Genpact India Private Limited v. Deputy Commissioner Of Income Tax & Anr

[2019] 17 S.C.R. 139 GENPACT INDIA PRIVATE LIMITED DEPUTY COMMISSIONER OF INCOME TAX & ANR. (Civil Appeal No. 8945 of 2019) NOVEMBER 22, 2019 [UDAY UMESH LALIT AND INDIRA BANERJEE, JJ.] Income Tax Act, 1961: ss. 246(1)(a) and 246A(1)(a) – Scope of – Held: Scope ofthe provisions cannot be confined to the issues arising out of ortouching upon assessment proceedings u/ss. 143 of 144 of IncomeTax Act – Determination u/s. 115QA of the Act would also getcovered under s. 246(1)(a). s. 115QA – Assessment order – Liability u/s. 115QA – Deniedby assessee – Writ petition challenging assessment order – Petitiondisposed of by High Court on the ground that the same could notbe entertained due to availability of alternate remedy u/s. 246-Aof the Act – Appeal to Supreme Court – Held: An appeal ismaintainable against determination of liability u/s. 115QA – Hencepetition u/Art. 226 of the Constitution was rightly not entertained. Practice and Procedure : Petition u/Art. 226 of the Constitution – Preliminary objectionas to its maintainability – Notice issued without rejectingpreliminary objection which was later made absolute – Aftercompletion of pleadings, petition disposed of as not entertainableon the ground of availability of alternative remedy – Plea thatpreliminary issues are decided at the threshold and once that stageis crossed, High Court could not have considered the preliminaryissue – Held: In the present case preliminary issue was not dealtwith and disposed of and the same was still at large – Therefore,there is no infirmity in the approach adopted by the High Court indeciding the preliminary issue. Dismissing the appeal, the Court HELD:1.1 The kinds of orders or situations that arereferred to in Section 246(1) (a) of the Income Tax Act, 1961 139 Aare:- (i) An order against the assessee, where the assesseedenies his liability to be assessed under this Act, or (ii) Anintimation under sub-section (1) or sub-section (1B) of Section143 where the assessee objects to the making of adjustments,or (iii) Any order of assessment under sub-section (3) of Section143 or Section 144, where the assessee objects:- to the amountBof income assessed, or to the amount of tax determined, or tothe amount of loss computed, or to the status under which he isassessed. The contingencies detailed in (ii) and (iii) hereinabovearise out of assessment proceedings under Section 143 orSection 144 of the Act but the first contingency is a standaloneCpostulate and is not dependant purely on the assessmentproceedings either under Section 143 or Section 144 of the Act.The expression “denies his liability to be assessed” is quitecomprehensive to take within its fold every case where theassessee denies his liability to be assessed under the Act. [Para11] [157-H; 158-A-D]D Commissioner of Income Tax, U.P., Lucknow v. Kanpur Coal Syndicate AIR (1965) SC 325 : [1964] SCR 85– relied on. 1.2 Section 115QA of the Act stipulates that in case of buyEback of shares referred to in the provisions of said Section, thecompany shall be liable to pay additional income tax at the rateof 20% on the distributed income. Any determination in thatbehalf, be it regarding quantification of the liability or the questionwhether such company is liable or not would be matters comingFwithin the ambit of the first postulate referred to hereinabove.Similar is the situation with respect to provisions of Section246A(1)(a) where again out of certain situations contemplated,one of them is “an order against the assessee, where theassessee denies his liability to be assessed under this Act”. Thecomputation and extent of liability is determined under theGprovisions of Section 115QA of the Act. Such determinationunder the Act would squarely get covered under said expression.There is no reason why the scope of the such expression berestricted and confined to issues arising out of or touching uponassessment proceedings either under Section 143 or Section 144Hof the Act. [Para 12] [158-E-G] 139 ए. 141 141 143 1.3 If the expression in Section 246(1)(a) or in Section246A(1)(a) is considered as relatable to the liability of anassessee to be assessed under Section 143(3) there would beno appellate remedy in case of any determination under Section115QA. The issues may arise not just confined to the questionwhether the company is liable at all but may also relate to otherfacets including the extent of liability and also with regard tocomputation. If the dispute is taken up in proceedings such asa petition under Article 226 of the Constitution, which normallywould not be entertained in case of any disputed questions offact or concerning factual aspects of the matter. The assesseemay thus, not only lose a remedy of having the matter consideredon factual facets of the matter but would also stand deprived ofregular channels of challenges available to it under the hierarchyof fora available under the Act. Therefore, an appeal would bemaintainable against the determination of liability under Section115QA of the Act. [Paras 13 and 14] [158-H; 159-A-D] 2. There is no infirmity in the approach adopted by theHigh Court in refusing to entertain the Writ Petition. Thesubmission that once the threshold was crossed despite thepreliminary objection being raised, the High Court ought not tohave considered the issue regarding alternate remedy, may notbe correct. The first order dated 25.01.2017 passed by the HighCourt did record the preliminary objection but was prima facieof the view that the transactions defined in Section 115QA wereinitially confined only to those covered by Section 77A of theCompanies Act. Therefore, without rejecting the preliminaryobjection, notice was issued in the matter. The subsequent orderundoubtedly made the earlier interim order absolute. However,the preliminary objection having not been dealt with anddisposed of, the matter was still at large. [Para 16] [161-G; 162-A-B] Commissioner of Income Tax and others v. ChhabilDass Agarwal (2014) 1 SCC 603 ; Authorised Officer,State Bank of Travancore & Anr. v. Mathew K.C.(2018) 3 SCC 85 : [2018] 1 SCR 233 ; State of U.P.v. U.P. Rajya Khanij Vikas Nigam Sangharsh Samitiand Others (2008) 12 SCC 675 : [2008] 7 SCR 536– relied on. Case Law Reference CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8945of 2019. From the Judgment and Order dated 19.08.2019 of the HighCourt of Delhi at New Delhi in Writ Petition (Civil) No. 686 of 2017. Mukul Rohatgi, S. Ganesh, Sr. Advs., Mahesh Agarwal, RishiAgrawala, Ankur Saigal, Karan Luthra, Ms. Niyati Kohli, E. C.Agrawala, Shaishin S. Divatia, Zoheb Hossain, Rajat Nair, Mrs. AnilKatiyar, Advs. for the appearing parties. DThe Judgment of the Court was delivered by UDAY UMESH LALIT, J. 1. Leave granted. 2. This appeal arises out of the final judgment and order datedE19.08.2019 passed by the High Court of Delhi at New Delhi in WritPetition No.686 of 2017. 3. The facts leading to the filing of the present appeal, in brief,are as under: (a) Out of opening share capital of 25,68,700 shares heldFby its sole shareholder and holding company GenpactIndia Investment, Mauritius, the appellant bought back2,50,000 shares in May 2013 at the rate of Rs.32,000/-per share for a total consideration of Rs.800 crores. (b) On 10.05.2013, Chapter XIIDA consisting of Sections115QA, 115QB and 115QC was inserted in the IncomeTax Act, 1961 (hereinafter referred to as ‘the Act’) bythe Finance Act, 2013 which came into effect from01.06.2013. Section 115QA as it stood prior to theamendment which came into effect on 01.06.2016 wasto the following effect: “Section 115QA: Tax on distributed income to shareholders 144 145 146 (1) Notwithstanding anything contained in any otherprovision of this Act, in addition to the income-taxchargeable in respect of the total income of a domesticcompany for any assessment year, any amount ofdistributed income by the company on buy-back of shares(not being shares listed on a recognised stock exchange)from a shareholder shall be charged to tax and suchcompany shall be liable to pay additional income-tax atthe rate of twenty per cent on the distributed income. Explanation.—For the purposes of this section,— (i) “buy-back” means purchase by a company of itsown shares in accordance with the provisions ofsection 77A of the Companies Act, 1956 (1 of 1956); (ii) “distributed income” means the consideration paidby the company on buy-back of shares as reducedby the amount which was received by the companyfor issue of such shares. (2) Notwithstanding that no income-tax is payable by adomestic company on its total income computed inaccordance with the provisions of this Act, the tax onthe distributed income under sub-section (1) shall bepayable by such company. (3) The principal officer of the domestic company and thecompany shall be liable to pay the tax to the credit ofthe Central Government within fourteen days from thedate of payment of any consideration to the shareholderon buy-back of shares referred to in sub-section (1). (4) The tax on the distributed income by the company shallbe treated as the final payment of tax in respect of thesaid income and no further credit therefor shall beclaimed by the company or by any other person inrespect of the amount of tax so paid. (5) No deduction under any other provision of this Act shallbe allowed to the company or a shareholder in respect of the income which has been charged to tax under sub-section (1) or the tax thereon.” The Explanation in relation to “buy back” was, however, amendedand with effect from 01.06.2016, it reads as:- “(i) “buy-back” means purchase by a company of its own sharesin accordance with the provisions of any law for the time beingin force relating to companies;” (c) On 10.09.2013, a scheme for arrangement wasapproved by the High Court of Delhi in Company PetitionNo.349 of 2013. Pursuant thereto, the appellant boughtback another tranche of 7,50,000 shares at the rate ofRs.35,000 per share for a total consideration of Rs.2,625crores from said Genpact India Investment, Mauritius. (d) In the income tax return filed on 28.11.2014 by theappellant for the assessment year 2014-15, “Details oftax on distributed profits of domestic companies and itspayment” were given in “Schedule DDT” where thedetails of aforesaid transactions were given but theliability to pay any tax was denied. A notice underSection 143(2) of the Act was issued to the appellanton 03.09.2015 seeking further explanation, pursuant towhich requisite details were furnished. (e) The matter was thereafter considered and an assessmentorder was passed by the first respondent on 31.12.2016.As many as 10 additions were made by the firstrespondent, one of them being in respect of liability underSection 115QA of the Act. Since we are concerned inthis appeal only with the issue with regard to liabilityunder Section 115QA, we need not deal with otherissues. (f) As regards the issue in question, the submissionsadvanced on behalf of the appellant-assessee were notedas under: “Vide Letter dated 28.12.2016, the assessee hassubmitted that the buy back of shares has been done in 146 148 pursuance of scheme of arrangement under Section 391of the Companies Act, 1956 approved by Hon’ble HighCourt of Delhi and in such manner that the same is nota buy back in terms of the Section 115QA of the Act.” g) The matter was dealt with by the first respondent asunder: “The submission of the assessee was considered butwas not found acceptable as it has no substance.Before discussing the facts of the case and argumentin support of the revenue it is also important tounderstand the background of the Section 115QA.Section 115QA was inserted by Finance Act, 2013 tocounter the tax avoidance practice mainly adopted byIndian subsidiaries to distribute income to shareholdersto Mauritius based Holding company under the garb ofBuyback of shares. Under Income Tax Act, buybackof shares is taxable u/s 46A in the hands ofshareholders. However, taking the benefit of Article 13of India-Mauritius DTAA, which provides for capitalgain arising on transfer of shares of Mauritius residenttaxable in that country and under Mauritius tax lawscapital gain is totally exempt, entire transaction used toescape the tax net. Thus to plug this loop hole in thestatute, Section 115QA is introduced to provide thatwhere shares are bought back at a price higher thanthe price at which those shares were issued then,balance amount will be treated as distribution of incometo shareholder and Tax@20% will be payable by theCompany. Section 115QA is applicable only to domesticunlisted companies. The provisions of Section 115QA have been introducedas part of Chapter XIIA as an anti-avoidance measureas also with an intent to widen the tax base in India.The explanatory Memorandum made it clear that theobject is to curb tax avoidant practice of unlistedcompanies resorting to buy-back of shares in lieu ofpayment of income to shareholders and which is taxable in India. Buy back tax is attracted on amountsdistributed by the company on buy-back of its ownshares. Section 115QA overrides all the sections of the Act andit is a separate charging section which taxes amountdistributed on buy back of shares.” Rejecting the