|CORAM:||I. C. Sudhir (JM), Prashant Maharishi (AM)|
|SECTION(S):||68, 69, 69A|
|CATCH WORDS:||NDTV, scam, unexplained cash credit, unexplained investment|
|COUNSEL:||C. S. Agarwal|
|DATE:||July 14, 2017 (Date of pronouncement)|
|DATE:||July 20, 2017 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 69A: NDTV indulged in a clear cut case of "abuse of organization form/ legal form and without reasonable business purpose” and therefore, no fault can be found with the order of the AO in charging to tax Rs. 642 crores by re-characterizing the conditions according to its economic substance and imposing the tax on the actual controlling Indian entity. There is no doubt that the transaction used principally as a devise for the distribution/ diversion of sum to the Indian entity. The beneficial owner of the money is the assessee|
(i) In Vodafone International Holdings BV vs. UOI 341 ITR 1 it was held that if an entity which has no commercial/business substance has been interposed only to avoid tax then in such cases applying the test of fiscal nullity it would be open to the Revenue to discard’ such inter-positioning of that entity. However, this has to be done at the threshold. It was reiterated that the “look at” principle enunciated in Ramsay (supra) in which it was held that the Revenue or the court must look at a document or a transaction in a context to which it properly belongs to. It is the task of the Revenue/court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transaction as a whole and not to adopt a dissecting approach. The Revenue cannot start with the question as to whether the impugned transaction is a tax deferment/ saving device but that it should apply the “look at” test to ascertain its true legal nature (See Craven v. White (supra) which further observed that genuine strategic tax planning has not been abandoned by any decision of the English courts till date). Applying the above tests, the Supreme Court held that every strategic foreign direct investment coming to India, as an investment destination, should be seen in a holistic manner. While doing so, the Revenue/courts should keep in mind the following factors: the concept of participation in investment, the duration of time during which the holding structure exists; the period of business operations in India; the generation of taxable revenues in India; the timing of the exit; the continuity of business on such exit. In short, the onus will be on the Revenue to identify the scheme and its dominant purpose. The corporate business purpose of a transaction is evidence of the fact that the impugned transaction is not undertaken as a colourable or artificial device. The stronger the evidence of a device, the stronger the corporate business purpose must exist to overcome the evidence of a device.
(ii) In the present case, according to us it is a clear out case of “abuse of organization form/ legal form and without reasonable business purpose and therefore, no fault can be found with the order of the Id Assessing Officer/ Id DRP in charging to tax Rs. 642 crores by re-characterizing the conditions according to its economic substance and imposing the tax on the actual controlling Indian entity. In the present case we do not have any doubt that the transaction used principally as a devise for the distribution/ diversion of sum to the Indian entity on review of all the facts circumstances surrounding the present transaction. In the present case, the beneficial Owner of the money is the assessee.
(iii) No doubt when it comes to taxing the real owner or beneficial owner of the financial transaction higher burden is cast on the revenue and therefore; revenue is duty bound to prove the money trail. According to us the revenue has established that the Money has come back to the assessee. Before us, the revenue has also submitted a chart showing transaction involving introduction of Rs. 642.54 crores and the money trail how it travelled to the assessee. The moment the amount was invested by USBV in NNIH, NNIH declared dividend of Rs. 643.35 crores to a lone shareholder despite there being other shareholders also, to NDTV Networks By. Therefore, Rs. 643 crores was infused in NNIH and simultaneously they were siphoned from that company to NDTV Networks BV who is the part of NDTV Group. At this stage itself all financial interest of USBV and NBCU or any other group attached with the investor company has come to an end with the single motive to only conclude the transaction by liquidating the investment at substantial discount to give it a color of ‘failed investment decision’. The dividend received by the NDTV Network BV was transferred in to trenches to two different companies owned by NDTV Group . A sum of Rs. 448.49 crores was invested in NDTV Mauritius Multimedia Ltd , Mauritius which is 100% subsidiary company of NDTV Ltd crores (assessee). A further sum of Rs. 254.75 crores was given as unsecured loan to NDTV network PLC which is existing in UK jurisdiction and where 92% of shareholding is with NDTV (assessee). Subsequently, the NDTV Mauritius Multimedia Ltd which received Rs. 448.49 crores merged with NDTV one Holding Ltd, Mauritius w.e.f ‘September 2011 and the amalgamated entity also the 100% subsidiary of NDTV. The NDTV one Holding Ltd Mauritius merged with NOW Studious ltd and NDTV Studious Ltd then merged with NDTV (assessee) w.e.f 01.09.2012. In view of this money trail established by the Revenue could not be controverted by the assessee. This money trail stares so glaringly on the various complex structures created by the assessee that without proving any substance one cannot reach to any other conclusion but to the conclusion that series of the transaction entered into by the assess were to transfer Rs. 642 crores from the investor-company or the owner of the investor company to the assessee.
(iv) It is interesting to note that certain emails were gathered by revenue through enquiry during the course of penalty proceedings by examination of some person. Such exchange of mails was recorded at para 6.5 of the show cause notice issued by the id Assessing Officer Ids 271(1)(c) of the Act. These aemails were given to the Ld Assessing Officer by one Mr. Sanjay Dutt who was examined u/s 131 of the Act by the Id AO. These mails are pertaining to the transaction where Mr. Sanjay Dutt is one of the recipients. The other recipients are purportedly the highest officers of the company including the chairman. When these mails were confronted to the assessee the reply was submitted by the assessee vide letter undated but submitted to the Assessing Officer on 02.11:2016.