Vijay Pal Rao, Member (J) -
(1.) THIS appeal by the assessee is directed against the assessment order dated 31.10.2012 passed u/s. 143(3) r.w.s 144C(13) of the Income Tax Act in pursuant to the directions of Dispute Resolution Panel (hereinafter referred to as DRP) dated 30.09.2012 passed u/s. 144C(5) of the Income Tax Act for the A.Y. 2008 -09.
Background of the case: - -
(2.) THE assessee was incorporated in March, 1999, in the name of 3 Global Services Private Limited (3GSPL). It was a wholly owned subsidiary of Hutchison Tele -services (India) Holdings Limited, a company incorporated in Mauritius which, in turn, was a wholly owned subsidiary of CGP Investments (Holdings) Limited, a company incorporated in the Caymen Islands (hereinafter referred to as CGP). The shares of CGP were held by HTI (BVI) Holdings Limited, a company incorporated in British Virgin Islands which, in turn, was ultimately controlled by Hutchison Telecommunications International Limited (hereinafter referred to as "HTIL"), a company incorporated in Caymen Islands. It would be convenient here to reproduce the ownership structure chart set out in the judgment of the Supreme Court in (Vodafone International Holdings B.V. v. Union of India & Anr., : (2012) 341 ITR 1 as under:
Since April, 2003, the assessee, inter -alia, provided call centre services captive to entities within the Hutchison Group viz. Hutchison 3G Australia Pty. Ltd. and Hutchison 3G UK Ltd. in terms of a Managed Services Agreement for contact centre services between Hutchison Call Centre Holdings Limited, British Virgin Islands (HCCH) and the assessee dated 1st January, 2006.
(3.) A Framework agreement dated 1st March, 2006, was entered into between the assessee on the one hand and one Asim Ghosh and three companies controlled by him on the other. An identical agreement also dated 1st March, 2006, was entered into between the assessee on the one hand and one Analjit Singh and his group of companies on the other. Analjit Singh and Asim Ghosh acquired shares in Telecom Investments India (TII) Private Limited, an Indian company with credit support provided by HTIL. TII, in turn, held shares in Hutchison Essar Limited (earlier known as Hutchison Max Telecom Limited (HMTL) and subsequently re -named Vodafone Essar Limited. In consideration of the credit support, the framework agreements were entered into under which a call option was given to the assessee, a subsidiary of HTIL to buy from the respective group companies, their entire share holdings in TII. The assessee was also granted a right to subscribe to the shares in respect of the group companies.
6. On 11th February, 2007, a share purchase agreement (hereinafter referred to as the "SPA") was entered into between HTIL and Vodafone International Holdings BV (hereinafter referred to as "VIH BV") under which HTIL agreed to sell the entire share capital of CGP. Under the agreement HTIL also agreed to procure the assignment of loans owed by CGP and another of its group companies - Array Holdings Limited. HTIL further undertook to procure that each of its wider group companies would not terminate or modify any rights under any of its framework agreements or exercise any of their options under such agreements.
7.(A). On 5th July, 2007, new Framework agreements were entered into between the parties to the Framework Agreements of 1st March, 2006. The different names in these agreements are only on account of a change in the names of the parties to the 1st March, 2006, agreements. Goldspot Mercantile Company Private Limited was renamed A.G. Mercantile Company Private Limited and Centrino Trading Company Private Limited was renamed Nadal Trading Company Private Limited.
(B) Vodafone International Holdings BV was also a party to these agreements. Recital I stated that VIH BV would become the indirect parent company of the assessee with effect from the completion date and was entering into the agreements as a confirming party
8. The assessee submitted Form No. 3CEB in which it disclosed two international transactions during the assessment year 2008 -09.
The AO, with the approval of the Commissioner of Income -tax, by a letter dated 25th January, 2010, referred the same to the TPO under section 92CA(1) for the determination of the arm's length price thereof.
In the course of proceedings, the TPO sought various documents and particulars and contended that the assessee had not disclosed two international transactions viz. the BTA - the transaction relating to the sale of the call centre business by the assessee to HWP (India) and the assignment of the call options under the new Framework agreements dated 5th July, 2007. The TPO stated that both the transactions were international transactions. He also disputed the valuation reports submitted by the assessee. The assessee, after some initial hesitation, furnished the documents, including the SPA, the BTA and the Framework agreements at different stages. The assessee contended that the same did not constitute international transactions.
9. The TPO issued notices calling upon the assessee to show cause why it had not disclosed the said unreported international transactions.
10. The assessee submitted a detailed reply to the show cause notice. The assessee dealt with all the issues raised in the show cause notice on merits. It did contend that the Framework agreements were not international transactions and that there was, therefore, no question of proving any arm's length nature of a transaction and/or any valuation of the rights as no rights were conferred as alleged by the TPO or at all. The assessee, in fact, went a step further and construed the agreements contending that there was no change between the 1st March, 2006 and the 5th July, 2007 Framework agreements. The assessee also dealt with the show cause notice insofar as it related to the BTA. It answered the allegations in the show cause notice on merits.
11. On 16th November, 2011, the AO issued a notice under section 142(1) of the Income -tax Act, referring, inter -alia, to the order of the TPO dated 31st October, 2011, under section 92CA(3) of the Act recommending an adjustment of Rs. 85,90,25,49,547/ - to the ALP. The assessee was called upon to explain why the adjustment to the ALP as proposed by the impugned order should not be made to the total income.
12. On 29th December, 2011, the AO passed a Draft Assessment Order under section 144C of the Act.
13. The assessee challenged the order of Transfer Pricing Officer (TPO) dated 31.10.2011 as well as draft assessment order dated 29.12.2011 on the ground of lack of jurisdiction in respect of the transfer pricing adjustment recommended by the TPO and proposed by the Assessing Officer in the draft order by filing the writ petition No. 448 of 2012 before the Hon'ble Jurisdictional High Court on 18.2.2012. In the meantime on 20.01.2012, the Hon'ble Supreme Court delivered the judgment in the case of Vodafone International Holdings BV v. Union of India in : 341 ITR 1, and reversed the judgment of Hon'ble Jurisdictional High Court in : 329 ITR 126. The assessee has also filed objections before the DRP on 30.01.2012 against the draft assessment order inter alia took the objection that the TPO and Assessing Officer have passed the orders without jurisdiction. The assessee also sought stay of further proceedings before the DRP by filing the application before the Hon'ble Jurisdictional High Court on 13.09.2012. The Hon'ble High Court held that it was not necessary to entertain the application for interim relief at that stage as the time period for passing the directions u/s. 144C by the DRP was due to expire on 30.09.2012. It was also observed by the Hon'ble High Court that the assessee would be at liberty to appear before the DRP without prejudice to its rights and contentions including those in the writ petition. The DRP subsequently passed the directions u/s. 144C(5) of the Act on 30.09.2012 inter alia upholding the findings of TPO. Consequently, the Assessing Officer has passed the final assessment order u/s. 143(3) r.w.s 144C(13) of the Act in pursuant to the directions of DRP.
14. The writ petition filed by the assessee was disposed off by the Hon'ble High Court vide judgment dated 6.09.2013 reported in : 359 ITR 133. The Hon'ble Jurisdictional High Court has rejected the contention of the assessee that the TPO had no jurisdiction to consider the transaction relating to the sale of call centre/business transfer agreement. The Hon'ble High Court has observed that there are several issues of fact and of law on every material aspect which must be considered by the authorities under the Act. Thus it was held that this is not a fit case for invoking extra ordinary jurisdiction Article 226 of Constitution of India. On merits the Hon'ble High Court has observed that the matter is required to be determined by this Tribunal. The assessee then filed the present appeal on 23.12.2013 and raised the following concise grounds; -
CONCISE GROUNDS OF APPEAL
1. That in the facts and circumstances of the case, the Assessing Officer ("AO"), the Transfer Pricing Officer ("TPO"), and the Dispute Resolution Panel ("DRP") (collectively referred to as "Lower Authorities") erred in law in assessing/confirming the total income of the Assessee at Rs. 75,47,75,44,610/ - as against income of Rs. 27,71,56,861/ - returned by the Assessee as per the revised computation of income by making the following additions/disallowances:
1.1 Addition of Rs. 61,78,88,26,177/ - in respect of alleged assignment of Call Options under the Framework Agreements dated 05th July 2007 entered into, inter alia, between the Assessee and Analjit Singh and Asim Ghosh ("2007 Framework Agreements"). [hereinafter referred to "Assignment of Call Options"]
1.2 Addition of Rs. 13,21,89,71,207/ - representing alleged long term capital gain under section 50B of the Income tax Act, 1961 (the "Act") in respect of sale of Call Centre Business, on a slump sale basis, by the Assessee to Hutchison Whampoa Properties (India) Private Ltd. ["HWP (India)"] on 08th May 2007 under a Business Transfer Agreement ("BTA") [hereinafter referred to "Sale of Call Centre Business"]
1.3 Addition of Rs. 28,74,34,828/ - representing difference between alleged arms length revenue as computed by TPO and revenue actually received by the Assessee for provision of Contact Centre Services to Hutchison Call Centre Holdings Limited ("HCCH") [hereinafter referred to "Provision of ITeS Services"]
1.4 Disallowance of Rs. 2,70,64,399/ - in respect of brought forward depreciation from earlier years.
Assignment of Call Options
2. That in the facts and circumstances of the case, the Lower Authorities erred in law in assuming jurisdiction as the transfer pricing provisions contained in Chapter X of the Act do not apply either to the alleged transaction of Assignment of Call Options under the 2007 Framework Agreements.
3. That the lower authorities erred in assuming jurisdiction in respect of the alleged Assignment of Call Options under the 2007 Framework Agreements where no such assignment took place to constitute a transaction, much less an 'international transaction' for the purpose of Chapter X of the Act, which has been specifically confirmed by the Hon'ble Supreme Court vide Judgment dated 20th January 2012 in the matter of Vodafone International Holdings BV v. UOI : (2012) 341 ITR 1 (the "Judgment")
4. That in the facts and circumstances of the case, the Lower Authorities failed to appreciate that no transaction per se has been undertaken as the rights under the 2006 and the 2007 Framework Agreements have not been altered, as they remain where they were i.e. with the Assessee, and, therefore, the provisions of the Act or the transfer pricing Provisions contained in Chapter X of the Act do not apply for the want of any transaction.;