Seaview Developers Private Limited Vs DCIT (ITAT Delhi)
Summary: ITAT Delhi allowed the appeal of Seaview Developers Private Limited and dismissed the Revenue’s cross appeal for AY 2017-18. The Tribunal held that a court-approved reduction of share capital under sections 100 to 104 of the Companies Act, 1956 could not be rechristened as a buyback merely to levy tax under section 115QA of the Income-tax Act. It noted that capital reduction and buyback are separately recognised transactions with different statutory procedures and consequences. In the assessee’s case, 36,768 shares held by its Singapore shareholder were cancelled pursuant to a scheme approved by the Bombay High Court. The accumulated-profit component had already suffered dividend distribution tax under section 2(22)(d) read with section 115-O, while the shareholder had offered the balance transaction to capital gains tax. Applying the “look at” principle recognised in Vodafone International Holdings B.V. v. Union of India, the Tribunal rejected the allegation that the arrangement was a colourable device. It further deleted disallowance of interest on borrowings used for capital reduction, holding that restructuring the capital by replacing costly equity with cheaper borrowed funds was supported by commercial expediency and fell within section 36(1)(iii).
Interest on Compulsorily Convertible Debentures issued to the Singapore investor was also allowed because the assessee had furnished documentary evidence establishing identity, creditworthiness and genuineness, and CCDs retained the character of debt until conversion. In the Revenue’s appeal, the Tribunal sustained deletion of the property-management-fee disallowance and the addition relating to excess Common Area Maintenance collections recorded as advances from customers. Consequently, the assessee’s appeal was allowed and the Revenue’s appeal dismissed.
