IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : H : NEW DELHI
BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER
AND
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
ITA No.5179/Del/2010
Assessment Year : 2007-08
Zeppelin Mobile System Vs. Addl. DIT,
GmbH, Range-2,
A-3/502, World Spa East, International Taxation,
Sector 30/40, New Delhi.
Gurgaon.
PAN : AAACZ3012A
(Appellant) (Respondent)
Assessee by : Smt. Indra Bansal, CA
Revenue by : Shri Sameer Sharma, Sr.DR
ORDER
PER A.D. JAIN, JUDICIAL MEMBER
This is Assessee's appeal for Assessment Year 2007-08 against
the assessment order dated 29.10.2010 passed by the Addl. Director
of Income Tax, Range-2, International Taxation, New Delhi. The
following grounds of appeal have been taken:-
"1. The Learned Dispute Resolution Panel-II, Delhi has
illegally confirmed the action of the Assessing Officer for taking
the value of sale consideration @ Rs.400 per share instead of
actual sale consideration received @ Rs.390/- per share a
Capital Gain is liable to be computed at Rs.9,55,73,488/-.
2. The Learned Dispute Resolution Panel-II, Delhi was not
justified in making the addition of Rs.28,73,000/- under the head
capital gain the same deserves to be fully deleted.
3. The Learned Dispute Resolution Panel-II, Delhi was not
justified in computing the capital gain as per the provision of
2 ITA No.5179/Del/2010
Section 48 of the IT Act, 1961 at Rs.9,88,76,204/-. The same
deserves to be computed at Rs.9,55,73,488/-."
2. The facts of the case in brief are that the assessee, M/s Zeppelin
Mobile Systems GmbH is a tax resident of Germany. It has an Indian
subsidiary called Zeppelin Mobile Systems India Ltd., which is a closely
held unlisted company under the Indian Companies Act, 1956. It is
engaged in the business of designing, manufacturing and assembling
of Polyurethanes Foam based Prefab Structures, Telecom Shelters and
derivatives. During the year, the assessee had sold part of the shares
held by it in its Indian subsidiary to M/s Sintex Industries Ltd. The
assessee filed its original return of income under Section 139 (1) of the
Income Tax Act, 1961 for Assessment Year 2007-08 on 18.10.2007,
reporting total income of ` 9,55,73,488/- on account of capital gain
from sale of shares. Pursuant to scrutiny assessment proceedings, the
Assessing Officer issued a draft order dated 29th December, 2009
under Section 143 (3) of the Act as per provisions of Section 144C(1) of
the Act wherein the total income was proposed to be assessed at `
9,91,56,204/- after making, inter alia, the following adjustment:-
S.No. Nature of Adjustments Amount `
1. ..... ...
2. Rate of shares sold was shown at ` 390 per share 28,73,000
by the assessee, whereas the Assessing Officer
took the value of shares sold at ` 400/- per share
as per RBI Guidelines.
3. ..... .....
3. Before the Ld. DRP, the assessee submitted that the Assessing
Officer had erred in taking the sale consideration of the shares @ 400/-
per share, as against the actual sale consideration of ` 390/- per share;
that while doing so, the Assessing Officer had wrongly applied the RBI
Guidelines, whereas the same were under FEMA; that the mode of
computation of Capital Gain, on the other hand, is provided u/s 48 of
the IT Act; that though in the assessment order, the Assessing Officer
3 ITA No.5179/Del/2010
had observed that the valuation as per the RBI Guidelines should be
adopted, the word `should' nowhere stands mentioned in the RBI
Guidelines.
4. By virtue of the impugned Order, the DRP confirmed the
assessment order. While doing so, it was observed that the RBI
Guidelines are in respect of pricing of shares, when shares are being
sold by a non-resident to a resident, and were binding on the assessee;
that the case of the assessee fell squarely under Clause 2.3 read with
sub-clause (b) (ii) and Option (C) of the RBI Guidelines; that these
clauses and sub-clauses in the RBI Guidelines were binding in nature,
as they employed the expression `shall be'; that the RBI Guidelines
strictly direct the assessee to adopt the lower of the two valuations
required to be done and the assessee has no choice to negotiate the
price; that therefore, the assessee was wrong in contending that the
Assessing Officer had wrongly observed that the RBI Guidelines should
be adopted; and that therefore, the Assessing Officer was correct in
adopting the valuation of the shares @ ` 400 per share as against the
negotiated price of ` 390 per share disclosed by the assessee.
5. The aforesaid relevant portion of the RBI Guidelines, as
reproduced in the order passed by the DRP is as follows:-
"2.3 -reside
non-
Transfer by non resident.........to
nt.........to resident
Sale of shares by a non-resident to resident shall be in
accordance with Regulation 10B(2) of Notification No.FEMA
20/2000-RRB dated May 3, 2010 which as below
(b) Where the shares of an Indian company are not listed on
stock exchange or are thinly traded,
(i) if the consideration payable for the transfer does not
exceed ` 20 lakhs per seller per company, at a price mutually
agreed to between the seller and the buyer, based on any
valuation methodology currently in vogue..........
4 ITA No.5179/Del/2010
(ii) If the amount of consideration payable for the transfer
exceeds ` 20 lakhs per seller per company, at a price arrived at,
at the seller's option, in any of the following manner namely
(A) .........
Or
(B) .......
Or
(C) Where the shares are not listed on any stock exchange, at
a price which is lower of the two independent valuations of
share, one by statutory auditors of the company and the other
by a Chartered Accountant or by a Merchant Banker in Category
1 registered with Securities and Exchange Board of India."
6. Before us, challenging the impugned Order, the ld. counsel for
the assessee has contended that the ld. DRP has erred in confirming
the action of the Assessing Officer in taking the value of the sale
consideration of the shares @ ` 400 per share instead of the actual
sale consideration received @ ` 390 per share; that the ld. DRP has
erred in making the addition of ` 28,73,000/- under the head `Capital
gain'; and that the ld. DRP has erred in computing the capital gain as
per the provisions of Section 48 of the IT Act at ` 9,88,76,204/- rather
than at ` 9,55,73,488/-; that the ld. DRP has failed to consider the fact
that the RBI Guidelines are for remittance of money, on sale of shares
and they are not binding for the purposes of the IT Act; that the ld. DRP
has also not taken into consideration the fact that as per the certificate
of remittance (APB, page 6) in the assessee's case, qua Sintex
Industries Ltd., to which company, the assessee had sold the shares
held by it in its Indian subsidiary, the rate of sale has been shown at `
390 per share; that the ld. DRP has also wrongly ignored the
Memorandum of Understanding (APB 12-17, relevant portion in para
8.2 at APB 17) between, inter alia, Sintex Industries Ltd. and the
assessee, as per the conditions whereof, Sintex Industries Ltd. agreed
to the said rate of ` 390/- per share; and that still further, the ld. DRP
failed to take into consideration the factum of grant of permission by
the RBI, which could not have come about, if the rate had been ` 400/-
and not ` 390/-, as maintained by the assessee.
5 ITA No.5179/Del/2010
7. The ld. DR, on the other hand, has placed strong reliance on the
impugned order. It has been contended that the assessee has
remained unable to explain as to how the RBI Guidelines are not
applicable to the assessee. It has further been contended that the
Certificate of Remittance as well as the Memorandum of Understanding
relate to the assessee and Sintex Industries Ltd. and so, the Assessing
Officer was well justified in computing the veracity of the alleged
negotiated rate of ` 390/-.
8. We have heard the parties and have perused the material on
record. Undoubtedly, the RBI Guidelines are Guidelines for the banks,
issued for FEMA purposes. Clause 2.3 (supra) of these Guidelines
refers to Regulation 10B (2) of the Foreign Exchange Management
(Approval or Issue of Security By a Person Resident Outside India)
Regulations, 2000. The very opening paragraph of these Guidelines
(APB-III) shows that they are addressed to `Authorised Dealer (AD)
Banks'. Thus, the duty to examine the compliance or otherwise of
these Guidelines lies squarely within the purview of the `Authorised
Dealer Banks' and not the Income-tax Authorities. If the assessee, in
the view of the Income-tax Authorities, had committed any violation of
these Guidelines, the appropriate course open to them was to bring it
to the notice of the banks. No further. Then, since the Guidelines have
been issued for FEMA purposes, it is the FEMA Authorities who are
competent to take appropriate action against the assessee on breach
of the Guidelines. Rather, it is seen that no objection whatsoever has
been raised by the RBI to the rate of ` 390/- per share, as maintained
by the assessee and the RBI has accorded its approval. Had the
alleged difference between the rates existed, thereby constituting a
violation of the RBI Guidelines by the assessee, such violation would
obviously have been taken care of and the approval would not have
been accorded. On merits also, Sintex Industries Ltd., to whom the
6 ITA No.5179/Del/2010
shares were sold by the assessee, has not denied such rate of ` 390/-
per share. Rather, such rate stands admitted in the Memorandum of
Understanding (supra) between the assessee and Sintex Industries Ltd.
Nothing adverse or detrimental to the assessee's case has been
brought on record by the authorities below.
9. It is also pertinent to note that though the MoU (supra) has been
discussed in the assessment order, neither the said document, nor the
Remittance Certificate has been adverted to by the DRP. The
Certificate of Remittance has also, as per the stamp borne on the copy
of the assessee's paper book filed before the DRP, been shown to have
been filed before the DRP.
10. In view of the above, finding the grievance of the assessee to be
justified, we accept it as such.
11. In the result, the appeal filed by the assessee is allowed.
The order pronounced in the open court on 12.04.2013.
Sd/- Sd/-
[T.S. KAPOOR] [A.D. JAIN]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated, 12.04.2013.
dk
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
Deputy Registrar,
ITAT, Delhi Benches
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