Buy-back price to be disclosed even if promoter is exempt from public announcement under takeover code

A.R. DAHIYA v. Securities Exchange Board of India [2015] 63 taxmann.com 332 (Supreme Court)

SEBI: Where appellant-promotor bought back its shares from State Financial Institution, no public announcement was required as same is being protected under regulation 3 of the SEBI (SAST) Regulations, 1997, however, rate at which shares were bought back had to be disclosed.

Facts:

• In respect of an acquisition which was in excess of 15% of the total shareholding of the Target Company, the appellant neither in the public announcement nor in the letter had disclosed the fact that he and his associates had already bought back the shares of the Haryana State Industrial Development Corporation Limited (‘HSIDC’).
• The appellant had vainly and incorrectly attempted to justify his act of non-disclosure by stating that the transaction with HSIDC was protected by Regulation 3, which placed it beyond the ambit of Regulations 10, 11 and 12.
• Appellant had also issued post dated cheques towards the purchase consideration for the buy-back of equity of shares held by HSIDC in the Target company which were later on dishonoured.
• The appellant contended that the amount deposited with HSIDC via post-dated cheque was not in consideration for the buy-back of shares but were deposited by way of security for the buy-back obligation. Further, the appellant contented that cheques presented had been dishonoured on presentation, the transaction did not culminate in an acquisition.

The Supreme Court rules as under:

• Regulation 3 only protects a transaction between a co-promoter and a State financial institution to the extent that for such transaction a public announcement would not be required to be made as provided under Regulations 10, 11 and 12. However, it does not imply that the said transaction is to be protected from the rigours of other Regulations provided for under the Act.
• Thus, the transaction between the Appellant and HSIDC would have to be subject to Regulations 16 and 20, and the rate at which the Appellant bought back the shares from HSIDC had to be disclosed in the public announcement.
• With regard to appellant’s contention on post-dated cheque, the Apex Court said the post-dated cheques amounted to a promise to pay and that promise would be fulfilled on the date mentioned on the cheque. Thus, this promise to pay amounted to a sale of shares/equity. The subsequent dishonouring of the post-dated cheque would have no bearing on the case.
• At the time of making the public announcement the Appellant had bought back the shares of HSIDC by making payment via the said post-dated cheques. Further, as the buy-back was in pursuance of an agreement, there was consensus ad idem. The Appellant had subsequently shirked his responsibility and had tried to slither away from honouring the agreement, which he could not be allowed to gain from, as is established by the legal maxim commodum ex injuri su non habere debet.
• Under Regulation 2 clause (1) Sub-clause (a)- ‘acquisition’ means directly or indirectly acquiring or agreeing to acquire shares or voting rights in, or control over, a Target Company. This definition clarifies that an acquisition takes place the moment the acquirer decides or agrees to acquire, irrespective of the time when the transfer stands completed in all respects. The definition clarifies that the actual transfer need not be contemporaneous with the intended transfer and can be in future.

BUSINESS DISALLOWANCE – CASH PAYMENT EXCEEDING PRESCRIBED LIMITS

SECTION 40A(3)

[2016] 74 taxmann.com 87 (Madras)

 

Where assessee did not offer any explanation as to why expenditure in cash had been incurred for first time during relevant year, while similar expenditure was not reflected at all in preceding four years, particularly, when there was no change in line of business activity of assessee, all these years, Assessing Officer rightly discredited expenditure incurred in cash -

During course of international voyage traffic between Indian ports deemed as 'international traffic'

CIT v. Taurus Shipping Services [2015] 64 taxmann.com 64 (Gujarat High Court)

Journey of a vessel between two Indian ports deemed as "international traffic" under Article 8 of India-Singapore DTAA as same was part of a larger journey between two foreign ports


Facts

• Assessee-company had acted as an agent of three vessels which had transported goods from Kandla Port to Vizag. The vessels had undertaken such freight transportation during the journey from Singapore to Dubai.
• The freight beneficiary was one M/s. Jaldhi Overseas Pte Limited, who claimed benefit under Article 8 of India-Singapore DTAA.
• The Assessing Officer (AO) contended that transportation between Kandla to Vizag cannot be considered as international traffic in terms of India-Singapore DTAA.
• The tribunal set aside the order of AO. Aggrieved by the order of tribunal, revenue filed the instant appeal before the High Court.

The High Court held in favour of assessee as under-

• The word ‘international traffic' is defined in Article 3 of DTAA between India and Singapore as under:

"the term "international traffic" means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State."

• The term 'international traffic', as noted above, is defined to mean any transport by a ship or aircraft operated by an enterprise of a contracting state. This definition, however, has an exceptional clause which excludes the transport when the ship or aircraft is operated solely between the places in the other contracting state.
• Hence, it is only when a ship or aircraft is operating 'solely' between places in other contracting state that the transport is excluded from scope of "international traffic".
• In the instant case, the transportation between two Indian ports was undertaking during a larger journey of the vessels from Singapore to Dubai. Therefore, the requirement of such journey being solely between places in the other contracting state was not satisfied.
• Thus, journey of a vessel between two Indian ports would be deemed as "international traffic" under Article 8 of India-Singapore DTAA if the same was part of a larger journey between two foreign ports.

The Income Declaration Scheme, 2016 - Reserve Bank of India(RBI) requested to issue instructions to banks to allow payment of tax under the Scheme in cash and to allow deposit of cash over the counter.

The Income Declaration Scheme, 2016 provides an opportunity to persons who have not paid full taxes in the past to come forward and declare their undisclosed income and assets. The Scheme has come into effect from 1.6.2016 and is open for declarations upto 30.9.2016.

In respect of the issue of deposit of cash declared under the Scheme, the Central Board of Direct Taxes (CBDT) vide Circular No.29 of 2016 dated 18.8.2016 clarified that Reserve Bank of India (RBI) has been requested to issue instructions to banks to allow payment of tax under the Scheme in cash and to allow deposit of cash over the counter.

The RBI has vide its circular dated 08.09.2016 instructed the banks to invariably accept cash deposits from all the declarants under the Scheme and to accept cash deposits, irrespective of amount, over the counters, for making payment under the Scheme through challan ITNS-286.

The relevant circular of RBI is available on the departmental website www.incometaxindia.gov.in

Income initially disclosed before SetCom couldn't be said to be concealed if additions were made due to TP provisions

CIT v. Income Tax Settlement Commission [2016] 65 taxmann.com 40 (Bombay High Court)

Where correct determination of income was dependent upon application of appropriate transfer pricing rule and, consequently, assessee made a revision in income initially disclosed before SetCom after considerable debate during the course of hearing, it could not be said that full and true disclosure of undisclosed income was not made in original application filed before SetCom.

Issue:

Whether income initially disclosed before SetCom could be said to be concealed if additions were made due to transfer pricing provisions?

The High Court held in favour of assessee as under-

• Normally, income offered for tax in an application made before settlement commission binds the parties concerned and any revision thereof, would prima facie, is deemed as evidence of the fact that full and true disclosure of undisclosed income was not made in original application. However, this is not cast in stone and depends upon the factual context of each case.
• In the instant case, the correct determination of income was dependent upon the application of the appropriate transfer pricing rule which to an extent is subjective and, consequently, additional income was declared by assessee after a considerable debate over the transfer pricing provisions during the course of hearing before SetCom.
• Therefore, assessee found to be made a bonafide disclosure in original application and it could not be said that income was not truly and fully disclosed by assessee

Penalty levied on company as its directors tried to evade service tax with help of internal auditors

ITL Tours & Travels (P.) Ltd. v. Commissioner of Service Tax, Mumbai [2016] 65 taxmann.com 25 (Mumbai - CESTAT) 

Where internal auditor of company perpetrated fraud by booking 'service tax due' as 'income'/'commission' in books of account and it was found that directors of company were aware thereof, company was liable to evasion penalty for consequent non-payment of service tax 

FACTS 

• Assessee was engaged in the activity of issuing Air Tickets for Domestic as well as International routes to its customers. It discharged Service Tax liability based on the basic fare charged by the Airlines.
• Department noticed that assessee had failed to discharge the Service Tax at appropriate rate and has also failed to file ST-3 returns correctly. It issued show-cause notice to assessee after invoking extended period and imposing interest and penalties.
• Assessee argued that its Consultant and internal auditor Shri P.K. Agarwal mis-guided and cheated it while discharging the Service Tax liability. Therefore, waiver of penalty was sought before CESTAT. 

CESTAT HELD IN FAVOUR OF REVENUE AS UNDER : 

• It is undisputed that the assessee has discharged the Service Tax liability and interest thereof on being pointed out. But their consultant submitted that it was duly informed to the management or the Managing Partner about the liability towards Service Tax and said amount was transferred to Commission Account because otherwise company's profit would be in minus.
• He also submitted before department that it was done with the consent of the management and I had not personally effected any changes. Therefore, as per given circumstances and facts of the case, penalty has to be levied on company.

Sale of 100% shareholding in subsidiary company could not be treated as 'Slump Sale'

Facts

• The assessee-company sold its entire shareholding in its subsidiary comapany 'UHEL' to a third party.
• Assessee worked out capital gains under section 48 on such transaction.
• The Assessing Officer(‘AO’) opined that the said transaction would amount to slump sale of an undertaking and capital gains had to be computed under section 50B.
• The Commissioner (Appeals) upheld the order of Assessing Officer.
• Aggrieved-assessee filed the instant appeal before the Tribunal.

Held

• As per section 2(42C),transfer of shares will not result into transfer of undertaking making it a slump sale for section 50B.
• If impugned transaction would be regarded as slump sale, the consideration should have been received by UHEL, and not by the assessee because it was UHEL which had been transferred and being a distinct legal entity it was entitled for the sale consideration on its transfer. However, this was not the case since the sales consideration was received by assessee on transfer of shares of UHEL.
• What the assessee had transferred was the shares in UHEL and this transfer of shares could not be considered as slump sale of an undertaking within the provisions of section 2(42C).

[2016] 65 taxmann.com 161 (Mumbai - Tribunal)