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DTPA - J | 2017-18 | Volume 3 | August 2018

own shares from its foreign Holding Company, M/s. FIS bottom of our National Emblem, Ashok Stambh and
Holding Muritian Ltd. incorporated in Mauritius. The Dharm Chakra.
learned Tribunal held that after insertion of Section It tells us that, the 'truth' should be the Guiding Star in
115-QA of the Act with effect from 01/06/2013, the the entire judicial process. Truth alone has to be the
purchase of its own shares by the Company in foundation of justice. The entire judicial system has
accordance with the provisions of Section77-A of the been created only to discern and find out the real truth.
Companies Act, 1956 is chargeable to income tax as Judges at all levels have to seriously engage
Distribution Dividend Tax (DDT) but since the themselves in the journey of discovering the truth. That
transaction in the present case of buy-back of shares is their mandate, obligation and bounden duty. Justice
took place prior to 01/06/2013, such buy-back of the system will acquire credibility only when people will be
shares between the period 01/04/2000 to31/05/2013 convinced that justice is based on the foundation of the
would be taxed as 'Capital Gains' in the hands of the
truth.
recipient in accordance with the provisions of Section
46-A of the Act and no such amount would be treated as Tribunal has the power to give directions for fresh
enquiry into the aspects of the subject matter of appeal
dividend in view of exclusion part of Section 2 (22)(iv) filed before it either suo motu or on any grounds raised
of the Act. The Assessing Officer also held that the by either party to the appeal which have not been
Capital Gains in the hands of the Holding Company
investigated or enquired into by the lower Authorities
(Mauritius Company) was also not chargeable to tax in
earlier and which may result in enhancement of tax
India as per the provisions of Article 13(4) of the Indo-
liability of the assessee.
Mauritius Double Taxation Avoidance Agreement
(DTAA). In this case, the Tribunal was right and within its
jurisdiction in directing the examination of the fair
However, the learned Tribunal observed that there is
market value of the shares bought back by it for the
another aspect of this transaction of buy-back at an
A.Y.: 2011-12 in question.
abnormally high price of Rs. 2,85,108/- per share
having face value of only Rs. 10/- per share and The Appeal of the Appellant -Assessee Company was
therefore the payment made by the Assessee - Indian dismissed.
Company over and above the fair market price of the 9) DCIT-1(1)(2), Mumbai vs. M/s. Gilbarco Veeder
shares of the Assessee would not be treated as part of Root India (P) Ltd.
the purchase price because, the transaction is between
ITA NO. 1003/MUM/2017
the two closely related parties and not at the Arm's
Order Dated : 20/06/2018
Length Price (ALP) and therefore the payment for buy-
back in excess of the fair market price of shares of the ( SOURCE : itatonline.org )
Assessee - Indian Company, would certainly fall within RATIO : Deemed dividend u/s 2(22)(e) can be taxed
the ambit of Section 2(22)(e) of the Act and could be only in the hands of a registered shareholder. Apex
taxed as Dividends, in the hands of the Assessee court decision in the case of Gopal & Sons (HUF) is
Company. distinguishable on facts.
The learned Tribunal said that since this aspect of the FACTS : Assessee company is engaged in the
matter was not examined by the Authorities below and it business of manufacture and sale of petrol dispensers,
could be treated as a device for transfer of substantial related accessories apart from carrying on
'Reserves and Surpluses' by the Indian Company to the maintenance services and research & development
Holding Company at Mauritius as BEPS -Base activity. An addition was made by the A.O. for a sum of
Erosion and Profit Shifting and it could be a Rs. 90 crores by invoking Sec. 2(22)(e) treating the
colourable device and a dubious method of avoiding tax same as 'deemed dividend'.
in the garb of buying back of shares at a highly Assessee had received a sum of Rs.90 crores from one,
unrealistic and inflated price, therefore, the matter M/s. Portescap India Pvt. Ltd. There was common
deserved to be examined again by the Assessing shareholder, both in the assessee-company and
Authority on the said issue of fair market price of shares, Portescap. The 100% shareholding of assessee-
vis-à-vis buy-back price of the shares by the assessee company is held by one, M/s. Kollmorgen India
Indian Subsidiary Company.
Investment Company, Mauritius. The A.O. held that
FINDINGS : "SATYAMEV JAYTE" (Truth alone every kind of lending would be covered by the
Triumphs) is the quote from Mundaka Upanishad, the expression 'loan' and 'advance' for the purposes of Sec.
concluding part of the sacred Hindu Vedas and it is the 2(22)(e) of the Act. On the alternate plea, the A.O.
North Star of our Judicial System inscripted at the inferred that the impugned sum was covered by the

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