आदेश / O R D E R P ER PRABHASH SHANKAR [A.M.] :-
The present appeal emanating from the appellate order dated 12.04.2025 is preferred by the Revenue against the order passed by the Learned Commissioner of Income-tax, Appeal, CIT(A) - 58, Mumbai [hereinafter referred to as "CIT(A)"] pertaining to the order passed u/s. 201(1)/201(1A) of the Income-tax Act, 1961 [hereinafter referred to as
"Act"] for the Assessment Year [A.Y.] 2006-07.
1
2. The grounds of appeal are as under:
1. "Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in holding that the assessee was not liable to deduct tax at source u/s 195 of the Act on payments made to New Cingular Wireless Services Inc, LJSA and. MMM Holdings LLC, USA. on the ground that payment did not constitute income u/s 9(1)(i) of the Act or under the relevant DTAA?"
2. "Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in not taking into account that the payments made by the assessee to New Cingular Wireless Services Inc., USA and MMM Holdings LLC, USA are indirect accrual of income of US companies in India and this income is deemed to accrue/arise in India as per section 9(1)(i) of the Act?
3. "Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in holding that transfer of shares of the foreign company holding immovable property in India would not be covered under „indirect transfer"?
4. "Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in not considering that AT & T Cellular Pvt Ltd/Apex Investments (Mauritius) Holdings Pvt. Ltd had no substance and the US Companies have effectively sold the shares of Idea Celluar Ltd. and not the shares of a company based in Mauritius and the filings before the Securities and Exchange Commission, USA, clearly shows that AT&T Cellular (P) Ltd, Mauritius, had no substance and the US companies have for all practical purposes made investments only in Idea Cellular Ltd?
5. "Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in not considering the amendment made in Income Tax Act, 1961 by inserting Explanation 4 and 5 to section 9(1)(i), retrospectively covering indirect transfers and is applicable from 01.04.1962 onwards settling the decision of the Supreme Court in the case of Vodafone International Holdings B.V Vs. UOI (341 ITR 1)?"
3. According to the impugned order the assessee, in September, 2005, made payments of USD 105 million and USD 45 million to New Cingular Wireless Services Inc., U.S.A. and MMM Holdings LLC, U.S.A. without deduction of tax at source in India. No authorization/certificate
2
was obtained from the Assessing Officer before making this payment. Based on inputs from the Foreign Tax Division(FTD) - II of the CBDT and based on information requisitioned from the assessee,it was apprehended that these two US companies might be chargeable to tax in India and assessee defaulted in not deducting Withholding Tax before making payments to them. According to the AO,there were basically three issues involved in this case: (a) Whether a certificate or authorization from the AO u/s 195(2) of the Act should have been taken before making payment of USD 150 million to New Cingular Wireless Services, Inc. and MMM Holdings LLC or alternatively, the payment should not have been made unless an authorization is taken by the recipients under sections 195(3) or 197 of the Act,b)Whether income of the said U.S. companies was chargeable to tax in India under section 9(1)(i) of the Act and whether the same was taxable in India under the Double Taxation Avoidance Agreement between India and U.S.A.? (c) What would be the quantum of capital gains chargeable to tax in India, if any, and what should be the rate of withholding in India, if any? The assessee was asked to submit its reply on the abovementioned three issues.
3.1 Before moving further,the AO examined the historical background of various deals and agreements germane to the impugned
3
issue and the parties involved therein indicative of the fact that the income of the said companies was indeed taxable in India. Facts of the case as noted by him show that AT&T Corporation,US entered into a Joint Venture Agreement on 5th December, 1995, with Grasim Industries Ltd.for provision of wireless telecommunications services in India. The JV company, Birla AT&T Communications Ltd. (BACL) signed „License Agreements" with the Department of Telecommunications, Government of India, on 12thDecember, 1995 for providing services in the Maharashtra and Gujarat telecom circles. AT&T Communications Ltd. made investments in the joint venture company through a company based in Mauritius, namely AT&T Cellular Pvt. Ltd.
3.2AT&T Wireless Services Inc., Grasim Industries Ltd. (Birla Group) and Tata Industries Ltd. (Tata Group) entered into a shareholders agreement on 15thDecember, 2000, pursuant to which the parties agreed to merge Tata Cellular Ltd. with BACL. The merger took place on 17th October, 2001 and the name of the merged entity was changed to Birla Tata AT&T Limited. The new company was a three way joint venture between Birla Group, Tata Group and AT&T Group having equal interest inthe joint venture. With the merger, the company acquired the license issued to Tata Cellular Ltd. for the telecom circle of Andhra
4
Pradesh. In February, 2001, BACL acquired RPL Cellcom Ltd. (renamed as BTA Cellcom Ltd.), the mobile operator in Madhya Pradesh, which became its wholly owned subsidiary. BACL acquired the license for Delhi Circle during the fourth mobile license auction in October, 2001. In June, 2004, Birla AT&T Ltd. acquired Escotel Ltd. having licenses in the telecom circles of Haryana, UP(E) and Kerala. Agreement for acquiring Escorts Telecommunications Ltd. was also signed in June, 2004 (completed in June, 2006) having telecom licenses in Himachal Pradesh, Rajasthan and UP(E) circles. In October, 2004, Cingular Wireless acquired AT&T Wireless Services Inc. and renamed it as New Cingular Wireless Services Inc. AT&T Cellular Pvt. Ltd., Mauritius, at this point of time, was owned by two U.S.A. companies viz. New Cingular Wireless Services Inc. and MMM Holdings LLCby joint venture. In July, 2005, New Cingular Wireless Services Inc. received an offer from India Televentures Ltd. (an unrelated party) to purchase 743,561,480 equity shares of Idea Cellular Ltd. at a price of USD 0.4035 per share. This offer was communicated by Cingular Wireless to both of its joint venture partners, viz., Grasim Industries Ltd. and Tata Industries Ltd. under the „Right of First Refusal" clause of the shareholders agreement dated 15th December, 2000. Both Grasim Industries Ltd. (acting on behalf of Birla Group) and Tata Industries Ltd.
5
agreed that they will purchase the shares from New Cingular Wireless Services Inc. at the offer price of USD 0.4035 per share. Indian Rayon and Industries Ltd. on behalf of Birla Group entered into an agreement with AT&T Cellular Private Ltd., Mauritius and New Cingular Wireless Services Inc. on 28th September, 2005, for purchase of 371,561,740 equity shares of Idea Cellular Ltd. held by AT&T Cellular Private Ltd., Mauritius. Tata Industries Ltd. entered into an agreement on 28th September, 2005 with New Cingular Wireless Services Inc. and MMM Holdings LLC for „purchase of theshares of AT&T Cellular Private Ltd., Mauritius. It was claimed by the Tata Industries Ltd. that the payment had been made for acquiring a wholly owned subsidiary in Mauritius and any consideration paid for such acquisition was not chargeable to tax in India. After exit of AT&T Group, Birla Group, in letters to Department of Telecommunications alleged serious breach of license conditions by Tata Group which exited from Idea Cellular Ltd. in June, 2006.Over the years, information had been filed before the Securities and Exchange Commission, USA indicating that business was being carried out in India and not Mauritius.
3.3 The JVA was entered between BIRLA GROUP and AT&T Corporation on 5th December, 1995. The relevant extracts from the Joint Venture Agreement were reproduced in the impugned order
6
elaborately and after deeply analysing the same,the AO concluded that the income of New Cingular Wireless Services Inc., U.S.A. and MMM Holdings LLC, U.S.A. arising from the sale of their stake in Idea Cellular Ltd. was chargeable to tax in India under section 9(1)(i) of the Act. The assessee Tata Industries Ltd. had, therefore, committed a default in making payments to these US companies without deduction of tax at source in India as required under section 195 of the Act and thus was treated as an assessee in default under section 201(1) of the Act and also a defaulter with respect to interest payable under section 201(1A) of the Act.
3.4 The AO further observed that as per Article 13 of the Double Taxation Agreement between India and U.S.A., each contracting state may tax capital gains in accordance with the provisions of its Domestic law. Since, the Capital Gains earned by U.S. companies became taxable as per Indian domestic law, no treaty benefit was available in this case.He further worked out the quantum of Capital Gains on the said transaction though admittedly on tentative basis based on the materials available with him on records as the assessee did not provide necessary details despite specific request.The AO observed that for all practical purposes the US companies had made investments in Idea Cellular Ltd. and not in the shares of AT&T Cellular Pvt. Ltd.The resulting capital
7
gains from the sale of 371,780,740 shares of Idea Cellular Ltd. was worked out to be Rs. 1,670,209,826/-. Applying a Withholding tax rate of 20.91%, the tax payable by the assesseeu/s 201(1) was determined at Rs. 349,240,875/-. Interest payable under section 201(1A) upto the month of March, 2008 was worked out at Rs. 104,772,263./-. The total tax demand was therefore, determined at Rs. 454,013,138/-. The computation had been done strictly on a tentative basis and in the absence of the details furnished by the assessee and would be subject to regular assessment. The payment of above- mentioned amount of Rs. 454,013,138/- by Tata Industries Ltd. shall be treated as tax deducted at source and would be given credit at the time of regular assessment of New Cingular Wireless Services Inc., USA and MMM Holdings LLC, USA. The assesseewas treated as „assessee in default" under section 201(1) ofthe Act, since it had failed to deduct tax as required under section 195 of the Act before making payment of USD 150 million or Rs. 6,615,750,000/- to New Cingular Wireless Services Inc., USA and MMM Holdings LLC, USA. The tax liability under section 201(1) and 201(1A) of the Act was determined at Rs. 154,013,138/- to be paid.
4. Aggrieved, the assesse filed appeal before the first appellate authority.It made a request for admission of certain additional grounds
8
which were filed on 19-09-2022 to take into account the decisions of the Supreme Court in Vodafone International Holdings B V. V/s. Union of India and Another [2012] 341 ITR 1dealing with chargeability of income covered under this appeal after the Vodafone (supra) decision.It was submitted thatthe Additional Ground Nos. I and IIwere legal grounds and did not require any investigation of additional facts
4.1 In the ADDITIONAL GROUND I, it was prayed that it should be held that the orders passed u/s 201(1) of the Act treating the appellant as "assessee-in-default and levying interest u/s. 201(1A) of the Act were bad in law, void ab initio and liable to be quashed as the appellant had not failed as alleged to have been in compliance of the provisions of Section 195 of the Act in relation to payment made in September 2005 for purchase of shares from New Cingular Wireless Services Inc, USA (NCWS) and MMM holdings LL.C USA (MMMН) (nоn-resident shareholders) of AT&T Cellular Pvt. Ltd. Mauritius (AT&T)based on the well-settled legal propositions in relation to the applicability of Section 195 of the Act as well as Section 9(1)(i) of the Act as it stood before retrospective amendment made by the Finance Act. 2012 by inserting Explanation 4 and Explanation 5 to Section 9(1)(i) ( from 01-04-1962. The provisions of Section 195 relating to Deduct Tax at Source applied only to those sums which are "chargeable under the
9
provisions of the Act Therefore, the obligation arises only when there is a sum chargeable under the provisions of the Act as upheld by the Hon. Supreme Court in the case of GE India Technology,Gentre Private Limited 327 ITR 456 and Engineering Analyse Centre of Excellence vs CIT 432 ITR471. The provisions of Section 9(1)(i) of the Act as it stood at the prior to insertion of Explanation 4 and 5 by the Finance Act. 2012 w.e.f 01.04 1962 when the appellant purchased shares of AT&T from the non-resident shareholders covered only income arising from direct transfer of capital asset situated in India and if did not purport to cover income arising from the indirect transfer of capital asset in Indian shares in a company incorporated outside India if the shares derives, directly or indirectly its value substantially from the assets located in India as duly held by the Hon. Supreme Court in the matter of Vodafone International Holdings B.V. V/s. Union of India and Another (supra).In absence of explicit insertion of Explanation 4 and Explanation 5 to Section 9(1)(i) at the time when the appellant made payment to non-resident shareholders for purchase of shares of AT&T, the income arising from the said transactions in the hands of non-resident shareholders of the said Company was not chargeable to tax in India under the Act.
10
4.2 It was contended that for a person to perform the Withholding tax obligations in September 2005 on the basis of a retrospective insertion of Explanation 4 and Explanation 5 to S 9(1)(i) in law in 2012 i.e seven years alter the date on which tax withholding obligations being required to be performed, is expecting that person to do the impossible when a law is nowhere even on the horizon leave aside on the statuteas held in DGIT Vs WNS Capital investment Limited. Mauritius (ITA No 3851/Mum/18-AY 2009-10 in order dated 26 March, 2021 of Hon ITAT, Mumbai Bench holding as under by placing reliance on the decision of the Hon Supreme Court in the case of Engineering Analysis Centre of Excellence (supra),
"There is no omission on the part of the assessee if explicit provision of law is considered at the time of payment Page No. 10, Para 9"For a person to perform the tax withholding obligations on the basis of an amendment in law which was enacted on a date later than the date on which the tax withholding obligations were required to be performed is expecting that person to do the impossible. The assessee therefore cannot be faulted for not deducting tax at source from payments
4.3 It was also submitted that the provisions of Section 195(2) of the Act providing inter-alia that the person responsible for paying any sum chargeable under the Act to make an application to the AO to determine the appropriate proportion of such sum chargeable, is based on the „Principle of Proportionality" Hence, the said sub-section is
11
attracted only in cases where the payment made is a composite payment in which certain proportion of payment has an element of income chargeable to tax in India as upheld by the Hon. Supreme Court in Engineering Analysis Centre of Excellence Vs. CIT(supra)which is not the case in the impugned transaction of purchase of shares.The contention of the Department that the moment there is remittance, the obligation to deduct tax under Section 195 is to be accepted, it would mean obliteration of the expression sum chargeable under the provisions of the Act in Section 195(1)
4.4 In the additional ground II, it was claimed that the amount deposited by the appellant, under protest on 29 April 2008 of Rs. 45,40,13,138/-, pursuant to the orders under appeal was to be consequently refunded to it and further on account of the Capital Gains being charged to tax on the selling Shareholders, under orders u/s143/3) read with Section 147/144C(13) of the Act on 24 January 2013, which tax has been fully discharged directly by them, without availing any credit for taxes paid by the assessee on the same transaction.
4.5 In various original grounds also, the action of the AO was further agitated before the appellate authority.
12
5. Before the ld.CIT(A),it was explained that the assessee purchased equity shares constituting the entire share capital of AT & T Cellular Pvt. Ltd., (Mauritius Company) from the USA resident shareholders of New Cingular Wireless Services (NGWS) and MMM Holdings LLC USA (MMMH) on 28-09-2005 for an agreed consideration. No tax was withheld by it upon remittance in September 2005 on аcсount of bonafide belief that the gains arising in the hands of the US shareholders from transfer of shares of the Mauritius Company situs whereof was not in India, were outside the purview of the Act at the lime of remittance both in relation to chargeability of such gains to tax in India as well as obligation to withhold tax in relation to captioned transaction.
5.1 It was submitted that on a preliminary reading of the captioned transaction, it would be evident that the facts of the case are similar to those of the Vodafone- case, where too shares were acquired of an entity located overseas (in the Cayman Islands) which ultimately, in turn, held shares in a telecom company registered in India. The Hon. Supreme Court held that the transaction of transfer of shares of a foreign company deriving value from assets located in India, was not chargeable in India and the company which acquired shares of such company was not responsible for deduction of withholding tax and
13
accordingly reversed the decision of the Bombay High Court in Vodafone International Holdings BV Vs. Union of India (2010) 329 ITR
126. As the matter stands, this decision of the Hon. Supreme Court was overruled by a retrospective amendment made to the Act primarily by insertion of Explanation 4 and 5 to Section 9(1)(i) by the Finance Act,
2012.
5.2 Further, it was pleaded that the provisions of Section 195 appearing in Chapter XVII, which deals with collection and recovery and the charging provisions of the Act form one single integral inseparable code and therefore provisions relating to Deduct Tax at Source (TDS) apply only to those sums which are "chargeable under the provisions of the Act" Therefore, it follows that the TDS obligation to assesses only when there is a sum chargeable under the provisions of the Act as upheld by the Hon. Supreme Court in the cases 0f GE India Technology Centre Private Limited ,Engineering Analysis Centre of Excellence Vs CIT . The provisions of Section 9(1)() of the Act as it stood at the lime fie prior to insertion of Explanation 4 and 5 by the Finance Act. 2012 w.e.f. 01.04.1962 when the assessee purchased shares of AT&T from non- resident shareholders covered only income arising from direсt transfer of capital asset situated in India and it did not purport to cover income arising from the indirect transfer of capital asset in Indian shares in a
14
company incorporated outside India, if the shares derives directly indirectly its value substantially from the assets located in India, as duly held by the Hon Supreme Court in the matter of Vodafone International Holdings BV V/s Union of India and Another (supra).Therefore, if tax is not so assessable, there is no question of tax being deducted.What is made clear by the judgment in GE India Technology Centre Pvt Ltd (supra) is the fact that the person" spoken of in section 195(2) of the Act is liable to make the necessary deductions only if the non-resident is liable to pay tax as an assessee under the Act and not otherwise. Thus, once it is established that the income from sale of shares in 2005 of the Mauritius Company by the non resident transferor shareholders was not liable to tax in India, no obligation to withhold tax by the assessee would arise and consequently could not be held to be an assessee in Default.
5.3 It was further contended that whether a person making remittance to a non-resident can be held liable to deduct TAS u/s 195(1) of the Act at the time when Explanations 4 and 5, inserted to Section 9(1) by the Finance Act. 2012 retrospectively from 01-04-1962 were not on the statute book was answered by the Hon. Supreme Court, in the context of another retrospective Explanation 4 to Section 9(1)(vi) definition of Royalty, in its decision in Engineering Analysis Centre of Excellence (432 ITR 471) more particularly at Page Nos 551 to 558
15
relevant portion whereof was reproduced hereunder for the sake of easy reference.
"The Learned Additional Solicitor General then argued that being covered by Explanation 4 of Section 9(1)(w) of the Act, the person liable to deduct TDS under Section 195 of the Act ought to have deducted tax at source on the footing that Explanation 4 existed on the statute book with effect from 1976 .We have therefore, to examine as to whether persons liable to deduct TOS u/s 195 of the Act cannot be held liable to deduct such sums ata time when Explanation 4 was factually not on statute book, all deduction unable to be made and the assessment years in question being prior for the year 20121 Page 551 vide Para 80j (0) This question is answered by two Latin maxms ler non cogit and impossibiliae the law does not demand the impossible and impotentia excusat legeme whether is a disability that makes impossible to obey the law, the alleged disobedience of the law is excused."
5.4 It was argued that it was thus clear that the "person mentioned in section 195 of the Act cannot be expected to do the impossible, namely, to apply the expanded definition of royalty inserted by Explanation 4 to Section 9(1)(v) of the Income-tax Act, for the assessment years in question at a time when such explanation was not actually and factually in the statute. Hence it will be appreciated that even considering the retrospective amendment made to Section 9(1)(i) of the Act by inserting Explanation 4 and 5, having a consequential effect of indirect transfer of capital asset situated in India chargeable to tax under the Act, in law the appellant was not required to deduct the tax at source in 2005 in relation to the captioned transaction which were
16
undertaken at a time when the gains arising in relation to captioned transaction were not chargeable to tax in India as held by the Hon. Supreme Court in the matter of Vodafone International Holdings B.V. V/s. Union of India(supra)]. Further, reliance was also placed on several other decisions of various courts of law in this regard i.e. CIT-16 Vs. KPMG in ITA No. 690 of 2017(Bom),CIT-11 Vs. NGC Networks (India) Pvt Ltd. In ITA No. 397 of 2015(Bom),SGS India (P) Ltd Vs ACIT (2020) 114 taxmanm.com 723 (Mumbai-Trib),Channel Guide India Ltd.
v. ACIT (2012] 20 ITR(T) 438 (Mumbai) etc.
6. The ld.CIT(A) in a detailed order has duly considered all the relevant facts of the case as also the submissions made by the assessee in respect of original and additional grounds of appeal.Relevant parts of the observations made by him and order passed are extracted as under for brevity and ready reference:
"I have perused the orders under appeal under which the AO has come to the conclusion that the appellant is an assessee-in-default u/s. 201(1) of the Act since it has failed to deduct the tax as required u/s. 195 of the Act before making payment of USD 150 million to M/s. New Cingular Wire Services Inc., USA and MMM Holdings LLC, USA and accordingly, has determined the liability u/s. 201(1) and 201(1A) of the Act aggregating to Rs 45.40.013,138/- The appellant has noted the decisions of the Hon Supreme Courtcontending thereby that said decisions demolishes and negates the reasoning assigned by the AO in coming to the conclusion that the appellant is assessee-in-default u/s. 201 of the Act.
I find that the fundamental issue to be decided is whether the sale of shares by admittedly a US registered Non-Resident Company, in a Mauritius Company
17
which held shares in a telecom Company in India is chargeable to tax in India u/s. 9(1)(i) of the Act. The Supreme Court in Vodafone (supra) held that transaction of the nature under consideration is not chargeable to tax under Section 9(1)(i) based on the following reasonings: the situs of the transferred asset should be in India,
-Situs not to be determined by the underlying asset effectively transferred. look at test" to be applied and not „look through" test. Department contention to treat transfer of shares of the Mauritius company as an indirect transfer, viz. consequential "transfer of assets in India rejected a "share sale" is not an "asset sale share sale transactions cannot be broken up into separate individual components arising out of the SHA, controlling interest is an incident of ownership of shares voting arrangement in SHA are not property. The facts in the appeal before me being similar I am bound by the Supreme Court decision in Vodafone International Holdings (supra) in interpreting the charge to tax of the US non-resident shareholders based on the law as existed when the transfer took place in Sept 2005, i.e. prior to the retrospective Amendment of 2012. Accordingly, hold that no charge to tax arose when the transaction of sale of shares was executed in Sept 2005 based on the then prevailing law, as interpreted by the Supreme Court. Post-retrospective amendment, such a transfer of the nature under consideration is chargeable to tax u/s. 9(1)(i). Notwithstanding the same, at the time the remittancewas made. The next question which needs to be addressed is whether an obligation u/s 195 arose to deduct income-tax when the remittance was made by the appellant. Here the appellant relies on the decisions of the Supreme Court in GE India Technology Centre Private Limited (supra) and Engineering Analysıs Centre of Excellence (supra) which hold that Obligation of the payer u/s 195 to collect tax arises only when payment to the Non Resident is chargeable to tax in Indian Law to be applied as prevalent on the date of payment. Retrospective amendment of 2012, casting a retrospective charge, could not have been foreseen by the Deductor payer. The law does not demand the impossible and impotentiaexcusatlegem ie: when there is a disability that makes it impossible to obey the law. the alleged disobedience of the law is excused. Application u/s. 195(2) not compulsorily required in all cases - to be made only when income chargeable to tax or when a composite payment involved My attention has also been drawn toa decision of the Hon. Mumbai Tribunal in WNS Capital Investment Limited (supra) where the facts also pertain to acquisition shares of an overseas entity, which held in turn held shares in an Indian entity
"There is no omission on the part of the assessee ifexplicit provision of law is considered at the time of payment For a person to perform the lax withholding
18
obligations on the bass of an amendment in law which was enacted on a date later than the date on which the tax withholding obligations were required to be performed is expecting that person to do the impossible. The assessee therefore cannot be faulted for not deducting tax at source from payments made to 17(c) I am also informed that the recipient, NCWS have since themselves paid the tax assessed on them on the subject transfer, without claiming credit of the tax paid by the appellant pursuant to the order under appeal 17(d)
I find that the above decisions of the Supreme Court, also followed by the jurisdictional Tribunal, Mumbai in the matter of DCIT Vs. WNS Capital Investment Limited. Mauritius (supra) squarely apply to the facts of the case before me and hence the Appellant did not have any obligation to deduct tax under section 195 of the Act while making the payment to the Non-resident. Accordingly, the appellant has notfailed, as alleged, to have beenin compliance of the provisions of Section 195 of the Act in relation to payment made to the non-resident shareholders for acquiring shares of Mauritius Company in September, 2005.
Now I proceed to adjudicate the Concised / Supplemental / Additional Grounds of Appeal for the year uploaded vide letter dated 19-09-2022 before the NFAC
ADDITIONAL GROUND NO (a) I hold that the order(s) passed dated 28t March. 2008 u/s. 201(1) of the Act treating the appellant as assessee-in- default and levying interest uls 201(1A) of the Act are bad-in-law as the appellant has not failed as alleged to have been in compliance of the provisions of Section 195 of the Act in relation to payment made in September. 2005 for purchase of shares from New Cingular Wireless Services Inc USA (NCWS and MMM holdings L L.C., USA (MMMH) (non-resident shareholders) of AT&T Cellular Pvt. Ltd Mauritius (AT&T) based on the well- settled legal propositions as mentioned hereunder in relation to the applicability of Section 195 of the Act as well as Section 9(1)(i) of the Act as it stood before retrospective amendment made by the Finance Act. 2012 by inserting Explanation 4 and Explanation 5 to Section 9(1)(i) from 01-04-1962 and accordingly, is quashed as in view of the following reasonings (A Tax Collection and Chargeability (one integral whole) (a) The provisions of Section 195 of the Act relating to deduction of Tax at Source (TAS) applies only when the sum which is to be paid to the non-resident is chargeable to tax in India as upheld by the Hon. Supreme Court in the following cases GE India Technology Centre Private Limited 327 ITR 456, more particularly at Page No.
463 Engineering Analysis Centre of Excellence Vs. CIT 432 ITR 471 more particularly Page Nos 533 and 534 (b) (0 Applicability of Section 9(1)(i) of the
19
Act. In adjudicating this Ground, I rely upon the decision of the Hon. Supreme Court in the matter of Vodafone International Holdings B. V 341 ITR 1 wherein on identical facts as applicable in the case of the appellant and based on Section 9(1)(i) as in force prior to the retrospective amendment made by the Finance Act. 2012 has upheld that the provisions of Section 9(1)) covered only income ansing from the direct transfer of capital asset situated in India and it did not purport to cover income arising from the indirect transfer of capital asset in India, ie. shares of a company incorporated outside India if the shares derived directly or indirectly its value substantially from the asset located in India(i) It is only after the insertion of Explanation 4 and Explanation 5 to Section 9(1)(i) by the Finance Act. 2012 retrospectively w e.f. 01-04-1962. a capital assetbeing any share or interest in a company registered or incorporated outside India is deemed to be and is always deemed to have been situated in India. if the share or interest derives directly or indirectly its value substantially from the asset located in India and accordingly subject to the applicable provisions u/s 9(1)(i) of the Act, income arising on such capital asset is chargeable to tax in India. In absence of explicit insertion of Explanation 4 and Explanation 5 to Section 9(1)(i) at the time when the appellant made payment to non-resident shareholders for purchase of shares of AT&T, the income arising from the said transactions in the hands of non- resident shareholders of the said Company was not chargeable to income-tax in India under the Act (Reliance is placed on the decisions of the Hon. Supreme Court in Vodafone International.
Retrospective Amendment affects chargeability but not deductibility of Withholding Tax: (a) I hold that Retrospective Amendment affects chargeability but not deductibility of Withholding Tax, For a person to perform the tax withholding obligations in September 2005 on the basis of a retrospective insertion of Explanation 4 and Explanation 5 to S 9(1)(i) in law in 2012. i.e. seven years after the date on which tax withholding obligations being required to be performed, is expecting that person to do the impossible. When law is nowhere even on the horizon, leave aside on the statute, it is wholly impossible for any person to perform the obligations imposed by such a future law It is thus clear that person mentioned in the Section 195 of the Act cannot be expected to do the impossible viz to apply
"the law as it did not exist at that point of time when the obligations in question were being performed as upheld by the following decisions a (1) (2) Engineering Analysis Centre of Excellence Vs. CIT 432 ITR 471 (SC), more particularly at Page No. 551 to 556, Para 81 to 82, briefly holding as under
"that persons are not obligated to do the impossible ie to apply provision of a statute when it was not actually and factually on the statute bookDCIT Vs. WNS Capital Investment Limited, Mauritius[ITA No. 3851/Mum/18 - Assessment Year 2009-10- Order dated 26th March 2021 of Hon. ITAT
20
Mumbai Bench] holding as under by placing reliance on the decision of the Hon. Supreme Court in the case of Engineering Analysis Centre of Excellence (supra) Page No. 7 "There is no omission on the part of the assessee if explicit provision of law is considered at the time of payment Page No 10. Para 9 "For a person to perform the tax withholding obligations on the basis of an amendment in law which was enacted on a date later than the date on which the tax withholding obligations were required to be performed is expecting that person to do the impossible. The assessee therefore cannot be faulted for not deducting tax at source from payments made to.
(C) Application u/s 195(2): (a) I hold that (i) The provisions of Section 195(2), providing interalia that the person responsible for paying any sum chargeable under the Act to make an application to the AO to determine the appropriate proportion of such sum chargeable, is based on "the Principle of Proportionality". Hence, the said sub-section is attracted only in cases where the payment made is a composite payment in which certain proportion of payment has an element of income chargeable to tax in India as upheld by the Hon. Supreme. Court in Engineering Analysis Centre of Excellence Vs. CIT
432 ITR 471 (more particularly Page No. 536, para 24). In the facts as applicable to the appellant, the payment made to the non-resident shareholders for purchase of shares of Mauritius company is not chargeable to tax in India u/s. 9(1)() of the Act and hence the provisions of Section 195(1) and (2) of the Act are not attracted (ii) The contention of the Department, that the moment there is remittance, the obligation to deduct TAS arises under Section 195 is to be accepted it would mean obliteration of the expression sum chargeable under the provisions of the Act inSection 195(1) as upheld by the following decisions of the Hon. Supreme Court of India GE India Technology Centre Pvt. Ltd. Vs CIT 327 ITR 456 more particularly at Page No 462 463 and
464 Engineering Analysis Centre of Excellence Vs CIT 432 ITR 471. more particularly at Page No. 535 I hold that the decision of Hon"ble Apex Court in the matter of Transmission Corporation of AP Ltd Ws CIT (239 ITR 587) as contended by the AO does not lay down the principle that it is not open for the person to contend that the amount paid by it to the Non Resident is not at all chargeable to Tax in India, and in that event no TDS is required to be deducted from such payment as upheld by the Hon. Supreme Court of India in the following decisions
18.2 ADDITIONAL GROUND I 18.3 GE India Technology Centre Pvt. Ltd. Vs. CIT 327 ITR 456 more particularly at Page No. 465 and 466 Engineering Analysis Centre of Excellence Vs. CIT 432 ITR 471, more particularly at Page No. 536.In view of my decision on Additional Ground No. I, I direct the AO that the amount deposited of Rs,45.40,13,138/-by the appellant pursuant to the notice of demand u/s 156 of the Act raised
21
consequent to the order(s) under appeal be refunded to the appellant subject to verification of payment."
7. The ld.DR has placed reliance on the assessment order claiming that in this case, corporate veil was rightly lifted by the AO. He also argued that the retrospective law was applicable to the facts of the case.Per contra, the ld.DR has relied on the appellate order and the detailed submissions made before him during appellate proceedings. It is reiterated that the issue is covered by the decisions of hon"ble Supreme Court(supra) as cited above and considered by the ld.CIT(A).
8. We have carefully considered all the relevant facts of the case,perused the relevant orders,the legal citation relied upon and the rival submissions.Facts of the case are that the assessee purchased equity shares of AT & T Cellular Pvt. Ltd., (Mauritius Company) from its USA resident shareholders (non-resident shareholders) on 28.09.2005 for an agreed consideration. No tax was withheld by it, upon remittance in September 2005. The Mauritius Company held shares of "Birla Tata AT&T Ltd." (BTAL), a company registered in India.Orders dated 28.03.2008 u/s 201(1) and 201(1A) of the Act are passed, holding the appellant as an assesseein default on the premise that the gains in the hands non-resident shareholders are chargeable to tax in India as the Mauritius Company derived its value from shares held in BTAL.
22
8.1 In the various grounds of appeal, the Revenue before us has contested the appellate order whereby the assessee was allowed the relief sought for before him.It is inter alia claimed that the ld.CIT(A) was not justified in holding that payments NCWS) and MMMH were not liable for TDS under Section 195, stating they did not constitute income under Section 9(1)(i) or the DTAA.The said payments represented indirect accrual of income in India, making them taxable under Section 9(1)(i) of the Act, ignoring the overlooking the retrospective amendment to Section 9(1)(i) via Explanation 4 and 5which clarified the taxability of indirect a transfers from 01.04.1962, aligning with the Supreme Court"s ruling in Vodafone International Holdings B.V.The ld.CIT(A) failed to appreciate that AT&T Cellular Pvt Ltd and Apex Investments (Mauritius) Holdings Pvt. Ltd lacked substance, and the real transaction involved sale of shares in Idea Cellular Ltd.and also the impugned transfer of shares of the foreign company holding immovable property in India would not be covered under indirect transfer.
8.2 We find that the ld.CIT(A) has categorically held that the issue in hand was covered by the landmark decision rendered by the hon"ble Supreme Court in Vodafone International Holdings B. V. Vs Union of India and Another (supra) and we do not find any reasons to defer from the conclusion drawn by him as the facts of the case are
23
identical. It may be stated here that in 2007, Vodafone International Holdings B.V. entered into a deal to acquire 67% controlling interest in Hutchison Essar Ltd. (HEL), a telecom company operating in India.The transaction was structured offshore as Vodafone bought shares of CGP Investments (Cayman Islands), which indirectly held Hutchison"s Indian telecom business through a web of subsidiaries.The deal value was around USD 11 billion.The Income Tax Department issued a demand notice of approximately Rs.12,000 cr., claiming capital gains tax. It argued that since the underlying asset (HEL) was in India, the transfer should be taxable in India.It was also argued that Vodafone had failed to deduct tax at source under Section 195.Vodafone challenged this by claiming that the deal was between two non-Indian companies (Vodafone and Hutchison) and the transfer was of shares in Cayman Islands, not directly of Indian assets.Hence, Indian authorities had no jurisdiction. The main issues pertained to taxability of an offshore transaction between two foreign companies if the underlying assets are situated in India,obligation of Vodafone to deduct tax at source under section 195 of the Act.The hon"ble Supreme Court, in a 3-judge bench, passed a unanimous judgment in favour of Vodafone. Its main observations were:
24
Holistic "Look-At" Test: The Court used a holistic method ("look-at" test) to identify the real nature of the transaction. It declined to break up the transaction by spinning off the side arrangements or middle steps. It was considered a composite offshore sale of shares of CGP by HTIL (Cayman) to Vodafone (Netherlands). The subject matter (CGP) was a foreign company organized in the Cayman Islands. The Court therefore held that "the Indian Tax Authority had no territorial tax jurisdiction to tax the said Offshore Transaction". That is, the whole transaction fell outside India"s tax jurisdiction.
Literal Interpretation of Section 9(1)(i): The Court interpreted Section 9(1)(i) literally. It found three necessary limbs for tax to be levied: (i) the presence of a capital asset, (ii) that the asset is located in India, and (iii) the transfer of the asset. The Court observed that Section 9(1)(i) is effectively a restricted legal fiction creating a nexus of taxation only when a non-resident outside India transfers an asset located in India. It emphasized that this fiction cannot be stretched beyond its unequivocal terms. If indirect reading were allowed (subjecting a foreign share merely because it is an avenue to transfer an Indian business), then the condition that the asset has to be "situated in India"
would be vitiated.
Restricted Scope of Legal Fiction: The Court time and again emphasized the restricted scope of the legal fiction under Section 9(1)(i). It ruled that if the section were made applicable to indirect transfers, then the expression
"situated in India" would become meaningless, and that was not allowed. The law, as it stood, did not tax "income arising indirectly through the transfer of foreign shares" in the absence of an express provision.
Shares as Piles of Rights: Of course, with respect to shares specifically, the Court noted that shares are piles of rights and may not be dissected into constituent Indian and foreign parts. Therefore, it is not possible to regard a foreign share as being made up of distinct "rights" that are situated in India (e.g., voting rights in an Indian company). The Court compared this to attempting to separate the share into an Indian asset and others; it refused any such artificial segregation.
No Extinguishment of Indian Asset: Subtly, by excluding the transaction from its ambit, the Court held that the transaction did not cause an "extinguishment of control" over Indian assets for Section 9 to catch. Plainly put, even though HEL"s ownership switched hands indirectly, the switch was the product of an off-shore transaction outside the territorial jurisdiction of Indian taxation laws.
Real Investment: The Court observed that the Vodafone-Hutchison arrangement existed for many years, earning profits and tax in India since the 1990s. It did not find anything to suggest that the 2007 transaction was a
25
collusive or fictitious tax-avoidance mechanism. Instead, it was an authentic foreign direct investment in India.
8.3 Proceeding on these findings, the Court held that the capital gains on Vodafone"s purchase were not taxable in India and that neither Section 9 nor Section 195 was attracted to the transaction overruling the decision of hon"ble Bombay High Court. We do agree with the proposition of the assessee which is also endorsed by the ld.CIT(A) that as on the date of transaction,the amended provisions of Explanation 4 and 5 could not have been visualized by the assessee by any stretch of imagination and it acted in accordance with the existing law.
8.4 In the light of above discussion,we do not find any merit in the grounds of appeal raised by the Revenue which are therefore, dismissed.
9. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 15/04/2026.
Sd/- Sd/-
SANDEEP GOSAIN PRABHASH SHANKAR
(न्याययक सदस्य /JUDICIAL MEMBER) (लेखाकार सदस्य /ACCOUNTANT MEMBER)
Place: म ुंबई/Mumbai ददनाुंक /Date 15.04.2026 Lubhna Shaikh / Steno
26
आदेश की प्रयियलयि अगे्रयिि/Copy of the Order forwarded to :
1. अपीलार्थी / The Appellant
2. प्रत्यर्थी / The Respondent.
3. आयकर आयुक्त / CIT
4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai
5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy//
आदेशानुसार/ BY ORDER,
उि/सहायक िंजीकार (Dy./Asstt. Registrar)
आयकर अिीलीय अयधकरण/ ITAT, Bench, Mumbai.
27