Case Law Details
Cognizant Technology Solutions India Pvt. Ltd. Vs DCIT (Madras High Court)
Conclusion: Shares purchased pursuant to the order of Company Court would not amount to capital gain and rather to be treated as a dividend.Whenever a company distributes its profits to its shareholders, the profit so disbursed, will amount to dividend and Dividend Distribution Tax at 15% was required to be paid by assessee u/s 115O.
Held:
During the year 2016 under the Scheme of Arrangement and Compromise, assessee planned to purchase its own shares u/s 391 to 393. The gain arising to the shareholders in the course of buy-back was offered to taxation as capital gain as per the treaty relief and a total of Rs.898.01 Crores was paid as capital gain tunder Section 46A to the Department by assessee. Department held that the buy-back of share u/s 391 of the Indian Companies Act was nothing but the distribution of accumulated profit and it had to be treated as dividend u/s 2(22)(d) and Dividend Distribution Tax at 15% was required to be paid by assessee u/s 115O. Assessee alleged that during the year 2017, the I.T. Department attempted to tax the 2013 buy-back as an income from other sources in the hands of assessee’s shareholders and AO proceeded to pass a Draft Assessment Orders against its shareholders and the orders were under challenge in W.P.Nos.1244 & 1245 of 2018. In view of the same, assessee approached the Authority for Advance Rulings and filed an application under Section 245Q in relation to the buy-back of shares in the year 2016. AO was required to answer whether section 115 O mandated issuance of show-cause notice, enquiry before passing a final order, whether AO was prohibited from issuing the impugned order in the light of the bar prescribed in Section 245 RR and whether the writ petition was maintainable. It was held unless the law requires, AO need not issue notice before making a demand under Section 115 O. The parliament in its wisdom brought amendments to the Finance Act and inserted Section 115 O to 115 Q with effect from 01.06.1997 (Special Provisions) to achieve an object. If any other view is taken, then the Special Provisions under Chapter XIV would become redundant and it would be opening a pandor as box. It was not disputed that assessee approached the Authority for Advance Rulings only on 20.03.2018, when the issue was pending before AO. Section 245R of the Act makes it clear that if the enquiry is already pending before the Assessing Officer, the Authority for Advance Rulings has no jurisdiction to entertain the application. Hence, the impugned order did not stand in view of the bar under Section 245 RR. Also, it was relevant to note that in the Company Petition in C.P.No.102 of 2016, in Clauses 6.6 and 6.7, it was stated that the provisions of Section 2(22) or Section 115 O or Section 115QA were not applicable to the purchase of equity shares by the Company from its shareholders and the Scheme of Arrangement and Compromise should not be treated or considered as a “capital reduction” under the provisions of Section 100 of the Companies Act, or a “buy-back” under the provisions of Section 68 of the Companies Act. However, while approving the Scheme, as observed above, the Company Court had categorically held that “this order will no be construed as an order granting exemption from payment of stamp duty or, taxes or, any other charges, if any, payable, as per the relevant provisions of law”. Whenever a Company distributes its profits to its shareholders, the profit so disbursed, will amount to dividend.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
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