Buy-back of shares under scheme of arrangement can't be said to be a colourable device to evade tax: HC

In law, petitioner is entitled to buy back its own shares by means of a scheme under section 391 read with sections 100 – 104 of the Companies Act, 1956 [corresponding to Sections 230 to 232 of Companies Act, 2013], scheme cannot be said to be a colourable device to evade income tax, it is a legally permissible procedure which petitioner is entitled to follow to buy back its shares

Facts:

a) The Petitioner filed plea seeking sanction of the Scheme of Arrangement with its Equity Shareholders in accordance with the provisions of Section 391 read with Sections 100 to 103 of the Companies Act,1956 [corresponding to Sections 230 to 232 of Companies Act, 2013]. 

b) As per the Scheme, the Petitioner-Company proposed to buy-back Equity Shares of the Company representing 30% of the issued, subscribed and paid up share capital. There was no compulsory purchase. An option, was given to the equity shareholders under the Scheme

c) Regional Director's objected to the saying that scheme was a colorable device intended to evade buy-back distribution tax (BBT) liability under the Income Tax Act, 

d) According to the Regional Director, if a buyback of shares is effected under Section 77A/Section 68, then the distributed income of the company as defined in Section 115QA of the Income Tax Act would be charged to tax, and it is for this reason that the company is not following the procedure prescribed under Section 77A/Section 68 and has opted for the procedure under Section 391 which would not attract such a tax under Section 115QA of the Income Tax Act.

ITAT sounds note of caution for frivolous appeal by revenue; it damages public faith

Filing of appeal with complete knowledge of its fate by the Revenue only reflects the mischievous adamancy to attempt to mislead the Tribunal and waste the time of the Court and the officers concerned.

Facts:

1)    CIT(A) on its first remand order dated 06.06.2012 had accepted the application filed by assessee seeking permission to file additional evidence which was objected to by Assessing Officer (AO).

2)    On 22.06.2012 CIT(A) issued second remand report directing AO to verify the claim of assessee as same was unverified.

3)    In the second remand report, AO admitted the assessee’s claim and based on such remand report CIT(A) deleted the addition made under Section 68.

4)    Still, revenue filed appeal before tribunal referring to the fact that the relief was granted by CIT(A) on the basis of first remand report dated 06.06.2012 thereby consciously ignoring making reference to the second remand report dated 22.06.2012 before the tribunal.

Tribunal held in favour of assessee as under:

a)    Filing of an appeal by an Assessing Officer ('AO') is a right which is vested in him by the statue. However, same should be exercised by applying proper due diligence in order to avoid any inappropriate litigations.

b)    Since the claim had been given up in the second remand report by the AO himself in second remand report, he could not claim to be aggrieved by the findings arrived at relying upon his own remand report. The CIT(A) accepted the assessee's claim based on the strength of the second remand report. Reference to this material document, i.e., second remand report in the grounds raised by revenue was curiously missing. This omission appeared to be deliberate and led us to conclude that the revenue had consciously indulged in meritless litigation.

c)    Once the AO in second remand report had already communicated that the enquiries made after issuing notices under Section 133(6) to the parties/persons who had confirmed the assessee's version and the AO concluded that the loans taken stood verified. No further legitimate grievance could be said to have remained for examination by the AO.

d)    This deliberate, mischievous and selective reference to facts by such responsible persons grievously damages the public faith and belief in the honest fair play of the tax administration.

e)    Filing of appeal with complete knowledge of its fate by the Revenue only reflects on revenue’s attempt to mislead the Tribunal and waste the time of the Court and the officers concerned.

f)    Departmental officers had willfully and deliberately failed to exercise their powers using their minds as was required of them as per law and has abused government machinery to initiate a litigation which entailed financial costs and tarnished the image of the Department and also strained the government resources. - ACIT v. R.P.G. Credit & Capital Ltd. [2015] 60 taxmann.com 160 (Delhi - Trib.)

No denial of reassessment due to time constraint if it was made in consequence of finding/direction of ITAT

Where ITAT by its order excluded some income from the total taxable income of assessee for a particular assessment year, an assessment of such income in another assessment year could be made without any time-limit.

Facts:

a)The Tribunal had deleted addition made under section 68 of the Income-tax Act, 1961 (herein after referred to as ‘Act’) by the Assessing Officer (AO) on the grounds that relevant credit entries were relating to the earlier year.

b)AO initiated re-assessment proceedings for the said earlier year after a lapse of 7 years by issue of notice under section 148 and passed an order making addition.

c)The CIT(A) held that the notice under section 148 for the relevant assessment year was belatedly issued after a lapse of 7 years and, therefore, was beyond the time-limit prescribed under section 149.

d)On appeal, the Tribunal held that AO lacked jurisdiction to re-open assessment.

e)Aggrieved by the order of Tribunal, Revenue filed the instant appeal before the High Court.

The High Court held in favour of revenue as under:

1)Section 150 of the Act which reads as under, clearly states that:

“Notwithstanding anything contained in section 149, the notice under section 148 may be issued at any time for the purpose of making an assessment or reassessment or re-computation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision or by a Court in any proceeding under any other law”.

2)Similarly, as per section 153(3)(ii) of the Act, there is no time-limit for completion of assessments, reassessments and re-computations if such assessment, reassessment or re-computation is made in consequence of or to give effect to any finding or direction contained in an order under sections 250, 254, 260, 262, 263, or 264 or in an order of any Court in a proceeding otherwise than by way of appeal or reference under this Act.

3)Further, Explanation 2 to Section 153 of the Act makes it clear that even where any income is excluded from the total income of the assessee from a particular assessment year, then an assessment of such income for another assessment year shall, for the purpose of Section 150 as also of Section 153, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order.

4)From combined reading of the above provisions, it is abundantly clear that where ITAT by its order excluded any income from the total income of the assessee from a particular assessment year, then an assessment of such income for another assessment year could be made without any time-limit.

5)Hence, it was noticeable that the appellate authorities did not refer to section 150 and Explanation 2 to section 153 and therefore, they erred in setting aside the order passed by AO- CIT V. PP ENGINEERING WORK[2014] 49 taxmann.com 321 (Delhi)