Case nº V.S. Sirpurkar, J. (Chairman), A.K. Tewary, Member (R) and R.S. Shukla, Member (L) of AAR Cases, August 17, 2016 (case In Re: Banca Sella S.P.A. Vs)

Judge:For Appellant: P.J. Pardiwala and Indra Anand, CA
President:A.A.R. No. 1130 of 2011
Defense:Income Tax Act, 1961 - Sections 195, 2(47), 45, 47, 47(vi), 48, 5(2), 55(2), 9(1) (i), 9(1)(i), 92 - 92F
Resolution Date:August 17, 2016
Issuing Organization:AAR Cases
 
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Judgment:

A.K. Tewary, J.

  1. The applicant Banca Sella SPA (BSS) is a banking company, wholly owned by Banca Sella Holding S.p.A. ('Holding Co.'), Italy. BSS engaged in the business of collection of savings and exercising the business of credit, in all forms, in Italy and abroad. It also proposes to provide outsourcing services, banking & financial services and other ancillary and incidental services. Sella Servizi Bancari S.C.P.A. (SSBS) was one of the group companies of Banca Sella Group (Gruppo Banca Sella). It was incorporated on 01.04.2009. Before the amalgamation of SSBS into BSS, BSS held around 15% equity stake in SSBS. SSBS was rendering services to entities within Gruppo Banca Sella which were necessary for operational activities of Grouppo Banca Sella as a whole. The main activities so performed amongst others were, support services for group direction, business and commercial support services, administrative services, control services and information technology services. Gruppo Banca Sella had been carrying out business in India through Sella Synergy India Private Limited ('SSIPL'), a subsidiary of the Holding Co., incorporated in India under the Companies Act, 1956. SSIPL was engaged in the business of information technology (software design, development and other related maintenance services) provided to entities of Gruppo Banca Sella. On 15TH January, 2010, SSBS established its branch office in India (Branch). The Branch took over the Information technology business of SSIPL as a going concern, on slump sale basis on 15th February, 2010, pursuant to the Business Transfer Agreement dated 10th February, 2010, at a consideration of INR 13,06,00,000/- (Rupees thirteen crores six lakhs only). SSIPL paid tax of Rs. 27287501 on the capital gains of Rs. 120421450 on the transaction of business transfer from SSIPL to the branch of SSBS. S

  2. The shareholding pattern of SSBS before the amalgamation was as follows:

  3. Gruppo Banca Sella has effected a restructuring in Italy, whereby SSBS has been merged with the applicant. The effective date of amalgamation was 30th May, 2011. As a result of the Amalgamation, shareholders of SSBS (i.e., Holding Co. & Others excluding the applicant) were allotted additional shares (fresh issued) in the applicant company. Consequently the company SSBS Ceased to exist and all assets and liabilities of SSBS got vested with the applicant - which is now the amalgamated company. Post amalgamation, the Branch (now belonging to the applicant) continues to carry on IT services.

  4. The applicant has sought ruling from on the following questions:

    (1) (i) Whether the amalgamation of Sella Servizi Bancari S.C.P.A. (SSBS) with the applicant involves a 'transfer' u/s. 2(47) of Income Tax Act, 1961 (ITA), of capital asset of SSBS, being a branch in India?

    (ii) If yes, is such transfer chargeable to tax u/s. 45 of ITA?

    (iii) Can the price paid by the branch to Sella Synergy India Private Limited (SSIPL) to acquire the business (including goodwill) be treated as Cost of Acquisition u/s. 55(2) of ITA?

    (2) Assuming a view is taken that SSBS is chargeable to tax in India on its amalgamation with the applicant, then, whether by virtue of Article 25 of the Indo-Italian DTAA, the exemption u/s. 47(vi) is available to it?

    (3) Whether any charge u/s. 45 of the ITA has arisen to the applicant as a consequence of the extinguishment of its 15% shareholding in SSBS?

    (4) (i) Whether any Capital Gains chargeable to tax u/s. 45 of the ITA has arisen to shareholders of SSBS (other than the applicant) upon their transferring of their shareholding in SSBS?

    (ii) If yes, then the methodology to compute the same?

    (5) If answer to question (1) or (4) is in the affirmative, whether applicant was liable to withhold tax u/s. 195 of the ITA.

    (6) Whether the amalgamation of SSBS with the applicant attracts transfer pricing provisions of Sec. 92 to 92F of the ITA?

  5. The Revenue has challenged the admission of the application observing that the issue before the Authority involves determination of the fair market value of shares of SSBS and has further stated that while admitting the application, the Authority has not categorically overruled the objections of the department and as such the said objections are still alive. We have considered this objection in the context of the questions raised and find that questions relate only to taxability as a result of amalgamation with respect to amalgamating and amalgamated companies and shareholders and do not at all concern valuation of shares. Therefore, we do not think there is any jurisdictional bar. We treat the admission order as final.

  6. The Applicant submits that the three entities that could possibly be taxed in India as a consequence of the amalgamation are:--

    "(i) SSBS on the capital gains accruing, if any, on the transfer of its Indian Branch as a consequence of the amalgamation;

    (ii) BSS on the capital gains, if any, accruing on the transfer of the shares it holds in SSBS as a consequence of their extinguishment on the dissolution of SSBS pursuant to the amalgamation; and

    (iii) the capital gains, if any, to the other shareholders of SSBS on the extinguishment of their shares as a consequence of the amalgamation of SSBS into BSS.

    However, the above submission of the applicant is with a demur."

  7. According to the applicant Questions 1 and 2 raised in the application deal with the taxability of SSBS, Question 3 with the taxability of BSS and Question 4 deals with the taxability of the other shareholders. The Revenue pointed out that questions (1) and (2) do not deal with the taxability of SSBS saying that the Applicant assumes that Question No. 1 read with Question No. 2 is about the taxability of SSBS in India whereas there is no specific mention of SSBS in the questions raised. According to the Applicant vide Question No. 1 and Question No. 2 it has sought a ruling whether the said amalgamation can be construed as a 'transfer' within the meaning of section 2(47) of the ITA and about the taxability of the same if the answer to Question No. 1 is in the affirmative. The applicant mentioned that as per the overall scheme of taxation, capital gains are brought to tax in the hands of the transferor and, therefore, it is quite obvious that Question Nos. 1 and 2 dealing with the taxability of capital gains in case of amalgamation could only be in the hands of the transferor, i.e. SSBS, in the instant case. It was also submitted by the applicant that the Applicant has specifically raised Question No. 3 for determining the taxability in its own hands, Question No. 4 deals with the taxability in the hands of other shareholders and Question No. 5 relates to applicability of the provisions for deduction of tax at source to BSS in respect of the gains, if any, arising to SSBS and the other shareholders whereas Question No. 6 deals with the applicability of the transfer pricing provisions. We have examined the questions carefully and find that Question No. 1 relates to the transfer and since SSBS has amalgamated and its assets have been transferred, the question definitely relates to SSBS. The objection of Revenue is not correct.

    Question No1& 2 relating to SSBS

  8. The contentions of the Applicant and Revenue are dealt with...

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