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2019 Supreme(Mad) 1135
IN THE HIGH COURT OF JUDICATURE AT MADRAS
K. KALYANASUNDARAM, J.
Cognizant Technology Solutions India Pvt. Ltd., Chennai - Appellant
Versus
The Deputy Commissioner of Income Tax, Larger Taxpayer Unit-1, Nungambakkam - Respondent
W.P.Nos. 7354 of 2018 & W.M.P.No. 9135 2018
Decided On : 25-06-2019
For the Petitioner:Gopal Subramanium, Senior Advocate, Srinath Sridevan, Advocate. For the Respondent: G. Rajagopalan, Additional Solicitor General Assisted by Karthik Ranganathan
Headnote:
Income Tax - Writ Petition - Sections 115O, 115P, 115QA of the Income Tax Act
Fact of the Case:
The petitioner, a company engaged in software development, bought back its own shares under the Companies Act. The Income Tax Department attempted to tax the 2013 buy-back as income from other sources. The petitioner approached the Authority for Advance Rulings in relation to the buy-back of shares in 2016. The Department issued a notice for non-payment of Dividend Distribution Tax (DDT) under Section 115O of the Act. The petitioner contended that the buy-back of shares is covered under Section 46A of the Act and does not come under the definition of dividend as per Section 2(22) of the Act.
Finding of the Court:
The Court held that Section 115O of the Act does not mandate issuance of a show-cause notice or enquiry before passing a final order. The Court also found no breach of principles of natural justice in the issuance of the notice. The Court ruled that the Assessing Officer is not prohibited from issuing the impugned order in the light of the bar prescribed in Section 245RR of the Act. The Court dismissed the Writ Petition, directing the petitioner to avail the appeal remedy.
Issues: 1. Whether Section 115O of the Act mandates issuance of show-cause notice, enquiry before passing a final order? 2. Whether there is any breach of principles of natural justice? 3. Whether the Assessing Officer is prohibited from issuing the impugned order in the light of the bar prescribed in Section 245RR of the Act? 4. Whether the Writ Petition is maintainable?
Ratio Decidendi: The Court held that Section 115O of the Act is a self-contained code and does not require issuance of a show-cause notice before making a demand. The Court found no breach of principles of natural justice in the issuance of the notice. The Court ruled that the Assessing Officer is not prohibited from issuing the impugned order in the light of the bar prescribed in Section 245RR of the Act. The Court also held that the petitioner has an appeal remedy under Section 246 of the Act.
Final Decision: The Writ Petition was dismissed, and the petitioner was directed to avail the appeal remedy within a period of four weeks from the date of the judgment. The Appellate Authority was directed to dispose of the appeal on merits, after providing sufficient opportunity of hearing to the petitioner.
(Prayer: Writ Petition filed under Article 226 of the Constitution of India praying for issuance of a Writ of Certiorari to call for records pertaining to F No. Recovery / DCIT (LTU) - 1 / 2017-18, dated 22.03.2018 on the file of the respondent herein and quash the same.)
Assailing the order of the respondent dated 22.03.2018, whereby the petitioner was directed to remit tax at 15% of the total payment of Rs.19415,62,77,269/- along with interest under Section 115P of the Income Tax Act (in short "Act"), the present Writ Petition has been filed.
2. According to the petitioner, it is a Company incorporated under the Companies Act and is engaged in the business of development of computer software and related services and export. In the year 2013, the petitioner bought back its own shares under Section 77A of the Companies Act. Thereafter, during the year 2016 under the Scheme of Arrangement and Compromise, the petitioner planned to purchase its own shares under Sections 391 to 393 of the Companies Act for the following reasons:-
(i) to increase earnings per share and return on equity over a period of time and enhance long-term value creation;
(ii) to streamline ownership structure by purchasing its own shares from minority shareholders holding less than 25% of the issued, subscribed and paid up share capital;
(iii) to serve the shareholders more efficiently and optimize the overall capital structure; and
(iv) to reduce foreign currency fluctuation risk in respect of rupee funds in India.
3. The petitioner filed C.P.No.102 of 2016 before this Court for approval of the Scheme to buy back a maximum of 94,00,534 equity shares from its shareholders for a total consideration of Rs.19,080.26 Crores and the Scheme got approved by an order dated 18.04.2016. It is a case of the petitioner that the consideration for such buy-back was paid to the shareholders in May 2016. The gain arising to the shareholders in the course of buy-back was offered to taxation as capital gain subject to applicability of treaty relief and a total of Rs.898.01 Crores was paid as capital gain to the respondent-Department by the petitioner.
4. The petitioner would allege that during the year 2017, the I.T. Department attempted to tax the 2013 buy-back as an income from other sources in the hands of the petitioner's shareholders and the Assessing Officer overruling the findings of the Transfer Pricing Officer, proceeded to pass a Draft Assessment Orders against its shareholders and the orders are under challenge in W.P.Nos.1244 & 1245 of 2018. In view of the stand taken by the Department in the 2013 buy-back, the petitioner approached the Authority for Advance Rulings and filed an application under Section 245Q of the Act in relation to the buy-back of shares in the year 2016.
5. The petitioner would claim that when the application filed under 245Q of the Act is pending and when there is an express bar contained in 245RR of the Act, the impugned order shall not stand. Further, it came to be passed in violation of principles of natural justice. According to the petitioner, the shares bought back in pursuance to the order of this Court under Sections 391 and 393 of the Companies Act is covered under Section 46A of the Act and it would not come under the definition of dividend as per Section 2(22) of the Act.
6. In the counter filed by the respondent, it has been stated that the petitioner remitted about Rs.19,415 Crores to its non-resident shareholders in May 2016, without paying Dividend Distribution Tax (DDT) under Section 115 O of the Act. The issue of non-payment of DDT was identified and a notice dated 21.11.2017 was issued to the asssessee calling for details of the tax paid on those remittances. Thereafter, a serious of meetings were held with Tax Team of CTS between November 2017 and March 2018 in the Chamber of Commissioner of Income Tax (LTU), where apar
