Case Law Details
Petitioner, a private limited company registered in Scotland. Petitioner during the period relevant to the assessment year 2010-11 had transferred 4,36,00,000 equity shares of Rs.10/- each of Cairn India Limited to Petronas International Corporation Limited, Malaysia for consideration of US$ 241,426,379. This transaction dated 12th October, 2009, pursuant to an agreement dated 14th October, 2009, was an off market transaction i.e. not through a stock exchange. The transaction resulted in long-term capital gain of US$ 85,584,251 in the hands of the petitioner, after applying the benefit under first proviso to Section 48 of the Income Tax Act, 1961 (Act, for short). The question raised relates to the rate of tax applicable/payable on the long term capital gains earned.
There is some merit in the contention that if proviso to Section 112(1) is applied, then almost all assessees covered by the first proviso to Section 48 would be liable to pay tax @ 10% only and not @ 20% on long-term capital gains. This appears to be correct and a logical consequence of the proviso to Section 112(1) and the interpretation given by us, but this cannot be a ground to contextually read the proviso to Section 112(1) differently. The said proviso is applicable to listed securities or units or zero coupon bonds. Long-term capital gain is not payable on listed securities sold through stock exchanges as STT is payable. First proviso to Section 48 is applicable on sale of shares or debentures in Indian company, whether or not the said shares or debentures are listed or not. Thus, proviso to Section 112(1) is more restrictive and will not necessarily apply in all cases covered by the first proviso to Section 48. Secondly, the proviso to Section 112(1) is not applicable to debentures. Nevertheless, the proviso to Section 112(1) is applicable to units and zero coupon bonds, which are not covered by the first proviso to section 48 of the Act. Second proviso to Section 48 is not applicable on transfer of long-term capital asset being bond, debenture other than the capital index bond. Zero coupon bonds are, however, specifically made eligible for benefit under the proviso to Section 112(1).
It is clear from the aforesaid discussion that it is not possible to decipher and clearly elucidate the exact legislative purpose and object behind the proviso to Section 112(1) in a categorical and unambiguous manner. The purpose and object behind the proviso to Section 112(1) itself is somewhat debatable, except that the legislative intention was to tax long-term capital gain on listed shares, bonds and units @ 10%, without benefit of indexation under second proviso to Section 48 of the Act. Legislative policy and object is nothing more, and it is impermissible to read into the said provision an affirmative legislative intention on assumption and guess work and this would be beyond the acceptable principles of interpretation.
There is another aspect which should be taken into consideration and not ignored. Decision in the case of Timkin France SAS (Supra) was pronounced on 1st October, 2007, which has been followed by AAR in several cases over the last 3-4 years. Several decisions of AAR have been accepted by the Revenue on merits. We are informed that there are six such decisions and only in one case Revenue has challenged the decision of AAR. The decision of AAR in the present case dated 1st August, 2011, taking a diametrically reverse view has brought about an uncertainty in understanding the impact and the effect of the proviso to Section 112(1). Certainty is integral to rule of law. Certainty and stability form the basis foundation of any fiscal laws. Highlighting this fact in Vodafone International Holding B.V. Vs. Union of India, [2012] 341 ITR 0001, the Supreme Court has observed that foreign direct investment flows towards a location with a strong governance infrastructure which includes enforcement of laws and how well the legal system work. There should be consistency and uniformity in interpretation of provisions as uncertainties can disable and harm governance of tax laws. Authority should follow their earlier view, unless there are strong grounds and reasons to take a contrary view, but in the present case there is no compelling justification and reason to override and disturb the earlier view.
With the aforesaid observations, we allow the present writ petition and a writ of certiorari is issued and the impugned decision dated 1st August, 2011 passed by the Advance Ruling Authority in AAR No. 950/2010 is quashed. It is declared that the petitioner will be entitled to benefit of proviso to Section 112(1) of the Act on sale of equity shares in question. This direction is being issued as it is not disputed and contested before us that other conditions of first proviso to Section 112(1) of the Act are satisfied. –
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