M/S. Fidelity Business Services India Pvt. Ltd v. Assistant Commissioner Of Income-Tax, & Anr

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 23 DAY OF JULY 2018 PRESENT THE HON'BLE Dr.JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA Between: I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., ‘Pinehurst’ Embassy Golf Links Business Park, Off Intermediate Ring Road, Bengaluru-560 071. PAN: AAACF 6175E. . …Appellant (By Mr. Percy Pardiwala, Sr. Counsel along with Mrs. Tanmayee Rajkumar, Advocate) And: 1. Assistant Commissioner of Income- tax, Circle – 3(1)(1), Room No.227, 2[nd] Floor, BMTC Building, 80feet road, Koramangala, 6[th] Block Bangalore -560 095. Circle – 3(1)(1), Room No.227, 2[nd] Floor, BMTC Building, 80feet road, Koramangala, 6[th] Block Bangalore -560 095. 2. The Principal Commissioner of Income-tax-3, BMTC Building, 80feet road, Koramangala 6[th] Block, Bangalore – 560 095. BMTC Building, 80feet road, Koramangala 6[th] Block, Bangalore – 560 095. …Respondents (By Mr. Aravind K.V. Advocate) Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 2/86 This I.T.A. is filed under Section 260-A of Income Tax Act 1961, praying to: 1. Formulate the substantial questions of law stated therein. 2. Allow the appeal and set aside the impugned order pronounced on 22/02/2017 by the Tribunal in IT (TP)A No.461/Bang/2016 (Annexure F), to the extent questioned herein; in the interest of justice & equity etc. This I.T.A. having been heard and reserved on 12-07-2018, coming on for Pronouncement of Judgment, this day, Dr Vineet Kothari, J, delivered the following: J U D G M E N T Mr. Percy Pardiwala. Sr. Counsel a/w Mrs. Tanmayee Rajkumar, Adv. for Appellant - AssesseeMr.K.V. Aravind. Adv. for Respondents- Revenue “1. “SATYAMEV JAYTE” (Truth alone Triumphs) is the quote from Mundaka Upanishad, the concluding part of the sacred Hindu Vedas and it is the North Star of our Judicial System inscripted at the bottom of our National Emblem, Ashok Stambh and Dharm Chakra. 2. It tells us that, the ‘truth’ should be the Guiding Star in the entire judicial process. Truth alone has to be the foundation of justice. The entire judicial system has been created only to discern and find out the real truth. Judges at all levels have to seriously Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 3/86 engage themselves in the journey of discovering the truth. That is their mandate, obligation and bounden duty. Justice system will acquire credibility only when people will be convinced that justice is based on the foundation of the truth 3. Whether the Income Tax Appellate Tribunal, being a creature of Statute, Income Tax Act and being the final fact finding body and being a non-departmental appellate forum also has a similar mandate in law or not is the bed-rock of this appeal, in which we propose to interpret the powers of the Tribunal while dealing with the appeals under Section 254 of the Income Tax Act, 1961. 4. This appeal has been filed by the Appellant – Assessee - M/s. Fidelity Business Services India Pvt. Ltd., Bengaluru, raising the following substantial questions of law for consideration by this Court:- Whether on the facts, in the circumstances and on the grounds and contentions urged: Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 4/86 (i) the Tribunal was right in directing examination by the Assessing Officer of the fair market value of the shares bought back and application of Section 2(22)(e) of the Act if the consideration for buy back of shares was in excess of the fair market value of the shares? 4. This appeal has been filed by the Appellant – Assessee - M/s. Fidelity Business Services India Pvt. Ltd., Bengaluru, raising the following substantial questions of law for consideration by this Court:- Whether on the facts, in the circumstances and on the grounds and contentions urged: Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 4/86 (i) the Tribunal was right in directing examination by the Assessing Officer of the fair market value of the shares bought back and application of Section 2(22)(e) of the Act if the consideration for buy back of shares was in excess of the fair market value of the shares? (ii) the Tribunal was correct in holding that the difference, if any, between the buy-back price and the fair market value of the shares would be deemed to be dividend in terms of section 2(22)(e) of the Act, although the said provision would not be applicable? 5. We re-formulate the substantial question of law which we propose to answer and on which the arguments were heard by us, in the following manner:- “Whether the Income Tax Appellate Tribunal has power under Section 254 of the Income Tax Act, 1961, to give directions for fresh enquiry into the aspects of the subject matter of appeal filed before it either Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 5/86 suo motu or on any grounds raised by either party to the appeal which have not been investigated or enquired into by the lower Authorities earlier and which may result in enhancement of tax liability of the assessee?” 6. The learned Income Tax Appellate Tribunal, Bangalore Bench “B”, vide its Order dated 22/02/2017 for AY 2011-12 held partly in favour of the Appellant – Assessee that Appellant Assessee was not liable to pay tax on ‘Distribution of Dividend’ as defined under Section 2(22)(d) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’ for short) in terms of Section 115-O of the Act on the pay-out by it for buy-back of its own shares from its foreign Holding Company, M/s. FIS Holding Muritian Ltd. incorporated in Mauritius. 7. The Appellant Assessee Company bought back its own shares from its Holding Company at Mauritius to the extent of 2,933 Shares having face Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 6/86 value of `10/-per share at a hugely high price of `2,85,108/-per share during the relevant previous year. The said Mauritius Company M/s. FIS Holding Muritian Ltd. holding 99.99% of the entire Share Capital of the Assessee Indian Company and the said buy-back of shares was paid out of the ‘Reserves and Surplus’ of the Appellant Assessee Indian Company. The Assessing Authority taxed the said amount of `83,61,92,434/- as Dividend under Section 115-O of the Act, [2,933 shares ( `2,85,108 -10 ) = `83,62,21,764/-]. 8. Since the said Assessment Order was passed in pursuance of the directions of the Dispute Resolution Panel (DRP) under Section 144 C (5) of the Income Tax Act, 1961, the Assessee Company preferred an appeal before the learned Income Tax Appellate Tribunal (ITAT), who disposed of the said appeal by the impugned Order dated 22/02/2017. Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 7/86 9. The learned Tribunal held that after insertion Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 7/86 9. The learned Tribunal held that after insertion of Section 115-QA of the Act with effect from 01/06/2013, the purchase of its own shares by the Company in accordance with the provisions of Section 77-A of the Companies Act, 1956 is chargeable to income tax as Distribution Dividend Tax (DDT) but since the transaction in the present case of buy-back of shares took place prior to 01/06/2013, such buy-back of the shares between the period 01/04/2000 to 31/05/2013 would be taxed as ‘Capital Gains’ in the hands of the recipient in accordance with the provisions of Section 46-A of the Act and no such amount would be treated as dividend in view of exclusion part ofSection 2 (22)(iv) of the Act. The Assessing Officer also held that the Capital Gains in the hands of the Holding Company (Mauritius Company) was also not chargeable to tax in India as per the provisions of Article 13(4) of the Indo-Mauritius Double Taxation Avoidance Agreement (DTAA). Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 8/86 10. However, vide para 7 of the impugned Order of the learned Tribunal dated 22/02/2017 and by which para 7 only, the present Appellant Assessee is aggrieved and has filed the present appeal in this Court under Section 260-A of the Income Tax Act, 1961, the learned Tribunal observed that there is another aspect of this transaction of buy-back at an abnormally high price of `2,85,108/- per share having face value of only `10/- per share and therefore the payment made by the Assessee - Indian Company over and above the fair market price of the shares of the Assessee would not be treated as part of the purchase price because, the transaction is between the two closely related parties and not at the Arm’s Length Price (ALP) and therefore the payment for buy-back in excess of the fair market price of shares of the Assessee - Indian Company, would certainly fall within the ambit of Section 2(22)(e) of the Act and could be taxed as Dividends, in the hands of the Assessee Company. Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 9/86 11. The learned Tribunal said that since this aspect of the matter was not examined by the Authorities below and it could be treated as a device for transfer of substantial ‘Reserves and Surpluses’ by the Indian Company to the Holding Company at Mauritius BEPS -Base Erosion and Profit Shifting and it could be a colourable device and a dubious method of avoiding tax in the garb of buying back of shares at a highly unrealistic and inflated price, therefore, the matter deserved to be examined again by the Assessing Authority on the said issue of fair market price of shares, vis-à-vis buy-back price of the shares by the assessee Indian Subsidiary Company. 12. The relevant para 7 of the Order of the learned Tribunal is quoted below for ready reference:- “7. However, there is another aspect in this transaction relating to the buy back price of Rs.2,85,108 per share having face value of Rs.10. So far as the payment on account of buy back made by the assessee to Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 10/86 12. The relevant para 7 of the Order of the learned Tribunal is quoted below for ready reference:- “7. However, there is another aspect in this transaction relating to the buy back price of Rs.2,85,108 per share having face value of Rs.10. So far as the payment on account of buy back made by the assessee to Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 10/86 its holding company to the extent of the fair market price of the share of the assessee company is concerned, the same would be treated as capital gain in the hand of the holding company as per the provisions of section 46A and in view of the provisions of Indo-Mauritius DTAA the capital gains on account of sale of share is not chargeable to tax in India. The payment in the name of buy back shares made by the assessee over and above the fair market price of the share of the assessee would not be treated as part of the purchase price because the transaction is between the two closely related parties and therefore the payment which is in excess of fair market price of the share of the assessee company would certainly fall in the ambit of Section 2(22)(e) of the Act. There is no dispute regarding the other condition of the holding company having a voting power of not less than 10% as it holds the shares of the assessee to the extent of 99.99%. In case the buy back price is not based on the real valuation and it is artificially inflated by the parties then it is certainly a device for Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 11/86 transfer of the reserves and surplus to the holding company by avoiding the payment of tax and therefore it will be treated as a colourable device. There are two aspects in this transaction- (i) It is a simple and plain transaction of buy back of shares without having any dispute of price then the same is beyond the scope of the provisions of Section 2(22) as well as Section 115QA of the Act and therefore cannot be treated as a colourable device. (ii) The second aspect is buy back price paid by the assessee to its wholly owned holding company does not represent true fair market price of the share of the assessee then it is nothing but a dubious method of avoiding the tax in the garb of buy back. Thus if the buy back price paid to the holding company is unrealistic and highly inflated then to that extent the transaction of payment to the holding company has been given a colour of payment towards buy back. We find that neither the Assessing Officer Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 12/86 nor the DRP has decided this issue of actual fair market price of the share of the assessee as on the date of buy back to ascertain whether the payment made by the assessee @ Rs.2,85,108 per share is unrealistic and artificially inflated with the motive to avoid tax. Hence this issue of examination of the fair market price of the share vis-à-vis the buy back price of the assessee is set aside to the record of the Assessing officer for adjudication as per law.” 13. Aggrieved by the said remand directions of the Tribunal, the Assessee preferred this appeal before this Court and we propose to answer the aforesaid substantial question of law, about the power of the Tribunal to do so. 14. Mr. Percy Pardiwala, the learned Senior Counsel appearing for the Appellant- Assessee Company vehemently submitted before us that the Tribunal has exceeded its jurisdiction and vide para 7 of the Order Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., 13. Aggrieved by the said remand directions of the Tribunal, the Assessee preferred this appeal before this Court and we propose to answer the aforesaid substantial question of law, about the power of the Tribunal to do so. 14. Mr. Percy Pardiwala, the learned Senior Counsel appearing for the Appellant- Assessee Company vehemently submitted before us that the Tribunal has exceeded its jurisdiction and vide para 7 of the Order Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 13/86 quoted above, it has unnecessarily opened an enquiry upon remand of the case to the Assessing Authority into the questions of fair market price of the shares’ buy-back by the Assessee Indian Company which was done perfectly in accordance with law after passing appropriate Resolutions and paying out of the accumulated Reserves and Surpluses of the Appellant Indian Company in accordance with Section 77-A of the Companies Act, 1956 and the same could not be taxed as ‘Distribution of Dividend’ in the hands of the Appellant Assessee Indian Company. 15. He emphasized that the learned Tribunal itself had agreed to this extent with the contentions and the grounds of appeal raised by the Assessee while holding that the same could not be taxed as ‘Distribution of Dividend’ under Section 22 of the Act read with Section 115-O and later on inserted Section 115-QA of the Act prospectively with effect from 01/06/2013. Since the buy-back of the shares in Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 14/86 question had taken place in the previous year 2010-11relevant to AY 2011-12 and therefore, the Tribunal was bound to allow the appeal of the Assessee in-toto and could not have ventured into a ground or an aspect of the matter, which was neither raised by the Assessee nor by the Revenue by filing any cross objections or cross appeal in the matter and therefore, the present appeal filed by the Assessee deserves to be allowed answering the aforesaid substantial questions of law in favour of the Assessee and against the Revenue. 16. Mr. Pardiwala cited several case laws in support of his contentions which would be dealt with hereinafter. 17. On the contrary, the learned counsel for the Revenue, Mr.K.V. Aravind also relied upon several decisions and precedents and submitted that the learned Tribunal was perfectly justified and well within the parameters of the subject matter of the appeal involved before it and the powers of the Tribunal as Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 15/86 defined under Section 254 of the Act to pass such Orders, “as it thinks fit” gives sufficiently wide powers to the Tribunal to remand the case back to the Assessing Authority for holding an inquiry into the fair market value of the shares bought back by the Assessee Company from its 99.99% Holding Company at an abnormally high price of `2,85,108/- per share as against the face value of `10/- per share which were probably issued during 2002 when the said Company started its business in India and which was nothing but an avoidance of tax payment in India by shifting of huge Reserves and Surpluses of the Indian Company to its Mauritius Holding Company where too, on the Holding Mauritius Company also, no Capital Gains tax could be levied as Article 13 of the Indo-Mauritius Double Taxation Avoidance Agreement, 1983 which does not permit any such capital gains to be taxed in the hands of the recipient share holder, viz., Mauritius Holding Company in the present case, in India. Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 16/86 18. He further submitted that the said Indo- Mauritius DTAA, of course now stands amended and with the introduction of Sub-Article (3A) in Article 13 with effect from 01/04/2017, the resident of the contracting State, viz.,India, can be taxed in the contracting State. 19. We have heard the learned counsels at length and given our thoughtful consideration to the rival contentions and the case laws cited at the bar. 20. We are essentially called upon to decide the ambit, scope and parameters of the powers of the Income Tax Appellate Tribunal (ITAT) while dealing with the appeals filed before it under Section 253 of the Act. 21. Section 254 of the Act delineates the powers of the Tribunal. We are not presently deciding the taxability part of such buy-back of the shares by the Company because that would essentially depend upon the fresh inquiry or investigation upon remand by the learned Tribunal vide impugned Order dated Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 17/86 22/02/2017 in terms of impugned para 7 of the said Order quoted above. Therefore, the aforesaid proposed substantial question of law No.2 need not be answered at this stage as the question of actual taxability of the said alleged excess fair market value of the shares buy-back under Section 2(22)(e) of the Act would depend upon such inquiry which is yet to be undertaken and completed. Therefore the aforesaid substantial question of law No.1 only as reformulated by us, as to whether the Tribunal was justified in making such directions vide para 7 of the Order or not, is the question which we will discuss and answer as below. 22. Section 254 of the Act which delineates the powers of the Tribunal is quoted below to the relevant extent for ready reference:- Orders of Appellate Tribunal 254. (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 18/86 (1A) … (2) The Appellate Tribunal may at anytime within [six months from the end of the month in which the order was passed], with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the [Assessing] Officer: Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard: Provided further that any application filed by the assessee in this sub-section on or Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 19/86 after the 1st day of October, 1998 shall be accompanied by a fee of fifty rupees.” 23. The burden of the argument of the learned Senior Counsel for the Appellant - Assessee, Mr. Percy Pardiwala was that the powers of the learned Tribunal are circumscribed and restricted by the words “thereon”, used in juxtaposition with the words “as it thinks fit”. Provided further that any application filed by the assessee in this sub-section on or Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 19/86 after the 1st day of October, 1998 shall be accompanied by a fee of fifty rupees.” 23. The burden of the argument of the learned Senior Counsel for the Appellant - Assessee, Mr. Percy Pardiwala was that the powers of the learned Tribunal are circumscribed and restricted by the words “thereon”, used in juxtaposition with the words “as it thinks fit”. 24. He submitted that the Tribunal cannot exceed the parameters or the grounds of the appeal raised by the aggrieved Appellant Assessee Company and what issue has neither been raised by the Assessee Company nor by the Revenue, cannot be dealt with or suo motu taken up by the learned Tribunal and such an exercise in excess of its jurisdiction as has been done in para 7 of the impugned Order quoted above, deserves to be quashed and set aside by this Court. 25. He relied upon the decision of the Division Bench of the Allahabad High Court in the case of Smt. Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 20/86 Sarika Jain Vs. Commissioner of Income-tax, Bareilly, [2017]84 Taxmann.com 64wherein dealing with the case of a partner who introduced a Capital of `12,20,000/- in the Partnership Firm and explained that Capital contribution to have been received by her as ‘Gifts’ and the donors of such ‘Gifts’ were also produced before the Assessing Authority and even though the Assessing Officer held that the ‘Gifts’ were not genuine and therefore added back the same as unexplained cash credits as the undisclosed income in the hands of the Assessee under Section 68 of the Act and the learned Tribunal on an appeal though held that the additions in the hands of the Assessee under Section 68 of the Act could not be sustained but, the Tribunal proceeded to add the aforesaid amounts as unexplained income of the Assessee under Section 69-A of the Act, a different provision. In the appeal filed before the High Court, the Division Bench of the Allahabad High Court held in para-15 that the use of Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 21/86 word ‘thereon’ (under Section 254 of the Act) is important and it reflects that the Tribunal has to confine itself to the questions which are arising or are the subject matter in the appeal and it cannot travel beyond the same. The power to pass such orders ‘as the Tribunal thinks fit’ can be exercised only in relation to the matter that arises in the appeal and it is not open to the Tribunal to adjudicate any other question or an issue which is not in dispute and which is not the subject matter of the dispute in appeal. The appeal of the Assessee was thus allowed and the additions made under Section 69-A of the Act by the Tribunal were set aside. 26. In the said judgment of the Allahabad High Court, it is true that the Tribunal cannot travel beyond the subject matter of the Appeal, but the additions under Section 69A, a different provision while deleting the additions under Section 68 of the Act appears to have been done without affording a specific opportunity Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 22/86 of hearing to the assessee and that appears to be the reason for setting aside of that Order of the Tribunal by the High Court. 26. In the said judgment of the Allahabad High Court, it is true that the Tribunal cannot travel beyond the subject matter of the Appeal, but the additions under Section 69A, a different provision while deleting the additions under Section 68 of the Act appears to have been done without affording a specific opportunity Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 22/86 of hearing to the assessee and that appears to be the reason for setting aside of that Order of the Tribunal by the High Court. 27. The learned counsel for the Assessee Company also relied upon the decision of the Division Bench of the Calcutta High Court in the case of Income Tax Officer Vs. R.L. Rajghoria [1979] 119 ITR 872. The Division Bench of the Calcutta High Court upholding the Order of the learned Single Judge in a Writ Petition in R.L. Rajghoria Vs. Income-Tax Officer [1977] 107 ITR 347held that the word ‘thereon’ appearing in Section 33(4) of the Income Tax Act, 1922 akin to Section 254 (1)of the Income Tax, 1961 restricts the jurisdiction of the Tribunal to the subject matter of the appeal and there is no doubt that the Tribunal has powers of remanding a case to the lower Appellate Authority or the Assessing Authority as the case may be, requiring him to hold further inquiry and to dispose of the case on the basis of such inquiry, Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 23/86 but the jurisdiction of the Tribunal is confined only to the subject matter of the appeal. 28. The Tribunal by the impugned Order before the Calcutta High Court had held that for AY 1962-63, the loss of `23,100/- in shares transactions on the ground that the Assessee purchased through a Share Broker 15 Ordinary shares of M/s. Hindustan Motors Limited on 05/03/1962 for `3,17,400/- and the said shares were sold through another broker for `2,94,300/- on 29/03/1962 and thus the Assessee incurred a loss of `23,100/- for the said year, the learned Tribunal held that though the said loss in sale and purchase of the shares could not be termed as ‘speculative transactions’ and the lower Authorities were not justified in treating the said loss as ‘speculative loss’ but however, the Tribunal remanded the case back to the first Appellate Authority, Appellate Assistant Commissioner (AAC) requiring him to decide whether the loss in question was a ‘capital loss’ or a Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 24/86 ‘trade loss’ in the hands of the Assessee. The said direction of the learned Tribunal was quashed by the learned Single Judge of the Calcutta High Court in a Writ Petition filed by the Assessee, which Order of the learned Single Judge came to be upheld by the Division Bench. 29. We beg to differ, with great respects, for two reasons. Firstly, the said judgment does not deal with the Appellate powers of the Tribunal and Writ jurisdiction was exercised to quash the Order of the Tribunal and secondly, we feel, the directions given by the Tribunal to examine the aspect whether loss on account of shares was in the nature of ‘Capital loss’ (if shares were held over a particular period) or a ‘Trade loss’ (if the assessee was engaged in the regular activity of purchase and sale of shares) was perfectly within its powers under Section 254(1) of the 1961 Act or Section 33(4) of the old 1922 Act. Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 25/86 29. We beg to differ, with great respects, for two reasons. Firstly, the said judgment does not deal with the Appellate powers of the Tribunal and Writ jurisdiction was exercised to quash the Order of the Tribunal and secondly, we feel, the directions given by the Tribunal to examine the aspect whether loss on account of shares was in the nature of ‘Capital loss’ (if shares were held over a particular period) or a ‘Trade loss’ (if the assessee was engaged in the regular activity of purchase and sale of shares) was perfectly within its powers under Section 254(1) of the 1961 Act or Section 33(4) of the old 1922 Act. Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 25/86 30. Similarly, the learned counsel for the Assessee, Mr. Pardiwala submits that the Division Bench of the Karnataka High Court itself in the case of Karnataka State Forest Industries Corporation Ltd. Vs. Commissioner of Income Tax [1993] 201 ITR 674] had held that the power of the Tribunal under Section 254 of the Act can be exercised only in relation to the grounds raised in the appeal and the Tribunal cannot go beyond the scope of the appeal and decide the question which does not form the subject matter of the appeal. In that case, the Assessee - a Government Undertaking was engaged in the business of Development and Manufacture of forest products for sale. It directed the method of Accounting in relation to the valuation of the Closing Stock under a bona fidereason and claimed that the Closing Stock figures should be the one as determined by it for the purpose of income tax assessment. The ITO rejected the claim on the ground that the statutory Auditors of the Assessee Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 26/86 had not agreed to the change in the method of Accounting. On second appeal, the Tribunal took a different stand and leaving out the aforesaid findings, upheld the additions on the ground that because of the change in the method of Accounting of the Valuation of Closing Stock in a particular year, different valuation would be shown for the same Stock which was held as the Opening Stock and remained as the Closing Stock and thus a sum equal to that difference would either be taxed twice or would escape taxation altogether and since the Tribunal thus proceeded on a new ground not taken by the lower Authorities or urged by the Department before the Tribunal, such a direction could not have been given by the learned Tribunal. 31. This judgment of Co-ordinate Bench of the Karnataka High Court to the extent of the Tribunal being bound to decide the issues within the subject matter of the appeal applies to the case before us on all fours. On merits of the case also, the view of the Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 27/86 Tribunal about additions made on account of change of method for valuation of Closing Stock, having neutral tax effect was required to be interfered with. Therefore, this judgment does not support the contention of the assessee before us in any manner. 31. This judgment of Co-ordinate Bench of the Karnataka High Court to the extent of the Tribunal being bound to decide the issues within the subject matter of the appeal applies to the case before us on all fours. On merits of the case also, the view of the Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 27/86 Tribunal about additions made on account of change of method for valuation of Closing Stock, having neutral tax effect was required to be interfered with. Therefore, this judgment does not support the contention of the assessee before us in any manner. 32. The learned counsel for the Assessee Company, Mr. Pardiwala also relied upon the decision of the Bombay High Court in the case of Pokhraj Hirachand Vs. Commissioner of Income Tax, [1963] 49 ITR 293. The Division Bench of Bombay High Court held that the expression ‘thereon’ occurring in Section 33(4) of the 1922 Act means ‘on the subject matter of appeal’ before the Tribunal and reading the relevant Rules 22 and 27 of the Income Tax Rules governing the procedure before the Tribunal, the subject matter of appeal before the Tribunal, the grounds of appeal raised by the appellant in his Memorandum of appeal and the grounds which the Tribunal allows him to raise under Rule 12 and the contentions raised by the Respondent Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 28/86 before the Tribunal in support of the Order made by the Appellate Assistant Commissioner(AAC). 33. Similarly the Division Bench of the Gujarat High Court in the case of Deepak Nitrite Ltd. Vs. Commissioner of Income-tax [2008] 175 Taxman 230 held that the Tribunal on its own could not have undertaken the exercise without first deciding the controversy brought before it by the parties, where the Assessing Officer disallowed the loss on sale of investments holding that the transaction was a colourable device to reduce the taxable income but, the Commissioner of Income Tax (Appeals) allowed the Assessee’s claim and on the appeal filed by the Revenue, the Tribunal restored the issue of quantification of such loss to the Assessing Officer for fresh adjudication, it was held that when the Assessing Officer and Commissioner of Income Tax (Appeals) had not undertaken the issue of quantification of loss on sale of investments and there was no such ground raised by Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 29/86 the Revenue in the appeal filed by it before the Tribunal, the Tribunal on its own could not have undertaken the said exercise. 34. For the aforesaid reasons given by us on the decision of the Calcutta High Court in the case of R.L. Rajghoria’s case (supra), we are not inclined to follow the said view of the Gujarat High Court. 35. On merits of the case, the learned counsel for the Assessee Company, Mr. Pardiwala drew our attention to the definition of Section 2(22) of the Act which defines the word ‘Dividend’ and the said definition to the extent relevant for his submissions, though we have indicated above that we are not deciding the question of taxability here, is quoted below in the following manner:- “Section 2(22) “ dividend” includes- (a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 30/86 the company to its shareholders of all or any part of the assets of the company; “Section 2(22) “ dividend” includes- (a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 30/86 the company to its shareholders of all or any part of the assets of the company; (b) any distribution to its shareholders by a company of debentures, debenture-stock or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalised or not; (c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation whether capitalized or not. (d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st 31/86 day of April,1933, whether such accumulated profits have been capitalised or not; (e) any payment by a company, not being a company in which the public are substantially interested, of any sum(whether as representing a part of the assets of the company or otherwise) [made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten percent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but “dividend” does not include- Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 32/86 (i) a distribution made in accordance with sub-clause(c) or sub-clause(d) in respect of any share issued for full cash consideration,whether the holder of the share is not entitled in the event of liquidation to participate in the surplus assets; [(ia) a distribution made in accordance with sub-clause (c) or sub clause (d) in so far as such distribution is attributable to the capitalised profitsof the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, [and before the 1st day of April , 1965];] (ii) any advance or loan made to a shareholder [or the said concern] by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company. (iii) Any dividend paid by a company which is set off by the company against the whole Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 33/86 or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off; (iv) Any payment made by company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 ( 1 of 1956); (v) Any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether) or not there is a reduction of capital in the demerged company.” (iii) Any dividend paid by a company which is set off by the company against the whole Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 33/86 or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off; (iv) Any payment made by company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 ( 1 of 1956); (v) Any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether) or not there is a reduction of capital in the demerged company.” 36. He also drew our attention to Section 46-A of the Act which provides for “Levy of capital gains on purchase by the Company of its own shares or other specified securities”. The said provision is also quoted below for ready reference:- “Section 46A: Where a shareholder or a holder of other specified securities receives Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 34/86 any consideration from any company for purchase of its own shares or other specified securities held by such shareholder or holder of other specified securities, then, subject to the provisions of section 48, the difference between the cost of acquisition and the value of consideration received by the shareholder or the holder of the other specified securities, as the case my be, shall be deemed to be the capital gains arising to such shareholder or the holder of other specified securities, as the case may be, in the year in which such shares or other specified securities were purchased by the company. Explanation: For the purposes of this section, “specified securities” shall have the meaning assigned to it in Explanation to section 77A of the Companies Act, 1956 (1 of 1956).” 37. Further, he drew our attention to Section 115-O and Section 115-Q of the Act, particularly, the Explanation below Section 115-Q of the Act which stands amended by Finance Act 2018, with effect from M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. 35/86 01/04/2018. The said provisions to the relevant extent are also quoted below for ready reference:- “Chapter XII-D SPECIAL PROVISIONS RELATING TO TAX ON DISTRIBUTED PROFITS OF DOMESTIC COMPANIES Section 115-0: Tax on distributed profits of domestic companies. (1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, dis