Mumbai – 400 030 v. The Deputy Director Of Income­tax

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.730 OF 2009 ANDWRIT PETITION NO.345 OF 2010 Aditya Birla Nuvo Limited, (Formerly known as Indian Rayon & Industries Limited), A­4, Aditya Birla Centre, S.K. Ahire Marg, Worli, Mumbai – 400 030 ..Petitioner. Versus 1)The Deputy Director of Income­tax, (International Taxation), 4(2), Room No.11, 1[st] Floor, Scindia House, Ballard Estate, N.M. Road,Mumbai – 400 038Mumbai – 400 038 2)Union of India, through the Ministry of Finance,North Block, New Delhi 110 001North Block, New Delhi 110 001 ..Respondents. Mr.Soli E. Dastur, Senior Advocate with Mr.R. Murlidhar, Mr.Nitesh Joshi & Mr.Atul K.Jasani for the petitioner. Mr.Mohan Parasaran, Additional Solicitor General with Mr.G.C. Shrivastava, Special counsel, Mr.B.M. Chatterjee, Mr.D.K. Chidananda i/by Mr.Suresh Kumar for the respondents. AND WRIT PETITION NO.1837 OF 2009 New Cingular Wireless Services Inc.,1025 Lenox Park Blvd. Room No.D584,Atlanta, GA 30319, United States of Americathrough its Power of Attorney HolderMr.Waman Oak,Limaye Building, Dubash Lane, 3[rd] Floor,Girgaum, Mumbai ..Petitioner Versus 1.The Deputy Director of Income­tax,(International Taxation), 4(1), 1[st] Floor,Scindia House, Ballard Estate,N.M. Road, Mumbai – 400 038. 2.Union of India,through the Ministry of Finance,North Block, New Delhi – 110 001 3.Tata Industries Limited,Bombay House, 24, Homi Modi Street, Mumbai – 400 001 ..Respondents. Mr.Aspi Chinoy with Mr.Percy Pardiwala, Senior Advocates with Mr.Jayant Mehta, Mr.Jabin Morris, Mr.Ruchir Wani i/by Little & Co. for the petitioner. Mr.Mohan Parasaran, Additional Solicitor General with Mr.G.C. Shrivastava, Special counsel, Mr.B.M. Chatterjee, Mr.D.K. Chidananda i/by Mr.Suresh Kumar for respondent Nos.1 and 2. Mr.Rafiq Dada, Senior Advocate with Mr.P.K. Katpalkar, Mrs.Simran Gurnai i/by Mulla & Mulla & Craegie Blunt & Caroe for respondent No.3. AND WRIT PETITION NO.38 OF 2010 Tata Industries Limited, an existing company under the Companies Act, 1956, having its registered office at Bombay House, 24, Homi Mody Street, Mumbai – 400 001..Petitioner Versus 1.The Deputy Director of Income­tax, (International Taxation), 4(1), 1[st] Floor, Scindia House, Ballard Estate, N.M. Road, Mumbai – 400 038. 2.The Additional Director of Income­tax, (International Taxation), 2(1), 1[st] Floor, Scindia House, Ballard Estate, N.M. Road, Mumbai – 400 038. 3.Union of India,through the Ministry of Finance,through the Ministry of Finance, North Block, New Delhi – 110 001 ..Respondents. Mr.Rafiq Dada, Senior Advocate with Mr.P.K. Katpalkar, Mrs.Simran Gurnai i/by Mulla & Mulla & Craegie Blunt & Caroe for the petitioner. Mr.Mohan Parasaran, Additional Solicitor General with Mr.G.C. Shrivastava, Special counsel, Mr.B.M. Chatterjee, Mr.D.K. Chidananda i/by Mr.Suresh Kumar for the respondents. CORAM : J.P. Devadhar & A.A. Sayed, JJ. Judgment reserved on : 5[th] May, 2011. Judgment pronounced on : 14[th] July, 2011 ORAL JUDGMENT :(Per J.P. Devadhar, J.) 1.Though the reliefs claimed in these four writ petitions are different, the core issue raised in all these four writ petitions is, whether any income chargeable to tax in India has accrued or arisen or deemed to have accrued or arisen in India to New Cingular Wireless Services Inc, USA (‘NCWS’ for short) and MMM Holdings LLC, USA, (‘MMMH’ for short) which has subsequently merged with NCWS, on account of share transactions under two Sale and Purchase Agreements both dated 28[th] September 2005. Hence, all these four writ petitions are heard together and disposed off by this common judgment. CORAM : J.P. Devadhar & A.A. Sayed, JJ. Judgment reserved on : 5[th] May, 2011. Judgment pronounced on : 14[th] July, 2011 ORAL JUDGMENT :(Per J.P. Devadhar, J.) 1.Though the reliefs claimed in these four writ petitions are different, the core issue raised in all these four writ petitions is, whether any income chargeable to tax in India has accrued or arisen or deemed to have accrued or arisen in India to New Cingular Wireless Services Inc, USA (‘NCWS’ for short) and MMM Holdings LLC, USA, (‘MMMH’ for short) which has subsequently merged with NCWS, on account of share transactions under two Sale and Purchase Agreements both dated 28[th] September 2005. Hence, all these four writ petitions are heard together and disposed off by this common judgment. 2.Writ Petition No.730 of 2009 is filed by Aditya Birla Nuvo Limited, formerly known as Indian Rayon and Industries Limited (‘Indian Rayon’ for short) to challenge the order dated 25[th] March 2009, whereby the Deputy Director of Income Tax (International Taxation) – 4(1), Mumbai (‘DDIT’ for short) has held that Indian Rayon is liable to be assessed as a representative assessee (agent) of NCWS under Section 163(1) of the Income Tax Act, 1961 (‘1961 Act’ for short) in respect of the capital gains accrued to NCWS on transfer of shares of Idea Cellular Limited in favour of Indian Rayon under Sale and Purchase Agreement dated 28[th] September, 2005. Writ Petition No.345 of 2010, is filed by Indian Rayon to challenge the order dated 22[nd] January 2010 passed by DDIT holding that Indian Rayon is liable to be assessed as the representative assessee (agent) of MMMH. By amending the Writ Petition, Indian Rayon has also challenged the notice dated 12[th ]February 2010 issued under Section 148 of the 1961 Act whereby Indian Rayon was called upon to file return of income as an agent of MMMH in respect of capital gains allegedly accrued to MMMH from the aforesaid sale transactions. Writ Petition No.1837 of 2009 is filed by NCWS to challenge the two notices both dated 31[st] March 2009 issued to NCWS and MMMH respectively under Section 148 of the 1961 Act whereby NCWS and MMMH are called upon to file return of income for A.Y. 2006­07 in respect of the capital gains allegedly accrued to them from the aforesaid transactions. Writ Petition No.38 of 2010 is filed by Tata Industries Limited (‘TIL’ for short) to challenge orders passed under Section 201(1) / (1A), 163 and also the notices issued under Section 148 of the 1961 Act. 3.Before dealing with the rival contentions advanced by the Counsel on both sides in each of the writ petitions, we may note relevant facts common to all the four writ petitions. 4.On 4[th] March 1995, a Company known as Birla Communications Limited (presently known as Idea Cellular Limited) was formed by the Birla Group of Companies in India. At that time, the Birla Group consisted of Grasim Industries Limited, Hindalco Industries Limited, Indian Rayon and Industries Limited and Indo­Gulf Fertilizers and Chemicals Corporation Limited. 5.On 5[th] December 1995, AT&T Corp, a Company incorporated in the United States of America and Grasim Industries Limited representing the Birla Group entered into a Joint Venture Agreement (‘JVA’ for short), under which, Birla Communications Limited was to be the Joint Venture Company (‘JVC’ for short) for carrying on the wireless telecommunication service in India by obtaining requisite licence from the Department of Telecommunications in India (‘DoT’ for short). Under the joint venture, 51% equity shares of the JVC were to be subscribed and owned by the Birla Group and 49% of the equity shares of the JVC were to be subscribed and owned by AT&T Corp. The JVA was executed by the Executive Vice President, AT&T Wireless Services Inc, USA. Thus, AT&T Corp / AT&T Wireless Services Inc, USA ('AT&T USA' for short) and the Birla Group were the two joint venture partners holding 100% shares of the JVC. 6.The salient features of the JVA dated 5[th] December 1995 were : a)AT&T USA & the Birla Group, as founders under JVA, were to jointly own and operate the JVC, namely Birla Communications Limited [see preamble and Article 2.01]jointly own and operate the JVC, namely Birla Communications Limited [see preamble and Article 2.01] b)The Joint Venture was to provide wireless telecommunication services in India by obtaining a licence from the DoT, services in India by obtaining a licence from the DoT, c)The founders were vested with the control, namely power to direct the management and policies, whether through the ownership of voting securities or by agreement or otherwise.[Article 1.01]direct the management and policies, whether through the ownership of voting securities or by agreement or otherwise.[Article 1.01] d)AT&T USA was to subscribe to and pay for the number ofcommon shares constituting 49% of the issued equity capitaland the remaining 51% were to be subscribed by the Birla Group. [Article 2.01, 2.03 and 2.03]. common shares constituting 49% of the issued equity capitaland the remaining 51% were to be subscribed by the Birla Group. [Article 2.01, 2.03 and 2.03]. e)Owner of the equity capital of the JVC who are parties to the JVA (AT&T USA and Birla Group) would be party shareholders [see definitions]JVA (AT&T USA and Birla Group) would be party shareholders [see definitions] f)The ‘founders were to exercise their rights as members / shareholders of the Company and ensure that the Articles of Association of the JVC are amended so as to incorporate the provisions of the JVA to the extent possible under the laws of India [Article 2.05]. shareholders of the Company and ensure that the Articles of Association of the JVC are amended so as to incorporate the provisions of the JVA to the extent possible under the laws of India [Article 2.05]. g)Each of the party shareholders who are founders agree that it will vote or cause to be voted all shares of equity capital owned by it. The shares of the JVC shall be held by the ‘founders’ inwill vote or cause to be voted all shares of equity capital owned by it. The shares of the JVC shall be held by the ‘founders’ in their own name or through a party fulfilling the role of a‘’‘’permitted transferee. The permitted transferee shall be‘’‘’permitted transferee. The permitted transferee shall bebound by the terms of JVA. Each founder agrees that its permitted transferees would perform their obligations in accordance with the terms of the JVA. Each founder is jointly and severally liable, as principal obligor for due performance of the obligations imposed on the permitted transferee under the JVA. Each of the party shareholders agree that it will vote orcause to be voted all shares of equity capital owned by it. If any director elected by the founder refuses to follow the terms of the JVA, then the founder shall take steps to remove such director. Any party may proceed against the ‘founder’ without first proceeding against the ‘permitted transferee’. [Article 3.04].permitted transferees would perform their obligations in accordance with the terms of the JVA. Each founder is jointly and severally liable, as principal obligor for due performance of the obligations imposed on the permitted transferee under the JVA. Each of the party shareholders agree that it will vote orcause to be voted all shares of equity capital owned by it. If any director elected by the founder refuses to follow the terms of the JVA, then the founder shall take steps to remove such director. Any party may proceed against the ‘founder’ without first proceeding against the ‘permitted transferee’. [Article 3.04]. h)The ‘permitted transferee’ could be any Corporation which is a h)The ‘permitted transferee’ could be any Corporation which is a 100% subsidiary of the founder who owns the equity shares ofthe JVC. Each founder shall retain directly or indirectly, ownership of all the voting stock of the permitted transferee. The ‘founder’ and the ‘permitted transferee’ were jointly and severally liable for all obligations and on fulfillment of various conditions only would shares for convenience of arrangement be transferred to the subsidiary as a ‘permitted transferee’. the JVC. Each founder shall retain directly or indirectly, ownership of all the voting stock of the permitted transferee. The ‘founder’ and the ‘permitted transferee’ were jointly and severally liable for all obligations and on fulfillment of various conditions only would shares for convenience of arrangement be transferred to the subsidiary as a ‘permitted transferee’. [Article 12.04] i)The Board of the JVC shall consistof four directors appointed by Birla Group, four directors appointed by AT&T USAand four independent directors with the consent of both the ‘founders’. One director representing each founder shall be a non­retiring Director. The chairman shall be appointed by the Birla Group and both the founders shall designate one board member each to act as the ‘Principal Founding Member’. No director shall be removed without the consent of the ‘founder’ whom he represents. [Article 5.01]. j)The company shall have a President nominated by AT&T USA with the concurrence of the Birla Group. Birla Group shall nominate CFO with the consent of AT&T USA [Article 5.02].with the concurrence of the Birla Group. Birla Group shall nominate CFO with the consent of AT&T USA [Article 5.02]. k)Certain key decisions of the group require an affirmative voteof the ‘Principal Founding Member’ representing AT&T USAand one director representing Birla Group, thus both the founders have ‘veto rights’. [Article 5.03].of the ‘Principal Founding Member’ representing AT&T USAand one director representing Birla Group, thus both the founders have ‘veto rights’. [Article 5.03]. l)At the general meeting of the company, the ‘founders’ willexercise their voteand act in such a manner so as to comply with and to fully and effectively implement the terms of the JVA. ‘Founders’ undertake to ensure that their representatives exercise their voteand act in such a manner so as to comply with and to fully and effectively implement the terms of the JVA. ‘Founders’ undertake to ensure that their representatives 10 or agents who represents them at the Annual General Meeting of the company to implement the agreement. Entire obligation rests on ‘founders’ and the ‘permitted transferee’ is no morethan a representative of the ‘founder’. [Article 6.02]. m)The ‘closing’ shall take place within 60 days of receipt of all approvals from Government of India and RBI. Further, at the time of closing, the company shall take steps to allot the shares to the representatives of the ‘founders’. [Article 8.01].approvals from Government of India and RBI. Further, at the time of closing, the company shall take steps to allot the shares to the representatives of the ‘founders’. [Article 8.01]. n)It is further stipulated that the approval of the Government of India and RBI shall be, “for offer, allotment and subscription ofequity shares of the company to the founders as per Section2.02 of the agreement”. [Article 8.01]India and RBI shall be, “for offer, allotment and subscription ofequity shares of the company to the founders as per Section2.02 of the agreement”. [Article 8.01] o)After ‘closing’ Birla and AT&T USA, shall allot shares as stated in Article 2.02 [Article 2.02 contemplates allotment to Birla Group and AT&T USA, being the founders in the ratio of 51% : 49%. [Article 8.03].in Article 2.02 [Article 2.02 contemplates allotment to Birla Group and AT&T USA, being the founders in the ratio of 51% : 49%. [Article 8.03]. n)It is further stipulated that the approval of the Government of India and RBI shall be, “for offer, allotment and subscription ofequity shares of the company to the founders as per Section2.02 of the agreement”. [Article 8.01]India and RBI shall be, “for offer, allotment and subscription ofequity shares of the company to the founders as per Section2.02 of the agreement”. [Article 8.01] o)After ‘closing’ Birla and AT&T USA, shall allot shares as stated in Article 2.02 [Article 2.02 contemplates allotment to Birla Group and AT&T USA, being the founders in the ratio of 51% : 49%. [Article 8.03].in Article 2.02 [Article 2.02 contemplates allotment to Birla Group and AT&T USA, being the founders in the ratio of 51% : 49%. [Article 8.03]. p)AT&T USA represents and warrants to Birla Group that AT&T USA has full power to execute and deliver the JVA and the material agreements and to consummate the transactions contemplated under the JVA and material agreements. [Article USA has full power to execute and deliver the JVA and the material agreements and to consummate the transactions contemplated under the JVA and material agreements. [Article 9.01] q)The JVA, the material agreements and all such other agreements and written obligations entered into and undertaken in connection with the transactions contemplated under the JVA and other agreements would be legally binding obligations of AT&T USA and enforceable against AT&T USA [Article 9.02]agreements and written obligations entered into and undertaken in connection with the transactions contemplated under the JVA and other agreements would be legally binding obligations of AT&T USA and enforceable against AT&T USA [Article 9.02] r)The JVA shall survive until six months after such time as theJVC no longer has any licenses to provide wirelesscommunication service in Indiaor until either ‘founder’ sells allof its shares of equity capital. [Article 11.01].JVC no longer has any licenses to provide wirelesscommunication service in Indiaor until either ‘founder’ sells allof its shares of equity capital. [Article 11.01]. s)The equity shares of the JVC cannot be sold by any party shareholder till the third anniversary of the closing date and only subject to the terms of the agreement after that date. [Article 12.02].shareholder till the third anniversary of the closing date and only subject to the terms of the agreement after that date. [Article 12.02]. t)The Share Certificate of equity capital held by the ‘founders’ shall carry an endorsement imprinted on it to the effect that any sale of the shares shall be only subject to the JVA and theholder of shares cannot sell, assign or pledge the sharesindependent of the terms of the JVA. [Article 12.03].shall carry an endorsement imprinted on it to the effect that any sale of the shares shall be only subject to the JVA and theholder of shares cannot sell, assign or pledge the sharesindependent of the terms of the JVA. [Article 12.03]. t)The Share Certificate of equity capital held by the ‘founders’ shall carry an endorsement imprinted on it to the effect that any sale of the shares shall be only subject to the JVA and theholder of shares cannot sell, assign or pledge the sharesindependent of the terms of the JVA. [Article 12.03].shall carry an endorsement imprinted on it to the effect that any sale of the shares shall be only subject to the JVA and theholder of shares cannot sell, assign or pledge the sharesindependent of the terms of the JVA. [Article 12.03]. u)The ‘founder’ is allowed to transfer all its shares to the permitted transferee with a prior written notice to the other founder. No such transfer shall be effective until such permitted transferee agrees to be bound by the terms and conditions of the JVA. The founder and the Permitted Transferee shall be jointly and severally liable for all the obligations of the Founder. Upon meeting the above requirements for transfer, the JVC at the closing or thereafter shall issue Equity Capital directly to a permitted transferee. [Article 12.04].permitted transferee with a prior written notice to the other founder. No such transfer shall be effective until such permitted transferee agrees to be bound by the terms and conditions of the JVA. The founder and the Permitted Transferee shall be jointly and severally liable for all the obligations of the Founder. Upon meeting the above requirements for transfer, the JVC at the closing or thereafter shall issue Equity Capital directly to a permitted transferee. [Article 12.04]. v)If any party shareholder receives any offer for purchase of its shares, the other founder shall have the right of first refusal. [Article 12.07].shares, the other founder shall have the right of first refusal. [Article 12.07]. w)Notices in relation to the Joint Venture Agreement are to besent to AT&T Wireless Services Inc, a US company and a 100% subsidiary of AT&T Corp, USA.sent to AT&T Wireless Services Inc, a US company and a 100% subsidiary of AT&T Corp, USA. Thus, under the JVA dated 5[th] December 1995, the AT&T USA as a founder was to own and hold 49% equity shares in Birla Communications Limited [now known as Idea Cellular Limited]. Under the JVA, the equity shares subscribed by the founders as party shareholders could be issued in 13wp730-09+++ the name of a permitted transferee which is a 100% subsidiary of the founder. AT&T Cellular Private Limited, Mauritius (‘AT&T Mauritius’ for short), being a 100% subsidiary of AT&T USA was eligible to hold 49% equity shares of JVC as a permitted transferee of the AT&T USA. Accordingly, AT&T USA subscribed to the shares of the JVC and equity shares of the JVC were allotted in the name of AT&T Mauritius, as a permitted transferee of AT&T USA. As noted above, though the equity shares were issued in the name of AT&T Mauritius under the JVA as a permitted transferee of AT&T USA, all rights in respect of the said equity shares of the JVC, like voting rights, rights of management, right of sale or alienation etc absolutely vested in AT&T USA. 7.On 12[th] December 1995, the DoT granted a licence to the JVC (Birla Communications Limited) to provide the telecommunication services in the Maharashtra and Gujarat Telecom Circle. 8.With effect from 30[th] May 1996, the name of Birla Communications Limited was changed to Birla AT &T Communications Limited (‘BACL’ for short). The change in the name was effected to take advantage of the worldwide brand equity of the Joint Venture Partner namely AT&T USA. 9.In October 1997, AT&T Mauritius and the Birla Group executed a document titled as ‘confirmation with respect to closing of Joint Venture Agreement dated 5[th] December 1995’, which reads thus :­ “In relation to the Joint Venture Agreement dated December 5, 1995 between the undersigned (the ‘JVA’), we hereby confirm that 7.On 12[th] December 1995, the DoT granted a licence to the JVC (Birla Communications Limited) to provide the telecommunication services in the Maharashtra and Gujarat Telecom Circle. 8.With effect from 30[th] May 1996, the name of Birla Communications Limited was changed to Birla AT &T Communications Limited (‘BACL’ for short). The change in the name was effected to take advantage of the worldwide brand equity of the Joint Venture Partner namely AT&T USA. 9.In October 1997, AT&T Mauritius and the Birla Group executed a document titled as ‘confirmation with respect to closing of Joint Venture Agreement dated 5[th] December 1995’, which reads thus :­ “In relation to the Joint Venture Agreement dated December 5, 1995 between the undersigned (the ‘JVA’), we hereby confirm that a)all the Conditions to Closing as stipulated in Article 8.01 of the JVA have been satisfied, and b)the actions and deliveries required to be made at Closing as provided in Article 8.03 of the JVA have been made. The Closing Date, for the purposes of Article 8.01 is September 29, 1997 being the date when the Support Services Agreementand Secondment Agreementwere exchanged between the parties; all other actions and deliveries referred to in Article 8.03 having taken place prior to September 29, 1997.” 10.AT&T Mauritius was neither a party to the JVA nor was it obliged to pay any amount under the JVA to hold the equity shares of ICL as a permitted transferee of AT&T USA. However, the liability of AT&T USA to pay for the equity shares of the JVC were discharged by AT&T Mauritius during the period from 1996 to 2003. Equity shares of the JVC allotted in the name of AT&T Mauritius were approved by the Reserve Bank of India under Section 19(1)(a), 19(1)(b) and Section 29(1)(b) of the Foreign Exchange Regulation Act, 1973 (‘FERA’ for short). 11.On 15[th] December 2000, a Shareholders Agreement was entered into by and between AT&T Wireless Services Inc, USA (acting on behalf of itself and the AT&T Wireless Group), Grasim Industries Limited, India, (acting on behalf of itself and the AV Birla Group) and Tata Industries Limited, (acting on behalf of itself, the Tata Group), wherein it was agreed that the Tata Cellular Limited (‘TCL’ for short) would merge with BACL and the respective share holdings of the three groups in BACL would be restructured as per the Shareholders Agreement. According to Indian Rayon, after the merger of TCL the shareholding of the JVC were as follows : ­Birla Group 33.70 per cent.­Tata Group 31.69 per cent.­AT&T Group 32.91 per cent.Financial Institutions1.70 per cent. The Shareholders Agreement specifically records that AT&T Wireless Services Inc. (signatory to the JVA dated 5[th] December 1995) is operating Cellular Services in Maharashtra and Gujarat telecom through its wholly owned subsidiary AT&T Mauritius. The Shareholders Agreement further records that AT&T Corp controls AT&T Wireless Services Inc, USA. The Shareholders Agreement records that AT&T USA, the joint venture partner under the JVA would, under the Shareholders Agreement, represent the AT&T Wireless Group. The Shareholders Agreement further records that the terms of the said Agreement would be incorporated in the Articles of Association of BACL. Thus, as a result of the Shareholders Agreement, the share­holdings of the Birla Group as well as AT&T USA (now representing the AT&T Wireless Group) in BACL stood reduced from 51% to 33.70% and from 49% to 32.91% respectively. Under the Shareholders Agreement, the power of AT&T USA to appoint directors as per the JVA was reduced from four to three to accommodate the directors to be appointed by the Tata Group. All other clauses in the Shareholders Agreement remained the same as in the JVA dated 5[th] December 1995. 12. The name of BACL after the merger of TCL was changed to Birla other clauses in the Shareholders Agreement remained the same as in the JVA dated 5[th] December 1995. 12. The name of BACL after the merger of TCL was changed to Birla Tata AT&T Limited with effect from 6[th] November 2001. Subsequently, the name of Birla Tata AT&T Limited was once again changed to Idea Cellular Limited (‘ICL’ for short) with effect from 12[th] September 2003. 13.In October 2004, Cingular Wireless LLC, USA acquired shares of AT&T Wireless Services Inc, USA from AT&T Corporation, USA and renamed it as New Cingular Wireless Services Inc, USA (‘NCWS’). 14.On 26[th] July 2005, NCWS received an irrevocable offer from India Tele Ventures Limited, an unrelated party, to purchase the interest of NCWS in ICL being the entire share­holdings of 74,35,61,480 equity shares forming 32.91% interest at a price of US$ 0.4035 per share aggregating to US$ 300 million. 15.NCWS found the purchase price of equity shares of ICL offered by India Tele Ventures Limited to be reasonable. However, in terms of Article 10.06 of the Shareholders Agreement, NCWS was obliged to offer the shares of ICL first to the other two founders namely, the Birla Group and the Tata Group (as they had the rights of first refusal) and it was only if these two founders refused to purchase the shares of ICL, NCWS could sell those shares to third parties like India Televentures Limited. Accordingly, NCWS by its letter dated 26[th] July 2005 called upon the Birla Group and the Tata Group to exercise their rights of first refusal in purchasing the shares of ICL owned by NCWS. 16.Grasim Industries Limited, acting on behalf of the Birla Group and Tata Industries Limited acting on behalf of the Tata Group accepted the offer in identically worded letters dated 29[th] July 2005 and 30[th] July 2005 respectively and informed NCWS about their willingness to purchase the shares of ICL offered by NCWS. As both the Groups, namely the Birla Group and the Tata Group were interested in purchasing the entire 74,35,61,480 equity shares of ICL offered by NCWS for US$ 300 million, each Group could get 37,17,80,740 equity shares of ICL on payment of US$ 150 million. 17.Before entering into an agreement for purchase of 37,17,80,740 equity shares of Idea Cellular Limited (ICL) offered by NCWS, Indian Rayon representing the Birla Group applied to the Director of Income Tax (Intl Taxn), Mumbai on 29[th] August 2005 seeking no­objection certificate under Section 195 of the 1961 Act to remit US$ 150 million to AT&T Mauritius towards the purchase price of 37,17,80,740 equity shares of ICL. In the said application, it was inter alia stated that they were purchasing ICL shares from AT&T Mauritius and as per the provisions of Article 13 of the Double Taxation Avoidance Agreement (DTAA) between India and Mauritius as also Circular No.682 dated 30[th] March 1994 and Circular No.789 dated 13[th] April 2000, capital gains derived by a resident of Mauritius on alienation of shares in an Indian Company shall be taxed only in Mauritius. After considering the application as also the particulars furnished by Indian Rayon and after obtaining approval from DIT (Intl Taxn.), the Assistant Director of Income Tax (Intl. Taxn) by his communication dated 15[th] September 2005 authorized Indian Rayon to make payment of US$ 150 million to AT&T Mauritius after deducting income tax at source at the rate ‘Nil’ therefrom under Section 195(1) of the 1961 Act. 18.Thereupon, Indian Rayon entered into an agreement with AT&T Mauritius & NCWS, USA on 28[th] September 2005 for purchase of 37,17,80,740 equity shares of ICL for US$ 150 million. On 29[th] September 2005, Indian Rayon deposited US$ 150 million in the bank account of AT&T Mauritius and on the same day, the AT&T Mauritius paid US$ 150,000,475 to NCWS, USA. 18.Thereupon, Indian Rayon entered into an agreement with AT&T Mauritius & NCWS, USA on 28[th] September 2005 for purchase of 37,17,80,740 equity shares of ICL for US$ 150 million. On 29[th] September 2005, Indian Rayon deposited US$ 150 million in the bank account of AT&T Mauritius and on the same day, the AT&T Mauritius paid US$ 150,000,475 to NCWS, USA. 19.Tata Industries Limited, (‘TIL’) however, instead of entering into a similar agreement for purchase of the balance 37,17,80,740 equity shares of ICL for US$ 150 million, entered into a Sale & Purchase Agreement on the same day i.e. 28[th] September 2005 for acquiring the entire issued and paid up share capital of AT&T Mauritius for US$ 150 million from NCWS and MMMH who were holding 100% shares of AT&T Mauritius. As noted earlier, MMMH has subsequently amalgamated with NCWS on 31[st] December 2006. On 28[th] March 2008, the Additional Director of Income Tax (Intl Taxn), Mumbai passed an order holding TIL as an assessee in default under Section 201(1) of the 1961 Act since it had failed to deduct tax as required under Section 195 of the 1961 Act, before making payment of US$ 150 million to NCWS and MMMH. Interest liability under Section 201(1A) was also imposed on TIL. Challenging the said order, TIL has filed an appeal before the first appellate authority and the same is pending. Subsequently, by two orders both dated 2[nd] March 2009, the DDIT has held that TIL is liable to be assessed as agent of NCWS / MMMH under Section 163 of the 1961 Act and accordingly two notices both dated 3[rd] March 2009 have been issued under Section 148 of the 1961 Act calling upon TIL as agent of NCWS / MMMH to file return of income in the prescribed form relating to income accrued to NCWS / MMMH on sale of shares under the Sale and Purchase Agreement dated 28[th] September 2005. 21.In the meantime, on 31[st] March 2008, the Additional Director of Income Tax (Intl Taxn), Mumbai addressed a letter to the Director of Income Tax (Intl Taxn), Mumbai enclosing a copy of the order dated 28[th] March 2008 passed by him in the case of TIL under Section 201(1) / (1A) of the 1961 Act. In that letter, it was stated that since the income by way of capital gains is chargeable in the hands of NCWS and MMMH, the Additional Director (Intl Taxn), Range 4, Mumbai may be requested to examine the matter and carry out regular assessment in the hands of the above two US companies. The Deputy Director of Income Tax (Intl Taxn), Mumbai, thereupon, issued a show­cause notice dated 8[th] December 2008 calling upon Indian Rayon to show cause as to why Indian Rayon should not be assessed as a representative – assessee (Agent) of NCWS under Section 163 of the 1961 Act in respect of the gains arising to NCWS pursuant to the transaction under the Sale and Purchase Agreement dated 28[th] September 2005. The Deputy Director of Income Tax (Intl Taxn), Mumbai, thereupon, issued a show­cause notice dated 8[th] December 2008 calling upon Indian Rayon to show cause as to why Indian Rayon should not be assessed as a representative – assessee (Agent) of NCWS under Section 163 of the 1961 Act in respect of the gains arising to NCWS pursuant to the transaction under the Sale and Purchase Agreement dated 28[th] September 2005. 23.Indian Rayon by its reply dated 2[nd] March 2009 and 17[th] March 2009 objected to the initiation of proceedings under Section 163 of the 1961 Act inter alia on the ground that : (a) Section 163 cannot be invoked in the present case, as the income has actually accrued in India and cannot be regarded as deemed to accrue or arise in India so as to assess Indian Rayon as a representative assessee of the US Company; (b) Determination made under Section 195(2) after due application of mind and authorizing Indian Rayon to remit the amount without deduction of tax is binding in nature. As Section 162(2) and Section 195(2) are similarly worded decision under Section 195(2) would apply to proceedings under Section 162(2) of the 1961 Act; (c) As per the DTAA between India and Mauritius as well as Circular No.682 dated 30[th] March 1994, Circular No.789 dated 30[th] April 2000 and the decision of the Supreme Court in the case of Union of India V/s. Azadi Bachao Andolan reported in 263 ITR 706, the capital gains arising to AT&T Mauritius cannot be taxed in India; (d) Idea Cellular Limited being an approved Industrial Undertaking under Section 10(23G) of the 1961 Act, any capital gains arising on the sale of shares of Idea Cellular Limited would be exempt from payment of income­tax. 24.Rejecting the contention of Indian Rayon, the DDIT passed an order on 25[th] March 2009 holding that capital gains accrued to NCWS and that Indian Rayon was liable to be assessed as agent of NCWS under Section 163(1) of the 1961 Act. Thereafter, two notices were issued to NCWS and MMMH under Section 148 of the 1961 Act with a view to assess the income chargeable to tax which has allegedly escaped assessment. Challenging the above orders / notices, these four petitions are filed. 25.With these background facts, we may analyse the arguments advanced by the Counsel on both sides in each of the four writ petitions. Writ Petition No.730/2009 26.Mr.Dastur, learned Senior Advocate appearing on behalf of the petitioner (Indian Rayon) submitted that Indian Rayon cannot be assessed as a representative assessee of NCWS / MMMH for the following reasons : A)Indian Rayon has purchased shares of ICL from AT&T Mauritius and the profits arising or accruing to AT&T Mauritius from such sale is not taxable in India because of the Indo­Mauritius DTAA as discussed elaborately by the Hon’ble Supreme Court in the case of Union of India V/s. Azadi Bachao Andolan reported in 263 ITR 706 (S.C.).the profits arising or accruing to AT&T Mauritius from such sale is not taxable in India because of the Indo­Mauritius DTAA as discussed elaborately by the Hon’ble Supreme Court in the case of Union of India V/s. Azadi Bachao Andolan reported in 263 ITR 706 (S.C.). B)Indian Rayon cannot be treated as an agent of NCWS and MMMH under the provisions of Section 160(1)(i) read with Sections 9(1) and under the provisions of Section 160(1)(i) read with Sections 9(1) and 5(2) as interpreted by the Hon’ble Supreme Court in Eli Lilly and Company (India) P. Limited reported in 312 ITR 225 (S.C.). C) ICL being an approved industrial undertaking under Section 10(23G) of the 1961 Act, capital gains arising on sale of the shares of ICL to a resident or non­resident would be exempt from payment of tax. B)Indian Rayon cannot be treated as an agent of NCWS and MMMH under the provisions of Section 160(1)(i) read with Sections 9(1) and under the provisions of Section 160(1)(i) read with Sections 9(1) and 5(2) as interpreted by the Hon’ble Supreme Court in Eli Lilly and Company (India) P. Limited reported in 312 ITR 225 (S.C.). C) ICL being an approved industrial undertaking under Section 10(23G) of the 1961 Act, capital gains arising on sale of the shares of ICL to a resident or non­resident would be exempt from payment of tax. D)Once certificate under Section 195(2) is issued by the Revenue authorising payment of the sale proceeds for the purchase of Idea Cellular Limited shares without deduction of tax at source and based on such certificate Indian Rayon has remitted the money to the non­resident, the Revenue cannot now go back on the certificate and seek to recover the tax allegedly due by the non­resident, from Indian Rayon as the non­resident’s agent.authorising payment of the sale proceeds for the purchase of Idea Cellular Limited shares without deduction of tax at source and based on such certificate Indian Rayon has remitted the money to the non­resident, the Revenue cannot now go back on the certificate and seek to recover the tax allegedly due by the non­resident, from Indian Rayon as the non­resident’s agent. E)Having taken steps against NCWS / MMMH for bringing to tax capital gains arising on the transfer of shares of Idea Cellular Limited by (wrongly) piercing the corporate veil, the Revenue cannot continue with the proceedings initiated against Indian Rayon.gains arising on the transfer of shares of Idea Cellular Limited by (wrongly) piercing the corporate veil, the Revenue cannot continue with the proceedings initiated against Indian Rayon. (A)Whether Capital gains arising on transfer of shares of IdeaCellular Limited are not taxable in India. 27.According to Mr.Dastur, the capital gains accruing to AT&T Mauritius on sale of ICL shares is taxable only in Mauritius and cannot be brought to tax in India as per Article 13(4) of the DTAA between India and Mauritius. Since AT&T Mauritius is not liable to pay capital gains tax in India on sale of shares of ICL to Indian Rayon, the said tax cannot be recovered from Indian Rayon by treating Indian Rayon as the representative assessee of NCWS (being a 70% share­holder of AT&T Mauritius) and MMMH (being a 30% shareholder of AT&T Mauritius). The argument of Mr.Dastur can be summarised thus :­ (A)Whether Capital gains arising on transfer of shares of IdeaCellular Limited are not taxable in India. 27.According to Mr.Dastur, the capital gains accruing to AT&T Mauritius on sale of ICL shares is taxable only in Mauritius and cannot be brought to tax in India as per Article 13(4) of the DTAA between India and Mauritius. Since AT&T Mauritius is not liable to pay capital gains tax in India on sale of shares of ICL to Indian Rayon, the said tax cannot be recovered from Indian Rayon by treating Indian Rayon as the representative assessee of NCWS (being a 70% share­holder of AT&T Mauritius) and MMMH (being a 30% shareholder of AT&T Mauritius). The argument of Mr.Dastur can be summarised thus :­ (a)Section 160 to 167 of the 1961 Act are machinery provisions for assessment and recovery of tax on the income of a principal assessee, from a representative assessee. In the present case, the above provisions are not applicable as the income of the principal assessee (AT&T Mauritius) cannot be brought to tax in India in view of the provisions contained in the DTAA. The shares of ICL were acquired by AT&T Mauritius during the period from 7[th] May 1996 to 18[th] November 2003 by subscribing directly from ICL and AT&T Mauritius has been holding the said shares until their transfer to Indian Rayon on 28[th] September 2005. These shares of ICL were issued to AT&T Mauritius after obtaining necessary approval from the RBI as required under Section 19(1)(d) (for issue of equity shares by an Indian Company to a non­resident), Section 29(1)(b) (for acquisition of equity shares of an Indian Company by a non­resident) and Section 19(1)(a) (for export of share certificates to the country of incorporation of the non­resident share­holder) of the FERA. While granting approval, the RBI was fully aware of the fact that AT&T Mauritius was a wholly owned subsidiary of AT&T USA and thus the RBI has accepted that shares of ICL were acquired assessment and recovery of tax on the income of a principal assessee, from a representative assessee. In the present case, the above provisions are not applicable as the income of the principal assessee (AT&T Mauritius) cannot be brought to tax in India in view of the provisions contained in the DTAA. The shares of ICL were acquired by AT&T Mauritius during the period from 7[th] May 1996 to 18[th] November 2003 by subscribing directly from ICL and AT&T Mauritius has been holding the said shares until their transfer to Indian Rayon on 28[th] September 2005. These shares of ICL were issued to AT&T Mauritius after obtaining necessary approval from the RBI as required under Section 19(1)(d) (for issue of equity shares by an Indian Company to a non­resident), Section 29(1)(b) (for acquisition of equity shares of an Indian Company by a non­resident) and Section 19(1)(a) (for export of share certificates to the country of incorporation of the non­resident share­holder) of the FERA. While granting approval, the RBI was fully aware of the fact that AT&T Mauritius was a wholly owned subsidiary of AT&T USA and thus the RBI has accepted that shares of ICL were acquired (b)Transfer of 37,17,80,740 shares of ICL (being 50% of the shares) in favour of Indian Rayon was effected in India by way of transfer from the depository account of AT&T Mauritius in India into the depository account of Indian Rayon in India. Such transfer of shares gave rise to income by way of capital gains which accrued or arose in India under Section 5(2)(b) of the 1961 Act and hence taxable in India. However, AT&T Mauritius is a resident of Mauritius holding Tax Residence Certificate dated 19[th] May 1995 issued by the Commissioner of Income Tax in the Republic of Mauritius and the same was valid till the date of transfer of shares as is evident from the certificate issued by the Commissioner of Income Tax, Republic of Mauritius on 18[th] August 2005. Therefore, capital gains accrued to AT&T Mauritius on transfer of shares of ICL is taxable only in Mauritius and cannot be taxed in India as per Article 13(4) of the DTAA between India and Mauritius. (c) Section 90(2) of the 1961 Act provides that when the Central Government enters into an Agreement with the Government of any country outside India for granting relief of tax, then in relation to an assessee, the DTAA would prevail except where the provisions of the 1961 Act are more beneficial to the assessee. This position is also made clear by the Central Board of Direct Taxes (‘CBDT’ for 25wp730-09+++ short) Circular No.333 dated 2[nd] April 1982 {137 ITR (st) 1} and upheld by the Apex Court in the case of Commissioner of Income Tax V/s. Azadi Bachao Andolan reported in 263 ITR 706 (SC). In the present case, Article 13(4) of the DTAA being more beneficial to AT&T Mauritius, the DTAA would apply and not the 1961 Act. (d)In the present case, the Revenue has denied the benefit of DTAA on the ground that the real owner of shares ICL was NCWS / MMMH and it is the NCWS / MMMH (resident of USA) who have transferred the shares of ICL and, therefore, the DTAA between India and Mauritius would not apply. The shares of ICL were held by AT&T Mauritius and were transferred by AT&T Mauritius and, therefore, capital gains accrued to AT&T Mauritius to which Article 13(4) of the DTAA between India and Mauritius would apply. (e)As per CBDT Circular No.682 dated 30[th] March 1994 and CBDT Circular No.789 dated 13[th] April 2000, the capital gains derived by a resident of Mauritius holding Tax Residence Certificate would constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the DTAA. In the present case, AT&T Mauritius is a resident of Mauritius and, therefore, AT&T Mauritius would be the beneficial owner of the shares of ICL and capital gains arising on transfer of those shares would be squarely covered under the DTAA between India and Mauritius. (e)As per CBDT Circular No.682 dated 30[th] March 1994 and CBDT Circular No.789 dated 13[th] April 2000, the capital gains derived by a resident of Mauritius holding Tax Residence Certificate would constitute