Goldman Sachs (I) Securities (P) Ltd. v. ITO

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The Tax Publishers2016 TaxPub(DT) 1276 (Mum-Trib) Goldman Sachs (India) Securities (P) Ltd. v. ITO INCOME TAX ACT, 1961 --Tax deduction at source--Assessee-in-default No TDS on buy back of shares--Assessee company was wholly-owned subsidiary of its holding company (H). Assessee had remitted a certain sum to H under a buyback scheme. No tax was deducted on such remittance. AO alleged buy back was just a distribution of its accumulated profits without paying dividend distribution tax. It is covered under section 2(22)(d), deemed dividend and as no dividend distribution tax had been paid, it was taxable in the hands of H. As assessee had paid certain same to H without deducting tax, it was held as assessee-in-default. *Held:* Buy back of shares are different from reduction of shares capital and, therefore, it could not be characterised as deemed dividend. Profit arising from buyback had to be taxed under capital gains. As per DTAA, capital gain would not be taxed in hands of H and, therefore, no TDS was deductible. Assessee would not be treated as assessee-in-default. Income Tax Act, 1961, Section 201 *REFERRED :* FAVOUR : In assessee's favour A.Y. : 2011-12 IN THE ITAT, MUMBAI 'L' BENCH RAJENDRA, A.M. & RAM LAL NEGI, J.M. Goldman Sachs (India) Securities (P) Ltd. v. ITO ITA No. 3726/Mum/2015 A.Y. 2011-12 12 February, 2016 Assessee by: Percy Pardiwala/Aarti Sathe Revenue by: Jasbir Chauhan, DR ORDER *Rajendra, A.M.* Challenging the order dated 16-3-2014 of the Commissioner (Appeals)-56, Mumbai the Assessee has filed the present appeal. Effective ground of appeal is about treating the appellant an assessee in default (A-I-D) under section 201(1) of the Act and charging of interest under section 201(1A) of the Act; Brief Facts: The assessee is a wholly owned subsidiary of Goldman Sachs (Mauritius) LLC (GS-M). It was set up to undertake merchant banking and security business in India. Registered under the STPI scheme, the it had set up a 100% export oriented unit in Bangalore to serve as a global support centre for the Goldman Sachs Group entities. On 24-11-2010, the assessee had remitted an amount Rs. 1,88,99,97,781 to GS-M under a buyback of shares scheme, whereby 4,03,93,199 equity shares having face value of Rs.10 each were bought back from GS-M by the assessee @ Rs. 46.79per share. Taking into account the face value of Rs. 10 per share, the assessing officer in his order, passed under sections 201(1) and 201(1A) read with section 195 of the Act, on 27-1-2014 held that the excess payment of Rs. 36.79 per equity share for 4,03,93,199 shares bought back amounting to Rs. 1,48,60,65,791 was nothing but its distribution of its accumulated profits to its ultimate beneficiary and the only shareholder i.e. GS-M, that the buyback of equity shares by the assessee from its holding company was a colourable transaction to avoid the payment of dividend distribution tax (DDT). The excess payment of Rs. 1,48,60,65,791 was held by the assessing officer to be in the nature of dividend as per provisions of section 2(22)(d) of the Act. As the assessee had not deducted any DDT under section 115 of the Act, such dividend income was found by the assessing officer not to qualify for exemption under section 10(34) of the Act and therefore, was taxable in the hands of the recipient GS-M, namely. He further held that on remittance of such amount to a non-resident representing its income by way of dividend, tax deduction was required to be made under section 195 of the Act. As the assessee company had not deducted any tax while making such remittance, it was held to be an 'assessee in default' in terms of the provisions of section 201 of the Act. Further, the assessee was also found to be liable to pay simple interest under section 201(1A) of the Act. Tax at the rate of 5% of the gross amount of such dividend was determined by the assessing officer as payable by the assessee in terms of para 2(a) of Article 10 of the India Mauritius Tax-Treaty. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2016 TaxPub(DT) 1276 (Mum-Trib)

Goldman Sachs (India) Securities (P) Ltd. v. ITO

INCOME TAX ACT, 1961

--Tax deduction at source--Assessee-in-default No TDS on buy back of shares--Assessee company was wholly-owned subsidiary of its holding company (H). Assessee had remitted a certain sum to H under a buyback scheme. No tax was deducted on such remittance. AO alleged buy back was just a distribution of its accumulated profits without paying dividend distribution tax. It is covered under section 2(22)(d), deemed dividend and as no dividend distribution tax had been paid, it was taxable in the hands of H. As assessee had paid certain same to H without deducting tax, it was held as assessee-in-default. Held: Buy back of shares are different from reduction of shares capital and, therefore, it could not be characterised as deemed dividend. Profit arising from buyback had to be taxed under capital gains. As per DTAA, capital gain would not be taxed in hands of H and, therefore, no TDS was deductible. Assessee would not be treated as assessee-in-default.

Income Tax Act, 1961, Section 201

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2011-12

IN THE ITAT, MUMBAI 'L' BENCH

RAJENDRA, A.M. & RAM LAL NEGI, J.M.

Goldman Sachs (India) Securities (P) Ltd. v. ITO

ITA No. 3726/Mum/2015

A.Y. 2011-12

12 February, 2016

Assessee by: Percy Pardiwala/Aarti Sathe

Revenue by: Jasbir Chauhan, DR

ORDER

Rajendra, A.M.

Challenging the order dated 16-3-2014 of the Commissioner (Appeals)-56, Mumbai the Assessee has filed the present appeal. Effective ground of appeal is about treating the appellant an assessee in default (A-I-D) under section 201(1) of the Act and charging of interest under section 201(1A) of the Act;

Brief Facts:

The assessee is a wholly owned subsidiary of Goldman Sachs (Mauritius) LLC (GS-M). It was set up to undertake merchant banking and security business in India. Registered under the STPI scheme, the it had set up a 100% export oriented unit in Bangalore to serve as a global support centre for the Goldman Sachs Group entities. On 24-11-2010, the assessee had remitted an amount Rs. 1,88,99,97,781 to GS-M under a buyback of shares scheme, whereby 4,03,93,199 equity shares having face value of Rs.10 each were bought back from GS-M by the assessee @ Rs. 46.79per share. Taking into account the face value of Rs. 10 per share, the assessing officer in his order, passed under sections 201(1) and 201(1A) read with section 195 of the Act, on 27-1-2014 held that the excess payment of Rs. 36.79 per equity share for 4,03,93,199 shares bought back amounting to Rs. 1,48,60,65,791 was nothing but its distribution of its accumulated profits to its ultimate beneficiary and the only shareholder i.e. GS-M, that the buyback of equity shares by the assessee from its holding company was a colourable transaction to avoid the payment of dividend distribution tax (DDT). The excess payment of Rs. 1,48,60,65,791 was held by the assessing officer to be in the nature of dividend as per provisions of section 2(22)(d) of the Act. As the assessee had not deducted any DDT under section 115 of the Act, such dividend income was found by the assessing officer not to qualify for exemption under section 10(34) of the Act and therefore, was taxable in the hands of the recipient GS-M, namely. He further held that on remittance of such amount to a non-resident representing its income by way of dividend, tax deduction was required to be made under section 195 of the Act. As the assessee company had not deducted any tax while making such remittance, it was held to be an 'assessee in default' in terms of the provisions of section 201 of the Act. Further, the assessee was also found to be liable to pay simple interest under section 201(1A) of the Act. Tax at the rate of 5% of the gross amount of such dividend was determined by the assessing officer as payable by the assessee in terms of para 2(a) of Article 10 of the India Mauritius Tax-Treaty.