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The Tax Publishers Accordis Beheer BV v. DIT [IT Appeal Nos. 4688 & 5025 (Mum.) of 2010, dt. 13-1-2016] : 2016 TaxPub(DT) 1107 (Mum-Trib) Whether buy back is a scheme of reorganization is entitled to DTAA benefit under Indo Netherlands DTAA article 13(5) Facts Assessee a dutch non-resident held 38.24% of shares of Century Enka a public listed company. During assessment year 2006-07 the assessee in a scheme of substantial buy back under section 390 of the Companies act under a court order sold About 30% of their holdings at a premia to Century Enka. Assessee claimed the benefit of Indo-Netherlands DTAA article 13(5) which says taxability of capital gains is only at Netherlands and not in India in a scheme of re-organization. Assessing officer negated the benefit citing that the buy back was not a re-organization instead of going through section 77A of the Companies act it has gone through a court order under section 391 thus is not eligible for the said capital exemption under the clause. Concessional rate of capital gains under section 112 was also denied. Commissioner (Appeals) upheld the views of the assessing officer. On further appeal to ITAT by assessee :-- Held in favour of the revenue that the assessee is not eligible for capital gains exemption under article 13(5) of the Indo-Netherlands DTAA. However concessional rate of capital gains @ 10% is available to assessee. Article 13(5) of Indo Netherlands treaty runs as under :-- Gains from the alienation of any property other than that referrred 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 other state of which, shares form part of at least 10 percent interest in the capital stock of the 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 realized in the course of a corporate organization, reorganization, amalgamation, division or similar transaction and the buyer or the seller owns at least 10 percent of the capital of the other. The red script was departments reading, the black underlined was assessees reading. The ITAT upheld the departmental reading on grounds that buy back was not a reorganizaiton after referring to the meaning of reorganization. *Author's Note:* The ITAT did not peruse the fact that buy back of more than 10% requires court approval and cannot be done through section 77A but only through section 100-104 of the Companies Act, 1956. The recent decision of Goldman Sachs (India) Securities Pvt. Ltd. v ITO (Intl. taxation) ITA No. 3726/Mum/2015/assessment year 2011-12/dated 12-2-2016 gave a reading that buy back will not be hit by section 2(22)(d) as section 2(22)(iv) exists specific to buy back of shares. Goldman Sachs is dated 12-2-2016 so no way could have been cited before the ITAT unfortunately. The decision of Capgemini India Pvt. Ltd. (Company Scheme Petition No.434 of 2014 dated 28-4-2015) was not cited in this case, perhaps had the ITAT read that decision the answer might have been otherwise as the fact of buy back under section 100-104 of Companies act, 1956 read with section 390 is a form of reorganization of capital/reduction of capital.

The Tax Publishers

Accordis Beheer BV v. DIT [IT Appeal Nos. 4688 & 5025 (Mum.) of 2010, dt. 13-1-2016] : 2016 TaxPub(DT) 1107 (Mum-Trib)

Whether buy back is a scheme of reorganization is entitled to DTAA benefit under Indo Netherlands DTAA article 13(5)

Facts

Assessee a dutch non-resident held 38.24% of shares of Century Enka a public listed company. During assessment year 2006-07 the assessee in a scheme of substantial buy back under section 390 of the Companies act under a court order sold

About 30% of their holdings at a premia to Century Enka. Assessee claimed the benefit of Indo-Netherlands DTAA article 13(5) which says taxability of capital gains is only at Netherlands and not in India in a scheme of re-organization. Assessing officer negated the benefit citing that the buy back was not a re-organization instead of going through section 77A of the Companies act it has gone through a court order under section 391 thus is not eligible for the said capital exemption under the clause. Concessional rate of capital gains under section 112 was also denied. Commissioner (Appeals) upheld the views of the assessing officer. On further appeal to ITAT by assessee :--

Held in favour of the revenue that the assessee is not eligible for capital gains exemption under article 13(5) of the Indo-Netherlands DTAA. However concessional rate of capital gains @ 10% is available to assessee.

Article 13(5) of Indo Netherlands treaty runs as under :--

Gains from the alienation of any property other than that referrred 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 other state of which, shares form part of at least 10 percent interest in the capital stock of the 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 realized in the course of a corporate organization, reorganization, amalgamation, division or similar transaction and the buyer or the seller owns at least 10 percent of the capital of the other.

The red script was departments reading, the black underlined was assessees reading. The ITAT upheld the departmental reading on grounds that buy back was not a reorganizaiton after referring to the meaning of reorganization.

Author's Note: The ITAT did not peruse the fact that buy back of more than 10% requires court approval and cannot be done through section 77A but only through section 100-104 of the Companies Act, 1956. The recent decision of Goldman Sachs (India) Securities Pvt. Ltd. v ITO (Intl. taxation) ITA No. 3726/Mum/2015/assessment year 2011-12/dated 12-2-2016 gave a reading that buy back will not be hit by section 2(22)(d) as section 2(22)(iv) exists specific to buy back of shares. Goldman Sachs is dated 12-2-2016 so no way could have been cited before the ITAT unfortunately.

The decision of Capgemini India Pvt. Ltd. (Company Scheme Petition No.434 of 2014 dated 28-4-2015) was not cited in this case, perhaps had the ITAT read that decision the answer might have been otherwise as the fact of buy back under section 100-104 of Companies act, 1956 read with section 390 is a form of reorganization of capital/reduction of capital.