Cognizant Technology Solutions India Pvt. Ltd v. The Deputy Commissioner Of Income Tax, Larger Taxpayer Unit-1, 7Th Floor, Wanaparthy Block, Aayakar Bhawan, Nungambakkam, Chennai - 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on 05/04/2019Delivered on 25/06/2019CORAM:THE HONOURABLE MR. JUSTICE K.KALYANASUNDARAM W.P.Nos. 7354 of 2018 &W.M.P.No.9135 2018 Cognizant Technology Solutions India Pvt. Ltd.,No.165, Eternity Building,6th Floor, St. Mary's Road,Chennai - 600 018. .. PetitionerVs. The Deputy Commissioner of Income Tax,Larger Taxpayer Unit-1,7th Floor, Wanaparthy Block,Aayakar Bhawan,Nungambakkam, Chennai - 600 034. .. Respondent PRAYER: Writ Petition filed under Article 226 of theConstitution of India praying for issuance of a Writ ofCertiorari to call for records pertaining to F No.Recovery / DCIT (LTU) - 1 / 2017-18, dated 22.03.2018 on thefile of the respondent herein and quash the same. For Petitioner : Mr.Gopal Subramanium Senior Advocate For Mr.Srinath Sridevan For Respondent : Mr.G.Rajagopalan Additional Solicitor General Assisted by Mr.Karthik Ranganathan Senior Standing Counsel for Income Tax Department * * * O R D E R Assailing the order of the respondent dated 22.03.2018,whereby the petitioner was directed to remit tax at 15% of thetotal payment of Rs.19415,62,77,269/- along with interest underSection 115P of the Income Tax Act (in short "Act"), the present https://hcservices.ecourts.gov.in/hcservices/ Writ Petition has been filed. 2. According to the petitioner, it is a Company incorporatedunder the Companies Act and is engaged in the business ofdevelopment of computer software and related services andexport. In the year 2013, the petitioner bought back its ownshares under Section 77A of the Companies Act. Thereafter,during the year 2016 under the Scheme of Arrangement andCompromise, the petitioner planned to purchase its own sharesunder Sections 391 to 393 of the Companies Act for thefollowing reasons:- (i) to increase earnings per share and return onequity over a period of time and enhance long-termvalue creation; (ii) to streamline ownership structure bypurchasing its own shares from minority shareholdersholding less than 25% of the issued, subscribed andpaid up share capital; (iii) to serve the shareholders more efficientlyand optimize the overall capital structure; and 3. The petitioner filed C.P.No.102 of 2016 before this Courtfor approval of the Scheme to buy back a maximum of 94,00,534equity shares from its shareholders for a total consideration ofRs.19,080.26 Crores and the Scheme got approved by an orderdated 18.04.2016. It is a case of the petitioner that theconsideration for such buy-back was paid to the shareholders inMay 2016. The gain arising to the shareholders in the course ofbuy-back was offered to taxation as capital gain subject toapplicability of treaty relief and a total of Rs.898.01 Croreswas paid as capital gain to the respondent-Department by thepetitioner. 4. The petitioner would allege that during the year 2017,the I.T. Department attempted to tax the 2013 buy-back as anincome from other sources in the hands of the petitioner'sshareholders and the Assessing Officer overruling the findingsof the Transfer Pricing Officer, proceeded to pass a DraftAssessment Orders against its shareholders and the orders areunder challenge in W.P.Nos.1244 & 1245 of 2018. In view of thestand taken by the Department in the 2013 buy-back, thepetitioner approached the Authority for Advance Rulings andfiled an application under Section 245Q of the Act in relationto the buy-back of shares in the year 2016. 4. The petitioner would allege that during the year 2017,the I.T. Department attempted to tax the 2013 buy-back as anincome from other sources in the hands of the petitioner'sshareholders and the Assessing Officer overruling the findingsof the Transfer Pricing Officer, proceeded to pass a DraftAssessment Orders against its shareholders and the orders areunder challenge in W.P.Nos.1244 & 1245 of 2018. In view of thestand taken by the Department in the 2013 buy-back, thepetitioner approached the Authority for Advance Rulings andfiled an application under Section 245Q of the Act in relationto the buy-back of shares in the year 2016. 5. The petitioner would claim that when the applicationfiled under 245Q of the Act is pending and when there is anexpress bar contained in 245RR of the Act, the impugned ordershall not stand. Further, it came to be passed in violation ofprinciples of natural justice. According to the petitioner, theshares bought back in pursuance to the order of this Court underSections 391 and 393 of the Companies Act is covered underSection 46A of the Act and it would not come under thedefinition of dividend as per Section 2(22) of the Act. 6. In the counter filed by the respondent, it has beenstated that the petitioner remitted about Rs.19,415 Crores toits non-resident shareholders in May 2016, without payingDividend Distribution Tax (DDT) under Section 115 O of the Act.The issue of non-payment of DDT was identified and a noticedated 21.11.2017 was issued to the asssessee calling for detailsof the tax paid on those remittances. Thereafter, a serious ofmeetings were held with Tax Team of CTS between November 2017and March 2018 in the Chamber of Commissioner of Income Tax(LTU), where apart from CIT (LTU), Joint Commissioner of IncomeTax (LTU) and the Deputy Commissioner of Income Tax (LTU-I) werepresent. On two occasions Shri. R.Chandrasekharan, ExecutiveVice Chairman / MD of the Company appeared before the Departmentalong with the Competent Tax Team and they were explained aboutthe liability of its remittances to tax under Section 115O ofthe Act. On two more occasions, Shri.Gym, Head, Global Taxation(CTS) was also present along with Tax Team. They assured thatthey will look into the scheme once again and tax liability, ifany will be paid, for which, they sought time. Since no properresponse was forthcoming from the Company, the final show-causenotice dated 22.03.2018 was issued. It is stated that theDepartment has clearly explained and communicated to theassessee regarding the tax liability under Section 115 O of theAct, provided ample opportunity, and proceeded with necessaryaction, by observing requisite formalities. 7. It is further stated in the counter that a letter dated21.11.2017 was issued to the assessee calling for variousdetails regarding remittances made to the shareholders of thepetitioner Company during FY 2015-16 and 2016-17 and their taxpayment. It is a case of the respondent that by virtue of firstproviso to Section 245R (2) of the Act, the Authority forAdvance Rulings shall not take cognizance on the applicationfiled under Section 245Q of the Act as the issue raised in theapplication is already pending before the Income Tax Authorityand the application was filed only to circumvent the proceedings. 8. The respondent has further stated that the buy-back ofshare under Section 391 of the Indian Companies Act is nothingbut the distribution of accumulated profit and it has to betreated as dividend under Section 2(22)(d) of the Act andDividend Distribution Tax at 15% is required to be paid by thepetitioner under Section 115O of the Act. Though the petitionerdeposited a sum of Rs.898,01,63,318/- byway of withholding tax,it has not deposited the remaining tax to the extent of 2500Crores. 8. The respondent has further stated that the buy-back ofshare under Section 391 of the Indian Companies Act is nothingbut the distribution of accumulated profit and it has to betreated as dividend under Section 2(22)(d) of the Act andDividend Distribution Tax at 15% is required to be paid by thepetitioner under Section 115O of the Act. Though the petitionerdeposited a sum of Rs.898,01,63,318/- byway of withholding tax,it has not deposited the remaining tax to the extent of 2500Crores. 9. It is further stated that unlike the Regular AssessmentProceedings under Section 143 (3) of the Act, etc., theprovisions of Section 115 O of the Act do not prescribe anyspecific order to be passed as it is equivalent to selfdeclaration and under Section 115 O of the Act, the tax payer isrequired to remit the taxes within a period of 14 days from thedate of distribution of dividends and any failure in remittingthe taxes within the time will automatically makes the taxpayer,"assessee deemed to be in default" and the Department canproceed with all recovery measures. 10. A rejoinder affidavit has been filed by the petitionercontending that the notice dated 21.11.2017 does not refer toany provision / Section of the Act and there is no mention aboutthe Distribution Dividend Tax in the letter dated 21.11.2017.The letter was duly replied on 04.12.2017 and 06.12.2017. Inparagraph No.9, the meeting and discussions held by therespondent has not been specifically denied, however it isstated that the informal discussions cannot be a substitute to aproper show-cause notice with a chance of reply and anopportunity of hearing. 11. Mr.Gopal Subramanium, learned Senior Counsel appearingon behalf of the petitioner would urge that Chapter XII DA wasinserted by an amendment to Finance Act, 2013 with effect from01.06.2013. Prior to the insertion of the said Sections, theCompanies are entitled to the benefits under Double TaxationAvoidance Agreement in respect of buy-back of shares underSection 77A of the Companies Act. Before 2013 Amendment, thepetitioner purchased its shares under Section 77A of theCompanies Act and filed the Income Tax Returns. It is thesubmission of the learned Senior Counsel that in view of DoubleTaxation Avoidance Agreement between the Indian Government andMauritius Government, the Cognizant (Mauritius) Limited isentitled to exemption of payment of income tax and the CognizantTechnology Solutions Corporation, United States remitted the taxliability of about Rs.898 Crores and after receipt of the hugesum, the present demand cannot be made. The explanation toSection 115QA of the Act was amended with effect from01.06.2016. Post amendment, the Companies, which purchase their own share are liable to pay the additional income tax at therate of 20% on the distributed income. It is urged by thelearned Senior Counsel that prior to the amendment, thepetitioner bought back its own shares under the Scheme ofArrangement and Compromise under Sections 391 to 393 of theCompanies Act. As per Section 46A of the Act, the buy-back ofshares shall be deemed to be capital gain and the sharespurchased by the petitioner would not come under Distribution ofDividend under Section 2(22) of the Act. Hence, the demand oftax under Section 115QA of the Act retrospectively is notpermissible in law. 12. It is next contended that admittedly the petitionerfiled an application under Section 245Q of the Act before theAuthority for Advance Rulings for quantitative judicialpronouncement and during the pendency of the application, therespondent is barred from issuing the impugned notice in view ofSection 245 RR of the Act. It is further contended that theimpugned order was passed without any notice and enquiry and ingross violation of principles of natural justice. 12. It is next contended that admittedly the petitionerfiled an application under Section 245Q of the Act before theAuthority for Advance Rulings for quantitative judicialpronouncement and during the pendency of the application, therespondent is barred from issuing the impugned notice in view ofSection 245 RR of the Act. It is further contended that theimpugned order was passed without any notice and enquiry and ingross violation of principles of natural justice. 13. per contra Mr.G.Rajagopalan, learned AdditionalSolicitor General appearing on behalf of the Revenue raised apreliminary objection to the maintainability of the WritPetition contending that the petitioner is having an effectivealternative remedy; He adds that as per explanation 2(22) (d) /2(22)(a) of the Act, any reduction of share would amount todistribution of dividend and under Section 115 O of the Act, thedomestic company is liable to deduct the tax at source and remitthe amount to the Government within 14 days and that if theamount is not deposited within the stipulated time, the companyshall be deemed to be an "assessee in default". It is thesubmission of the learned Additional Solicitor General, this isa special provision, where there is no requirement to issuenotice, conducting enquiry before passing orders. 14. The learned Additional Solicitor General furthersubmitted that the Assessing Officer having entertained doubtover the remittance of huge amount of about Rs.19,415 Crores,issued a notice to the petitioner, dated 21.11.2017 calling forinformations with regard to the dates and amount of remittancemade to the non-residents during FY 2015-16 and 2016-2017 andthe nature and purpose of the said remittance. Even though noprovisions of law is mentioned, but a perusal of the noticeshows that the respondent had called for particulars from thepetitioner to ascertain the tax liability. Since the enquiry waspending, the bar referred in Section 245 RR would not apply inview of Section 245 Q of the Act. It is further submitted thateven though no enquiry is necessitated, the petitioner was put on notice and only after enquiry, the impugned order came to bepassed and hence, there is no breach of principles of naturaljustice. 15. It is further contended that when the Scheme wassanctioned by this Court, taking note of the objection raised bythe Regional Director, it has been observed in the order thatthe said order will not be construed as an order grantingexemption from payment of statutory dues. So, the order of theCompany Court would not help the petitioner. Reference is madein this regard to the decision of the Bombay High Court in thecase of Casby CFS (P.) Ltd [(2015) 56 taxmann.com 262 (Bombay)]. 16. Heard both and perused the materials placed on record. 17. In view of the above said rival contentions, thefollowing points arise for consideration:- (i) Whether Section 115 O of the Act mandates issuance ofshow-cause notice, enquiry before passing a final order? (ii) Whether there is any breach of principles of naturaljustice? (iii) Whether the Assessing Officer is prohibited fromissuing the impugned order in the light of the bar prescribed inSection 245 RR of the Act? (iv) Whether the Writ Petition is maintainable? Point No.(i) 18. This is purely a question of law and for betterappreciation, the relevant provisions are extracted hereunder:-Section 115-O - Tax on distributed profits of 16. Heard both and perused the materials placed on record. 17. In view of the above said rival contentions, thefollowing points arise for consideration:- (i) Whether Section 115 O of the Act mandates issuance ofshow-cause notice, enquiry before passing a final order? (ii) Whether there is any breach of principles of naturaljustice? (iii) Whether the Assessing Officer is prohibited fromissuing the impugned order in the light of the bar prescribed inSection 245 RR of the Act? (iv) Whether the Writ Petition is maintainable? Point No.(i) 18. This is purely a question of law and for betterappreciation, the relevant provisions are extracted hereunder:-Section 115-O - Tax on distributed profits of domestic companies."[(1) Notwithstanding anything contained in anyother provision of this Act and subject to theprovisions of this section, in addition to the income-tax chargeable in respect of the total income of adomestic company for any assessment year, any amountdeclared, distributed or paid by such company by wayof dividends (whether interim or otherwise) on orafter the 1st day of April, 2003, whether out ofcurrent or accumulated profits shall be charged toadditional income-tax (hereafter referred to as tax ondistributed profits) at the rate of [fifteen] percent.] [Provided that in respect of dividendreferred to in sub-clause (e) of clause (22) ofSection 2, this sub-section shall have effect as iffor the words "fifteen per cent", the words "thirtyper cent" had been substituted] [(1A) The amount referred to in sub-section (1) shall be reduced by,— [(i) the amount of dividend, if any,received by the domestic company during the financialyear, if such dividend is received from its subsidiaryand,— (a) where such subsidiary is a domesticcompany, the subsidiary has paid the tax which ispayable under this section on such dividend; or (b) where such subsidiary is a foreigncompany, the tax is payable by the domestic companyunder section 115BBD on such dividend: or Provided that the same amount of dividendshall not be taken into account for reduction morethan once;] (ii) the amount of dividend, if any, paid toany person for, or on behalf of, the New PensionSystem Trust referred to in clause (44) of section 10. (2) Notwithstanding that no income-tax ispayable by a domestic company on its total incomecomputed in accordance with the provisions of thisAct, the tax on distributed profits under sub-section (1) shall be payable by such company. (3) The principal officer of the domesticcompany and the company shall be liable to pay the taxon distributed profits to the credit of the CentralGovernment within fourteen days from the date of— (a) declaration of any dividend; or (b) distribution of any dividend; or (c) payment of any dividend, whichever is earliest. ......" Section 115 P - Interest payable for non-paymentof tax by domestic companies. " Where the principal officer of a domesticcompany and the company fails to pay the whole or anypart of the tax on distributed profits referred to insub-section (1) of section 115-O, within the time https://hcservices.ecourts.gov.in/hcservices/ allowed under sub-section (3) of that section, he orit shall be liable to pay simple interest at the rateof [one] per cent for every month or part thereof onthe amount of such tax for the period beginning on thedate immediately after the last date on which such taxwas payable and ending with the date on which the taxis actually paid." Section 115 Q - When company is deemed to be in default. (c) payment of any dividend, whichever is earliest. ......" Section 115 P - Interest payable for non-paymentof tax by domestic companies. " Where the principal officer of a domesticcompany and the company fails to pay the whole or anypart of the tax on distributed profits referred to insub-section (1) of section 115-O, within the time https://hcservices.ecourts.gov.in/hcservices/ allowed under sub-section (3) of that section, he orit shall be liable to pay simple interest at the rateof [one] per cent for every month or part thereof onthe amount of such tax for the period beginning on thedate immediately after the last date on which such taxwas payable and ending with the date on which the taxis actually paid." Section 115 Q - When company is deemed to be in default. " If any principal officer of a domesticcompany and the company does not pay tax ondistributed profits in accordance with the provisionsof section 115-O, then, he or it shall be deemed to bean assessee in default in respect of the amount of taxpayable by him or it and all the provisions of thisAct for the collection and recovery of income-taxshall apply." Section 115QA - Tax on distributed income to shareholders:- "(1) Notwithstanding anything contained inany other provision of this Act, in addition to theincome-tax chargeable in respect of the total incomeof a domestic company for any assessment year, anyamount of distributed income by the company on buy-back of shares (not being shares listed on arecognised stock exchange) from a shareholder shall becharged to tax and such company shall be liable to payadditional income-tax at the rate of twenty per centon the distributed income. ...... " 19. From a plain reading of the above provisions, it is seenthat Section 115 O is a charging section on its own. TheseSections are self contained codes in themselves and they do notdemand for issuing any show-cause notice and then passing anyorder. Chapter XIV of the Act prescribes procedure forassessment. Section 139 deals with filing of returns of income.Section 142 describes procedure for conducting enquiry beforeassessment and under Section 143, the Assessment Order can bepassed, based on the Returns filed under Section 139, or inresponse to a notice under Section 142 (1) of the Act. Section148 deals with issue of notice where income has escaped assessment and a notice of demand issued under Section 156. 20. The only difference between the regular assessment andSpecial Provisions is that under the regular assessment, theAuthorities are required to verify the Returns submitted by theassessee and the materials to ascertain the income escaped fromassessment. However, under the Special Provisions, there is nodispute with regard to quantum of distribution of profit made bythe Company. Hence, in my opinion there is no need for issuanceof notice before making a demand under Section 115 O of the Act.It is to be noted that unless the law requires, the AssessingOfficer need not issue notice before making a demand underSection 115 O of the Act. The parliament in its wisdom broughtamendments to the Finance Act and inserted Section 115 O to 115Q with effect from 01.06.1997 (Special Provisions) to achieve anobject. If any other view is taken, then the Special Provisionsunder Chapter XIV would become redundant and it would beopening a pandoras box. 21. Regarding point No.(ii), this Court while answeringfirst point held that the law does not require issuance ofnotice to make a demand under Section 115 O of the Act. Despitethe same, admittedly, a notice dated 21.11.2017 was issued tothe petitioner calling for details and meetings were convened,in which, indisputably, the officials of the petitioner Companyparticipated and a detailed note explaining the variousprovisions of the Act have been given to them. It is pertinentto note that the object and purpose of issuing show cause noticeis to put on notice to the proposed action to be initiated bythe Officials and nothing else. But, a curious stand is taken bythe petitioner that the letter dated 21.11.2017 cannot beconstrued as a show-cause notice and the informal discussioncannot be substituted for a proper show-cause notice with achance of reply and an opportunity of hearing, hence, I find nosubstance in the said submission. Point No.(iii) 22. It is not disputed that the respondent by the letterdated 21.11.2017 sought for furnishing informations with regardto remittance made to the shareholders of the petitioner-Companyduring the financial year 2015-16 and 2016-2017. It is anadmitted fact that no provision of law has been quoted in theletter particularly Section 2(22) of the Act, but a cursoryperusal of the letter would show that the respondent had soughtfor payment details to ascertain the tax liability of thepetitioner. 23. It is equally not disputed that the petitionerapproached the Authority for Advance Rulings only on 20.03.2018, https://hcservices.ecourts.gov.in/hcservices/ when the issue was pending before the Assessing Officer. It canbe reasonably presumed that the multinational company like thepetitioner is not expected to plead ignorance in regard to thepurpose of the notice dated 21.11.2017. Otherwise, there was nonecessity for the top officials of the petitioner to attend themeetings conducted by the respondent. Section 245R of the Actmakes it clear that if the enquiry is already pending before theAssessing Officer, the Authority for Advance Rulings has nojurisdiction to entertain the application. Hence, I find noforce in the argument of the learned Senior Counsel for thepetitioner that the impugned order does not stand in view of thebar under Section 245 RR of the Act. Point No.(iv)24. The impugned order is questioned in this Writ Petitionon the ground that gain on buy-back of shares cannot becategorized as a dividend and it is a capital gain as perSection 46 A of the Act. It is a case of the respondent thatthere was no dispute and necessity to file the petition underSections 391 to 393 of the Companies Act and it was filed onlyto avoid payment of Dividend Distribution Tax. It is relevant tonote that in the Company Petition in C.P.No.102 of 2016, inClauses 6.6 and 6.7, it is stated that the provisions of Section2(22) or Section 115 O or Section 115QA of the Act are notapplicable to the purchase of Equity Shares by the Company fromits shareholders and the Scheme of Arrangement and Compromiseshall not be treated or considered as a "capital reduction"under the provisions of Section 100 of the Companies Act, or a"buy-back" under the provisions of Section 68 of the CompaniesAct. However, while approving the Scheme, as observed above, theCompany Court has categorically held that "this order will no beconstrued as an order granting exemption from payment of stampduty or, taxes or, any other charges, if any, payable, as perthe relevant provisions of law". 25. Whenever a Company distributes its profits to itsshareholders, the profit so disbursed, will amount to dividend.Clause (d) to Section 2 (22) of the Act, demonstrates that ifany distribution to his shareholders by a Company on thereduction of his capital, would be a dividend. Clause (a) and(d) to Section 2(22) of the Act is extracted below for readyreference:- " 2 (22) dividend" includes-(a) any distribution by a company ofaccumulated profits, whether capitalised or not, ifsuch distribution entails the release by the companyto its shareholders of all or any part of the assetsof the company;(d) any distribution to its shareholders by https://hcservices.ecourts.gov.in/hcservices/ a company on the reduction of its capital, to theextent to which the company possesses accumulatedprofits which arose after the end of the previous yearending next before the 1st day of April, 1933 ,whether such accumulated profits have been capitalisedor not;" 26. In Casby CFS (P.) Ltd (supra) the company soughtsanction of the proposed Scheme of amalgamation. A notice wasissued to the Regional Director under Section 394 and heobjected approval of the Scheme contending that the Scheme wouldcircumvent the provisions of Income Tax Act. The High Court ofBombay held that the Regional Director is entitled to objectapproval of the Scheme and it was his duty to do so. Afterconsidering the objections, the Scheme was approved. Relevantparas have been extracted hereunder:- "7. As more particularly set out hereinafter,since it was argued on behalf of the Regional Directorthat the idea of the petitioners behind propoundingthe above scheme is inter alia to obtain sanction ofthis Court to the Scheme with the appointed date of1st April, 2008, and thereafter to file revised IncomeTax Returns in violation of Section 139(5) of theIncome Tax Act and the whole purpose of fixing aretrospective appointed date is to defeat the incometax demands and assessment proceedings either inprogress or completed and the retrospective appointeddate is nothing but a device to defeat the provisionsof the Income Tax Act, particularly Section 139 (5),and the scheme therefore needs to be rejected, thisCourt directed the Regional Director to contact theIncome Tax Department and to seek their views on theobjections of the Regional Director. The Income TaxDepartment by its letters dated 03.12.2014 addressedto the Regional Director informed the RegionalDirector that they were supporting the views / standtaken by the Regional Director. The said lettersreceived from the Income Tax Department were placedbefore this Court by the Regional Director along withanother further affidavit dated 04.12.2014 ("thirdaffidavit"). This affidavit was filed after thehearing had commenced. The petitioners did not file anaffidavit in reply to the third affidavit." "57. In the circumstances, I pass the following order;- " 27. In SEBI vs. Sterlite Industries (India) Ltd., [(2003) 45SCl 475 (Bombay), the Division Bench of Bombay High Court had anoccasion to consider the object and purpose to introduce Section77A of the Companies Act through an amendment in the year 1999and the power of the Company Court to sanction a Scheme underSection 391 of the Companies Act. It has been categorically heldthat reduction in the capital can be effected under Sections 77r/w Sections 100 to 104 and 391 of the Companies Act, even incase of buy-back of shares, which would run thus:- "16. Before we take up this question we wouldbriefly refer to the relevant provisions of theCompanies Act Section 77 puts restriction on purchaseof its own shares by a company. The section reads asfollows :- 'Restrictions on purchase by company, orloans by company for purchase, of its own orits holding company's shares. "16. Before we take up this question we wouldbriefly refer to the relevant provisions of theCompanies Act Section 77 puts restriction on purchaseof its own shares by a company. The section reads asfollows :- 'Restrictions on purchase by company, orloans by company for purchase, of its own orits holding company's shares. (1) No Company limited by shares, and nocompany limited by guarantee and having ashare capital, shall have power to buy its ownshares, unless the consequent reduction ofcapital is effected and sanctioned inpursuance of Section 110 to 104 or Section402. ..... 5) Nothing in this section shall affectthe right of a company to redeem any sharesissued under Section 80 or under anycorresponding provision in any previouscompanies law." 17. The reason for the restriction on purchase ofits own shares by a company is that such purchaseeither amounts to "trafficking" in its own shares,thereby enabling the company, in an unhealthy mannerto influence the price of its own shares on the marketor it operates as a reduction of capital which canonly be effected with the sanction of the Court, andin the manner laid down by sections 100 to 104 Priorto introduction of Section 77A the only exceptions tothe general principle that the company cannot buy itsown shares were (i) purchase resulting in reduction ofcapital with the sanction of the court under Sections100-104: (ii) redemption of redeemable preferenceshares under Section 80 : (iii) purchase under anorder of court in a scheme of arrangement oramalgamation under Sections 391-394, subject tocompliance with Sections 100-104 and (iv) purchaseunder an order of Company Law Board to purchase sharesof minority shareholders under Section 402(b) (SeeCompanies Act by A Ramaiya (15th Edn) at page 962-963). 18. Thus the company could purchase its sharesprior to introduction of Section 77A provided thescheme or arrangement therefore had been sanctionedunder Sections 100 to 104. Section 100 does notprescribe the manner in which the reduction of capitalis to be effected. Nor is there any limitation or the power of court to confirm the reduction except that itmust be first satisfied that all the creditorsentitled to object to the reduction have consented orhave been paid or secured. Reference in that behalfmay be made to Punjab Distilling Industries Ltd. v.Commissioner of Income Tax, Punjab, (1965) Com Cas 641Hindustan Commercial Bank Limited v. Hindustan GeneralElectrical Corporation (1960) 30 Comp Cas 367 . ...... 24. It is not disputed before us that reduction inthe capital can be effected under Sections 77 readwith Sections 100-104 and 391 even in the case of buy-back of shares. However, it is contended that theoptional sale by the Shareholders would not amount toarrangement or reorganisation of the capital and wouldnot therefore cover Section 391 read with Section 100of the Companies Act We are unable to accede to thiscontention as even in cases where capital is reducedby optional sale reduction results after the option isexercised to the extent of the shares cancelled. Thisis as equally a reduction of capital as in the case ofcompulsory cancellation of shares. We do not see anydistinction between the two on the aspect of thereduction. The word arrangement is of wide import andis not restricted to a compulsory purchase oracquisition of shares There is no reason as to why acancellation of shares and the consequent reduction ofcapital cannot be covered by Section 391 read withsection 100 merely because a shareholder is given anoption to cancel or to retain his shares. In view ofthe foregoing discussions, the objection of theappellants based on Section 77A must be rejected." 28. In the light of the decisions referred supra and theorder passed by this Court in C.P.No.102 of 2016, and also thereasons stated for purchasing the shares under the Scheme ofArrangement under Sections 391 to 393 of the Companies Act,prima-facie I find no merit in the contention of the learnedSenior Counsel for the petitioner that the shares purchasedpursuant to the order of the Company Court would be a capitalgain and not to be treated as dividend. 29. Placing the reliance on the following decisions asextracted hereunder, it is argued by the learned AdditionalSolicitor General that any assessee, who denies his liability,is entitled to file an appeal under Section 246 of the Act:- (i) Central Provinces Manganese Ore Co. Ltd.Vs. Commissioner of Income Tax [(1986) 27 Taxman 275 https://hcservices.ecourts.gov.in/hcservices/ (SC)] " 8. Now the question is whether orders levyinginterest under Sub-section (8) of Section 139 andunder Section 215 are appealable under Section 246 ofthe Income-tax Act. Clause (c) of Section 246 providesan appeal against an order where the assessee denieshis liability to be assessed under the Act or againstany assessment order under Sub-section (3) of Section143 or Section 144, where the assessee objects to theamount of income assessed or to the amount of taxdetermined or to the amount of loss computed or to thestatus under which he is assessed. Inasmuch as thelevy of interest is a part of the process ofassessment, it is open to an assessee to dispute thelevy in appeal provided he limits himself to theground that he is not liable to the levy at all. Inthis connection we may usefully refer to the decisionof the Karnataka High Court where in a judgment inNational Products v. Commissioner of Income-tax,Mysore [1977]108ITR935(KAR) . Govind Bhat, C.J.,explained the position in regard to the levy ofinterest under Section 139 and under Section 215.After referring to the earlier gases on the point heobserved:- "All decided cases except one haveuniformly taken the view that levy of interestunder Section 18A(6) or Section 18A(8) of the1922 Act or levy of interest under Section 215of the Act is not appealable but in the appealagainst a regular assessment, it is open tothe assessee to take every contention which,if accepted, must result in the Income-taxOfficer holding that there was no liability topay advance tax and, therefore, there was noliability to pay penal interest. In otherwords, it is open to an assessee to contend inthe appeal against an order of assessment thathe is not liable to pay any advance tax at allor the amount of advance tax determined aspayable by the Income-tax Officer is notcorrect; but if the assessee does not disputethe amount of advance tax determined aspayable by the Income-tax Officer, he merelycannot object to the levy of penal interest orquestion its quantum. The levy of penal interest under Section139 or Section 215 is made in the regularassessment order; the demand issued pursuant The levy of penal interest under Section139 or Section 215 is made in the regularassessment order; the demand issued pursuant to the assessment order is for the totalamount of liability imposed inclusive of taxand interest. While levy of penal interestunder Section 18A of the 1922 Act up to 1stApril 1952, was automatic as was noticed byChagla, C.J. in Ramnath's case : [1955]27ITR192(Bom) , under the Act such levy is notautomatic; discretion is vested in the Income-tax Officer to waive or reduce penal interestin the cases and circumstances mentioned inRule 117A and Rule 40 of the Income-tax Rules,1962. If the case of the assessee falls withinthe scope of the said Rules, the Income-taxOfficer is bound in law to consider whetherthe assessee was entitled to waiver orreduction of interest. It is, therefore, clearthat levy of penal interest under Sections 139and 215 is part of assessment. When such penalinterest is levied the assessee is "assessed",meaning thereby, he is subjected to theprocedure for ascertaining and imposingliability on him. If the assessee denies hisliability to be assessed under the Act, he hasa right of appeal to the Appellate AssistantCommissioner against the order of assessment.Where penal interest is levied under Section215 by the order or assessment, the assesseemay altogether deny his liability to pay suchinterest on the ground that he was not liableto pay advance tax at all or that the amountof advance tax determined by the Income-taxOfficer as payable ought to be reduced. Ineither case he denies his liability, wholly orpartially, to be assessed. Similarly, whereinterest is levied under Section 139 of theAct, the assessee may deny his liability topay such interest on the ground that thereturn was not belated or that the penalprovision was not attracted at all to hiscase. In such a case also he denies hisliability to be assessed to interest." 9. The decision was noted with approval by theGujarat High Court in Bhikhoobhai N. Shah v.Commissioner of Income-tax, Gujarat-V [1978]114ITR197(Guj) . The only dissent expressed in the matter bythe Gujarat High Court arose on the question whetherthe assessee could challenge in appeal his partialliability to be assessed to interest. In this area ofdissent we need not enter. But we have no hesitation in endorsing the legal position which has commonlyfound favour with the two High Courts. We hold thatthe question whether a case is made out for waiver orreduction of the interest levied under Sub-section (8)of Section 139 or under Section 215 cannot be thesubject of an appeal under Clause (c) of Section 246of the Income-tax Act. ......... " (ii) Commissioner of Income Tax Vs. Angadi Bros. [(1985) 22Taxman 578 (Karnataka) " 24. Section 30 of the Indian Income Tax Act,1922, contained a similar expression such as "denyinghis liability to be assessed under the Act" and thesection also provided that such an assessee may appealto the Appellate Assistant Commissioner against theorder of assessment. The Supreme Court, whileexamining the scope of the expression "denial ofliability", observed (at p. 229) : (ii) Commissioner of Income Tax Vs. Angadi Bros. [(1985) 22Taxman 578 (Karnataka) " 24. Section 30 of the Indian Income Tax Act,1922, contained a similar expression such as "denyinghis liability to be assessed under the Act" and thesection also provided that such an assessee may appealto the Appellate Assistant Commissioner against theorder of assessment. The Supreme Court, whileexamining the scope of the expression "denial ofliability", observed (at p. 229) : "Under section 30, an assessee objectingto the amount of income assessed under section23 or the amount of tax determined under thesaid section or denying his liability to beassessed under the Act can prefer an appealagainst the order of the Income Tax Officer tothe Appellate Assistant Commissioner. It issaid that an order made by the Income TaxOfficer rejecting the plea of an associationof persons that the members thereof shall beassessed individually does not fall under oneor other of the three heads mentioned above.What is the substance of the objection of theassessee ? The assessee denies his liabilityto be assessed under the Act in thecircumstances of the case and pleads that themembers of the association shall be assessedonly individually. The expression 'denial ofliability' is comprehensive enough to take innot only the total denial of liability butalso the liability to tax under particularcircumstances. In either case, the denial is adenial of liability to be assessed under theprovision of the Act. In one case, theassessee says that he is not liable to beassessed to tax under the Act and in the othercase, the assessee denies his liability to taxunder provisions of the Act if the optiongiven to the appropriate officer under the provisions of the Act is judicially exercised.We, therefore, hold that such an assessee hasa right of appeal under section 30 of the Actagainst the order of the Income Tax Officerassessing the association of members insteadof the members there of individually." 25. It will be seen from the above observationthat the expression "denial of liability" iscomprehensive enough to take in not only the totaldenial of liability but also the liability to taxunder particular circumstances. In either case, thedenial is a denial of liability to be assessed underthe provisions of the Act. On this view, the SupremeCourt that the order of the Income Tax Officerassessing the association of members instead of themembers thereof individually was appealable undersection 30 of the Indian Income Tax Act, 1922. 26. The assessee in this case denies its liabilityto be assessed as an unregistered firm and pleads thatit should be assessed only as a registered firm. Theexpression "denial of liability", as per the saiddecision of the Supreme Court, is comprehensive enoughto take in not only the total denial of liability tobe assessed under the Act but also the liability totax under particular circumstances. The total denialof liability to be assessed appears to mean that wherethe assessee contends that it is not at all liable tobe assessed under the Act which in other words meansthat the assessee wants to get out of the clutches ofthe entire Act. Whereas, the denial of liability totax under particular circumstances may stances maymean, if we may say so, the assessee denies itsliability to tax not wholly, but partially. We,therefore, hold that having regard to the contentionof the assessee in this case, the assessee must beheld to have a right to appeal against the order ofthe Income Tax Officer." (iii) Commissioner of Income Tax Vs. Daimler Benz, A.G.[(1977) 108 ITR 961 (Bom.) (FB) 26. Having regard to the aforesaid discussion ofthe decided cases it appears to us clear that thecorrect position would be that the assessee will haveno right of appeal to the Appellate Assistant https://hcservices.ecourts.gov.in/hcservices/ (iii) Commissioner of Income Tax Vs. Daimler Benz, A.G.[(1977) 108 ITR 961 (Bom.) (FB) 26. Having regard to the aforesaid discussion ofthe decided cases it appears to us clear that thecorrect position would be that the assessee will haveno right of appeal to the Appellate Assistant https://hcservices.ecourts.gov.in/hcservices/ Commissioner merely against the quantum of penalinterest charged, that is to say, merely for thepurpose of raising a contention that interest chargedis excessive or should be reduced or should have beenwaived altogether but an appeal would lie to theAppellate Assistant Commissioner if he were to denyaltogether his liability to pay such interest on theground that he is not liable to pay advance tax at allor that the amount of advance tax determined aspayable by the Income Tax Officer is not correct. Inthe instant case before us there is no doubt that theassessee had preferred an appeal to the AppellateAssistant Commissioner in which the principal groundof attack against the charge of penal interest leviedagainst it was that the assessee-company being a non-resident company was not liable to be assessed toadvance tax at all inasmuch as its income was underone or the other head falling under section 18 of theAct and was outside the purview of section 18A of theAct. In other words, it was a clear ca