipts and thereafter to determine as to whether those receipts were chargeable to income tax in India. The Authority for Advance Rulings has to examine this aspect in the context of Section 195 of the Income-tax Act, 1961 and for that purpose it has to consider whether these receipts, if they are to be regarded as income, could be construed as income at the point of time at which the tax was to be deducted at source. These issues need to be examined by the Authority for Advance Rulings apart from the other issues that may arise including the question of any income having arisen in India, having been received in India or deemed to have accrued in India.
8. With these observations, the impugned advance Ruling dated 27.08.2012 is set aside and the matter is remitted to the Authority for Advance Rulings to consider the matter afresh in the light of our observations and with the hope and expectation that the Ruling would be given at an early date. The writ petitions are allowed to the aforesaid extent. No costs.
BADAR DURREZ AHMED, J SIDDHARTH MRIDUL, J SEPTEMBER 18, 2014 SU W.P.(C) No. 6167/2012 & 7774/2012 Page 5 of 5