The Director Of Income-Tax (International Taxation), Hyderabad v. $ M/S. Vanenberg Facilities Bv

IN THE HIGH COURT OF JUDICATURE AT HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH **** I.T.T.A. NOS.55 AND 71 OF 2014 AND W.P.NO.41469 OF 2015 I.T.T.A. NOS.55 AND 71 OF 2014 Between: The Director of Income-tax (International Taxation), Hyderabad .. Appellant and M/s. Vanenberg Facilities BV .. Respondent W.P.NO.41469 OF 2015 Between: Vanenburg Facilities BV .. Petitioner and The Assistant Director of Income Tax, (International Taxation)-II, Hyderabad and others .. Respondents DATE OF THE ORDER PRONOUNCED: 16.06.2017 SUBMITTED FOR APPROVAL: THE HON’BLE SRI JUSTICE SANJAY KUMAR AND THE HON’BLE SRI JUSTICE U.DURGA PRASAD RAO 1. Whether Reporters of Local newspapers Yes/No may be allowed to see the judgment? may be allowed to see the judgment? 2. Whether the copies of judgment may be Yes/No marked to Law Reporters/Journals marked to Law Reporters/Journals 3. Whether Their Lordships wish to Yes/No see the fair copy of the judgment? see the fair copy of the judgment? _____________________ SANJAY KUMAR, J ____________________________ U.DURGA PRASAD RAO, J * THE HON’BLE SRI JUSTICE SANJAY KUMAR AND THE HON’BLE SRI JUSTICE U.DURGA PRASAD RAO + I.T.T.A. NOS.55 AND 71 OF 2014AND W.P.NO.41469 OF 2015 % DATED 16[th] JUNE, 2017 I.T.T.A. NOS.55 AND 71 OF 2014 The Director of Income-tax (International Taxation), Hyderabad .. Appellant (International Taxation), Hyderabad .. Appellant Vs. $ M/s. Vanenberg Facilities BV .. Respondent W.P.NO.41469 OF 2015 Vanenburg Facilities BV .. Petitioner ITTA Nos.55 and 71 of 2014 and the and Mr. T.Bala Mohan ? CASES REFERRED: 1. [2007] 107 ITD 367 (Ahmedabad) 2. (2012) 6 SCC 613 3. ITA No.4672/Mum/2003 and batch dated 08.02.2012 of the Income Tax Appellate Tribunal, Mumbai Bench “J”, Mumbai. 4. [2008] 115 ITD 167 (Mumbai) Income Tax Appellate Tribunal, Mumbai Bench “J”, Mumbai. 4. [2008] 115 ITD 167 (Mumbai) 5. [2010] 122 ITD 216 (Mumbai) 6. [2014] 365 ITR 560 (Bombay) 7. [2011] 133 ITD 543 (Mumbai) 8. ITA Nos.692 and 693 of 2012 dated 22.08.2014 9. [2002] 256 ITR 1 (Delhi) 10. [2010] 320 ITR 561 (SC) 11. 2006 (3) ARBLR 159 (Delhi) 12. 2008 (3) ARBLR 283 (Delhi) 13. AIR 1979 SC 381 14. [2002] 256 ITR 395 (Bombay) 15. [2012] 204 Taxman 363 (Delhi) 16. [2001] 248 ITR 447 (Patna) 17. [2010] 325 ITR 139 (Karnataka) 18. Income Tax Appeal No.2277 of 2013 dated 01.02.2016 19. [2012] 344 ITR 37 (Delhi) 20. [2015] 362 ITR 272 (Delhi) 21. AIR 1963 SC 677 22. [1993] 201 ITR 674 (Karnataka) 23. [2009] 309 ITR 434 (SC) 24. [1967] 63 ITR 232 (SC) 25. [2013] 219 Taxman 19 (Delhi) 26. [2010] 323 ITR 130 (Delhi) 27. (2000) 2 SCC 718 28. (2007) 15 SCC 401 THE HON’BLE SRI JUSTICE SANJAY KUMAR AND THE HON’BLE SRI JUSTICE U.DURGA PRASAD RAO I.T.T.A. NOS.55 AND 71 OF 2014ANDW.P.NO.41469 OF 2015 C O M M O N J U D G M E N T(Per Hon’ble Sri Justice Sanjay Kumar) The two appeals by the revenue under Section 260A of the Income-tax Act, 1961 (for brevity, ‘the Act’) arise out of the common order dated 15.03.2013 passed by the Income Tax Appellate Tribunal, “A” Bench, Hyderabad (hereinafter, ‘the Tribunal’), allowing I.T.A.Nos.739 and 2118/Hyd/2011 filed by Vanenburg Facilities B.V. (hereinafter, ‘the assessee company’) pertaining to the assessment year 2005-06. I.T.T.A.No.55 of 2014 relates to I.T.A.No.2118/Hyd/2011, while I.T.T.A.No.71 of 2014 arises out of I.T.A.No.739/Hyd/2011. W.P.No.41469 of 2015 was filed by the assessee company seeking a direction to the revenue to refund the amount of Rs.49,00,73,615/- along with future interest pursuant to the aforestated common order dated 15.03.2013 and the consequential order dated 28.05.2013 of the Assistant Director of Income Tax (International Taxation)-II, Hyderabad. The assessee company is incorporated in the Kingdom of Netherlands. It has its registered office at Vanenburgerallee, Putten of Netherlands, and is a resident of Netherlands as per Article 4 of the ‘Convention between the Republic of India and the Kingdom of Netherlands for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital’ (hereinafter, ‘the DTAA’). The assessee company made investments in the equity share capital of an Indian company, Baan IT Park India Pvt Ltd., which was incorporated on 02.04.1997. The assessee company invested, in all, a sum of Rs.55,95,12,000/- in the said company from 14.08.1997 to 23.03.2000. The Indian company was renamed as Vanenburg IT Park India Private Limited (hereinafter, ‘VITP Limited’) on 13.12.1999 and became a wholly owned subsidiary of the assessee company. The assessee company made the aforestated investments in the Indian company basing on the approval dated 12.06.1997 granted by the Foreign Investment Promotion Board, Government of India. VITP Limited commenced the business of developing, maintaining and operating an industrial park at Madhapur in Hyderabad after obtaining requisite approvals from the Secretariat for Industrial Assistance, Department of Industrial Policy and Promotion, Government of India. The first phase of the project was completed in June, 2000, and the second phase in August, 2002. During the financial year 2004-05, the assessee company sold all its shares in VITP Limited to Ascendas Property (Fund) India Pte Limited (hereinafter, ‘Ascendas’) for a consideration of Rs.224.50 crore in terms of the Share Purchase Agreement dated 17.12.2004. However, the Memorandum of Understanding dated 20.09.2004 entered into earlier by the assessee company with Ascendas mentioned the sale consideration as Rs.228.00 crore. In any event, the assessee company earned income by way of capital gains upon the sale of the aforestated shares. Before the payment of the entire sale consideration and during the pendency of the application of the assessee company under Section 197 of the Act, order dated 03.01.2005 was passed by the revenue under Section 195(2) of the Act directing Ascendas to deduct tax at source from the remittance of sale consideration and to deposit the same. Consequently, a sum of Rs.35.24 crore was withheld by Ascendas on 02.03.2005 from the payment of Rs.224.50 crore and deposited with the revenue. Further, as a sum of Rs.49,43,750/- was paid to the assessee company by Ascendas towards interest on delayed payment of sale consideration, a sum of Rs.20,67,476/- was deposited by Ascendas with the revenue on 22.03.2005 as tax deducted at source thereon. The assessee company filed its return of income claiming refund of the entire amount deducted towards tax at source and deposited into the Government account. The case of the assessee company before the Assistant Director of Income Tax (International Taxation)-II, Hyderabad, the Assessing Officer (hereinafter, ‘the AO’), was that the transaction giving rise to the aforestated capital gains was not taxable in India as it was covered by Article 13 of the DTAA, which would override the local law, in terms of Section 90 of the Act. In the alternative, the assessee company claimed that as VITP Limited was registered under Section 10(23G) of the Act, the capital gains arising from transfer of its shares were exempt from taxation under the Act. As regards taxability of the interest paid to it by Ascendas, the assessee company claimed that payment and receipt thereof was in Netherlands and could not therefore be said to have accrued or arisen through or from any property in India or from any asset or source of income in India or through transfer of a capital asset situated in India. By assessment order dated 25.02.2008 under Section 143(3) of the Act, the AO rejected all the three claims of the assessee company. As regards the first claim relating to the exemption claimed under the DTAA, the AO examined Article 13 thereof. By assessment order dated 25.02.2008 under Section 143(3) of the Act, the AO rejected all the three claims of the assessee company. As regards the first claim relating to the exemption claimed under the DTAA, the AO examined Article 13 thereof. Article 13 of the DTAA reads as under: ‘CAPITAL GAINS 1.Gains derived by a resident of one of the States from the alienation of immovable property referred to in Article 6 and situated in the other State may be taxed in that other State. alienation of immovable property referred to in Article 6 and situated in the other State may be taxed in that other State. 2.Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of one of the States has in the other State or of movable property pertaining to a fixed base available to a resident of one of the States in the other State for the purpose of performing independent personal services, including such gains from the alienation of such permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State. part of the business property of a permanent establishment which an enterprise of one of the States has in the other State or of movable property pertaining to a fixed base available to a resident of one of the States in the other State for the purpose of performing independent personal services, including such gains from the alienation of such permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State. 3.Gains from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in the State in which the place of effective management of the enterprise is situated. For the purposes of this paragraph, the provisions of paragraph 3 of Article 8A shall apply. international traffic or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in the State in which the place of effective management of the enterprise is situated. For the purposes of this paragraph, the provisions of paragraph 3 of Article 8A shall apply. 4.Gains derived by a resident of one of the States from the alienation of shares (other than shares quoted on an approved stock exchange) forming part of a substantial interest in the capital stock of a company which is a resident of the other State, the value of which shares is derived principally from immovable property situated in that other State other than property in which the business of the company was carried on, may be taxed in that other State. A substantial interest exists when the resident owns 25 per cent or more of the shares of the capital stock of a company. alienation of shares (other than shares quoted on an approved stock exchange) forming part of a substantial interest in the capital stock of a company which is a resident of the other State, the value of which shares is derived principally from immovable property situated in that other State other than property in which the business of the company was carried on, may be taxed in that other State. A substantial interest exists when the resident owns 25 per cent or more of the shares of the capital stock of a company. 5.Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4 shall be taxable only in the State of which the alienator is a resident. However, gains from the alienation of shares issued by a company resident in the other State which shares form part of at least a 10 per cent interest in the capital stock of that company, may be taxed in that other State if the alienation takes place to a resident of that other State. However, such gains shall remain taxable only in the State of which the alienator is a resident if such gains are realised in the course of a corporate organization, reorganization, amalgamation, division or similar transaction, and the buyer or the seller owns at least 10 per cent of the capital of the other. referred to in paragraphs 1, 2, 3 and 4 shall be taxable only in the State of which the alienator is a resident. However, gains from the alienation of shares issued by a company resident in the other State which shares form part of at least a 10 per cent interest in the capital stock of that company, may be taxed in that other State if the alienation takes place to a resident of that other State. However, such gains shall remain taxable only in the State of which the alienator is a resident if such gains are realised in the course of a corporate organization, reorganization, amalgamation, division or similar transaction, and the buyer or the seller owns at least 10 per cent of the capital of the other. 6.The provisions of paragraph 3 shall not affect the right of each of the States to levy according to its own law at tax on gains from the alienation of shares or ‘jouissance’ rights in a company, the capital of which is wholly or partly divided into shares and which under the laws of that State is a resident of that State, derived by an individual who is a resident of the other State and has been a resident of the first-mentioned State in the course of the last five years preceding the alienation of the shares or ‘jouissance’ rights.’ each of the States to levy according to its own law at tax on gains from the alienation of shares or ‘jouissance’ rights in a company, the capital of which is wholly or partly divided into shares and which under the laws of that State is a resident of that State, derived by an individual who is a resident of the other State and has been a resident of the first-mentioned State in the course of the last five years preceding the alienation of the shares or ‘jouissance’ rights.’ The claim of the assessee company was that Article 13(4) and Article 13(5) of the DTAA dealt specifically with capital gains arising from transfer of shares and therefore, unless the transaction fell within the inclusive clauses therein, it could not be taxed in India. The assessee company claimed that in the light of the specific provisions made for capital gains arising out of transfer of shares in Articles 13(4) and 13(5), the same would override the general provisions in the other paragraphs of Article 13. While agreeing with this latter proposition, the AO opined that in the present case the issue related to taxability of capital gains arising from alienation of shares, the value of which was principally derived from immovable property used in the business of such company, whereas Article 13(4) of the DTAA dealt with taxability of gains arising from alienation of company shares, the value of which was principally derived from immovable property other than that used in the business of such company. The AO further observed that there was no dispute regarding non-applicability of Article 13(4), which provided for taxation in India of capital gains in respect of transfer of shares where the value mainly comprised non-business immovable property located in India. The AO further observed that in case the value of the transferred shares comprised mainly business-purpose immovable property located in India, then Article 13(4) would not be applicable and for deciding the taxability of such capital gains, other paragraphs of Article 13 had to be examined. The AO categorically observed that the provisions of Article 13(4) of the DTAA were not applicable to the present facts and that Article 13(5) of the DTAA, being the residuary clause, would be applicable only if the capital gains were not taxable under any other paragraph of Article 13. Holding so, the AO opined that Article 13(1), relating to capital gains arising from alienation of immovable property referred to in Article 6 of the DTAA, would be applicable. Referring to Article 6, the AO observed that immovable property thereunder was to have the same meaning which it would have under the law of the State in which the property in question is situated. The AO then referred to Section 2(47) and Section 269UA(d) of the Act and on the strength of these provisions, she concluded that the shares of VITP Limited partake the character of immovable property under the Act and, therefore, the capital gains arising from alienation of such shares are chargeable to tax in India under Article 13(1) of the DTAA. Coming to the second claim of the assessee company, the AO found that the shares in question were transferred on 02.03.2005, long before the approval and notification of VITP Limited under Section 10(23G) of the Act on 09.12.2005. Though this approval was granted with retrospective effect from 01.04.2002, the AO observed that as the investments made by the assessee company in VITP Limited were between August, 1997 and March, 2000, it could not claim exemption under Section 10(23G) of the Act. Further, she found that, to claim the benefit of Section 10(23G) of the Act, the concern has to be notified under Section 80-IA(4)(iii) of the Act, but industrial parks were included in the ambit of ‘infrastructure facility’ under Section 80-IA(12)(ca) only in the year 2000, relevant to the assessment year 2000-01. The AO therefore concluded that any investment made in VITP Limited prior to 01.04.2002 would not be eligible for exemption under Section 10(23G) of the Act. She further held that the benefit under Section 10(23G) was for attracting ‘further investment’ in the infrastructure sector and thereby, any further investments in old projects were entitled to get benefit thereunder. She therefore limited the applicability of the exemption under Section 10(23G) to ‘further investments’ in the infrastructure sector and not to past investments. Referring to the decision of another Bench of the Tribunal in VBC FERRO ALLOYS LTD. V/s. ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE 3(4), HYDERABAD[1], the AO stated that the same was not accepted by the revenue as an appeal was pending before the High Court and refused to apply the ratio laid down therein. Similarly, reliance placed by the assessee company on Circular No.772/1998 dated 23.12.1998 was rejected on the ground that the investment should have been made after 01.04.1997, being the date of insertion of Section 10(23G) in the statute, but prior to 01.06.1998 in a specified infrastructure facility and as industrial parks were not covered under the definition of ‘infrastructure facility’ at that point of time, the circular did not come to the aid of the assessee company. She also rejected the argument of the assessee company that Section 10(23G) of the Act would apply with reference to the ‘arising of the capital gain’ and not the date of ‘making of the investment’, for availing exemption thereunder. She held that it was the point of investment which would determine the availability of the benefit under Section 10(23G) and not the point of arising of the income. In effect, the AO held that the capital gains arising from the sale of shares of VITP Limited were chargeable to tax in India under Article 13(1) of the DTAA and such gains were not exempt from taxation under Section 10(23G) of the Act. As regards the last limb of the assessee company’s claim with regard to non-taxability of the interest, the AO opined that the interest arose through a transaction involving sale of a capital asset situated in India and would therefore be deemed to have accrued or arisen in India under Section 9(1)(v) of the Act. She accordingly determined the income from capital gains at Rs.156,93,64,751.27, taking the sale consideration as Rs.224.50 crore and upon deducting the acquisition cost (Rs.59,95,12,000/-) and the expenditure incurred in connection with the transfer (Rs.5,27,13,857.87). The total tax payable was quantified at Rs.32,86,48,544/- and after adjusting the tax deducted at source, viz., Rs.35,44,67,476/-, she found Rs.2,58,18,932/- to be refundable to the assessee company. While so, the Deputy Director of Income Tax (International Taxation)-II, Hyderabad, reopened the aforestated assessment under Section 147 of the Act. By draft assessment order dated 29.12.2010, he opined that the sale consideration for transfer of the shares in VITP Limited should be taken as Rs.228.00 crore and not Rs.224.50 crore, as the assessee company could not satisfactorily explain the reason for reduction in the share value. Further, he directed reduction of the cost of acquisition to Rs.55,95,12,000/- and the expenditure incurred towards transfer to Rs.4,09,48,050/-, as expenditure claimed during earlier years had already been debited to the profit & loss account of those years. He calculated tax on the interest income at 40%, treating it as income from other sources. He accordingly worked out the capital gains at Rs.167,95,39,950/- and held the assessee company liable to pay a sum of Rs.3,37,89,697/-. Aggrieved by the assessment order dated 25.02.2008 under Section 143(3) of the Act, the assessee company filed an appeal in I.T.A.No.0078/AC(IT)-II/CIT(A)-V/2010-11 before the Commissioner of Income Tax (Appeals)-V, Hyderabad (hereinafter, ‘the CIT(A)’). As regards the draft assessment order dated 29.12.2010 under Section 147 of the Act, the assessee company raised objections before the Dispute Resolution Panel (DRP), Hyderabad. The assessee company’s appeal was dismissed by the CIT(A) by order dated 25.03.2011. The issues for decision were framed by the CIT(A) as under: (1)Whether the transaction in question, i.e., sale of shares of Indian Subsidiary to the Singapore based company was in principle taxable in India or not? Indian Subsidiary to the Singapore based company was in principle taxable in India or not? (2)If it is taxable, then does it fall under any of the clauses of DTAA between India and Netherlands? DTAA between India and Netherlands? (3)In case, the taxability is still determined then what is the applicability of Section 10(23) in this case? applicability of Section 10(23) in this case? On the first issue, the CIT(A) held that the transaction, being the sale of an Indian asset, was taxable in India. As regards the second issue, the CIT(A) affirmed the finding of the AO that Article 13(1) of the DTAA would be applicable in terms of the definition of ‘immovable property’ in Section 269UA of the Act and other Indian laws. He observed that he had no hesitation in agreeing with the AO that the transaction in question fell within the purview of Article 13(1) of the DTAA and the capital gains arising out of the transfer of shares in question were taxable in India. As regards the second issue, he agreed with the AO that Section 10(23G) of the Act would not come to the aid of the assessee company. He rejected the applicability of the law laid down in VBC FERRO ALLOYS LTD.[1]on the ground that the said judgment did not relate to the specific facts of the appeal before him and could not therefore be applied. He observed that the approval of the Central Board of Direct Taxes was an essential ingredient to claim exemption under Section 10(23G) of the Act and agreed with the AO that such exemption could not be availed by the assessee company as VITP Limited was granted statutory approvals long after investments were made therein by the assessee company. Dealing with the last ground in the appeal relating to the interest income, the CIT(A) held that the interest payment could not be divorced from the original payment, as both pertained to the same transaction, and accordingly upheld the addition made by the AO in that regard. Upon the objections raised by the assessee company, the DRP issued directions under Section 144C(5) of the Act on 20.09.2011. While upholding reopening of the assessment under Section 147 of the Act, the DRP found that the sale consideration could not be taken as Rs.228.00 crore when the actual payment was only Rs.224.50 crore, in terms of the Share Purchase Agreement. The DRP rejected the objection of the assessee company with regard to deduction of the expenditure incurred during earlier years. As regards charging of tax at 40% on the interest income, the DRP directed reassessment by the AO by applying the relevant provisions. The AO was further directed to charge interest under Section 234D only on the refund, if any, under Section 143(1) and not on the refund under Section 143(3). The objections of the assessee company were thus partly accepted. Aggrieved by the dismissal of its appeal by the CIT(A) videthe order dated 25.03.2011, the assessee company filed a further appeal in I.T.A.No.739/Hyd/2011 before the Tribunal. It also filed an appeal in I.T.A.No.2118/Hyd/2011 in relation to the reopening of the assessment under Section 147 of the Act and the directions given by the DRP, Hyderabad, upon such reassessment. Both these appeals were disposed of by the common order dated 15.03.2013 passed by the Tribunal. Perusal thereof reflects that, having disposed of I.T.A.No.739/Hyd/2011 on merits, the Tribunal opined that there was no need to consider the issues in I.T.A.No.2118/Hyd/2011 and allowed the said appeal for statistical purposes. Dealing with the substantial appeal in I.T.A.No.739/ Hyd/2011, the Tribunal observed that the finding of the AO, confirmed in appeal, that Article 13(1) of the DTAA would have application to the transaction in question was unsustainable. Considering the scope of Section 269UA(d) of the Act and the definition of ‘transfer’ under Section 2(47) of the Act, the Tribunal concluded that the definitions of ‘immovable property’ under various provisions of the Act differed and the definition under Section 269UD was only for a specific purpose. The Tribunal therefore opined that the said definition could not be held to be the ‘law of the State’ under Article 6 of the DTAA. Further, the Tribunal held that a share in a company could not be considered to be immovable property in terms of the law laid down by the Supreme Court in VODAFONE INTERNATIONAL HOLDINGS B.V. V/s. UNION OF INDIA[2]. The Tribunal also referred to orders passed by the Authority on Advance Rulings relating to the DTAA and concluded that the assessee company had not sold immovable property or any rights directly attached to immovable property. In effect, the Tribunal held Article 13(1) of the DTAA to be inapplicable. As Article 13(4) could not be invoked because the immovable property of VITP Limited was used in its business, the Tribunal held that the only provision which could be invoked in the circumstances was Article 13(5). As the inclusive clause therein, which would make the transaction in relation to sale of shares taxable in India, did not apply, the Tribunal observed that the residuary paragraph to the effect that gains from alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4 shall be taxable only in the State where the alienator is a resident, would apply. The Tribunal held that as the assessee company sold shares in an Indian company which had business property, Article 13(4) was not applicable and as the assessee company did not sell immovable property or any rights in immovable property in which the shareholders enjoyed ownership as contemplated in Section 269UA(d) of the Act, Article 13(1) was not applicable. Therefore, the assessee company was held entitled, under Article 13(5) of the DTAA, to exemption from taxation of its capital gains in India as the same were taxable in Netherlands. Dealing with the alternate claim of the assessee company that it would be entitled to exemption under Section 10(23G) of the Act, the Tribunal rejected the finding of the AO that the investments made prior to 01-04-2002 by the assessee company were not eligible for exemption thereunder. The Tribunal pointed out that the Act did not provide that such exemption would be applicable only for ‘further investments’. Referring to the objective underlying the introduction of this statutory provision, the Tribunal observed that the provision was an extended benefit for attracting investments in the infrastructure sector and not for attracting ‘further investments’ in existing old infrastructure projects. The Tribunal observed that the Central Government had formulated the Industrial Park Scheme, 1999, notified under SO No.193(E) dated 30.03.1999 and made operational from 1997 itself, for providing tax exemption under Section 80-IA of the Act for setting up industrial parks for the period beginning from 01.04.1997. Reference was made to the amendment of Section 80-IA(4)(iii) of the Act, including industrial parks notified by the Central Government in accordance with the scheme framed and notified for the period beginning on 01.04.1997 and ending on 31.03.2002, and the Tribunal observed that VITP Limited was granted approval by the Central Government on 16.09.1999 under the said scheme for setting up an industrial park. Investment by the assessee company in VITP Limited was therefore held to qualify for exemption under Section 10(23G). Referring to the view taken by the co-ordinate Bench of the Tribunal in VBC FERRO ALLOYS LTD.[1], the Tribunal observed that the AO and the CIT(A) ought not to have denied relief pursuant to the aforestated judgment merely on the ground that the same was not to the liking of the revenue. Reference was made to the judgment of the Mumbai Tribunal in CROMPTON GREAVES LIMITED V/s. JOINT COMMISSIONER OF INCOME-TAX, CIRCLE 6(2), MUMBAI[3], which followed VBC FERRO ALLOYS LTD.[1], and the Tribunal held that the AO and the CIT(A) erred in not extending the exemption provided under the statute to the assessee company on the ground that investments made prior to 01.04.2002 would not be eligible therefor. The Tribunal therefore upheld the assessee company’s claim that its capital gains were exempt from taxation in India, on both counts, i.e., by virtue of the DTAA as well as Section 10(23G) of the Act. Considering the taxability of the interest paid by Ascendas to the assessee company, the Tribunal disagreed with the opinion of the AO and the CIT(A) in this regard. The Tribunal found that 3 ITA No.4672/Mum/2003 and batch dated 08.02.2012 of the Income Tax Appellate Tribunal, Mumbai Bench “J”, Mumbai. Appellate Tribunal, Mumbai Bench “J”, Mumbai. Considering the taxability of the interest paid by Ascendas to the assessee company, the Tribunal disagreed with the opinion of the AO and the CIT(A) in this regard. The Tribunal found that 3 ITA No.4672/Mum/2003 and batch dated 08.02.2012 of the Income Tax Appellate Tribunal, Mumbai Bench “J”, Mumbai. Appellate Tribunal, Mumbai Bench “J”, Mumbai. Section 9(1)(v) of the Act had no applicability and therefore, the interest could not be said to have accrued or arisen or deemed to have accrued or arisen in India. The Tribunal accordingly held that the interest paid by the non-resident to the assessee company abroad was ineligible to be brought to tax under Section 9 of the Act. The opinion of the AO that this interest was paid on account of a transaction involving the sale of a capital asset in India was not accepted by the Tribunal as the said interest was paid by Ascendas to compensate for the delay in remitting the sale consideration and it could not be considered to be part of the sale consideration. The Tribunal further opined that even if it were to be considered as part of the sale consideration, it would be exempt under the DTAA and therefore, either way, the interest received by the assessee company abroad from the non-resident could not be brought to tax in India. In the light of these findings, the Tribunal opined that there was no need to consider the issues raised in I.T.A.No.2118/ Hyd/2011 relating to reopening of the assessment under Section 147 of the Act and the directions of the DRP on such reassessment, as they had become academic in nature. The appeal was accordingly allowed for statistical purposes. It is against the allowing of these two appeals that the present ITTAs were filed by the revenue. In I.T.T.A.No.55 of 2014, the revenue framed the following substantial question of law for consideration: ‘Whether, on the facts and circumstances of the case, the Hon’ble ITAT was correct in allowing the appeal for statistical purposes even without considering on merits the grounds so raised ?’ This appeal is yet to be admitted. I.T.T.A.No.71 of 2014 was admitted on 20.02.2014 for consideration of the following substantial questions of law: 1.Whether on the facts and circumstances of the case, the Hon’ble Income Tax Appellate Tribunal was correct in interpreting Article 13(1) and Article 13(4) of India-Netherlands DTAA, as giving rights to Netherlands and not to the source country, India, where the capital gains arise/accrue to the assessee? Hon’ble Income Tax Appellate Tribunal was correct in interpreting Article 13(1) and Article 13(4) of India-Netherlands DTAA, as giving rights to Netherlands and not to the source country, India, where the capital gains arise/accrue to the assessee? 2.Whether on the facts and circumstances of the case, the Hon’ble Income Tax Appellate Tribunal was correct in interpreting the conditions laid out in Section 10(23G) of the Income Tax Act, 1961, by stating that approval from Central Government as brought out in Finance Act, 1998 and clarified in Circular No. 772 of 1998, dated 23.12.1998, is not necessary at the time of bringing in an investment, to be eligible for the exemption under section 10(23G)? Hon’ble Income Tax Appellate Tribunal was correct in interpreting the conditions laid out in Section 10(23G) of the Income Tax Act, 1961, by stating that approval from Central Government as brought out in Finance Act, 1998 and clarified in Circular No. 772 of 1998, dated 23.12.1998, is not necessary at the time of bringing in an investment, to be eligible for the exemption under section 10(23G)? 3.Whether on the facts and circumstances of the case, the Hon’ble Income Tax Appellate Tribunal was correct in holding that the interest paid by the purchaser on account of delayed payment of sale consideration does not accrue/arise or does not deem to accrue/arise in India or does not partake the character of the sale consideration itself? Hon’ble Income Tax Appellate Tribunal was correct in holding that the interest paid by the purchaser on account of delayed payment of sale consideration does not accrue/arise or does not deem to accrue/arise in India or does not partake the character of the sale consideration itself? Heard Ms. K.Mamata Choudary, learned senior standing counsel for the revenue, and Sri Nishanth Thakkar, learned counsel representing Sri T.Bala Mohan Reddy, learned counsel for the assessee company. Sri Nishanth Thakkar, learned counsel, raised a preliminary objection as to the maintainability of the revenue’s appeal in I.T.T.A.No.71 of 2014. He would contend that it is not open to the revenue to now claim that Article 13(4) of the DTAA would have application as the AO, and thereafter, the CIT(A) specifically held that Article 13(4) of the DTAA had no application to the transaction in question. He would further contend that once the Tribunal disagreed with the conclusion of the AO and the CIT(A) that Article 13(1) of the DTAA had application to the transaction, the revenue necessarily has to limit its appeal to this aspect of the matter and could not now claim that Article 13(4) of the DTAA could be invoked to bring the transaction within the Indian taxation regime. Learned counsel also advanced various contentions on the merits of the matter, including applicability of Section 10(23G) of the Act to the case on hand. However, as the preliminary issue raised by him goes to the very maintainability of this appeal, we deem it appropriate to consider the same at the threshold. At the outset, it may be noticed that Article 13(4) of the DTAA is in two parts. Firstly, it states that gains derived by a resident of one of the States from alienation of shares, other than shares quoted on an approved stock exchange, forming a substantial interest (25%) in the capital stock of a company which is a resident of the other State, the value of which shares is derived principally from immovable property situated in that other State, would be taxed in that other State. This is the inclusive clause whereby the State in which the property is situated gains ascendance. The exclusionary clause however states that in the event value of such shares is derived principally from immovable property in which the business of the company is carried on, the capital gains arising from the sale thereof would not be taxed in the State where the property is situated. Significantly, under show-cause notice dated 23.04.2007, while calling upon the assessee company to furnish its reply as regards the exemption claimed by it under the DTAA, the AO stated as under: ‘VITP is engaged in the business of ‘providing infrastructure facilities for software developmentcompanies under STP scheme’and as part of pursuit of this object VITP has established and the value of the shares of the VITP is derived principally from the said ‘infrastructure facilities of the Software Park’which are leased out to and used by the 100% EOU software companies and thus the same cannot be said to be ‘the’property in which the business of VITP is carried on,though the said Software Park is a business asset of VITP. And since the capital gains in question arise from the sale of shares of VITP, the principal value of which is derived notfrom ‘immovable property in which the business of VITP is carried on’,the same are chargeable to tax in India as per the DTAA. Hence, your claim that the capital gains are not chargeable to tax in India under the Income-tax Act, 1961 is without any merit.’ The import of this notice, therefore, was that the inclusive clause of Article 13(4) of the DTAA would apply, making the capital gains earned by the assessee company taxable in India. In its reply dated 03.05.2007, the assessee company stated that under Article 13(4) of the DTAA, capital gains arising from the sale of shares of an Indian company would be liable to tax in India only if the value of such shares is derived primarily from immovable property held by such Indian company, other than property in which its business is carried on. It pointed out that VITP Limited was engaged in the business of providing infrastructure facilities for software development companies under the STP scheme and pursuant thereto, the value of its shares was derived principally from the said infrastructure facilities/software park which were leased out to and used by the 100% EOU software companies. The assessee company therefore asserted that the immovable property owned by VITP Limited was used for the purpose of its business and therefore, the value of its shares was derived principally from the said immovable property. The capital gains arising from sale of such shares was therefore claimed to be exempt as per the exclusionary clause in Article 13(4) of the DTAA. The assessment order dated 25.02.2008 reflects that this explanation of the assessee company found favour with the AO. This is evident from the fact that the AO observed, time and again, that there was no dispute regarding non-applicability of Article 13(4), which ‘merely provided for taxation in India of capital gains in respect of transfer of shares whose value mainly comprised non-business immovable property located in India’ and that the provisions of Article 13(4) were therefore not applicable to the present facts. Having opined so, the AO went on to hold that such transfer of shares would fall within Article 13(1) of the DTAA as the shares partake the character of immovable property. Basing on the initial interpretation of Article 13(4) by the AO and the change in her views, after considering the reply of the assessee company, Sri Nishanth Thakkar, learned counsel, would contend that once the said changed view was confirmed in appeal by the CIT(A), it was not open to the Director of Income-tax, (International Taxation), Hyderabad, the appellant in this appeal, to urge an argument which would result in varying the said finding in the assessment order which was confirmed in appeal. Learned counsel would contend that permitting him to do so at this stage would be nothing short of allowing him to exercise revisionary jurisdiction under Section 263 of the Act. Learned counsel would point out that the same is barred by the law of limitation as the Basing on the initial interpretation of Article 13(4) by the AO and the change in her views, after considering the reply of the assessee company, Sri Nishanth Thakkar, learned counsel, would contend that once the said changed view was confirmed in appeal by the CIT(A), it was not open to the Director of Income-tax, (International Taxation), Hyderabad, the appellant in this appeal, to urge an argument which would result in varying the said finding in the assessment order which was confirmed in appeal. Learned counsel would contend that permitting him to do so at this stage would be nothing short of allowing him to exercise revisionary jurisdiction under Section 263 of the Act. Learned counsel would point out that the same is barred by the law of limitation as the provision itself indicates that such power could be exercised only within two years from the end of the financial year in which the order was passed. Learned counsel would state that the statutory provisions which permit varying the findings in an assessment order are: (i) Section 147, (ii) Section 154 and (iii) Section 251. As the AO had taken a conscious decision that Article 13(4) had no application to the present case, reversing her initial interpretation of Article 13(4) as set out in the notice dated 23.04.2007, learned counsel would assert that neither Section 147 relating to reopening the assessment nor Section 154 relating to rectification of mistakes had any role to play. Learned counsel would point out that under the Explanation to Section 251(2), the CIT(A) was empowered to consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before him. Learned counsel would further point out that under Section 250(1) of the Act, the AO was given notice of the appeal to be heard by the CIT(A) and had the right to raise this issue, if any doubt was entertained by the AO as regards applicability of Article 13(4) of the DTAA to the present case. He would therefore contend that the AO and the CIT(A) had ample opportunity to seek to undo the finding as regards non-applicability of Article 13(4) of the DTAA to the transaction in question but they failed to do so. It may be noticed that even in the report submitted to the CIT(A), the AO reiterated that, by transferring shares held in VITP Limited to Ascendas, the assessee company transferred its controlling rights and the rights of enjoyment in respect of immovable property situated in India, whereby Article 13(1) of the DTAA stood attracted. The CIT(A) accordingly restricted his consideration to whether the income from the transaction in question was taxable within the meaning of Article 13(1) of the DTAA and, while upholding the finding of the AO as regards non-applicability of Article 13(4), he confirmed applicability of Article 13(1) of the DTAA to the transaction. In effect, neither the AO nor the CIT(A) chose to raise the issue as to applicability of Article 13(4) to the transaction, in the place of Article 13(1) of the DTAA. The confirmed finding of both was that the transaction in question was taxable in India only under Article 13(1) of the DTAA. DTAA stood attracted. The CIT(A) accordingly restricted his consideration to whether the income from the transaction in question was taxable within the meaning of Article 13(1) of the DTAA and, while upholding the finding of the AO as regards non-applicability of Article 13(4), he confirmed applicability of Article 13(1) of the DTAA to the transaction. In effect, neither the AO nor the CIT(A) chose to raise the issue as to applicability of Article 13(4) to the transaction, in the place of Article 13(1) of the DTAA. The confirmed finding of both was that the transaction in question was taxable in India only under Article 13(1) of the DTAA. It may also be noted that Section 253(4) of the Act empowered the AO to file cross-objections before the Tribunal after receipt of notice in the appeals filed by the assessee company and raise the issue as to applicability of Article 13(4) of the DTAA, if any doubt had been entertained in this regard at least at that stage. However, the AO did not choose to do so. It is only before this Court that the issue is sought to be raised now, having been dropped by the AO after the initial notice dated 23.04.2007. No argument in this regard was ever advanced by the departmental representative on behalf of the revenue before the Tribunal. In that view of the matter, the submission of Sri Nishanth Thakkar, learned counsel, that permitting the revenue to argue at this stage that capital gains arising from the transaction in question are taxable under Section 13(4) of the DTAA would amount to circumventing restrictions built into the statute to secure finality to the assessment order, merits serious consideration. An abundance of case law was cited by Sri Nishanth Thakkar, learned counsel, in support of his contention: In ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 16(1), MUMBAI V/s. PRAKASH L.SHAH[4], the Mumbai Bench of the Income Tax Appe