w w w . L a w y e r S e r v i c e s . i n



M/s. Vodafone India Service Pvt. Ltd., (formerly known as 3 Global Services Pvt. Ltd.) v/s Union of India, Ministry of Finance & Others


Company & Directors' Information:- VODAFONE INDIA LIMITED [Amalgamated] CIN = U32200MH1992PLC119108

Company & Directors' Information:- VODAFONE GLOBAL SERVICES PRIVATE LIMITED [Active] CIN = U64204PN2014PTC150461

Company & Directors' Information:- GLOBAL FINANCE CORPORATION LTD [Active] CIN = U67120WB1982PLC035160

Company & Directors' Information:- GLOBAL FINANCE CORPORATION LTD [Active] CIN = L67120WB1982PLC035160

Company & Directors' Information:- GLOBAL I T SERVICES PRIVATE LIMITED [Active] CIN = U72200DL2004PTC127805

Company & Directors' Information:- GLOBAL E-SERVICES PRIVATE LIMITED [Active] CIN = U17116MH1947PTC005768

Company & Directors' Information:- GLOBAL FINANCE CORPORATION LTD. [Strike Off] CIN = U65929TR1987PLC002685

Company & Directors' Information:- H R GLOBAL FINANCE LTD [Active] CIN = U65999WB1995PLC067446

Company & Directors' Information:- VODAFONE INDIA SERVICES PRIVATE LIMITED [Active] CIN = U64201MH1999PTC294960

Company & Directors' Information:- VODAFONE INDIA SERVICES PRIVATE LIMITED [Active] CIN = U64201GJ1999PTC059542

Company & Directors' Information:- R K GLOBAL FINANCE PRIVATE LIMITED [Active] CIN = U74899DL1994PTC062475

Company & Directors' Information:- G M GLOBAL FINANCE PVT LTD [Active] CIN = U67120WB1996PTC078416

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- S K GLOBAL SERVICES LIMITED [Strike Off] CIN = U74140WB2008PLC130221

Company & Directors' Information:- K & S GLOBAL SERVICES PRIVATE LIMITED [Active] CIN = U93000DL1996PTC082621

Company & Directors' Information:- I - GLOBAL SERVICES PRIVATE LIMITED [Active] CIN = U72900GJ2010PTC059452

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- GLOBAL FINANCE CORPORATION LTD [Not available for efiling] CIN = U65929AS1987PTC002685

Company & Directors' Information:- FINANCE SERVICE PVT LTD [Strike Off] CIN = U65921DL1961PTC003460

Company & Directors' Information:- GLOBAL SERVICES (C & F ) PRIVATE LIMITED [Active] CIN = U60300MH1982PTC027712

Company & Directors' Information:- M. K. GLOBAL SERVICES PRIVATE LIMITED [Strike Off] CIN = U72300MH2014PTC259803

Company & Directors' Information:- GLOBAL INDIA SERVICES PRIVATE LIMITED [Strike Off] CIN = U74120MH2013PTC242295

Company & Directors' Information:- R & J FINANCE SERVICES PRIVATE LIMITED [Active] CIN = U67190DL2014PTC264122

    Writ Petition No. 488 of 2012

    Decided On, 06 September 2013

    At, High Court of Judicature at Bombay

    By, THE HONOURABLE MR. JUSTICE S.J. VAZIFDAR & THE HONOURABLE MR. JUSTICE R.Y. GANOO

    For the Petitioner: Harish Salve, senior counsel with Ms. Anurdha Dutt, Ms. Fereshte Sethna, Ms. Gayatri Goswami, Ms. Olga Lume Pereira, Tushar Jarwal, Chirag Dave, Ram Kakkar, Aagam Doshi & Shantanu Singh i/b Duttmenon Dummorrsett, Advocates. For the Respondents: Darius J. Khambatta, Advocate General with Beni M. Chatterjee, Special Counsel with Aditya N. Mehta, Tejveer Singh, Advocates.



Judgment Text

S.J. Vazifdar, J.

1. The petitioner, a company incorporated under the Companies Act, 1956, seeks a writ of certiorari to quash and set aside a Transfer Pricing Order dated 31st October, 2011, passed by respondent No.2 – Additional Commissioner of Income-tax, Transfer Pricing (hereinafter referred to as 'the TPO') to the extent that it relates to the addition of Rs.84,34,39,52,555/- on account of two unreported international transactions and a Draft Assessment Order dated 29th December, 2011, passed by respondent No.3–Assistant Commissioner of Income-tax (hereinafter referred to as the 'AO' or 'Assessing Officer'). The petitioner has also sought a writ of mandamus directing respondent No.3 – the AO to revise the Draft Assessment Order, after excluding the said transfer price adjustment. Lastly, the petitioner seeks a writ of prohibition, prohibiting the respondents from taking any steps pursuant to the impugned orders.

2. The two unreported transactions are the sale of the call centre business by the petitioner to Hutchison Whampoa Properties (India) Pvt. Ltd. and an alleged assignment of call options by the petitioner to Vodafone International Holdings B.V. The TPO determined the arm's length price of these two unreported transactions suo moto in exercise of powers under sections 92CA(2A) and/or (2B) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The petitioner has challenged the jurisdiction of the TPO to determine the arm's length price of these transactions on various grounds. The respondents, apart from denying this case, have contended that the Writ Petition is not maintainable on the ground that the petitioner has an alternate remedy under the provisions of the Income Tax Act, 1961, and on certain other grounds.

FACTS :

General :

3. The petitioner 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 an 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. There is no dispute regarding this chart. Mr. Salve, the learned senior counsel appearing on behalf of the petitioner furnished a compressed version of this chart which is indeed convenient to refer to. However, while referring to some of the documents and to the judgment of the Supreme Court, we found it necessary to refer to the detailed chart. It is necessary, therefore, to set out the detailed chart. It is as under :

'OWNERSHIP STRUCTURE CHART'

Since April, 2003, the petitioner, 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 petitioner dated 1st January, 2006.

Transactions :

4. We will refer to the relevant clauses of the agreements later while dealing with the petitioner's case specific to the transactions. For now and while considering the challenge to the TPO's jurisdiction under section 92CA(2A) and (2B) of the Income Tax Act, 1961, we will refer to the transactions only generally.

5. A Framework agreement dated 1st March, 2006, was entered into between the petitioner 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 petitioner 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 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 petitioner, a subsidiary of HTIL to buy from the respective group companies, their entire share holdings in TII. The petitioner 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 procure the sale of 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. The petitioner alleges that it entered into a Memorandum of Understanding (hereinafter referred to as 'MOU') dated 25th April, 2007 with Hutchison Whampoa Properties (India) Private Limited [hereinafter referred to as 'HWP (India) ] relating to the sale of its call centre business. HWP (India) is a wholly owned subsidiary of HWP Investment Holdings (India) Limited, a company incorporated in Mauritius, also engaged in the business of call centre operations. The respondents contend that the same is ante-dated, the actual date being after 25th October, 2011.

8. On 8th May, 2007, a Business Transfer Agreement (hereinafter referred to as the 'BTA') was executed between the petitioner in its former name - 3 Global Services Private Limited (the petitioner) and Hutchison Whampoa Properties (India) Private Limited [HWP (India)]. The petitioner and HWP (India) are referred to as the vendor and the purchaser respectively therein. By the BTA, the petitioner agreed to sell its business, inter-alia, of maintaining a call centre to HWP (India) as a going concern as per the closing date for a consideration of Rs.64 crores and on the other terms and conditions contained therein.

9(A) We referred to the Framework agreements dated 1st March, 2006. 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 petitioner with effect from the completion date and was entering into the agreements as a confirming party.

Proceedings before respondent Nos.2 and 3 :

10. This brings us to the demands made by the respondents upon the petitioner and the proceedings pursuant thereto.

(A) The proceedings pertain to the Assessment Year 2008-09. Under cover of its Chartered Accountant's letter dated 8th January, 2009, the petitioner 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. These disclosed / reported transactions are not the subject matter of this petition.

(B) We will set out the relevant provisions of the Act later. Suffice it to note at this stage that on 1st June, 2011, sub-section 2(A) of Section 92CA of the Act came into effect.

(C) Hearings were held before the TPO. In the course of the correspondence with the petitioner, the TPO sought various documents and particulars and contended that the petitioner had not disclosed two international transactions viz. the BTA – the transaction relating to the sale of the call centre business by the petitioner to HWP (India) and the assignment of the call options under the new Framework agreements dated 5th July, 2007. It is these two unreported transactions that are the subject matter of this Writ Petition. The TPO stated that both the transactions were international transactions. He also disputed the valuation reports submitted by the petitioner. The petitioner, after some initial hesitation, furnished the documents, including the SPA, the BTA and the Framework agreements at different stages. The petitioner contended that the same did not constitute international transactions.

(D) The Advocate General emphasised that while it denied that the unreported transactions were international transactions, the petitioner did not at any stage – and there were several - raise any objection to the jurisdiction of the TPO to hold the hearings or to make the enquiries in relation to the unreported international transactions. In other words, the petitioner did not object to the TPO considering whether or not the unreported transactions were international transactions.

He relied upon the concluding part of a letter dated 28th September, 2011, which reads as under :-

'We trust the above fully provides our replies and explanation to the issues raised by you. May we state that though we have provided our responses and explanations on all of the queries/apprehensions raised by you in your summons dated September 9, 2011 and in the course of the proceedings, in case you have any further doubts or apprehensions or you hold any opinion which my lead to your recommending any adjustments under chapter X of the Act, having regard to the various documents submitted by us or otherwise, then we would be grateful if your further questions or doubts are furnished to us so that we get adequate opportunity to clarify the same. You will appreciate that since the order of the Transfer Pricing Officer, for all practical purpose, will be binding on the Assessing Officer, it would be in the interest of natural justice that we are given adequate opportunity to clarify all your doubts and apprehensions and we provide our submissions (whether legal or factual) so that we can avoid any unwanted litigations in the matter of our tax assessment.'

Relying upon the above letter, the Advocate General contended that far from questioning the TPO's jurisdiction to consider an unreported international transaction, the petitioner, in fact, submitted to his jurisdiction in this regard.

(E) The TPO issued notices calling upon the petitioner to show cause why it had not disclosed the said unreported international transactions.

The petitioner submitted a detailed reply to the show cause notice. Once again, no objection was raised to the jurisdiction of the TPO to consider the unreported international transactions. The petitioner 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 petitioner, however, did not contend that respondent No.2 did not have jurisdiction to consider the said transactions on the ground that they were not international transactions. The petitioner, 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 petitioner 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, without contending that respondent No.2 did not have jurisdiction to consider the said transaction on the ground that it was not an international transaction. The petitioner, for instance, contended that the MOU got automatically terminated on the signing of the BTA, inter-alia, in view of clause 17.2 of the BTA.

11. We will deal with the judgment of the Supreme Court in Vodafone International Holdings B.V. v. Union of India & Anr., (2012) 341 ITR 1, later. Suffice it to note at this stage that on 30th October, 2011, the Supreme Court reserved the judgment in that case. It was delivered ultimately on 20th January, 2012. The impugned orders were passed during this period before the judgment.

12. The TPO passed the impugned transfer pricing order dated 31st October, 2011. In view of the Advocate General's preliminary objection to the maintainability of this writ petition, it may be noted at this stage that the order was passed after affording the petitioner, fifteen hearings between 30th December, 2010 and 25th October, 2011.

A corrigendum to the order was passed on 1st November, 2011, correcting typographical errors.

The TPO, inter-alia, held the two unreported transactions to be international transactions and determined the ALP in respect thereof. [We use the term 'transaction' even in respect of the alleged assignment of the call options for convenience, but conscious of the petitioner's contention that it is not even a transaction.] We will refer to the TPO's findings in regard to each of the transactions, including the ALP determined by him, at the appropriate place viz. when dealing with Mr. Salve's submissions regarding them.

13. 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 suggesting an adjustment of Rs.85,90,25,49,547/- to the ALP. The petitioner was called upon to explain why the adjustment to the ALP as suggested by the impugned order should not be made to the total income.

14. The petitioner filed submissions before the AO in which, for the first time, it objected to the exercise of the jurisdiction by the TPO over the unreported international transactions.

The petitioner expressly contended that the TPO had no jurisdiction to determine the ALP in respect of the said non-reported transactions inasmuch as he had no power to suo moto assume jurisdiction pursuant to section 92CA(2A) with respect thereto. The petitioner also dealt with the case on merits, including that the said transactions were not international transactions.

15. On 29th December, 2011, the AO passed a Draft Assessment Order under section 144C of the Act.

The AO held that he was bound by the TPO's order and that an AO, under no circumstances, can differ with the TPO. The AO, accordingly, held that he was unable to uphold the assessee's objection with regard to the quantification of the ALP of the sale of the call centre business.

The Advocate General, however, contended that the AO had even otherwise, independent of the TPO's order, found the transactions to be international transactions and computed the ALP in respect thereof himself. Mr. Salve denied that the AO had done so. It is clear that the AO has, independent of the TPO's order, on his own come to the same conclusion. However, as we have upheld Mr. Salve's submission that the AO is bound by the order of the TPO on both issues viz. whether the transaction is an international transaction or not and the computation of the ALP in respect thereof it is unnecessary to analyze the draft order in this regard.

16. On 20th January, 2012, the Supreme Court delivered the judgment in Vodafone International Holdings B.V. v. Union of India & Anr., (2012) 341 ITR 1. The Supreme Court reversed the judgment of this Court. We will refer to this judgment in detail later.

17. On 30th January, 2012, the petitioner filed objections before the Dispute Resolution Panel (DRP) against the draft assessment order. The petitioner expressly stated that it was filing the objections without prejudice as it intended filing a Writ Petition before this Court since the period of limitation of thirty days prescribed under section 144C(2) for filing the objections was due to expire on 30th February, 2012, by which date the Writ Petition would not come for hearing. The petitioner also contended that the order of the TPO and the AO were passed without jurisdiction. Interim orders passed in this Writ Petition; the DRPs directions/order and the final assessment order passed by the AO:

18. The present Writ Petition was filed on 18th February, 2012.

(A) During the pendency of the Writ Petition, by an order dated 21st February, 2012, a Division Bench of this Court issued directions for filing affidavits and adjourned the matter to 27th March, 2012, for admission / hearing. The affidavit-in-reply dated 26th March, 2012, though filed late, was taken on record on 27th March, 2012 and the petition was adjourned to 17th April, 2012.

(B) In the meantime, a number of hearings were held by the DRP. The petitioner also filed its written submissions before the DRP on 25th September, 2012.

(C) On 13th September, 2012, the petitioner sought a stay of further proceedings before the Dispute Resolution Panel (DRP) on various grounds, including on the ground that the DRP does not have jurisdiction to consider the various issues raised in the petition. By an order dated 13th September, 2012, a Division Bench to which one of us (S.J. Vazifdar, J.) was a party, held that it was not necessary to entertain the application for interim reliefs at that stage as the period of nine months for passing the directions under section 144C was due to expire on 30th September, 2012, and the respondents stated that there was no possibility of any final directions under section 144C being issued by the DRP at least till 30th September, 2012. It was further observed that as the Court was not entertaining the application for interim reliefs, the petitioner would be at liberty to appear before the DRP without prejudice to its rights and contentions including those raised in this Writ Petition.

(D) The DRP subsequently passed orders / directions under section 144C(5), inter-alia, upholding the findings of the TPO. The same was recorded in an order dated 8th October, 2012.

(E) The matter thereafter appeared before another Division Bench on 8th October, 2012. By an order dated 8th October, 2012, the Division Bench recorded that on 24th September, 2012, it was agreed that the petition would be heard finally at the stage of admission; that on 24th September, 2012, the Court, while adjourning the matter to 5th October, 2012, orally directed that the DRP may continue with the proceeding but that the order, if any, that may be passed shall not be communicated to the petitioner till the next date of hearing; that on 5th October, 2012, the respondent's counsel raised a preliminary objection on the ground that the DRP had already passed an order upholding the decision of the TPO and that the impugned order of the TPO had, therefore, merged in the order of the DRP and that on 5th October, 2012, the jurisdictional issue was heard at length by that Division Bench. The order further records that one of the learned Judges recused himself from the matter and directed the Registry to place the Writ petition before the appropriate bench. Having said that, however, the Division Bench directed the respondents not to serve the order of the DRP upon the petitioner for a period of eight weeks and that if the assessment order was passed by the AO pursuant to the directions of the DRP, the same should also not be communicated to the petitioner for a period of eight weeks. The Division Bench recorded the statement on behalf of the petitioner that it would not raise the plea of limitation and/or non service of the order of the DRP or the assessment order on the petitioner.

19(A). The learned Chief Justice thereafter assigned the matter to our Bench. By an order dated 20th November, 2012, the interim order dated 8th October, 2012, was, with the consent of the parties, continued upto and including 21st December, 2012. The date '21st December, 2012' was, by an order dated 22nd November, 2012, corrected to read '11th December, 2012'. Although not recorded, this has been the understanding between the parties as the petition was being heard by us.

(B) On 31st October, 2012, the AO passed the final assessment order. The same, however, has not been served on the petitioner in view of the order dated 8th October, 2012 and the said understanding.

SUBMISSIONS:

20. Mr. Salve, the learned senior counsel appearing on behalf of the petitioner stated that the petitioner does not challenge the computation of either the disclosed international transactions or the computation relating to the alleged undisclosed international transactions. He, however, raised broadly three issues contending the same to be jurisdictional issues. Each of these broadly stated issues, in turn, require a consideration of several issues. We will here only refer to the issues as framed and amplify them while dealing with each separately. The three broad issues raised by Mr. Salve are:-

(A) The TPO could not have taken suo moto cognizance of any transaction without it being expressly referred to him by the AO for the assessment year 2008-09 since there was a return filed which disclosed some international transactions.

(B) The TPO lacked any jurisdiction to go into the valuation of the sale of the call centre business pursuant to the BTA by the petitioner to HWP (India) as the same is a domestic transaction and cannot be deemed to be an international transaction.

(C) The rewriting of the call options in July, 2007 did not constitute an assignment of options and thus there is no international transaction of the kind alleged. This issue stands settled by the judgment of the Supreme Court in the case of Vodafone International Holdings B.V. v. Union of India & Anr., (2012) 341 ITR 1.

21(A). Apart from contesting these submissions, the Advocate General raised several preliminary objections to the maintainability of the Writ Petition. He firstly contended that the petitioner has alternate remedies under the Act.

He also submitted that the petition ought not be entertained as (i) the petitioner had filed objections and had appeared before the DRP; (ii) the petitioner is not entitled to maintain parallel proceedings viz. this Writ Petition and the proceedings before the authorities under the Act and (iii) the impugned order of the TPO and the draft order of the AO had merged in the order of the DRP and the final assessment order of the AO.

(B) Incongruous though it may sound, we will consider the preliminary objections after we consider Mr. Salve's first submission. This is because a consideration of the preliminary objections require, in turn, a consideration of the entire scheme under Chapter X and section 144C for it must be first determined whether the petitioner is entitled to the alternate remedies as contended by the Advocate General.

Re: (A) The TPO could not have taken suo moto cognizance of any transaction without it being expressly referred to him by the AO for the assessment year 2008-09 since there was a return filed which disclosed some international transactions.

22. The submissions were wider than was formulated as above. Mr. Salve submitted that the order of the TPO insofar as it dealt with the unreported and unreferred international transactions is a nullity, as he lacked inherent jurisdiction to consider the same. This submission is advanced irrespective of whether there is a transaction or not and irrespective of whether the transaction is an international transaction or not. In other words, this submission is sought to be sustained even if there was in question an international transaction.

Before even amplifying the submission, it is necessary to set out sections 92C(3), 92CA, 92D 92E and 144C of the Act, which read as under :-

'92-C. Computation of arm’s length price.-............

(3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that-

(a) the price charged or paid in an [international transaction or specified domestic transaction] has not been determined in accordance with sub sections (1) and 2; or

(b) any information and document relating to an [international transaction or specified domestic transaction] have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of Section 92-D and the rules made in this behalf; or

(c) the information or data used in computation of the arm’s length price is not reliable or correct; or

(d) the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under subsection (3) of Section 92-D.

the Assessing Officer may proceed to determine the arm’s length price in relation to the said [international transaction or specified domestic transaction] in accordance with sub-sections (1) and (2), on the basis of such material or information or document available with him:

Provided that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm’s length price should not be so determined on the basis of material or information or document in the possession of the Assessing Officer.

(4) Where an arm’s length price is determined by the Assessing Officer under sub-section (3), the Assessing Officer may compute the total income of the assessee having regard to the arm’s length price so determined:

Provided that no deduction under [Section 10-A or Section 10-AA or Section 10-B] or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section:

Provided further that where the total income of an associated enterprise is computed under this sub-section on determination of the arm’s length price paid to another associated enterprise from which tax has been deducted [or was deductible] under the provisions of Chapter XVII-B, the income of the other associated enterprise shall not be recomputed by reason of such determination of arm’s length price in the case of the first mentioned enterprise.

….......

92-CA. Reference to Transfer Pricing Officer.-(1) Where any person, being the assessee, has entered into an [international transaction or specified domestic transaction] in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the Commissioner, refer the computation of the arm’s length price in relation to the said [international transaction or specified domestic transaction] under Section 92-C to the Transfer Pricing Officer.

(2) Where a reference is made under sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm’s length price in relation to the [international transaction or specified domestic transaction] referred to in sub-section (1).

(2-A) Where any other international transaction [other than an international transaction referred under subsection (1)], comes to the notice of the Transfer Pricing Officer during the course of the proceedings before him, the provisions of this Chapter shall apply as if such other international transaction is an international transaction referred to him under sub-section (1).

(3) On the date specified in the notice under sub-section (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in sub section (3) of Section 92-D and after considering such evidence as the Transfer Pricing Officer may require on any specified points and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer shall, by order in writing, determine the arm’s length price in relation to the [international transaction or specified domestic transaction] in accordance with sub-section (3) of Section 92- and send a copy of his order to the Assessing Officer and to the assessee.

(2-B) Where in respect of an international transaction, the assessee has not furnished the report under Section 92-E and such transaction comes to the notice of the Transfer Pricing Officer during the course of the proceeding before him, the provisions of this chapter shall apply as if such transaction is an international transaction referred to him under sub-section (1).

(2-C) Nothing contained in sub-section (2-B) shall empower the Assessing Officer either to assess or reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154, for any assessment year, proceedings for which have been completed before the 1st day of July, 2012.

(3-A) Where a reference was made under sub-section (1) before the 1st day of June, 2007 but the order under subsection (3) has not been made by the Transfer Pricing Officer before the said date, or a reference under subsection (1) is made on or after the 1st day of June, 2007, an order under sub-section (3) may be made at any time before sixty days prior to the date on which the period of limitation referred to in Section 153, or as the case may be, in Section 153-B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires.

(4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of Section 92-C in conformity with the arm’s length price as so determined by the Transfer Pricing Officer.

(5) With a view to rectifying any mistake apparent from the record, the Transfer Pricing Officer may amend any order passed by him under sub-section (3), and the provisions of Section 154 shall, so far as may be, apply accordingly.

(6) Where any amendment is made by the Transfer Pricing Officer under sub-section (5), he shall send a copy of his order to the Assessing Officer who shall thereafter proceed to amend the order of assessment in conformity with such order of the Transfer Pricing Officer.

(7) The Transfer Pricing Officer may, for the purposes of determining the arm’s length price under this section, exercise all or any of the powers specified in clauses (a) to (d) of sub-section (1) of Section 131 or sub-section (6) of Section 133 [or Section 133-A.

Explanation.-For the purposes of this section, 'Transfer Pricing Officer' means a Joint Commissioner or Deputy Commissioner or Assistant Commissioner authorised by the Board to perform all or any of the functions of an Assessing Officer specified in Sections 92-C and 92-D in respect of any person or class of persons.]'

Sub-section (2A) of Section 92CA was introduced by the Finance Act, 2011 with effect from 1st June, 2011. Sub-section (2B) was introduced by the Finance Act, 2012 with retrospective effect from 1st June, 2002.

'92-D. Maintenance and keeping of information and document by persons entering into an [international transaction or specified domestic transaction].-(1) Every person who has entered into an [international transaction or specified domestic transaction] shall keep and maintain such information and document in respect thereof, as may be prescribed.

(2) Without prejudice to the provisions contained in subsection (1), the Board may prescribe the period for which the information and document shall be kept and maintained under that sub-section.

(3) The Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under this Act, require any person who has entered into an [international transaction or specified domestic transaction] to furnish any information or document in respect thereof, as may be prescribed under sub-section (1), within a period of thirty days from the date of receipt of a notice issued in this regard:

Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of thirty days by a further period not exceeding thirty days;

92-E. Report from an accountant to be furnished by persons entering into [international transaction or specified domestic transaction].-Every person who has entered into an [international transaction or specified domestic transaction] during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed.'

….......

144-C – (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee.

(2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,-

(a) file his acceptance of the variations to the Assessing Officer; or

(b) file his objections, if any, to such variation with,-

(i) the Dispute Resolution Panel; and

(ii) the Assessing Officer

(3) The Assessing Officer shall complete the assessment on the basis of the draft order, if-

(a) the assessee intimates to the Assessing Officer the acceptance of the variation; or

(b) no objections are received within the period specified in sub-section (2).

(4) The Assessing Officer shall, notwithstanding anything contained in section 153 [or section 153B], pass the assessment order under sub-section (3) within one month from the end of the month in which,-

(a) the acceptance is received; or

(b) the period of filing of objections under sub-section (2) expires.

(5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment.

(6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely:-

(a) draft order;

(b) objections filed by the assessee;

(c) evidence furnished by the assessee;

(d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority;

(e) records relating to the draft order;

(f) evidence collected by, or caused to be collected by, it; and

(g) result of any enquiry made by, or caused to be made by, it.

(7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5),-

(a) make such further enquiry, as it thinks fit; or

(b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it.

(8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under subsection (5) for further enquiry and passing of the assessment order.

[Explanation.- For the removal of doubts, it it hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee.]

(9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members.

(10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer.

(11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue, respectively.

(12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee.

(13) Upon receipt of the directions issued under subsection (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 [or section 153B], the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received.

(14) The Board may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed under sub- section (2) by the eligible assessee.'

23. Chapter X contains special provisions relating to avoidance of tax. Sections 92 to 92F were substituted for section 92 by the Finance Act of 2011 with effect from 1st April, 2002.

Section 92 deals with the computation of income from international transactions having regard to the arm's length price. For the purpose of this judgment, it is not necessary to refer to the other provisions in section 92 which also provide for the determination of various other components having regard to the arm's length price thereof. The provisions also pertain to specified domestic transactions with which we are not concerned. Section 92A, which we will refer to later in another context, defines for the purpose of sections 92, 92B, 92C, 92D, 92E and 92F, the phrase 'associated enterprise'. It also provides the circumstances in which two enterprises shall be deemed to be associated enterprises. Section 92B provides the meaning of an international transaction. The construction of section 92B and the application thereof is one of the issues in this matter. Section 92BA provides the meaning of 'specified domestic transaction' with which we are not concerned.

Section 92E read with Rule 10E requires assesses to report international transactions in Form 3CEB. Section 92F defines various terms, the relevant portion thereof reads as under :-

'92-F. Definitions of certain terms relevant to computation of arm’s length price, etc.-In Sections 92, 92-A, 92-B, 92-C, 92-D and 92-E, unless the context otherwise requires-

…............

(v) 'transaction' includes an arrangement, understanding or action in concert-

(A) whether or not such arrangement, understanding or action is formal or in writing; or

(B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding.'

24. The Advocate General submitted that the TPO had jurisdiction to consider the two unreported transactions suo moto in view of subsections (2A) and (2B) of section 92CA. As we mentioned earlier, sub-section (2A) of Section 92CA was introduced by the Finance Act, 2011 with effect from 1st June, 2011. Sub-section (2B) was introduced by the Finance Act, 2012 with retrospective effect from 1st June, 2002.

Mr. Salve, on the other hand, submitted that the case ought to be considered without reference to sub-sections (2A) and (2B). He submitted that the present case pertains to the assessment year 2008- 2009, whereas sub-section (2A) would apply only prospectively to cases relating to the assessment year 01.04.2012 onwards. According to him, sub-section (2A) does not have retrospective effect. He submitted that the case does not fall within the ambit of sub-section (2B). According to him , sub-section (2B) applies only where an assessee does not file Form 3CEB to wit in cases where the assessee does not disclose any international transaction.

25. The first question, therefore, is whether the TPO had jurisdiction to deal with the said unreported and unreferred transactions viz. the sale of the call centre business under the BTA by the petitioner to HWP (India) and the alleged assignment of the call options by the petitioner by the two Framework agreements dated 5th July, 2007. If the TPO did not have the jurisdiction to do so, if he lacked inherent jurisdiction to do so, his order would indeed be a nullity. The matter, however, even then would not end there as we will demonstrate later.

26 (A). The petitioner's case as regards sub-section (2A) of section 92CA is this. Sub-section (2A) was introduced by Finance Act 2011 with effect from 1st June, 2011. Sub-section (2A) conferred jurisdiction on the TPO which was otherwise not available. It, in fact, expanded the jurisdiction of the TPO. Being a provision conferring jurisdiction, it must be construed to be a substantive provision of law and not a procedural provision. It operated, therefore, only prospectively and not retrospectively. In other words, section 92CA(2A) can operate only in respect of matters pertaining to assessment years after and not before 1st June, 2011. The present case pertains to the assessment year 2008-09. Thus, the provisions of the Act, as they stood as on 31st March, 2008, were applicable. On that date, sub-section (2A) was not in force. It came into force only with effect from 1st June, 2011. Sub-section (2A), therefore, could not have been invoked by the TPO. The assumption of jurisdiction over the said transactions is, therefore, ex facie illegal.

The mere fact that the proceedings before the TPO were pending and delayed beyond June, 2011 would not entitle the TPO to take advantage of the delay and invoke the provisions of section 92CA(2A). The TPO's order to the extent it goes beyond the referred transactions is without jurisdiction. The AO's order being based upon the TPO's order is, accordingly, erroneous.

(B). On the other hand, the learned Advocate General submitted that the TPO had the jurisdiction to compute the arm's length price of the said transactions. His case is this. Section 92CA(2A), whether procedural or substantive, applies to proceedings pending before the TPO on 1st June, 2011.

Admittedly, the proceedings were pending before the TPO as on 1st June, 2011. As the proceedings were pending on 1st June, 2011, the question of giving retrospective effect to section 92CA (2A) does not arise.

The power to tax all transactions is with the AO and the TPO merely computes the arm's length price to facilitate the same. An assessee, including the petitioner, has no vested right to compel the AO to refer the matter to the TPO for determining the arm's length price. Section 92CA(2A) is, therefore, merely a procedural provision and, accordingly, operates retrospectively.

27. Two questions arise with regard to section 92CA(2A). The first question is whether the provisions of sub-section (2A) are substantive or merely procedural. This, in turn, raises a question as to whether sub-section (2A) confers fresh jurisdiction upon or expands the jurisdiction of the TPO. Secondly, assuming that sub-section (2A) is substantive, whether it applies to proceedings pending as on 1st June, 2011.

We have answered both the questions in the affirmative. Accordingly, we have held that the TPO had jurisdiction under subsection (2A) as the proceedings were admittedly pending before him on 1st June, 2011.

28. Sub-section (2A) undoubtedly confers fresh jurisdiction upon and extends the jurisdiction of the TPO. Prior thereto, the TPO was not entitled to deal with or consider international transactions which came to his notice without the same being referred to him by the AO. Prior to sub-section (2A) being introduced with effect from 1st June, 2011, the TPO was entitled to determine the arm's length price in relation to an international transaction only upon the same being referred to him for computation by the AO with the previous approval of the Commissioner.

29. That the intention of the Parliament was to extend the jurisdiction is clear from the following extract from the Memorandum to the Finance Bill 2011 under the caption 'Rationalization of provisions relating to Transfer Pricing.'

'B.Section 92CA of the Act provides that the Transfer Pricing Officer (TPO) can determine the ALP in relation to an international transaction, which has been referred to the TPO by the Assessing Officer.

It is proposed to amend section 92CA so as to specifically provide that the jurisdiction of the Transfer Pricing Officer shall extend to the determination of the ALP in respect of other international transactions, which are noticed by him subsequently, in the course of proceedings before him. These international transactions would be in addition to the international transactions referred to the TPO by the Assessing Officer.' [emphasis supplied]

In the absence of sub-section (2A), the TPO would not be entitled to consider any aspect of an international transaction not referred to him by the AO. The power or the right to make such a computation i.e. to determine the arm's length price cannot be deemed to be merely a procedural provision. It is a substantive provision.

30. We have later in this judgment also held that the AO is bound by the determination of the TPO, both as regards the question whether a transaction is an international transaction and the valuation / computation of the arm's length price thereof. If we are correct in this conclusion, it would follow with greater force that the provision is substantive and not merely procedural.

31. The TPO is entitled to exercise powers under sub-section (2A) independent of any reference made by the AO. He thereby adjudicates not merely important, but crucial issues relating to the assessment. Indeed, the AO's draft assessment order is to be in conformity with, based upon his determination. While exercising powers under section 92CA(2A), the TPO does not merely assist the AO in the determination of these issues. He does so pursuant to the power conferred upon him by the statute independent of and without any reference to the AO.

32. It would be convenient at this stage to analyze the two schemes leading to the making of the assessment order by the AO viz. where the AO decides the arm's length price himself and makes the assessment order and where the AO makes the assessment order in cases where the TPO determines the arm's length price. The difference in the two schemes also indicate that the provisions of section 92CA(2A) are substantive.

(A) Under section 92(1) the AO is bound to compute any income arising from an international transaction having regard to the arm's length price. There is no compulsion on him to refer the computation of the arm's length price in relation to an international transaction to the TPO. Section 92CA(1) merely entitles him to do so with the previous approval of the Commissioner. Where the AO determines the arm's length price himself in accordance with the provisions of Chapter X and in particular Section 92C thereof he may compute the assessee's total income having regard to the arm's length price determined by him. This is clear from section 92C(4) which provides that where an arm's length price is determined by an AO under subsection (3), the AO may compute the total income of the assessee having regard to the arm's length price so determined.

In the event of this procedure being followed, the remedy of an assessee aggrieved by the assessment order in normal course is to file an appeal before the CIT (Appeals) under section 246-D.

(B) The other course is where the TPO computes the arm's length price either on a reference to him by the AO under section 92CA(1) or suo moto under section 92CA(2A) and/or (2B). Sub-section (1) provides that if the AO considers it necessary or expedient so to do he may with the previous permission of the Commissioner refer the computation of the arm's length price in relation to an international transaction under section 92C to the TPO. Sub-section (2) requires the TPO to serve a notice on the assessee requiring him to produce or cause to be produced any evidence on which the assessee may rely in support of the computation made by him of the arm's length price in relation to the international transaction in accordance with section 92C(3) and send a copy of his order to the AO and to the assessee. Sub-section (4) of section 92CA provides that on receipt of the said order, the AO shall proceed to compute the total income of the assessee under section 92C(4) 'in conformity with the arm's length price if so determined by the Transfer Pricing Officer'. Where the TPO determines the arm's length price of an international transaction and the AO computes the total income of the assessee under section 92C(4) in conformity therewith, the provisions of section 144C relating to a reference to the Dispute Resolution Panel (DRP) apply.

(C) The further proceedings under section 144C are as follows. The AO is bound to forward a draft of the proposed order of assessment (draft order) to the eligible assessee [as defined in section 144C(15) (b)] if he proposes to make on or after 1st October, 2009, any variation in the income or loss return which is prejudicial to the interest of such assessee. Sub-section (2) entitles the assessee to either accept the variation or to file his objections thereto with the DRP and the AO. Under sub-section (3), the AO is required to complete the assessment on the basis of the draft order only if the assessee accepts the variation or if no objections are received within the period of thirty days prescribed by sub-section (2). Sub-section (11) requires the DRP to afford the assessee and the AO, an opportunity of being heard before passing any directions under sub-section (5) which may be prejudicial to the interest of the assessee or of the revenue. We will consider the ambit of sub-sections (5) to (8) and (10) later while considering the powers of the DRP. The DRP is entitled under sub-section (5) to issue directions for the guidance of the AO to enable him to complete the assessment, but only after considering the aspects referred to in clauses (a) to (g) which include the draft order, the objections filed by the assessee, the evidence furnished by the assessee, the report, if any, of the AO, Valuation Officer, TPO or any other authority, the records relating to the draft order, the evidence and the result of any enquiry made. Under sub-section (8), the DRP may confirm, reduce or enhance the variations proposed in the draft order. Sub-section (10) provides that every direction issued by the DRP shall be binding on the AO. Finally, under sub-section (13), the AO is bound to complete the assessment in conformity with the directions received by him under sub-section (5) from the DRP without providing any further opportunity of being heard to the assessee.

33. It is clear, therefore, that the entire procedure is different where on the one hand, the assessment is completed by the AO without an order of the TPO and on the other hand, where the assessment is completed where there is an order of the TPO.

Further, and more important is the fact that the rights of the assessee and of the revenue are entirely different depending upon the course that is adopted. For instance, in the former case, the remedy of an aggrieved assessee is to file an appeal before the CIT against the assessment order whereas in the latter, the assessee has the option of challenging the valuation either before the DRP or before the CIT (Appeals) as we will indicate later. Further still, an assessee aggrieved by the directions of the DRP is entitled to file an appeal directly to the ITAT under section 253(1)(d).

34. Whether it is the revenue or the assessee that derives a benefit by virtue of the introduction of sub-section (2A) matters not for the determination of the question whether the provisions thereof are substantive or merely procedural. The fact is that as far as the revenue is concerned the TPO is conferred with a jurisdiction he did not possess prior to the introduction of sub-section (2A). As far as the assessee is concerned, he is entitled to avail of a different procedure for first establishing his case with regard to the arm's length price and thereafter for challenging a finding in respect thereof by the TPO if he is aggrieved by the same. Inasmuch as the finding of the TPO is binding upon the AO as we have held later, it is clear that the jurisdiction conferred upon the TPO by sub-section (2A) is not one merely of procedure, but a substantive jurisdiction. That the order of the TPO is itself not executable is irrelevant while deciding whether the provision is substantive or procedural.

35. Sub-section (2A) of section 92CA is, therefore, substantive and not procedural.

36. That, however, does not establish that sub-section (2A) does not apply to the present case. It does not establish Mr. Salve's contention that section 92CA operates only in respect of assessment years after 1st June, 2011, when it was introduced. Mr. Salve submitted that once it is held that sub-section (2A) is substantive and not procedural it must follow that it operates only prospectively and not retrospectively as a sub-section (2A) has not been given retrospective effect.

37. Mr. Salve relied upon the judgment of the Supreme Court in Bharat Singh v. Management of New Delhi Tuberculosis Centre, New Delhi & Ors. (1986) 2 SCC 614. It is necessary, however, to first deal with the judgment of the Supreme Court in The Workmen of M/s. Firestone Tyre & Rubber Company of India (Pvt.) Ltd. v. The Management & Ors. (1973) 1 SCC 813, which was relied upon in Bharat Singh's case.

38. In The Workmen of M/s. Firestone Tyre & Rubber Company of India (Pvt.) Ltd. v. The Management & Ors. (1973) 1 SCC 813, the question that arose for consideration was whether section 11-A of the Industrial Disputes Act applied to industrial disputes which had already been referred for adjudication and were pending as on 15th December, 1971. Section 11-A was introduced by an amendment to the Industrial Disputes Act and came into force with effect from 15th December, 1971. Section 11-A reads as under :-

'11-A. Powers of Labour Courts, Tribunals and National Tribunals to give appropriate relief in case of discharge of dismissal of workmen.- Where an industrial dispute relating to the discharge or dismissal of a workman has been referred to a Labour Court, Tribunal or National Tribunal for adjudication and, in the course of the adjudication proceedings, the Labour Court, Tribunal or National Tribunal, as the case may be, is satisfied that the order of discharge or dismissal was not justified, it may, by its award, set aside the order or discharge or dismissal and direct reinstatement of the workmen on such terms and conditions, if any, as it thinks fit, or give such other relief to the workman including the award of any lesser punishment in lieu of discharge or dismissal as the circumstances of the case may require:

Provided that in any proceeding under this section the Labour Court, Tribunal or National Tribunal, as the case may be, shall rely only on the materials on record and shall not take any fresh evidence in relation to the matter.'

The appellant contended that the words 'has been referred' indicated that the section applied even to references made before 15th December, 1971. The Supreme Court held that these words cannot be isolated from the context as they would have different connotations in different contexts. In paragraph 61, the Supreme Court held that the question whether the expression 'has been' relates to past or future events must be considered in the context in which they appear as well as in the context of the particular legislation. Paragraphs 59, 61 and 65 of the judgment read as under :-

'59. The words 'has been referred' in Section 11-A are no doubt capable of being interpreted as making the section applicable to references made even prior to December 15, 1971. But is the section so expressed as to plainly make it applicable to such references? In our opinion, there is no such indication in the section. In the first place, as we have already pointed out, the section itself has been brought into effect only some time after the Act had been passed. The proviso to Section 11-A, which is as much part of the section, refers to 'in any proceeding under this section'. Those words are very significant. There cannot be a 'proceeding under this section', before the section itself has come into force. A proceeding under that section can only be on or after December 15, 1971. That also gives an indication that Section 11-A applies only to disputes which are referred for adjudication after the section has come into force.

….......

61.It is clear from the above observations that the expression 'has been' was interpreted having regard to the scheme of the enactment and it was not construed in isolation. That decision makes it clear that the question whether those expressions relate to past or future events, have to be gathered from the context in which they appear as well as the scheme of the particular legislation.

….......

65.We have already expressed our view regarding the interpretation of Section 11-A. We have held that the previous law, according to the decisions of this Court, in cases where a proper domestic enquiry had been held, was that the Tribunal had no jurisdiction to interfere with the finding of misconduct except under certain circumstances. The position further was that the Tribunal had no jurisdiction to interfere with the punishment imposed by an employer both in cases where the misconduct is established in a proper domestic enquiry as also in cases where the Tribunal finds such misconduct proved on the basis of evidence adduced before it. These limitations on the powers of the Tribunals were recognised by this Court mainly on the basis that the power to take disciplinary action and impose punishment was part of the managerial functions. That means that the law, as laid down by this Court over a period of years, had recognised certain managerial rights in an employer. We have pointed out that this position has now been changed by Section 11- A. The section has the effect of altering the law by abridging the rights of the employer inasmuch as it gives power to the Tribunal for the first time to differ both on a finding of misconduct arrived at by an employer as well as the punishment imposed by him. Hence in order to make the section applicable even to disputes which had been referred prior to the coming into force of the section, there should be such a clear, express and manifest indication in the section. There is no such express indication. An inference that the section applies to proceedings, which are already pending, can also be gathered by necessary intendment. In the case on hand, no such inference can be drawn as the indications are to the contrary. We have already referred to the Proviso to Section 11-A, which states 'in any proceeding under this section'. A proceeding under the section can only be after the section has come into force. Further the section itself was brought into force some time after the Amendment Act was passed. These circumstances, as well as the scheme of the section and particularly the wording of the proviso indicate that Section 11-A does not apply to disputes which had been referred prior to December 15, 1971. The section applies only to disputes which are referred for adjudication on or after December 15, 1971. To conclude, in our opinion, Section 11-A has no application to disputes referred prior to December 15, 1971. Such disputes have to be dealt with according to the decisions of this Court already referred to.'

It is important to note two things. Firstly, the opening part of section 11-A refers to cases where an industrial dispute 'has been referred'. The Supreme Court in paragraph 59 held that these words were capable of being interpreted as making the section applicable to references made even prior to 15th December, 1971. It was, however, held that the section was not so expressed as to plainly make it applicable to such references, inter-alia, as there was no such indication in the section. The section had been brought into effect some time after the Act had been passed. More important, however, was the fact that the proviso to section 11-A contained the words 'proceeding under this section'. The Supreme Court held that these words indicated that the proceeding under the section can only be after the section was introduced i.e. after 15th December, 1971 as there obviously could not be a proceeding under the section prior to it's introduction.

39. The question before us, therefore, is whether the scheme of the Act and the context of the amendments make the provisions of subsection (2A) operate in respect of proceedings prior to 1st June, 2011 i.e. the date from effect with which it was introduced.

40. In Bharat Singh v. Management of New Delhi Tuberculosis Centre, New Delhi & Ors. (1986) 2 SCC 614, the question that fell for consideration was whether section 17-B of the Industrial Disputes Act applied to awards passed prior to 21st August, 1984 i.e. the date on which section 17-B came into force. Section 17-B reads as under :-

'17-B. Payment of full wages to workman pending proceedings in higher courts.-Where in any case a Labour Court, Tribunal or National Tribunal by its award directs reinstatement of any workman and the employer prefers any proceedings against such award in a High Court or the Supreme Court, the employer shall be liable to pay such workman, during the period of pendency of such proceedings in the High Court or the Supreme Court, full wages last drawn by him, inclusive of any maintenance allowance admissible to him under any rule if the workman had not been employed in any establishment during such period and an affidavit by such workman had been filed to that effect in such Court:

Provided that where it is proved to the satisfaction of the High Court or the Supreme Court that such workman had been employed and had been receiving adequate remuneration during any such period or part thereof, the Court shall order that no wages shall be payable under this section for such period or part, as the case may be.'

The Supreme Court held that where the award had become final prior to 21st August, 1984, section 17-B cannot be pressed into service to reopen the same. Mr. Salve relied upon paragraph 15 of the judgment which essentially dealt with the judgment of the Supreme Court in The Workmen of M/s. Firestone Tyre & Rubber Company of India (Pvt.) Ltd. v. The Management & Ors. (supra), set out section 11-A and observed that section 11-A conferred Tribunals with a new jurisdiction. Mr. Salve also relied upon paragraph 16 of the judgment. It is, necessary, however, to refer to paragraphs 10 and 11 of the judgment also. Paragraphs 10, 11 and 16 of the judgment read as under :-

'10.The Objects and Reasons give an insight into the background why this section was introduced. Though Objects and Reasons cannot be the ultimate guide in interpretation of statutes, it oftentimes aids in finding out what really persuaded the legislature to enact a particular provision. The Objects and Reasons here clearly spell out that delay in the implementation of the awards is due to the contests by the employer which consequently cause hardship to the workmen. If this is the object, then would it be in keeping with this object and consistent with the progressive social philosophy of our laws to deny to the workmen the benefits of this section simply because the award was passed, for example just a day before the section came into force? In our view it would be not only defeating the rights of the workmen but going against the spirit of the enactment. A rigid interpretation of this section as is attempted by the learned counsel for the respondents would be rendering the workman worse off after the coming into force of this section. This section has in effect only codified the rights of the workmen to get their wages which they could not get in time because of the long drawn out process caused by the methods employed by the management. This section, in other words, gives a mandate to the courts to award wages if the conditions in the section are satisfied.

11. In interpretation of statutes, courts have steered clear of the rigid stand of looking into the words of the section alone but have attempted to make the object of the enactment effective and to render its benefits into the person in whose favour it is made. The legislators are entrusted with the task of only making laws. Interpretation has to come from the courts. Section 17-B on its terms does not say that it would bind awards passed before the date when it came into force. The respondents' contention is that a section which imposes an obligation for the first time, cannot be made retrospective. Such sections should always be considered prospective. In our view, if this submission is accepted, we will be defeating the very purpose for which this section has been enacted. It is here that the court has to evolve the concept of purposive interpretation which has found acceptance whenever a progressive social beneficial legislation is under review. We share the view that where the words of a statute are plain and unambiguous effect must be given to them. Plain words have to be accepted as such but where the intention of the legislature is not clear from the words or where two constructions are possible, it is the court's duty to discern the intention in the context of the background in which a particular section is enacted. Once such an intention is ascertained the courts have necessarily to give the statute a purposeful or a functional interpretation. Now, it is trite to say that acts aimed at social amelioration giving benefits for the have-nots should receive liberal construction. It is always the duty of the court to give such a construction to a statute as would promote the purpose or object of the Act. A construction that promotes the purpose of the legislation should be preferred to a literal construction. A construction which would defeat the rights of the have-nots and the underdog and which would leave to injustice should always be avoided. This section was intended to benefit the workmen in certain cases. It would be doing injustice to the section if we were to say that it would not apply to awards passed a day or two before it came into force.

16. According to the respondents' counsel, these two decisions clearly cover the question involved in this appeal also. We feel that this submission cannot be accepted for more than one reason. Section 11-A, confers a jurisdiction on the Labour Court, Tribunal or National Tribunal to act in a particular manner which jurisdiction it did not have prior to the coming into force of Section 11-A. This is the reason why this Court held that Section 11-A cannot apply to proceedings before it came into force. The conferment of a new jurisdiction can take effect only prospectively except when a contrary intention appears on the face of the statute. Section 11-A plainly indicates its prospective operation. This is made clear in the proviso to the section when it says 'provided that in any proceeding under this section'. This can only mean something relatable to a stage after the section came into being. That is not the case with Section 17-B. Here it is not the conferment of a new jurisdiction but the codification in statutory form of a right available to the workmen to get back wages when certain given conditions are satisfied. There are no words in the section to compel the court to hold that it cannot operate retrospectively. Before Section 17-B was introduced there was no bar for courts for awarding wages. Of course the workmen had no right to claim it. This section recognizes such a right. To construe it in a manner detrimental to workmen would be to defeat its object.

41. It is true that in paragraph 16, the Supreme Court noted that section 17-B did not confer a new jurisdiction but codified a right available to the workmen to get back wages when certain given conditions were satisfied. It is, however, important to note that the Supreme Court held in paragraph 16 that a conferment of a new jurisdiction can take effect only prospectively 'except when a contrary intention appears on the face of the statute'. In other words, it is not an absolute rule that where a provision confers a new jurisdiction it can take effect only prospectively. Further, although it is not conclusive, it is permissible to look at the objects and reasons to find out the purpose of the amendment. The Supreme Court also held that where the intention of the Legislature is not clear from the words or where two constructions are possible, it is the Court's duty to discern its intention in the context of the background in which a particular section is enacted and once such an intention is ascertained, the Courts have necessarily to give the statute a purposeful or functional interpretation.

42. Firstly, as rightly pointed out by the learned Advocate General a plain reading of section 92CA(2A) indicates that it applies to proceedings that were pending on 1st June, 2011. This is clear from the words 'during the course of proceedings before him'. These words are not qualified by or limited in time. There is nothing in the plain language of sub-section (2A) that indicates that it applies only in respect of proceedings pending before the TPO with reference to assessment years after 1st April, 2012. A view to the contrary would require the section to be rewritten by adding after the words 'during the course of the proceedings before him', the words 'in respect of matters relating to assessment years commencing from 1.4.2012', or words to this effect. This is impermissible.

43. The Advocate General relied upon clauses 12, 13 and 23 of the Finance Bill 2011 relating to direct taxes which sought to amend the Act. Clauses 12, 13 and 23 are under the caption 'Rationalization of provisions relating to Transfer Pricing.' Clause (A) under the caption refers to the proposed amendments in respect of section 92C (not section 92CA) and ends stating : 'This amendment is proposed to take effect from 1st April, 2012, and it shall accordingly apply in relation to the Assessment Year 2012-13 and subsequent years'. Clause B refers to the proposed amendments to section 92CA and reads as follows :

'B.Section 92CA of the Act provides that the Transfer Pricing Officer (TPO) can determine the ALP in relation to an international transaction, which has been referred to the TPO by the Assessing Officer.

It is proposed to amend section 92CA so as to specifically provide that the jurisdiction of the Transfer Pricing Officer shall extend to the determination of the ALP in respect of other international transactions, which are noticed by him subsequently, in the course of proceedings before him. These international transactions would be in addition to the international transactions referred to the TPO by the Assessing Officer.'

The Advocate General relied upon the fact that clause (B) does not contain a provision similar to clause (A) which referred to the proposed amendment to section 92C stating that the same will take effect from 1st April, 2012. While the absence of such a provision in clause (B) which relates to section 92CA is not determinative of the question as to whether it is retrospective or not, it certainly is a factor to be taken into consideration. Although it does not by itself establish, it supports the Advocate General's submission that the amendments to section 92CA apply to proceedings which were pending before the TPO on 1st June, 2011. Section 14 of The Finance Act, 2011, inserted sub-section (2A) in section 92CA with effect from 1st day of June, 2011.

44. The phrase 'during the course of the proceedings' in section 92CA(2A) does not restrict the source to be the material already on record. The phrase refers to the point of time as is evident from the use of the word 'during' and not the word 'from'. The words used in sub-section (2A) are not 'from the proceedings before him'.

45. If we are right in our interpretation, the TPO certainly had jurisdiction to consider the said unreported and unreferred international transactions as the proceedings were pending before him on 1st June, 2011. This is evident from only a few facts.

46. On 25th January, 2010, the AO referred to the TPO the transactions reported by the petitioner in Form 3CEB for the determination of the arm's length price. The time for the TPO to make the order determining the arm's length price under section 92CA(3) read with (3A) was sixty days prior to the date on which the period of limitation for making the order of assessment under section 153 of the Act was to expire. On 9th September, 2011, the TPO served a notice upon the petitioner in respect of the said unreported and unreferred transactions and the TPO made the impugned order on 31st October, 2011. Thus, on 1st June, 2011, the proceedings with respect to the reported transactions were pending before the TPO.

47. In the circumstances, the question whether sub-section (2A) is prospective or retrospective does not really arise for, in any view of the matter, it conferred jurisdiction upon the TPO to consider unreported and unreferred transactions as the proceedings were pending before him.

48. We will refer to the judgment of the Delhi High Court in CIT v. Amedeus (India) Pvt. Ltd. (2011) 203 Taxman 602, after dealing with sub-section (2B) of section 92CA. Even assuming that the TPO had no jurisdiction under sub-section (2A) of section 92CA, it would make no difference for the TPO, in any event, had jurisdiction in respect of the said transactions in view of section 92CA (2B). As we noted earlier, sub-section (2B) was introduced by Finance Act 2012 with retrospective effect from 1st June, 2002.

49. Mr. Salve contended that sub-section (2B) would operate only where an assessee has not furnished a report under section 92E i.e. in Form 3CEB and thereafter an international transaction comes to the notice of the TPO. According to him, the transfer pricing provisions would apply to such a transaction as if it had been specifically referred to the TPO by the AO. He submitted that sub-section (2B) does not apply to the present case as the petitioner had filed the report in Form 3CEB along with its return.

50. The submission is not well founded. The error is apparent from the plain language of sub-section (2-B). The opening words of subsection (2B) viz. 'Where in respect of an international transaction the assessee has furnished the report under section 92E ….' (emphasis supplied) indicate the type of the international transaction that the TPO is entitled to consider. The words 'an international transaction' belie the petitioner's submission. The requirement is not the failure of the assessee to furnish the report under section 92E, but to furnish the report under section 92E in respect of 'an' international transaction. In other words, the section also includes cases where the assessee has filed Form 3CEB pursuant to section 92E but does not include therein 'an international transaction' or international transactions and such transaction or transactions come to the notice of the TPO. The words 'an' and 'such' are crucial in determining the ambit of sub-section (2B). Were it otherwise, the section would have been worded entirely differently. It would have included generally international transactions in cases where the assessee had failed to furnish a report at all under section 92E.

51. Where an assessee furnishes a report under section 92E in respect of some international transactions but not in respect of others, then if the unreported international transaction comes to the notice of the TPO during the course of the proceedings before him, the provisions of Chapter X of the Act will apply to those unreported transactions as if 'they had been reported to the TPO by the AO'. There is no cogent reason why the Legislature would have conferred jurisdiction upon a TPO to consider an unreported international transaction in cases where a report has not been furnished at all but not in cases where a report has been furnished under section 92E, but the report does not include a particular international transaction. There was no reason suggested by Mr. Salve for such a distinction either. No purpose whatsoever could be served by such a distinction.

52. Clause 38 of the Finance Bill 2012, while not conclusive of the determination of the ambit of sub-section (2B), supports our view. The relevant portion thereof reads as under :-

'Examination by the Transfer Pricing Officer of International transactions reported by the Assessee

…........

It is proposed to amend the section 92CA of the Act retrospectively to empower Transfer Pricing Officer (TPO) to determine Arm's Length Price of an international transaction noticed by him in the course of proceedings before him, even if the said transaction was not referred to him by the Assessing Officer, provided that such international transaction was not reported by the taxpayer as per the requirement cast upon him under section 92E of the Act.

This amendment will take effect retrospectively from 1st June, 2002.'

It is important to note that the Finance Bill, 2012 also notes that if the assessee does not report 'such a transaction' in the report furnished under section 92E the Assessing Officer normally would not be aware of 'such an international transaction' so as to make a reference thereof to the TPO. In other words, the reference is clearly to cases where though a report is furnished under section 92E it fails to report certain international transactions therein.

The Finance Bill proceeds to note that the TPO may notice such a transaction subsequently during the course of the proceedings before him and proposes the amendment to section 92CA to empower the TPO retrospectively to determine the arm's length price of such transactions. The jurisdiction is conferred upon the TPO when proceedings are pending before him, inter alia, of international transactions which are not reported by the assessee in the report filed under section 92E.

53. The submission that sub-section (2B) applies only in cases where no report is filed by the assessee under section 92E is rejected. We do not find the reliance upon the judgment in J.K. Synthetics Ltd. v. Commercial Tax Officer (1994) 4 SCC 276 to be of any assistance to the petitioner in this regard. Sub-section (2B) of section 92CA includes cases where an assessee has filed a report under section 92E in Form 3CEB read with Rule 10, but has not included an international transaction therein. The TPO has power and jurisdiction under sub-section (2B) to deal with international transactions not mentioned in the report.

54. The Finance Bill 2012, by itself does not indicate why subsection (2B) was introduced. The learned Advocate General submitted that it was only clarificatory and possibly to overcome the decision of the Delhi High Court in CIT v. Amedeus (India) Pvt. Ltd., in the event of it being wrongly construed as having held that subsection (2A) cannot be given retrospective effect.

55. We, however, do find a material difference between the two sub- sections.

A TPO exercises suo moto power under sub-sections (2A) or (2B). The plain language of the two sub-sections require proceedings to be pending before the TPO. This is clear from the words 'during the course of proceedings pending before him' in both sub-sections.

The exercise of power under sub-sections (2A) and (2B) could arise in two situations. The first is where an assessee has reported more than one international transaction and the AO chooses to refer to the TPO under section 92CA(1) only some of and not all the international transactions. The second is where the assessee has not reported the transaction or transactions in Form 3CEB and the same comes to his notice during the course of proceedings before him. In either case, the TPO is entitled suo moto to consider transactions other than those reported to him. He is entitled to do so under sub-section (2A) and/or (2B) as the case may be.

56. The scope of sub-section (2A) is wider than the scope of subsection (2B). Sub-section (2A) of section 92CA entitles the TPO to consider international transactions reported by an assessee in Form 3CEB pursuant to section 92E, but not referred to him by the AO under section 92CA(1) as well as international transactions not reported by the assessee in Form 3CEB if the same come to his notice during the proceedings before him. It expressly authorizes the TPO to consider the transactions other than the international transactions referred to him under sub-section (1). This is clear from the opening words in sub-section (2A) :- 'Where any other international transaction other than an international transaction referred under sub-section (1)' (emphasis supplied). The transactions 'referred under sub-section (1)' are those referred by the AO to the TPO. The words in sub-section (2A) are not 'referred to in sub-section (1)' but 'referred under sub-section (1)'. Indeed, it could not be so for subsection (1) includes all international transactions whether reported or not. The words 'referred under sub-section (1)' relate to the transactions referred by the AO to the TPO under sub-section (1) for computing the arm's length price. Those i.e. the referred transactions are already before the TPO anyway. The opening words of subsection (2A) are very wide and include all international transactions. There is nothing in section 92CA that warrants curtailing their ambit.

57. There are two material differences between sub-section (2A) and sub-section (2B) of section 92CA.

Firstly, sub-section (2A) entitles the TPO to consider any international transaction whether reported or not by the assessee in Form 3CEB. Sub-section (2B), however, entitles the TPO to consider only unreported international transactions i.e. international transactions not referred in Form 3CEB irrespective of whether or not the Form 3CEB was filed reporting other international transactions. Thus, this retrospective effect of sub-section (2B) is only in respect of certain international transactions viz. unreported transactions and to reported transactions not referred by the AO to the TPO.

Secondly, whereas sub-section (2A) applies only to proceedings before the TPO on 1st June, 2011, sub-section (2B) operates with retrospective effect from 1st June, 2002.

58. There is no possibility of conflict of assessment between the AO and the TPO for under section 92CA(3A), the TPO must make his order under section 92CA(3) sixty days before the period of limitation for making an order of assessment etc. The AO must make the assessment in conformity with the TPO's order.

59. This brings us to the judgment of the Delhi High Court in CIT v. Amedeus (India) Pvt. Ltd. (2011) 203 Taxman 602 on which considerable reliance was placed by Mr. Salve.

(A) We are in respectful agreement with the judgment in CIT v. Amedeus (supra) insofar as it holds that if sub-section (2A) is not to be considered, the TPO would not have jurisdiction to take any transaction suo moto for verification and determine the arm's length price thereof and suggest necessary adjustments. Absent sub-sections (2A) and (2B), the TPO could not have determined the arm's length price of an international transaction which had not been referred to him by the AO.

(B) It is important, however, to note that in that case the proceedings were not pending before the TPO on 1st June, 2011 i.e. the date on which sub-section (2A) came into force. By 1st June, 2011, the TPO had passed his order, the AO had made the adjustment accordingly and the respondents had filed an appeal before the ITAT. In fact, even the petitioner's appeal before the ITAT had been disposed off by an order dated 18th February, 2011. Sub-section (2A) was introduced thereafter with effect from 1st June, 2011. Thus, the date on which sub-section (2A) was introduced, no proceedings were pending before the TPO. In the case before us, the proceedings before the TPO were pending on 1st June, 2011. Thus, one of the main submissions on behalf of the respondents viz. that sub-section (2A) in any event applies to proceedings that were pending on the date on which it was brought into force did not fall for the consideration of the Division Bench of the Delhi High Court and indeed was not considered by the Division Bench.

Secondly, the judgment of the Delhi High Court is dated 28th November, 2011. Sub-section (2B) of section 92CA was brought into force subsequently by the Finance Act of 2012. Sub-section (2B), therefore, did not fall for the consideration of the Delhi High Court. Thus, in the case before us, in any event, the TPO would have jurisdiction over the said transactions.

(C) It is necessary to keep this background in mind before referring to the following observations of the Delhi High Court on which considerable reliance was placed on behalf of the petitioner :

'17.A plain reading of section 92CA makes it clear that the Assessing Officer, if he considers it necessary or expedient so to do, may, with the previous approval of the Commissioner refer the computation of the arm's length price in relation to an international transaction under section 92C to the Transfer Pricing Officer. At this juncture, we may reiterate that it is primarily the duty of the Assessing Officer to compute any income arising from an international transaction having regard to the arm's length price. He may determine the arm's length price of an international transaction himself or, if he feels that it is necessary or expedient so to do, he may seek the approval of the Commissioner and, therefore, refer the computation of the arm's length price in respect of an international transaction to the Transfer Pricing Officer. This makes it clear that it is the Assessing Officer who has to determine, first of all, whether a transaction is an international transaction under section 92B of the said Act. Secondly, if it is an international transaction in his view, he has to proceed to determine the arm's length price in terms of section 92C of the said Act. However, if for any reason, he feels that it is necessary or expedient so to do, he may seek the approval of the Commissioner and then refer the computation of the arm's length price in relation to the said international transaction to the Transfer Pricing Officer. The role of the Transfer Pricing Officer, as indicated in section 92CA, is restricted to determining the arm's length price in relation to the international transaction which has been referred to him by the Assessing Officer and such computation of the arm's length price in relation to the said international transaction has to be done in terms of section 92C of the said Act. On a plain reading, we are of the view that it is not within the domain of the Transfer Pricing Officer to determine whether a particular transaction, which has come to his notice, but which has not been referred to him, is or is not an international transaction and then to go on and determine the arm's length price thereof. That, we feel, is in the exclusive jurisdiction of the Assessing Officer. It ought to be pointed out that these views are on the basis of the provisions of section 92CA, as applicable to the assessment year 2006-07, that is, prior to the introduction of sub-section (2A) of section 92CA by virtue of the Finance Act, 2011, with effect from June 1, 2011. In so far as the present appeal is concerned, section 92CA would have to be read without sub-section (2A). We agree with Mr. Syali that subsection (2A) cannot have retrospective effect inasmuch as it deals with the jurisdiction of the Transfer Pricing Officer and, therefore, sub-section (2A) cannot be regarded as being a mere procedural provision.

18.In STO v. Oriental Coal Corporation [1998] 68 STC 398 ; [1988] (Suppl.) SCC 308, a similar contention had been raised that an amendment was purely procedural and, therefore, ought to be construed to be retrospective. The Supreme Court took the view that the amendment in question was not purely procedural inasmuch as the amendment changed the position and imposed a substantive liability on a dealer and that it was also one which conferred jurisdiction on an officer in a particular state to levy a tax which he otherwise did not have. Consequently, the Supreme Court held that the amendment in question was a substantive provision and could not be treated as procedural and, therefore, did not have retrospective effect. The actual words used by the Supreme Court are as under (page 407 of 68 STC):

'9. The contention that the amendment is purely procedural is also misconceived. Assuming the correctness of the contention that a purely procedural amendment should ordinarily be construed to be of such nature. The decision of this court in Kasturi Lal's case [1987] 67 STC 154 had held that an unregistered dealer is not taxable under the proviso. The amendment changes this position and imposes a substantive liability on such a dealer. It is also one which confers jurisdiction on an officer in a particular State to levy a tax which he otherwise cannot. It is thus a substantive provision. That apart, even the question whether a charge to tax can be imposed in one State or another is not a mere question of venue. It may have an impact on the rate of tax in certain cases and it also regulates the rights inter se of States to levy taxes on such inter-state sales. It is, therefore, difficult to accept the contention that the amendment should be treated as purely procedural and hence necessarily retrospective.'

….......

20.Similarly, in the case before us, we find that there is nothing in the statute to indicate that sub-section (2A) was introduced in a manner so as to operate with retrospective effect. Sub-section (2A) expands the jurisdiction of the Transfer Pricing Officer by empowering him to determine the arm's length price of any international transaction other than an international transaction referred to him by the Assessing Officer under sub-section (1) of section 92CA. This is clearly an expansion of the jurisdiction of the Transfer Pricing Officer and, therefore, sub-section (2A) can only have prospective effect from June 1, 2011, and would have no application to the present appeal which is in respect of the assessment year 2006-07.'

As we noted earlier, there is a crucial difference between the facts of this case and the facts in CIT v. Amedeus. In CIT v. Amedeus, the proceedings before the TPO had concluded prior to 1st June, 2011. Indeed, even the appeal before the ITAT had concluded by then. There were, therefore, no proceedings pending before the TPO. In the case before us, the proceedings were pending before the TPO on 1st June, 2011. A contention in this regard was not even raised before the Delhi High Court obviously as it did not arise in that case.

(D) It was suggested, however, that the last words quoted above 'sub-section (2A) can only have prospective effect from June 1, 2011, and would have no application to the present appeal which is in respect of the assessment year 2006-07' impliedly indicated that the provisions of sub-section (2A) would not apply in respect of assessments pertaining to assessment years prior to 1st June, 2011. This is incorrect. Firstly, the observations of the Division Bench obviously were qua the assessment year concerned in that case viz. 2006-07 and in the facts of that case viz. there were no proceedings pending before the TPO as on 1st June, 2007. Indeed, it could equally be said that the words 'prospective effect from June, 1, 2011' indicated the contrary. It is well settled that a judgment must be read for what it holds and not for what logically follows there-from [See Quinn v. Leatham HL (1), 191, 495. The judgment has been consistently followed by the Supreme Court and this Court.]. In any event, section 92CA(2B) did not fall for consideration in CIT v. Amedeus. The judgment of the Delhi High Court, therefore, is of no assistance to the petitioner.

60. We are in respectful agreement that sub-section (2A) can only have prospective effect from 1st June, 2011. It is, however, prospective qua the proceedings and not qua the assessment year. Thus, if the proceedings had concluded before the TPO prior to 1st June, 2011, sub-section (2A) would not have been applicable. As, however, the proceedings were pending before the TPO on 1st June, 2011, the TPO was entitled to exercise jurisdiction under sub-section (2A).

61. Thus, in the case before us, the TPO had jurisdiction to consider suo moto the two unreported and unreferred transactions under subsection (2A) as well as under sub-section (2B) of section 92CA. In the result, therefore, the contention that the TPO had no jurisdiction to consider the said international transactions is rejected.

MAINTAINABILITY OF THE WRIT PETITION :

62. The Advocate General submitted that the petition ought not to be entertained for four reasons. Firstly, the petitioner has an equally efficacious alternate remedies. Secondly, the petitioner filed objections and appeared before the DRP. Thirdly, the petitioner is not entitled to maintain parallel proceedings viz. this Writ Petition as well as those before the authorities under the Act. Lastly, the orders impugned in this petition of the TPO and the draft order have merged in the order of the DRP and the final assessment order of the AO.

Alternate Remedy :

63. The Advocate General submitted that against the order of a TPO, the assessee's first alternate remedy is before the AO. Thereafter, the assessee is entitled to challenge the draft order before the DRP or to allow the AO to complete the assessment in conformity with the order of the TPO and to challenge the same before the CIT (Appeals). The assessee is then entitled to challenge these orders before the ITAT.

We have come to the conclusion that the assessee is not entitled to challenge the order of the TPO before the AO, but is entitled to the other alternate remedies as contended by the Advocate General.

64. The objection to the maintainability of a Writ Petition on the ground of availability of an alternate remedy is not merely a formal one. In transfer pricing matters, it is one of considerable importance and substance. Even if a TPO lacks inherent jurisdiction, normally and absent any other circumstances, a Writ Petition under Article 226 of the Constitution of India ought not to be entertained once the TPO makes his order or the proceedings before him are substantially concluded. Although we will deal with all the contentions it would be useful to note at this stage that the most important factor in this regard is that even this erroneous exercise of jurisdiction does not affect the further proceedings and can be set right by the DRP or the CIT as the case may be and by the ITAT.

The caveat "normally and absent any other circumstances" is entered consciously and advisedly for we cannot rule out the possibility of there being cases where the assumption of jurisdiction is patently absurd and unsustainable such as where there is no transaction at all and where, therefore, no amount can be brought to tax. Although even in such cases an assessee may be relegated to the remedies under the Act, the Court may exercise its extra-ordinary writ jurisdiction depending on the facts of the case.

65. The Advocate General submitted that the AO is not bound by the TPO's order in any respect and is entitled to decide the questions determined by the TPO on his own. Mr. Salve, on the other hand, rightly submitted that the AO is not entitled to revisit or to even question any part of the order of the TPO determining the arm's length price, including the question whether the transaction is an international transaction or not.

66. The AO has jurisdiction to consider any international transaction and to determine the arm's length price thereof. This is clear from sections 92C and 92CA. The AO has the power to tax all income under section 4 of the Act. He has the power to determine whether a transaction is an international transaction and to determine the arm's length price thereof under section 92C(1) and (3). He is not bound to refer the computation of the arm's length price in relation to an international transaction under section 92CA(1) to the TPO. He may determine these questions himself. Where the AO determines the arm's length price of an international transaction himself and proceeds to complete the assessment without the intervention of the TPO, either on a reference under section 92CA(1) or suo moto under sub-sections (2A) and (2B) of section 92CA, no complications arise.

The exercise of power by the AO on the one hand and the TPO under sections 92C and 92CA on the other are a different matter and of considerable general importance.

67. The AO may, in exercise of his discretion under section 92CA and with the previous approval of the Commissioner, refer the computation of the arm's length price in relation to an international transaction under section 92C to the TPO. In such a case, the TPO would be bound to determine the arm's length price in respect of the said transaction. In doing so, the TPO would not be entitled to reconsider the question as to whether the transaction is an international transaction or not. In a reference under section 92CA(1), this question is determined by the AO as well as the Commissioner. That under section 92CA(1) the Commissioner must accord his approval to the AO's decision to refer the computation of the arm's length price to the TPO posits the Commissioner having satisfied himself that the transaction is an international transaction. The remedy of the assessee to question the TPO's decision would be before the Commissioner of Income-tax or the Dispute Resolution Panel as we will shortly indicate and thereafter before the ITAT. The provisions of the Act do not indicate that the Legislature intended conferring upon the TPO the jurisdiction to effectively sit in appeal over the decision not merely of the AO, but of the Commissioner as well.

The explanation to section 92CA provides that for the purpose of section 92CA, the TPO means a Joint Commissioner or Deputy Commissioner or Assistant Commissioner authorised by the Board to perform the functions of an Assessing Officer specified in section 92C and 92D in respect of any person or class of persons. These officers are junior to a Commissioner who exercises appellate authority. The Legislature has not conferred upon a Joint Commissioner or Deputy Commissioner or Assistant Commissioner, the power to sit in appeal over a decision of a Commissioner.

In this regard, we are in respectful agreement with the judgment of a Division Bench of the Gujarat High Court in M/s. Veer Gems v. Assistant Commissioner of Income Tax (2012) 246 CTR (Guj.) 352.

68. Thus, where a reference is made under section 92CA (1), the TPO must determine the arm's length price of the transaction and in doing so, he would not be entitled to consider the question as to whether the transaction referred to him is an international transaction or not.

69. We cannot agree with the Advocate General's submission that the AO is entitled to revisit and, in effect, sit in appeal over the TPO's report in any respect, including his finding that a transaction is an international transaction and the computation of the arm's length price thereof. When a TPO determines the arm's length price of an international transaction under sub-sections (2A) and/or (2B) after taking up the same suo moto for consideration, the AO cannot sit in judgment over the same in any respect. In other words, in such a case, the AO is not entitled to go even into the question as to whether the TPO rightly determined or considered the same to be an international transaction. Sub-section (4) of section 92CA stipulates that on receipt of the order of the TPO under sub-section (3) the AO 'shall proceed to compute the total income' of the assessee 'in conformity with' the arm's length price determined by the TPO. The provision is mandatory. The words 'in conformity with' leave no room for doubt. The word conformity is synonymous to the words 'compliance' and 'obedience'. The AO cannot deviate from the TPO's order. For an AO to hold that the transaction dealt with by the TPO was not an international transaction would not only be a deviation from but an annulment of the TPO's order. The AO is bound to compute the total income in conformity with the TPO's order in all respects, including accepting the transaction to be an international transaction as determined by the TPO and the computation of the arm's length price thereof. In this regard we are, with respect, unable to agree with the judgment of the Gujarat High Court in Veer Gems (supra), including that the order of reference under section 92CA(1) is only ad-hoc.

70. We are unable to agree with the learned Advocate General's submission that the order of the TPO merely facilitates the AO in the computation of the arm's length price. The TPO is not merely a valuer whose valuation is of no legal effect unless adopted by a Court or Tribunal or any other authority of competent jurisdiction. Indeed, if the assessee does not challenge the order of the TPO, the AO is bound to pass the assessment order in conformity with the arm's length price determined by the TPO. The TPO's task is not merely a clerical one.

71. Though improbable, there may arise a situation where both, the AO and the TPO consider an international transaction. It may be a reported transaction not referred by the AO to the TPO or an unreported transaction. The question would arise as to whose order would prevail – the AO's or the TPO's.

In our view, the TPO's order must prevail. Sub-section (4) requires the AO to proceed to compute the total income of the assessee under section 92C(4) 'in conformity with the arm's length price if so determined by the Transfer Pricing Officer'.

72. There is no possibility of conflicting or inconsistent decisions, if any, being ultimately reflected in the assessment where a reference is made under section 92CA(1). The answer lies in sub-section (4) read with sub-section (3A) of section 92CA. This is because under section 92CA(3A) where a reference is made under section 95CA(1), an order under section 92CA(3) may be made by the TPO at any time before 60 days prior to the date on which the period of limitation for making the order of assessment or re-assessment or re-computation of fresh assessment, as the case may be, expires. This is the requirement even where the TPO exercises suo moto power under sub-sections (2A) and (2B) for both these sub-sections provide that the provisions of Chapter X would apply to such cases as if such transaction is an international transaction referred to the TPO under sub-section (1) of section 92CA. Thus, even if there is any conflict on account of the AO and the TPO having determined the arm's length price in respect of a transaction which was not referred to the TPO, the same can be taken care of by the AO in the final assessment order by making the draft assessment order in conformity with the TPO's order and not in accordance with what the AO himself determined in respect of such an international transaction.

73. A view to the contrary would, in fact, be contrary to the legislative intent of expediting the proceedings regarding the determination of the arm's length price of international transactions. The determination of the question as to whether a transaction is an international transaction or not would then go through an additional stage in the litigation before the tax authorities viz. before the TPO as well as before the AO. This was not the legislative intent.

74(A). There may be a situation where the Commissioner refuses approval to the AO to refer a tansaction to the TPO after coming to the conclusion that it is not an international transaction, but the TPO deals with it as an international transaction in exercise of powers under section 92CA(2A) or (3A). Even in such cases, the TPO's order must prevail in view of the clear, mandatory terms of section 92CA(4) requiring the AO to make the assessment in conformity with the TPO's order.

(B) This may sound contradictory to or inconsistent with what we said earlier viz. that where a reference under section 92CA(1) is made by the AO after obtaining the Commissioner's approval, the TPO cannot consider whether the transaction is an international transaction or not. We said that the Commissioner's approval posits a decision by him that the transaction is an international transaction and the provisions do not indicate a legislative intent entitling the TPO to question the decision of the Commissioner who is his superior. The finding in sub-paragraph (A), however, would appear to be inconsistent with this for the view therein gives primacy to the TPO's order and not the Commissioner's.

There is, however, no inconsistency for in the case in subparagraph (A), the legislative intent is clearly to accord primacy to the TPO's order. This is clear from section 92CA(4) which requires the AO mandatorily to make the assessment 'in conformity with' the TPO's order.

75. The Advocate General's submission that against the order of a TPO an assessee has an alternate remedy before the AO is rejected. The AO cannot question the TPO's order in any respect. The AO must make the draft assessment order in conformity with the TPO's order.

76. This brings us to the Advocate General's submission that the petitioner has an alternate remedy of challenging the order of the TPO in any event before the Disputes Resolution Panel.

77. Mr. Salve, however, submitted that the DRP does not have the jurisdiction to sit in judgment over the decision of the TPO and/or of the AO on the question whether a transaction is an international transaction or not. According to him, the jurisdiction of the DRP under section 144C is limited to the quantum fixed / the value arrived at by the TPO in respect of the arm's length price.

78. We find the Advocate General's submission well founded.

As we noted earlier, when the arm's length price is determined by the AO alone under section 92C(3), the assessee's remedy, if aggrieved, is to file an appeal before the Commissioner of Income-tax (Appeals).

79. Where, however, the AO makes a reference under section 92CA(1) and the TPO passes an order under section 92CA(3) and the AO thereafter passes a draft assessment order, as also where an AO makes a reference under section 92CA(1) in respect of a reported international transaction and the TPO during the proceeding before him finds unreported international transactions and determines the arm's length price of the reported as well as the unreported international transactions and the AO passes a draft assessment order, the assessee has two options.

He may file objections before the DRP under section 144C(2) against any variation in the income or loss return whether relating to transfer pricing or otherwise made in the draft assessment order. In other words, in such a case the assessee would be entitled to challenge the entire draft assessment order before the DRP.

The other option is for the assessee not to file any objections before the DRP or the AO within thirty days of receipt of the draft assessment order. In that event, the AO would pass the final assessment order and the assessee would be entitled to file an appeal against it only before the CIT (Appeals).

80(A). We record the statement of the Advocate General that even in such a case i.e. where an assessee does not file objections under sub-section (2) and waits for the final assessment order, it will not be contended that he accepts the draft assessment order, depriving him of the right to file an appeal under section 253 before the CIT (Appeals) and thereafter, if necessary, before the ITAT. We intend recording the statement of the Advocate General tendered by him in a tabular form as well as the further statement made by him explaining the same as it is a matter of considerable importance not merely to the petitioner, but to assessees in general. This, the Advocate General clarified was the stand of the Revenue itself and not merely his submission.

(B). The statement firstly states that where no reference is made by the AO to the TPO and the arm's length price is determined by the AO himself under section 92C(3), an appeal would lie to the CIT (Appeals).

The statement in the tabular form then refers to the following situations / cases :

'(a) AO makes a reference under section 92CA(1) and TPO passes order under section 92CA(3). Further, AO passes the draft assessment order based upon the ALP determined by the TPO and making other additions not related to the Transfer Pricing issues.

(b) AO makes a reference under section 92CA(1) in respect of the reported international transactions. TPO during the proceedings before him, finds unreported international transactions. The TPO determines the ALP for both the reported as well as unreported international transactions. Further, AO passes the draft assessment order based upon the ALP determined by the TPO and making other additions not related to the Transfer Pricing issues.'

In such cases, the remedy of an assessee, according to the Advocate General, is as under :

'Assessee has a choice to either file objection before the DRP u/s 144C, against all the additions (Transfer Pricing as well as other than Transfer Pricing) made in the draft assessment order. The whole of Draft assessment order will have to be challenged OR

The assessee does not file any objections before the AO within 30 days of receipt of draft assessment order. Consequently, the AO passes the final assessment order. Thereafter, the assessee can file an appeal only before the CIT (A).'

The Advocate General further made a statement that if an assessee chooses the second option i.e. he does not file an objection under section 144C (2) and waits for the final assessment order, it will not be contended by the respondents that he accepts the draft assessment order depriving him of a right to file an appeal under section 253 before the CIT (Appeals).

(C) We accept the above statement on behalf of the respondents. However, as it is a question of law and in the unlikely event of it being contended that the above statements are not binding on the department in future as being an erroneous construction of the law, we proceed to consider the same ourselves independently.

81. The statement, according to us, in any event, enunciates the correct position in law as we will now demonstrate.

82. Mr. Salve submitted that the DRP is entitled under section 144C only to 'confirm, reduce or enhance' the variations proposed in the draft order. These words, according to him, relate and are germane only to the quantification of the arm's length price. The DRP is, therefore, not entitled to consider whether or not the transactions are international transactions. We are unable to agree.

83. The error in the submission arises on account of reading subsection (8) of section 144C in isolation. It is necessary to consider section 144C as a whole as as well to read it with sections 92C(4) and 92CA(4).

84. Under section 92CA(4), where an arm's length price is determined by the TPO under section 92C(3), the AO must compute the total income of the assessee in conformity with the arm's length price so determined. It is important to note that what the AO computes is the 'total income of the assessee', albeit in conformity with the arm's length price determined by the TPO. In other words, the computation is not limited to the international transactions alone. The computation is of the total income which would include income arising other than on account of the international transactions. In other words, the total income so assessed would include income other than on account of international transactions.

Under section 144C(1), the AO is required to forward a draft of the proposed order of assessment (draft order) to the eligible assessee if he proposes to make 'any variation in the income or loss return' which is prejudicial to the interest of such an assessee. The variations in the draft order are not limited to the international transactions. The variation is in respect of 'the income or loss return'. There is no warrant for restricting the variations only to the income or loss return qua the international transactions.

There is nothing to indicate that the computation of the total income under section 92C(4) and 92CA(4) is only with respect to international transactions. Nor is there anything to indicate that the variation in the income or loss return referred to in section 144C(1) is qua the international transactions alone. If it were so, these provisions would have been drafted entirely differently. In that event, the relevant provisions would have provided for / required separate computations and variations with respect to international transactions on the one hand and other income or loss on the other.

85. Once this is accepted the fallacy in the petitioner's interpretation of section 144C(8) is clear. The words 'the variations proposed in the draft order' used in sub-section (8) obviously refer to the variations in the income or loss return in the draft assessment order referred to in sub-section (1) of section 144-C.

Thus, sub-section (8) of section 144-C empowers the DRP to confirm, reduce or enhance the variations proposed in the draft order as a whole and not the variations in the arm's length price of the international transactions alone. The DRP, therefore, is entitled to confirm, reduce or enhance any variations in the draft order and the draft order, as we have held, may contain variations in the income or loss return generally.

86. We also agree with the Advocate General that if the assessee chooses to file an objection before the DRP, he must do so in respect of the entire draft order and not merely in respect of a part thereof. In other words, once an assessee opts to file objections before the DRP he cannot restrict the same only insofar as it relates to the international transactions. A view to the contrary would render the entire assessment proceedings unworkable. The assessee cannot possibly have a part of the assessment order decided by the DRP and a part of it decided in an appeal before the CIT (Appeals). There is, in any event, no provision for the same in the Act.

87. Moreover, the DRP has wide jurisdiction as is evident, interalia, from sub-section (8) of section 144-C. The DRP is required to issue directions under sub-section (5) after considering a variety of matters mentioned in sub-section (6) of section 144-C.

Firstly, clause (a) of sub-section (6) does not restrict the DRP's consideration to any particular aspect or aspects of the draft order. Clause (b) of sub-section (2) of section 144-C does not restrict the nature of the objections that can be filed before the DRP. Similarly, clause (b) of sub-section (6) of section 144-C does not restrict the DRP's consideration to any particular type of the objections. It merely refers to 'objections filed by the assessee'. Sub-section (6)(c) does not limit the DRPs consideration of the evidence to any particular aspect or issue. It refers in general to the 'evidence furnished by the assessee'. Clause (d) also does not limit the consideration by the DRP to any particular aspect of the report of the AO or the TPO. Nor does it limit the consideration by the DRP to the nature of the report relating to the draft assessment order.

Sub-section (6) and especially clauses (a) and (b) thereof illustrate that the DRP would also be entitled to consider whether or not the TPO was entitled to exercise jurisdiction.

88. This view is not repugnant to the words 'confirm, reduce or enhance' in section 144C(8). The suggestion that these three words refer only to the valuation or quantification of the arm's length price is unfounded. A reduction or an enhancement indeed relate to the valuation or quantification. The word 'confirm', however, is much wider. The DRP's power to confirm would include the power not to confirm. It would include the power to annul the variations or any of them. The doubt, if any, is set to rest by the use of the words 'may confirm'. Once the entire draft order is before the DRP for confirmation, it is axiomatic that it would have the power to consider the entire draft assessment order, including the question as to whether the unreported transactions are international transactions or not or even whether what the TPO considered was a transaction at all.

The Division Bench of the Gujarat High Court in Veer Gems (supra) also held that the issue whether there was an international transaction or not can also be examined by the DRP.

89. This view, in fact, protects the right of an assessee who would otherwise be deprived of a valuable right of one appeal. An appeal against the order of the DRP lies only to the ITAT. The Legislature could hardly be expected to have intended to deprive an assessee of a valuable right of an appeal without express words to that effect. We do not suggest that the Legislature is not competent to do so. We are not inclined, however, to ascribe to the Legislature an intention to deprive an assessee of such a right in the absence of any provision or even words to that effect.

90. Where a TPO determines the arm's length price of an international transaction, whether suo moto or on a reference by the AO, the assessee has the option of adopting the DRP route under section 144C or the normal route of filing an appeal to the CIT (Appeals). The DRP is entitled to consider whether the transaction of which the arm's length price was computed by the TPO is an international transaction or not. Section 144C(2)(b) does not restrict the nature of objections that an assessee is entitled to raise before the DRP. If the DRP finds that the transaction was not in fact an international transaction, it must issue the necessary consequential directions to the AO to assess the same as a domestic transaction. To this end the DRP can even invoke powers under section 144C(7)(b) viz. cause any further enquiry to be made by the AO and report the result to it.

91. If the DRP finds that the transaction the arm's length price of which the TPO computed, was not an international transaction, the proceedings before it would not stand terminated or be rendered void or nonest for the DRP's jurisdiction arises not on account of the transaction being an international transaction but on account of the intervention of the TPO – the TPO having determined the arm's length price of a transaction on the basis that it was an international transaction.

92. A view to the contrary would be fraught with difficulties, and would render the entire machinery unworkable. Take a simple illustration. Where the TPO intervenes suo moto, the AO is, as we have held, bound by his decision including on the question that there is an international transaction. The AO can therefore, make only a draft order under section 144C(1). If the assessee files objections, the AO must await the DRP's directions under section 144C(5). By the time the DRP holds that the transaction was not an international transaction, the period for the AO to make an assessment order could well have passed. For under section 92CA(3) the TPO is entitled to file his report sixty days prior to the date on which the period of limitation for making the order of assessment expires. The DRP is entitled under section 144C(12) to issue directions within nine months from the end of the month in which the draft order is forwarded to the eligible assessee. By this time therefore, the period of limitation for making the assessment order could well have expired. This would be a startling result which could never have been the intention of Parliament.

93. An assessee, therefore, is entitled to challenge the order of the TPO and/or the draft order of the AO before the DRP on all grounds in their entirety. Even if the DRP comes to the conclusion that the TPO had acted without jurisdiction, the proceedings do not end there. The DRP is bound to consider the entire assessment. Its role is not limited to a consideration of the international transactions.

94. In the result, the petitioner has, in fact, more than one alternate remedy although not to the extent contended by the Advocate General. In view of our findings, the petitioner's remedy against the order of the TPO is not before the AO. The AO must make the assessment in conformity with the TPO's order. The AO is not entitled to either question the TPO's order in any respect or to make the assessment contrary thereto. However, the assessee is entitled to challenge not merely the determination of the arm's length price, but also the TPO's conclusion that a particular transaction is an international transaction before the DRP. Alternatively, the assessee can wait till the final assessment order is passed without raising any objections upon the receipt of the report from the TPO and challenge the same before the CIT (Appeals). The petitioner, therefore, has an alternate remedy of challenging all aspects of such a matter either before the DRP or before the CIT (Appeals). The alternate remedy is, therefore, clearly there. In fact, from the order of the DRP or the CIT, the petitioner is entitled to file a further appeal before the ITAT. These appellate authorities are entitled to go into all questions of law and of fact. It is not suggested that either the CIT or the ITAT cannot consider the question as to whether a transaction is an international transaction or not.

95. We did not understand Mr. Salve to contend that the Income Tax Appellate Tribunal or the CIT does not have jurisdiction to decide all questions that arise in the assessment proceedings including regarding the jurisdiction of the TPO. It is, therefore, not necessary to refer to the judgment of the Supreme Court in Chandra Kumar v. Union of India & Ors. AIR 1997 SC 1125, paragraphs 90 and 93 whereof were relied upon by the learned Advocate General.

96. The question then is whether the petitioner ought to be relegated to the alternate remedies or whether despite the availability of alternate remedies, this Writ Petition ought to be entertained. The petitioner, in our opinion, must avail of the alternate remedies. This view is supported by the judgments relied upon by the Advocate General which we will now refer to.

97. The Advocate General relied upon the judgment of the Supreme Court in Special Director & Anr. v. Mohd. Ghulam Ghouse & Anr. (2004) 3 SCC 440 = AIR 2004 SC 1467 where it was held :-

'5.This Court in a large number of cases has deprecated the practice of the High Courts entertaining writ petitions questioning legality of the show cause notices stalling enquiries as proposed and retarding investigative process to find actual facts with the participation and in the presence of the parties. Unless, the High Court is satisfied that the above show cause notice was totally nonest in the eye of law for absolute want of jurisdiction of the authority to even investigate into facts, writ petitions should not be entertained for the mere asking and as a matter of routine and the writ petitioner should invariably be directed to respond to the show cause notice and take all stands highlighted in the writ petition. Whether the show cause was founded on any legal premises is a jurisdictional issue which can even be urged by the recipient of the notice and such issues also can be adjudicated to the authority issuing the very notice initially, before the aggrieved could approach the Court. Further, when the Court passes an interim order it should be careful to see that the statutory functionaries specially and specifically constituted for the purpose are not denuded of powers and authority to initially decide the matter and ensure that ultimate relief which may or may not be finally granted in the writ petition is accorded to the writ petitioner even at the threshold by the interim protection, granted.'

The judgment certainly indicates that the petitioner is entitled to urge the jurisdictional issue even before the TPO. In any event, the issue can and in fact has been raised before the DRP and it can also be raised before the CIT (Appeals) as observed later. The question, therefore, in each case is whether there was an absolute want of jurisdiction of the authority to even investigate the facts.

98. In M/s. Hindalco Industries Limited v. Addl. CIT – (Transfer Pricing Officer)-I(5), Writ Petition (Lodg) No.2782 of 2011, the AO made a reference to the TPO. The assessee participated in the proceedings before the TPO before whom eight hearings took place. The TPO thereafter passed his order. The petitioner thereafter filed the Writ Petition challenging the validity of the approval granted by the Commissioner to the AO to make a reference to the TPO and the order of the TPO. The Division Bench of this Court by its judgment dated 23rd December, 2012, declined to entertain the Writ Petition observing:-

'11............................ At this stage, we are of the considered view that it would be inappropriate for this Court to exercise its writ jurisdiction under Article 226 of the Constitution to entertain a Petition challenging the validity of the reference made by the Assessing Officer to the Transfer Pricing Officer on 9 October 2009 and the underlying approval of the Commissioner dated 30 September 2009, both of which have been issued over two years ago. The Petitioner, in any case had notice before the Transfer Pricing Officer as far back as on 3 March 2010 and participated in those proceedings. Under the statutory provisions, to which a reference is made earlier, a comprehensive remedy is available to the Petitioner before the Assessing Officer frames an order of Assessment. A draft order has to be prepared to which the Petitioner is entitled to submit its objections. Even against the draft order, the Petitioner has a remedy of moving the Dispute Resolution Panel. Though the Assessing Officer is bound by the determination of the Arm’s Length Price by the Transfer Pricing Officer, it is evident from the statutory scheme that the Appellate Tribunal before which remedy of an Appeal is available would be entitled to consider every aspect of the matter when it renders its decision in the exercise of its appellate powers.'

The facts of the case before us in this regard are similar. We see no reason to adopt a different course in the facts of this case.

99. The Advocate General placed considerable reliance upon the judgment of the Supreme Court in Titaghur Paper Mills Co. Ltd. & Anr. v. State of Orissa & Anr. (1983) 2 SCC 433, in support of his contention that an assessee ought not to be permitted to short-circuit the normal procedure provided under the Act, including by filing a Writ Petition. He relied upon the observations in paragraph 11 of the judgment. Before quoting paragraph 11, it is necessary to note that the Supreme Court confirmed the view of the High Court that that was not a case of inherent lack of jurisdiction and distinguished the decision in Mohd. Nooh's [(1958) SCR 595] case on the ground that in that case, there was a total lack of jurisdiction whereas in the case before the Supreme Court there was no suggestion that the sales tax officer had no jurisdiction to make an assessment. It was also observed that the submissions advanced on behalf of the petitioners rested purely on procedural irregularities or touched upon the merits of the assessment. Paragraph 11 of the judgment reads as under :

'11.Under the scheme of the Act, there is a hierarchy of authorities before which the petitioners can get adequate redress against the wrongful acts complained of. The petitioners have the right to prefer an appeal before the Prescribed Authority under sub-section (1) of Section 23 of the Act. If the petitioners are dissatisfied with the decision in the appeal, they can prefer a further appeal to the Tribunal under sub-section (3) of Section 23 of the Act, and then ask for a case to be stated upon a question of law for the opinion of the High Court under Section 24 of the Act. The Act provides for a complete machinery to challenge an order of assessment, and the impugned orders of assessment can only be challenged by the mode prescribed by the Act and not by a petition under Article 226 of the Constitution. It is now well recognised that where a right of liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. This rule was stated with great clarity by Willes, J. in Wolverhampton New Waterworks Co. v. Hawkesford in the following passage :

There are three classes of cases in which a liability may be established founded upon statute. . . . But there is a third class, viz. where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it . . . the remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class. The form given by the statute must be adopted and adhered to.

The rule laid down in this passage was approved by the House of Lords in Neville v. London Express Newspapers Ltd. And has been reaffirmed by the Privy Council in Attorney-General of Trinidad and Tobago v. Gordon Grant & Co. Ltd. and Secretary of State v. Mask & Co. It has also been held to be equally applicable to enforcement of rights, and has been followed by this Court throughout. The High Court was therefore justified in dismissing the writ petition in limine.'

The judgment, therefore, is of little assistance to the respondent so far as Mr. Salve's first contention is concerned viz. that the TPO lacked inherent jurisdiction to consider the arm's length price of an international transaction suo moto under sub-sections (2A) and (2B) of section 92CA. However, the judgment fully supports the Advocate General's contention in this case as the TPO has already passed his order. The judgment, moreover, is also relevant as regards Mr. Salve's other contentions in respect of the two transactions.

100. The respondents case is supported by a very instructive judgment of a learned single Judge of the Calcutta High Court in Sri Sri Radheshyam Jew & Anr. v. Valuation Officer & Ors. 1999 238 ITR 343 = MANU/WB/0247/1998. The relevance and importance of this judgment is evident from paragraph 9 which is set out after referring to the facts. The petitioner filed wealth tax returns. The Wealth Tax Officer referred the matter to the Valuation Officer to determine the value of the premises under section 16-A of the Wealth-tax Act, 1957. The Valuation Officer sought certain particulars in respect of the premises to be valued. The petitioner supplied the same. The Valuation Officer determined the fair market price and forwarded the preliminary estimate of valuation to the petitioners who challenged the same by filing a Writ Petition, inter-alia, on the ground that the Wealth Tax Officer had no jurisdiction to make the reference to the Valuation Officer under section 16-A of the Act. The Writ Petition was disposed of by an order directing the Valuation Officer to make a final valuation of the property after considering the objections already raised by the petitioners. The Valuation Officer prepared the final valuation report which the petitioners challenged by the Writ Petition which was disposed of by the judgment presently under consideration by us. The respondents raised a preliminary objection regarding the maintainability of the Writ Petition and contended that the High Court ought not to exercise its discretionary powers under Article 226 as the petitioners had the alternate remedy of an appeal against the final order which was yet to be passed by the Wealth Tax Officer. The Wealth Tax Officer was bound to make the assessment in conformity with the report of the valuation officer. The learned Judge dismissed the Writ Petition. Paragraphs 9 and 10 of the judgment relied upon by the learned Advocate General read as under:-

'9. Sub-s. (6) of s. 16A says that on receipt of the order under sub-s. (3) or sub-s. (5) from the Valuation Officer, the AO shall, so far as the valuation of the asset in question is concerned, proceed to complete the assessment in conformity with the estimate of the Valuation Officer. Chapter VI of the Act deals with appeals, revisions and references. Sec. 23(1)(ha) says that subject to the provision of sub-s. (1A), any person objecting to any order of the Valuation Officer under s. 35 having the effect of enhancing the valuation of any asset or refusing to allow the claim made by the assessee under s. 35 may appeal to the Dy. CIT(A) against the assessment or order, as the case may be, in the prescribed form and verified in the prescribed manner.

10.From the above, it is evident that no provision has been made under the Act to file an appeal against the order of valuation made by the Valuation Officer. It is also true that the WTO in dealing with the valuation of a particular premises made by the Valuation Officer has no alternative but to pass an assessment order in conformity with the valuation report or order passed by the Valuation Officer. But, in my view, the report of the Valuation Officer in respect of any premises would be a piece of evidence on the basis of which the WTO shall pass the order of assessment. I do not think that before any order of assessment is passed on the basis of such valuation report or valuation order of the Valuation Officer under sub-s. (5) of s. 16A, it would be proper to entertain a writ application only in respect of the valuation report or the valuation order passed by the Valuation Officer. After the valuation report is sent to the WTO for assessment, the WTO shall pass a final assessment order which may be in conformity with the valuation report, but before that is done by the WTO it would not be fit and proper for the writ Court to set aside the valuation report and the order of the Valuation Officer because s. 23 of the Act clearly provides an appeal against an order passed by the WTO under s. 16A(5) of the Act and the appellate authority can very well set aside the valuation order or can cancel the valuation report on the ground that the same was not made in accordance with law or it was arbitrary or without jurisdiction as the valuation report or the valuation order shall merge with the final order of assessment. The appellate authority shall take into consideration the valuation report or the order passed by the Valuation Officer and can come to a conclusion that the valuation arrived at by the Valuation Officer was not in accordance with law or arbitrary and without jurisdiction. In that case, the appellate authority can set aside the order of assessment and send it back to the WTO for further reference to the Valuation Officer for the purpose of coming to the proper conclusion on the valuation of the premises in question. The appellate authority also can hold that in the facts and circumstances of this case, it was not open to the WTO to refer the valuation matter before the Valuation Officer. Therefore, all the questions that need to be considered against the valuation report or the valuation order can be dealt with by the appellate authority. Therefore, in my view, there is an efficacious alternative remedy to the writ petitioner by way of an appeal against the final order of assessment in which the writ petitioners can very well challenge the valuation report as well as the valuation order of the Valuation Officer. That being the position, I am of the view that there is an efficacious alternative remedy by way of an appeal under s. 23 of the Act and, therefore, the writ Court cannot be approached at this stage.

Section 144-C of the Income-tax Act does not permit the DRP to set aside any proposed variation in the draft assessment order or to issues any direction under section (5) thereof for further enquiry and passing of the assessment order. In other words, the DRP cannot set aside a variation and remand the matter for the passing of a fresh draft assessment order. Under the Wealth-tax Act the appellate authority has the power to do so. That, however, makes no difference. We are in respectful agreement with the judgment and would adopt it in cases relating to transfer pricing.

101. Before dealing with the authorities relied upon by Mr. Salve, it is necessary to distinguish his three main contentions. We will refer to the petitioner's case regarding the assignment of the call options under the 2007 framework agreements and the the sale of the call centre business/BTA later. They stand on a different footing from the contention that the TPO lacked inherent jurisdiction to proceed under sub-sections (2A) and/or (2B) of section 92CA on the grounds urged in support of the first submission which would be irrespective of whether or not the transactions are international transactions. This contention does not involve disputed questions of fact. It is a pure question of law. If the petitioner's submission is well founded, the TPO would lack inherent jurisdiction to consider the transaction in exercise of powers under sub-sections (2A) and (2B) and his order would be void. In that view of the matter, although the petitioner has an alternate remedy, there is nothing that prevents the Court from exercising its extraordinary jurisdiction under Article 226 of the Constitution of India. Firstly, it would prevent an unnecessary exercise before the TPO if it is ultimately found that he had no jurisdiction to exercise suo moto powers. Secondly, this is a question of considerable importance not merely for this petitioner but for assessees in general as well as for the Revenue. The determination of this question requires for consideration the manner in which the tax authorities and tribunals are to proceed in cases relating to international transactions and computation of the arm's length price. Moreover, we have, by interim orders, permitted the proceedings to continue before the authorities ensuring thereby that there is minimal waste of time in completing the assessment proceedings. We hasten to add that although we are not bound to exercise our jurisdiction under Article 226 of the Constitution, in the facts of this case, we consider it appropriate to do so only so far as the question relating to the TPO's powers under sub-sections (2A) and (2B) are concerned.

102. In State of Uttar Pradesh v. Mohd. Nooh, (1958) SCR 595 = AIR 1958 SC 86, the Supreme Court held :-

'(11)On the authorities referred to above it appears to us that there may conceivably be cases – and the instant case is in point – where the error, irregularity or illegality touching jurisdiction or procedure committed by an inferior court or tribunal of first instance is so patent and loudly obtrusive that it leaves on its decision an indelible stamp of infirmity or vice which cannot be obliterated or cured on appeal or revision. If an inferior Court or tribunal of first instance acts wholly without jurisdiction or patently in excess of jurisdiction or manifestly conducts the proceedings before it in a manner which is contrary to the rules of natural justice and all accepted rules of procedure and which offends the superior court's sense of fair play the superior Court may, we think, quite properly exercise its power to issue the prerogative writ of certiorari to correct the error of the Court or tribunal of first instance, even if an appeal to another inferior Court or tribunal was available and recourse was not had to it or if recourse was had to it, it confirmed what ex facie was a nullity for reasons aforementioned. This would be so all the more if the tribunals holding the original trial and the tribunals hearing the appeal or revision were merely departmental tribunals composed of persons belonging to the departmental hierarchy without adequate legal training and background and whole glaring lapses occasionally come to our notice. The superior Court will ordinarily decline to interfere by issuing certiorari and all we say is that in a proper case of the kind mentioned above, it has the power to do so and may and should exercise it. We say no more than that. '

The observations in the latter part of paragraph 11 would not apply to cases under the Income-tax Act for the Members of the Tribunal constituted there-under have adequate legal training and background. The judgment, however, supports Mr. Salve's contention that if the exercise of powers is wholly without jurisdiction or patently in excess of jurisdiction, this Court may exercise its power to issue the prerogative writ of certiorari. Thus, had we come to the conclusion that the TPO lacked inherent jurisdiction to proceed to consider a transaction suo moto, the petitioner's invocation of the extraordinary jurisdiction of this Court would be justified, although even in that case, the Court would always be entitled to exercise it's discretion in relegating it to the alternate remedy.

However, this Court would be justified in exercising its discretion in entertaining a writ petition on the question as to whether the TPO lacked inherent jurisdiction to exercise powers under subsections (2A) and (2B) of section 92CA only if it is invoked at the appropriate time viz. at the outset or soon thereafter. In any event, in such matters there would be no question of exercising jurisdiction after the TPO has made the order or has proceeded to a considerable extent in the determination of the arm's length price.

We would re-enter our caveat that we cannot rule out the possibility of there being exceptional cases where the Court may exercise its extra-ordinary writ jurisdiction.

103. In Calcutta Discount Company v. The Income Tax Officer, Companies District 1 & Anr., 1961 (2) SCR 241, the Supreme Court held that the conditions precedent to the exercise of jurisdiction under section 34 of the Indian Income Tax Act, 1922, as amended in 1948, did not exist and that the ITO had, therefore, no jurisdiction to issue the notice impugned therein under section 34. The respondent contended that when the notices were issued, the ITO was not acting judicially or quasi judicially and so a writ of certiorari or prohibition cannot be issued and that the petitioner would have sufficient opportunity to raise the questions before the ITO and if unsuccessful, before the Appellate Officer of the Appellate Tribunal or in the High Court. The Supreme Court, however, held that the High Courts have power to issue in a fit case, an order prohibiting an executive authority from acting without jurisdiction. The Supreme Court further held that where action is taken without jurisdiction and the same subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts will issue appropriate orders or directions to prevent such consequences (Pg. 258).

The Advocate General submitted that in Calcutta Discount Company, the Supreme Court had expressly observed that the petitioner before it had come to the Court at the earliest opportunity, immediately upon the receipt of the notice under section 34. On the other hand, the petitioner in the case before us had, in fact, participated before the TPO without raising any objection as to his jurisdiction. That is correct. The petitioner had, in fact, supplied the material and participated in every respect before the TPO. The TPO has even passed the order.

104. Although the TPO has made his order without any objection by the petitioner as to his jurisdiction, we would have entertained this petition, had we come to the conclusion that the TPO lacked inherent jurisdiction under section 92CA(2A) and (2B) and that this inherent lack of jurisdiction affected the further proceedings as well. We have, however, held that even if the TPO lacked inherent jurisdiction under section 92CA(2A) and (2B) on the grounds urged under the first submission, it would not affect the further assessment proceedings. Thus, even if we had come to the conclusion that the TPO lacked inherent jurisdiction on this ground, we would not have entertained this Writ Petition for the further proceedings before the DRP or the CIT (Appeals), as the case may be, and thereafter before the ITAT, would remain unaffected by the same. These authorities would be entitled to set right the defect and conclude the assessment proceedings accordingly. The TPO's lack of jurisdiction would not render the further assessment proceedings void.

In this view of the matter, at least after the TPO has passed his order and absent any exceptional circumstances, there is no warrant for permitting an assessee to invoke the writ jurisdiction on the basis that a TPO has wrongly assumed jurisdiction under section 92CA(2A) or (2B) to compute the arm's length price of an international transaction. The most important factor is that even if the DRP comes to the conclusion that the TPO had wrongly exercised jurisdiction it would make no difference. The DRP would then have to treat the transaction as a domestic transaction and issue appropriate directions accordingly. In other words, the proceedings do not come to an end. The DRP cannot merely set aside the entire draft assessment order, close the assessment proceedings and direct the AO to proceed afresh. This would be so irrespective of whether the TPO exercised jurisdiction on a reference under section 92CA(1) or suo moto under sub-sections (2A) and (2B) of section 92CA. The DRP derives jurisdiction under section 144-C not on account of whether there is an international transaction or not, not merely on account of the TPO having correctly considered a transaction to be an international transaction or not, but on account of the intervention of the TPO either on a reference under section 92CA(1) or suo moto under subsection (2A) and/or (2B) thereof.

105. If on the other hand a TPO wrongly assumes jurisdiction although he lacks inherent jurisdiction, a Court may well invoke its writ jurisdiction if the assessee approaches it at the earliest and in any event before the TPO makes the report. This would only be to save the assessee and the Revenue incurring unnecessary expenses and a waste of time on account of the proceedings before the TPO which are demonstrably without jurisdiction.

106. The position, however, would be entirely different once the TPOs passes the order. This is for the reason that the DRP, in any event, would have the jurisdiction to rectify the error and issue the necessary directions to the AO to complete the assessment in accordance with law. The assessment proceedings are not rendered futile or void on account of the TPO lacking inherent jurisdiction. In such cases, where the proceedings before the TPO have concluded, absent anything else warranting the invocation of the writ jurisdiction, a Writ Petition ought not to be entertained and the parties must be relegated to their remedies under the Act.

107. In the present case, therefore, absent anything else, there is no warrant for exercise of writ jurisdiction for the petitioner has not only an equally but a more efficacious remedy by filing the objections before the DRP. The DRP would be entitled to go into all aspects of the matter factual and legal whereas in a Writ Petition a Court may well decline interference where there are disputed questions of fact.

108. In Carl Still G.m.b.H. v. State of Bihar, 1962 (2) SCR 81, the Supreme Court held at page 93 that it is well settled that when proceedings are taken before a tribunal under a provision of law which is ultra vires, it is open to a party aggrieved thereby to move a Court under Article 226 for issuing appropriate writs for quashing them on the ground that they are inconsistent without his being obliged to wait until those proceedings run their full course.

The judgment is of no assistance to the petitioner. In the case before us, the relevant provisions have not been challenged as being ultra vires. Proceedings initiated under a ultra vires law are void ab initio and remain void throughout. If a TPO lacks inherent jurisdiction to consider a case suo moto, the proceedings after his report are not void. This order is amenable to correction before the DRP or the CIT (Appeals) as the case may be. Thus, once the TPO makes his order, there is no warrant for terminating the proceedings that follow.

109. In Coca-Cola Export Corporation v. The Income Tax Officer (1998) 4 SCC 166, the Supreme Court found that the Income-tax Officer lacked inherent jurisdiction to issue notices under section 148 and, therefore, quashed the same.

In such cases the entire proceedings are without jurisdiction. Moreover, as the Advocate General submitted, this judgment only deals with a case of inherent lack of jurisdiction and not to a case where there is no inherent lack of jurisdiction. While the issue regarding the power of the TPO alone under sub-sections (2A) and (2B) of section 92CA is one of inherent lack of jurisdiction the question whether or not the said two transactions are international transactions does not lead to an inherent lack of jurisdiction in further proceedings. If the TPO has jurisdiction under sub-sections (2A) and (2B) he has the jurisdiction to decide whether or not a transaction is an international transaction.

110. In Whirlpool Corpn. v. Registrar of Trademarks, (1998) 8 SCC 1, the Supreme Court held that inspite of the alternate statutory remedies, the jurisdiction of the High Court in entertaining a Writ Petition is not affected specially in cases where the authority against whom the writ is filed is shown to have no jurisdiction or had purported to usurp jurisdiction without any legal foundation.

111. The judgment of a Division Bench of the Delhi High Court in Maruti Suzuki (India) Limited v. Addl. CIT / TPO, 2010 (328) ITR 210 is not relevant in the present case. The Division Bench set aside the order of the TPO and remanded the matter to him to determine the arm's length price in terms of section 92C and in the light of the observations made in the judgment. The Division Bench held that as the TPO had made the adjustments to the petitioner's income based on no evidence, it amounted to an error of law by him.

112. In the result, absent anything else, this petition ought to be dismissed reserving liberty to the petitioner to pursue the alternative remedies.

And with this we proceed to consider the other preliminary objections raised by the Advocate General.

Effect on maintainability of the Writ Petition on account of the petitioner having filed objections and having appeared before the DRP.

113. The Advocate General also contended that in the present case, a draft assessment order had been made by the AO, the petitioner had filed objections to the same before the DRP, the petitioner even appeared before the DRP, the DRP had passed its order and finally the AO has made the final assessment order. This Court, therefore, ought to dismiss the Writ Petition.

114. In the facts of this case, we would not decline to exercise jurisdiction for any of the reasons. It would be unfair to dismiss the petition on the ground that the petitioner filed the objections before the DRP for it did so without prejudice to its rights and contentions in this Writ Petition.

The TPO passed his order on 31st October, 2011. Before the AO, the petitioner objected to the exercise of jurisdiction by the TPO. The AO, however, rejected the contention and passed the draft assessment order on 29th December, 2011. On 30th January, 2012, the petitioner filed objections before the DRP against the draft assessment order in which it expressly stated that it was filing the same without prejudice as it intended filing the present Writ Petition. The petitioner was compelled to do so since the limitation period for filing the objections was due to expire on 30th January, 2012 by which date the Writ Petition obviously would not have even come up for hearing.

As we have not accepted any of these contentions, we did not permit the Advocate General to rely upon the order of the DRP or the final assessment order passed by the AO. This, however, was only for the purpose of deciding this Writ Petition. As we have dismissed the Writ Petition, the respondents would now be entitled to serve the same upon the petitioner upon expiry of the stay granted by us.

115. Statutes often stipulate a period of limitation for availing the alternate remedies provided therein. In many cases, there is no power to condone the delay. It is difficult for a litigant to say with any degree of certainty whether a Writ Petition though maintainable would be entertained or not. It would be unfair to compel a litigant to speculate, to take a chance by not availing of the alternate remedy and only filing a Writ Petition. If the Court refuses to exercise the discretion that it has in entertaining a Writ Petition, the litigant would fall between two stools. There is no justification either in law or in equity to drive a litigant to such a situation. Where a litigant avails of an alternate remedy only to avoid such a situation, the doors of the Writ court cannot be closed to him. A view to the contrary, in fact, fetters the discretion of a Court exercising jurisdiction under Article 226 which ought not be the case. If a litigant is compelled to elect between a writ petition and the alternate remedy and he choses the former, it casts an unnecessary burden upon the Court to entertain the Writ Petition even though it may be inclined to exercise its discretion by relegating the party to the alternate remedy for no Court desires to leave a litigant without a remedy on merits.

116. In this regard, Mr. Salve's reliance upon the judgment of a learned single Judge of this Court in Orkay Mills Ltd. v. M.S. Bindra 1998 (33) ELT 48 (Bom.) is well founded. It was contended on behalf of the respondent that the Court ought not to entertain the Writ Petition as the petitioner had preferred a statutory appeal before the Tribunal after filing the petition. Reliance was placed on behalf of the respondent on the judgment of the Supreme Court in Titaghur Paper Mills Co. Ltd. & Anr. v. State of Orissa & Anr. (1983) 2 SCC 433. The learned Judge rejected the contention holding that in the appeal, the petitioner had expressly stated that it had lodged the same without prejudice to the Writ Petition. The learned Judge also observed that the appeal had been preferred by the petitioner out of abundant caution and, therefore, the mere fact that the petitioner had filed the appeal would not oust the jurisdiction of the Court especially in a case where it was established that there was a gross miscarriage of justice. We are in respectful agreement with the judgment in this regard.

117. Nor would we be justified in refusing to entertain this Writ Petition merely on the ground that the petitioner appeared before the DRP and participated in the proceedings before it. It did so under the orders of this Court. The writ petition was filed on 18th February, 2012. Thereafter, directions were passed by this Court for filing affidavits. In the meantime, a number of hearings were held before the DRP. By an order of that date, a Division Bench to which one of (S.J. Vazifdar, J.) was a party, held that it was not necessary to entertain the application for interim reliefs at that stage and that it was not entertaining the application for interim reliefs. The petitioner would be at liberty to appear before the DRP without prejudice to its rights and contentions, including those raised in the Writ Petition. Another Division Bench heard the issue regarding jurisdiction at length, but one of the learned Judges recused himself. The Division Bench, however, directed the respondent not to serve the order of the DRP upon the petitioner for a period of eight weeks and that if the assessment order was passed by the AO pursuant to the directions of the DRP, the same also should not be communicated to the petitioner for a period of eight weeks. The matter was thereafter assigned to this Bench. The interim order was continued from time to time. On 31st October, 2012, the AO passed the final assessment order but the same has not been served upon the petitioner in view of the earlier orders.

118. The petitioner, therefore, appeared before the DRP not voluntarily, but without prejudice to its rights and contentions in this Writ Petition. When a litigant appears in such proceedings without prejudice to its rights and contentions and the Court expressly permits him to do so, it would be a travesty of justice for the Court to thereafter refuse to entertain the Writ Petition merely on that ground.

119. In view thereof, it follows that the petition ought not to be dismissed merely because the DRP passed its order and the AO has now passed the final assessment order. This was also pursuant to the orders of this Court and without prejudice to the petitioner's rights.

Parallel Proceedings :

120. The Advocate General submitted that the Writ Petition ought to be dismissed on the ground that the petitioner is not entitled to maintain parallel proceedings viz. the present Writ Petition and the proceedings before the authorities under the Act. As we noted earlier, the proceedings have reached upto the stage of the final assessment order of the AO. In support of his submission, the Advocate General relied upon the following judgments.

121. In K.S. Rashid & Son v. Income-tax Investigation Commission & Ors., (1954) SCR 738 - AIR 1954 SC 207, the High Court relied upon the ordinary rule of construction that where a Legislature has passed a new statute giving a new remedy, that remedy is the only one that could be pursued. That was a case under the Taxation of Income (Investigation Commission) Act, 1947. That Act provided an alternate remedy against an order of the Investigating Commission by applying to the Commissioner of Income-tax to refer to the High Court any question of law arising out of the order. The Supreme Court, however, did not express any opinion on this aspect, but held as under :

'(4).….........

For purposes of this case, it is enough to state that the remedy provided for in Article 226 of the Constitution is a discretionary remedy and the High Court has always the discretion to refuse to grant any writ if it is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere. So far as the present case is concerned, it has been brought to our notice that the appellants before us have already availed themselves of the remedy provided for in section 8(5) of the Investigation Commission Act and that a reference has been made to the High Court which is awaiting decision. In these circumstances, we think that it would not be proper to allow the appellants to invoke the discretionary jurisdiction under Article 226 of the Constitution at the present stage, and on this ground alone, we would refuse to interfere with the orders made by the High Court.'

This, however, was not a case where the party had availed of the alternate remedy without prejudice to its rights. More important, it was not a case where the party was permitted by the Court to avail of the alternate remedy without prejudice to its rights and contentions. The mere fact that the petitioner filed objections before the DRP cannot be a ground to refuse to entertain this Writ Petition as it did so pursuant to the orders of this Court permitting it to do so without prejudice to this petition.

122. In Jai Singh v. Union of India (1977) 1 SCC 1 = AIR 1977 SC 898, the Supreme Court held as under:-

'4.The High Court dismissed the writ petition on the ground that it involved determination of disputed questions of fact. It was also observed that the High Court should not in exercise of its extraordinary jurisdiction grant relief to the appellant when he had an alternative remedy. After hearing Mr. Sobhagmal Jain on behalf of the appellant, we see no cogent ground to take a view different from that taken by the High Court. There cannot, in our opinion, be any doubt on the point that the extent of purity of the gypsum won by the appellant is a question of fact. It has also been brought to our notice that after the dismissal of the writ petition by the High Court, the appellant had filed a suit, in which he has agitated the same question which is the subject-matter of the writ petition. In our opinion, the appellant cannot pursue two parallel remedies in respect of the same matter at the same time.' [emphasis supplied]

The judgment does not support the Advocate General's submission that even if the alternate remedy is availed of after the filing of the Writ Petition without prejudice to the petition, the Writ Petition ought not to be entertained. That would depend on the facts and circumstances of the case. There is nothing to indicate that the appellant before the Supreme Court had availed of the alternate remedy without prejudice to its rights and contentions. Further, that was not a case where the petitioner was expressly permitted by the Court to avail of the alternate remedy without prejudice to the Writ Petition. The judgment merely indicates an exercise of discretion by the Supreme Court in the facts of that case. It does not bar a Writ Petition merely on the ground that the petitioner has availed of an alternate remedy. Moreover, the petitioner in that case was not compelled to avail of the alternate remedy on account of the bar of limitation. There is nothing in the judgment that indicates the same. We hasten to add that even in such circumstances, it is always open to the High Court not to entertain the Writ Petition. That, however, is an exercise of discretion. Such circumstances do not as an absolute rule, bar the High Court from entertaining a Writ Petition.

123. In Bombay Metropolitan Regional Development Authority v. Gokak Patel Volkart (1995) 1 SCC 642, the Supreme Court held :-

'12.The contention of the appellant in this appeal is that in the first place the writ petition should not have been entertained. The writ petitioner had an adequate alternative statutory remedy. The writ petitioner had in fact already taken advantage of alternative remedy provided by the statute and had preferred an appeal against the judgment of the Tribunal. While the said appeal was pending the writ petitioner invoked the writ jurisdiction of the Bombay High Court praying more or less the same remedy as was prayed in the appeal.

13.We are of the view that the point taken by the appellant is of substance. This is a case, where there is not only the existence of an alternative remedy but the writ petitioner actually had availed of that remedy. The writ petitioner's appeal before the statutory authority was pending. In that view of the matter this writ petition should not have been entertained.'

We would distinguish this judgment from the facts of the present case on the same ground as we did the judgment in Jai Singh v. Union of India (1977) 1 SCC 1 = AIR 1977 SC 898.

124. In State of Punjab v. Punjab Fibres Limited (2005) 1 SCC 604 = AIR 2005 SC 437, a three Judge Bench of the Supreme Court held that under the Punjab General Sales Tax Act, there was a provision of an appeal against the order passed by the Sales Tax Tribunal and that the respondent had availed of the same. In the circumstances, the Supreme Court held that the High Court ought not to have entertained the Writ Petition.

We would distinguish this judgment from the facts of the present case on the same ground as we did the judgment in Jai Singh v. Union of India (1977) 1 SCC 1 = AIR 1977 SC 898.

125. In Lionbridge Technologies Pvt. Ltd. v. Deputy Commissioner of Income Tax, Writ Petition (Lodg.) 2309 of 2011, a Division Bench of this Court, by an order and judgment dated 21st October, 2011, relegated the petitioner to the alternate remedy that it had already availed of. In that case, the AO had made a reference to the TPO and following the determination of the arm's length price by the TPO, the AO issued a draft assessment order to which the petitioner raised objections before the DRP. The DRP determined the same and the AO passed a final assessment order. The petitioner had challenged the order passed by the Dispute Resolution Panel. The Division Bench dismissed the Writ Petition holding had the petitioner had the remedy of an appeal against the order of the DRP in which all the issues could be raised before the ITAT.

This judgment is also distinguishable from the facts in the case before us on the grounds indicated earlier.

Effect on maintainability of the Writ Petition on account of the merger of the impugned orders of the DRP and the final assessment order of the AO.

126. The Advocate General submitted that the TPOs order stands merged in the draft assessment order and/or the order of the DRP and/or the the final assessment order. Similarly, the draft assessment order stands merged in the DRPs order and in the final assessment order. By challenging the TPOs order and the AOs draft assessment order, the petitioner is in effect challenging the DRPs order and the final assessment order which is impermissible. The petitioner's remedy is only to challenge the final assessment order. Once an order stands merged in another order, the remedy of a party is to challenge the final order and the order which stands merged therein.

127. The Advocate General relied upon the judgment of the Supreme Court in Somnath Sahu v. State of Orissa and Ors. (1969) 3 SCC 384. The appellant had preferred an appeal to the State Government under Rule 6(2) of the Orissa Welfare Officers (Recruitment & Conditions of Service) Rules, 1961. The State Government dismissed the appeal. The Supreme Court held that the appellant is not entitled to the grant of a Writ under Article 226 of the Constitution of India assuming that the order appealed against was illegal because no enquiry into the alleged misconduct was made before making that order. The Supreme Court held that the original order had merged in the order in the appeal and that the appellate decision alone subsisted and was operative in law and was capable of enforcement. Paragraph 6 of the judgment reads as under :-

'6.We shall, however, assume in favour of the appellant that the order of Respondent 4 dated the 11th March, 1960 was illegal because no enquiry into the alleged misconduct was made before making that order. Even on that assumption we are of opinion that the appellant is not entitled to the grant of a writ under Article 226 of the Constitution. The reason is that the appellant preferred an appeal to the State Government against the order of Respondent 4, under Rule 6(2) of the Orissa Welfare Officers’ (Recruitment and Conditions of Service) Rules, 1961. Rule 6(2) states:

'The conditions of service of a Welfare Officer shall be the same as of other members of the corresponding status in the factory; provided that, in the case of discharge or dismissal, the Welfare Officer shall have a right of appeal to the State Government whose decision thereon shall be final and binding upon the occupier.'

The appellant was heard by the State Government in support of his appeal and ultimately the State Government dismissed the appeal in its order dated the January 2, 1962. In these circumstances we are of opinion that the order of Respondent 4 dated the March 11, 1960 has merged in the appellate order of the State Government dated the January 2, 1962 and it is the appellate decision alone which subsists and is operative in law and is capable of enforcement. In other words the original decision of Respondent 4 dated the March 11, 1960 no longer subsists for it has merged in the appellate decision of the State Government and unless the appellant is able to establish that the appellate decision of the State Government is defective in law the appellant will not be entitled to the grant of any relief. There can be no doubt that if an appeal is provided by a statutory rule against an order passed by a tribunal the decision of the Appellate Authority is the operative decision in law if the Appellate Authority modifies or reverses it. In law the position would be just the same even if the appellate decision merely confirms the decision of the Tribunal. As a result of the confirmation or affirmance of the decision of the Tribunal by the Appellate Authority the original decision merges in the appellate decision and it is the appellate decision alone which is subsisting and is operative and capable of enforcement. (See the . decisions of this Court in CIT v. Amritlal Bhagilal & Co., and Madan Gopal Rungta v. Secretary to the Government of Orissa).'

128. The Advocate General also relied upon the judgment in Union of India & Ors. v. Mafatlal Fine Spinning & Manufacturing Company Limited and Anr. (1998) 8 SCC 462 where the assessee approached the High Court when a demand was raised for payment of duty. The High Court granted interim relief to the effect that the assessee shall keep the bank guarantee alive for six months after the disposal of the petition and would be required to pay interest at 18% per annum if he failed in the petition. During the pendency of the proceedings, a final assessment order had been passed. The Supreme Court held that on account thereof the provisional assessment must be deemed to have become unnecessary and the demand raised pursuant to the provisional assessment had become infructuous as did the appeal before the Supreme Court.

The order does not indicate the grounds of challenge even before the High Court. The order does not lay down any proposition of law much less an absolute proposition of law regarding the manner of exercise of jurisdiction in cases other than where provisional assessments are made. The judgment did not deal with a situation as in the case before us. For instance, in that case, there is nothing to suggest that the petitioner participated in the proceedings without prejudice to the Writ Petition or that he was permitted to do so by the order of the Court.

129. Normally, when an order stands merged in another order, the remedy of a party is to challenge the final order and it cannot do so by challenging the order which stands merged in the final order. This, however, is not an absolute rule.

A Court exercising jurisdiction under Article 226 would be justified in entertaining a challenge to such an order even if it has merged in another order where the proceedings were pursued without prejudice to the petitioner's rights and/or pursuant to the orders of the Court granting the petitioner liberty to do so.

In such cases, where a party takes recourse to the remedy by way of an appeal, review or revision, without prejudice to its rights and contentions or where the party is expressly permitted to do so by an order of the Court, the mere fact that it adopted such a remedy would not by itself be a ground to reject the challenge. We hasten to add that even in such cases, there is nothing that prevents a court from refusing to exercise its jurisdiction under Article 226 in the facts of a particular case.

130. In this case, we do not decline to exercise jurisdiction because the impugned order of the TPO and the draft order of the AO have merged in the order of the DRP and the final assessment order of the AO respectively. The orders were passed in proceedings the petitioner pursued without prejudice to its rights and pursuant to the orders of this Court. We decline to interfere in view of the fact that the TPO's lack of jurisdiction does not render the further proceedings void as in certain other cases. Take, for instance, a case where the first court or authority lacked subject matter jurisdiction to decide a question and on account thereof, the proceedings are null and void ab initio and throughout. The appellate authority would also lack inherent jurisdiction over the subject matter of the proceedings. The appellate forum can in such cases only declare the entire proceedings to be nonest for want of subject matter jurisdiction and, therefore, bring them to an end. The appellate authority would have jurisdiction to decide the issue of jurisdiction alone. The findings of the appellate forum on merits would be nonest in such cases. In such cases, compelling a party to challenge or further challenge the order before the authorities under the Act by way of appeal, revision or review would be futile and an unnecessary waste of time, money and resources.

There is, however, a fundamental difference between such proceedings and proceedings relating to transfer pricing under Chapter X and section 144-C of the Income-tax Act. This distinction establishes the parameters for determining whether an assessee ought to be left to avail the alternate remedy under the Act or whether he ought to be permitted to invoke the extra-ordinary jurisdiction of this Court under Article 226 in transfer pricing cases. We have already indicated the difference to the effect that the further proceedings under Chapter X do not come to an end on account of a TPO's lack of jurisdiction.

131. In the result, it is held that the TPO had jurisdiction to determine the arm's length price of the said two unreported and unreferred transactions. Further, in such matters, absent anything else and normally, an assessee would not be entitled to invoke the extraordinary jurisdiction of the High Court under Article 226 only to challenge the assumption of jurisdiction by the TPO. The interference with respect to the assumption of jurisdiction by a TPO under subsections (2A) and/or (2B) of section 92CA on the ground that he lacks inherent jurisdiction must be limited in point of time. From the initial assumption of jurisdiction, the inclination to interfere diminishes as the proceedings before the TPO progress and vanishes once the hearing before the TPO concludes and in any event, once the report of the TPO is made. The inclination to interfere at the initial stage is greater only to avoid unnecessary waste of time and money which is bound to ensue by proceeding before a TPO who lacks inherent jurisdiction to consider international transactions suo moto under section 92CA(2A) and (2B). Once the proceedings before the TPO are concluded, the question of entertaining a Writ Petition even if he lacks inherent jurisdiction cannot arise and the assessee must be relegated to the remedies provided under the said Act.

132. This brings us to Mr. Salve's challenge to the proceedings specifically in respect of the two unreported transactions viz. the sale of the call centre business by the petitioner to HWP (India) and the assignment of the options under the two framework agreements dated 5th July, 2007.

133. The Advocate General firstly submitted that the TPO has jurisdiction to decide whether or not a transaction is an international transaction. Once it is held that the TPO has jurisdiction under section 92CA (2A) and (2B), it must follow that he has the jurisdiction to decide whether a transaction is an international transaction or not. That is so. However, as Mr. Salve rightly submitted, while dealing with the petitioner's contentions in respect of the said two transactions, we must keep in mind the observations in paragraph 11 of the State of Uttar Pradesh v. Mohd. Nooh set out earlier and the following observations of the Supreme Court in Raza Textiles Limited vs. Income Tax Officer, (1973) 87 ITR 539 = (1973) 1 SCC 633,

'The Appellate Bench appears to have been under the impression that the Income Tax Officer was the sole Judge of the fact whether the firm in question was resident or non-resident. This conclusion in, our opinion, is wholly wrong. No authority, much less a quasi-judicial authority, can confer jurisdiction on itself by deciding a jurisdictional fact wrongly. The question whether the Jurisdictional fact has been rightly decided or not is a question that is open for examination by the High Court in an application for a writ of certiorari. If the High Court comes to the conclusion, as the learned Single Judge has done in this case, that the Income Tax Officer had clutched at the Jurisdiction by deciding a jurisdictional fact erroneously, then the assessee was entitled for the writ of certiorari prayed for by him. It is incomprehensible to think that a quasi-judicial authority like the Income Tax Officer can erroneously decide a jurisdictional fact and thereafter proceed to impose a levy on a citizen. In our opinion, the Appellate Bench is wholly wrong in opining that the Income Tax Officer can 'decide either way'.

The question before us therefore, is whether the alleged error in the impugned orders is so "patent and loudly obtrusive that it leaves on its decision an indelible stamp of infirmity or vice which cannot be obliterated or cured on appeal or revision" and/or that the TPO 'had clutched at the jurisdiction by deciding a jurisdictional fact erroneously'.

134. It is essential that we preface the consideration of Mr. Salve's next submissions, which are specific to the said two transactions, with certain important clarifications.

This judgment ought not to be construed as a final decision on the merits of the rival cases. For instance, the judgment does not decide whether the transactions are international transactions or not. Nor does it decide who the contracting parties actually are. As far as the alleged assignment of options is concerned, we have not even decided whether there was an assignment or a transfer of the options.

The judgment only identifies and indicates the issues between the parties on merits to establish that the resolution thereof ought to be left to the authorities under the Act - the ITAT - and in the facts and circumstances of the case ought not to be adjudicated in a petition under Article 226.

If there is a more elaborate consideration of the respondents case, it is only towards this end and ought not to be construed as our having expressed a view in the respondents favour even prima-facie. There is indeed a lot to be considered in respect of the petitioner's case especially in view of the judgment of the Supreme Court in the Vodafone case.

Re : (B) The TPO lacked any jurisdiction to go into the valuation of the sale of the call centre business pursuant to the BTA by the petitioner to HWP (India) as the same is a domestic transaction and cannot be deemed to be an international transaction.

135. We had referred to the SPA dated 11th February, 2007, the MOU dated 25th April, 2007 and the BTA dated 8th May, 2007.

The relevant provisions of the SPA dated 11th February, 2007, are as follows :-

'WHEREAS:

(A) CGP is an indirect wholly-owned subsidiary of the Vendor. CGP owns, directly or indirectly, companies which control the Company Interests.

(B) The Vendor has agreed to procure the sale of, and the Purchaser has agreed to purchase, the entire issued share capital of CGP on the terms and conditions set out in this Agreement. The Vendor has further agreed to procure the assignment of, and the Purchaser has agreed to accept an assignment of, the Loans on the terms and conditions set out in this Agreement and the Loan Assignments.

1. DEFINITIONS AND INTERPRETATION

1.1 In this Agreement, the following words and expressions have the meanings set opposite them:

….......

Accounts Wider Groupmeans the Wider Group (but excluding GSPL with respect to the Call Centre Business), HT India, Centrino, ND Callus and SMMS and Accounts Wider Group Company means any one of them;

Affiliatemeans, in relation to any person, any subsidiary or holding company of such person and any subsidiary of any such holding company;

….......

Call Centre Businessmeans the business of providing contact centre services from India including, without limitation, GSPL's business of establishing, maintaining and operating contact centres, hiring and training contact centre personnel, recruitment and supervision of such personnel, ensuring quality customer service and all assets and liabilities of GSPL excluding in relation to the Centrino Framework Agreement, the ND Callus Framework Agreement and the SMMS Framework Agreement, the IDFC Framework Agreement or any agreement to be entered into by GSPL pursuant thereto;

Call Centre Disposalmeans disposal of the Call Centre Business by GSPL;

Completion means completion of the sale and purchase of the Share and the Loans which shall take place simultaneously;

Disclosure Lettermeans the letter dated the same date as this Agreement from the Vendor to the Purchaser;

GSPLmeans 3 Global Services Private Limited;

GSPL Transfer Agreementmeans the business transfer agreement to be entered into between GSPL and an Affiliate of HWL relating to the Call Centre Disposal substantially in the form attached to the Disclosure Letter;

Share means 1 ordinary share of CGP, representing the entire issued share capital of CGP;

Transaction Documentsmeans this Agreement, the Tax Deed, the Disclosure Letter, the Hutch Brand Licence, the Loan Assignments, the Confidentiality Agreement, the IDFC Framework Agreement and the GSPL Transfer Agreement;

Vendor Groupmeans the Vendor and its Affiliates from time to time but, for the purpose of this Agreement, shall not include the Wider Group and Vendor Group Company means any of them;

Wider Groupmeans CGP, GSPL, the Holding Companies and the Group and Wider Group Company means any one of them.

…......

1.15Any agreement, covenant, representation, warranty, undertaking, obligation or liability arising under this Agreement on the part of two or more persons shall, unless expressly stated otherwise, be deemed to be made or given by such persons severally.

….......

2. SALE AND PURCHASE OF SHARE AND LOANS

2.1 Upon and subject to the terms and conditions of this Agreement, the Vendor hereby agrees to procure the sale of, and the Purchaser agrees to purchase, the Share free from all Encumbrances and together with all rights attaching or accruing to them at the date hereof (including the right to receive all dividends or distributions declared, made or paid on or after the date hereof).

2.2 Upon and subject to the terms and conditions of this Agreement, the Vendor hereby agrees to procure the assignment of, and the Purchaser agrees to accept an assignment of, the Loans free from all Encumbrances and together with all rights attaching or accruing to them at Completion.

6.2 (a) Without prejudice to the generality of Clause 6.1(a), prior to Completion and until termination of this Agreement in accordance with its terms the Vendor shall procure that:

i) the Group Companies shall provide the Purchaser with monthly performance statements materially in the form in which they are currently prepared within 10 Business Days of the relevant month end, and shall inform the Purchaser if different accounting practices or policies have been applied in collating a monthly profit statement (as compared with the preceding monthly profit statement). The Parties agree that such statements are provided to the Purchaser for information only and the Purchaser shall have no right to make any claim or bring any action arising out of this sub-clause for the information provided in the monthly performance statements;

ii) if requested by the Purchaser, the Chief Financial Officer of the Company communicates (whether by telephone or otherwise) once a month, within a reasonably time following the delivery of the monthly profit statements, with the Purchaser's representatives regarding the Wider Group's performance, provided that the key member of management of the Wider Group shall not be obliged to divulge any confidential or commercially sensitive information;

iii) the Wider Group Companies shall, as soon as reasonably practicable (unless prohibited by law, regulation or any Governmental Authority), send the Purchaser copies of all material correspondence sent to or by the FIPB or DOT to the Wider Group Companies in connection with the approval sought under Clause 4.1(a) and inform the Purchaser of key developments in relation to the dispute with ICICI Bank and in relation to BPL Mumbai, provided that to do so would not adversely affect the ability to complete the transaction contemplated by this Agreement or has undesirable consequences in the context of the relevant dispute.

(b) Prior to Completion, the Vendor shall, and shall procure that the Wider Group Companies shall immediately inform the Purchaser if there has been any amendment, variation or waiver of any rights under any of the Framework Agreements, the TII Shareholders' Agreement or the SMMS Shareholders' Agreement or any of the options granted pursuant to such agreements have been triggered or exercised or if there has been any exercise of any rights or discretions under such agreements. ….......

8. COMPLETION

Vendor's Completion Obligations

8.8 On Completion, the Vendor shall deliver or procure the delivery to the Purchaser (or as it may direct in writing) of:

…............

c) a duly executed transfer in respect of the Share in favour of the Purchaser or a nominee of the Purchaser, together with the relative share certificate;

f) written resignations in the Agreed Terms of each of the directors of each Group Company who was nominated for appointment by the Vendor from their respective offices, such resignations to take effect from the end of the next board meeting of the relevant Group Company;

j) the GSPL Transfer Agreement duly executed by the parties thereto.

8.13If the provisions of Clauses 8.2 to 8.11are not fully complied with by the Vendor or the Purchaser by or on the date set for Completion, the Purchaser (in the case of non-compliance by the Vendor) or the Vendor (in the case of non-compliance by the Purchaser) shall be entitled (in addition to and without prejudice to all other rights and remedies available to the terminating party, including the right to claim damages) by written notice to the other party served on such date:

a) to elect to terminate this Agreement (other than Clauses 15 and 22to 31)without liability on the part of the terminating party;

b) to effect Completion so far as practicable having regard to the defaults which have occurred; or

c) to fix a new date for Completion (not being more than 3 Business Days after the agreed date for Completion), in which case the foregoing provisions of this Clause 8shall apply to Completion as so deferred provided that such deferral may only occur once.

….............

10. POST-COMPLETION UNDERTAKING

10.1 Following Completion, the Purchaser will procure that GSPL complies with its obligations under the GSPL Transfer Agreement.

10.2The Vendor agrees to indemnify and keep fully and effectively indemnified and to hold harmless the Purchaser (for itself and as agent for any other member of the Purchaser Group and their respective officers, directors, employees and agents) against (a) any Losses (other than in relation to Taxation) incurred, suffered or sustained by any of them, as a direct result of the Call Centre Disposal and/or GSPL having any assets or liabilities other than the Centrino Framework Agreement, the ND Callus Framework Agreement and the Omega Framework Agreement; and (b) any net liability (excluding any liabilities to Taxation) arising as a result of the continuation of the business of GSPL in the ordinary and usual course, save and except to the extent that any such Loss and/or liability arises or is increased as a result of any act or omission including any breach of the GSPL Transfer Agreement by GSPL or any such indemnified person following Completion (other than where such act or omission is required pursuant to any existing contract to which GSPL is a party at the date of this Agreement). The limitations on liability set out in Clause 11shall not apply to any liability under this Clause 10.2.

…..................

13. POST-COMPLETION MATTERS

Following Completion

….......

(c) The Purchaser shall procure that until such time as the Call Centre Disposal and all matters contemplated by the GSPL Transfer Agreement shall have been completed (other than as may be approved in writing by the Vendor):

(i) there shall be no change in the members of the board of directors of GSPL save where a director has to be removed from office because of misconduct;

(ii) there shall be no change in th authorised and issued share capital of GSPL, nor any transfer or other disposal of any share capital in GSPL or any interest therein;

(iii) there shall be no creation, allotment, issue or grant of any option to subscribe for any share capital or loan capital in GSPL or any other security giving rise to a right over the capital of GSPL;

(iv) the power of attorney appointing the purchaser of the Call Centre Business as attorney for GSPL in connection with the Call Centre Disposal pursuant to the GSPL Transfer Agreement shall remain in full force and effect and shall not be revoked; and

(v) no action shall be taken for the winding-up or dissolution of GSPL; and...

….......

16.1 At any time after the date hereof each party shall, promptly upon being required to do so by the other party (the requesting party), and at the requesting party's expense, do or procure that there shall be done all such acts and things and execute or procure the execution of all such documents and instruments in a form reasonably satisfactory to the requesting party as the requesting party may from time to time reasonably require (before or after Completion) in order to give full effect to this Agreement and the Transaction Documents and to secure to the requesting party the full benefit of the rights, powers and remedies conferred upon the requesting party in this Agreement and the Transaction Documents.

….......

27. THIRD PARTY RIGHTS

Pursuant to Section 1(2) of the Contracts (Rights of Third Parties) Act 1999 (the Contracts Act), the parties intend that a person who is not a party to this Agreement has no right under the Contracts Act to enforce any term of this Agreement but this does not affect any right or remedy of a third party which exists or is available apart from the Contracts Act.'

136(A). The petitioner contends that the sale of the call centre was negotiated by an MOU dated 25th October, 2011. The respondents allege that the MOU was ante-dated.

(B). The relevant provisions of the BTA dated 8th May, 2007, are as follows :-

'4. Conduct before the Closing Date

….......

4.3Notwithstanding Clauses 4.1 and 4.2, the Vendor shall be entitled to

4.3.1take any action to comply with its obligations under the IDFC Transaction Agreement including, for the avoidance of doubt, making the IDF Closing Payment and executing the Termination Agreement, the Framework Agreement and the Shareholder Agreement.

4.3.2 assign, transfer or novate any of the Excluded Contracts to any other entity.

….......

17. Entire Agreement

17.1This Agreement supersedes any previous agreement written or oral between the Parties in relation to the acquisition of the Business and the Parties acknowledge that no claim shall arise in respect of any agreement superseded by this Agreement.

17.2Subject to the Good Faith Payment being applied in the manner provided in Clause 3 hereinabove, the MoU shall stand automatically terminated at the Signing Date.'

There is a reference to an MOU in clauses 3 and 17.2. The agreement was signed by one Ting Yu Chan, a Director of HTIL. This, Mr. Salve stated, was because the SPA had not been fully implemented by that time. The parties agree that on 8th May, 2007, VIH BV acquired the shares held by HTIL in CGP pursuant to the SPA. VIH BV, therefore, with effect from 8th May, 2007, directly held 100% of the share capital of the petitioner.

The respondents contended that the intention between the contracting parties was that control of the shareholding of the petitioner would pass to the Vodafone Group prior to the transfer of the call centre business.

The Advocate General contended that in the written submissions filed before us on 25th September, 2012, and 5th October, 2012, the petitioner for the first time took a stand that was contrary to its pleadings in this petition and before the TPO, the AO and the DRP to the effect that section 92B(2) was not applicable as the petitioner and HWP (India) were associated enterprises.

137. We also referred to the TPO's decision regarding the computation of the arms length price of the sale of the call centre business by the petitioner to HWP (India). The TPO in his order referred to the SPA and the BTA and construed sections 92B and 92F. This is what he held regarding the BTA.

In the present case, there was an agreement between the AE (associated enterprise) of the assessee meaning thereby VIH BV and the AE of HWP (India), meaning thereby HTIL. This was obviously a reference to the SPA. The BTA entered into between the petitioner and HWP (India) was to give effect to the SPA between VIH BV and HTIL i.e. the AEs of the two contracting parties viz. the petitioner and HWP (India). This was an arrangement and an understanding in respect whereof the said parties acted in concert. The petitioner and HWP (India) are parties to the SPA as affiliates of VIH BV and HTIL although the SPA had been signed only by the two AEs. Based on these facts, it is clear that there is a prior agreement viz. the SPA, between the two AEs (VIH BV and HTIL) and other affiliates i.e. the petitioner/assessee and HWP (India). These four entities were parties to the SPA. The relevant transaction is the BTA for the sale of the call centre business by the petitioner to HWP (India) although there was no direct agreement between VIH BV and HWP (India). Applying the doctrine of lifting the corporate veil and the doctrine of substance over form, he came to the conclusion that the BTA was entered into to give effect to the SPA and that both the Indian parties viz. the petitioner and HWP (India) acted as dummies to go through the motion to give effect to the SPA. The BTA is solely dependent on the SPA and the real parties to the BTA are also the two AEs – VIH BV and HTIL. The SPA also decided the assets to be transferred. Applying the doctrine of substance over form, the TPO held that the BTA although apparently between the assessee and HWP (India) in substance, was between VIH BV and HTIL. Though the money had been paid by HWP (India) to the petitioner, in fact, the total consideration was payable to HTIL by VIH BV as VIH BV did not want the call centre. VIH BV, however, did not wish to lose control over the petitioner as it had valuable options to subscribe to 15% of Hutch Essar Ltd. shares. Thus, though the petitioner and HWP (India) are admittedly Indian companies, the matter for the purpose of section 92-B(2) would not end there. The TPO, therefore, considered the transaction of the sale of the call centre business to be an international transaction.

The TPO thereafter made the following observations which came in for considerable criticism:

'Therefore, in this case the consideration of Rs.64 crore has moved from seller to buyer. We have to see the substance of the transaction. Therefore, the transaction between 2 Indian parties happened because of prior agreement between HTIL, CI and Vodafone, BV by virtue of global agreement. Therefore, HWP India acted under the agreement with AE of assessee being affiliate to HTIL, CI.'

The TPO came to the conclusion that the value of the call centre business hitherto owned by the petitioner was far in excess of the apparent consideration of Rs.64.00 crores paid by HWP (India) to the petitioner. A similar call centre with only 260 employees had been purchased by the petitioner for Rs.160.00 crores. The call centre business transferred by the petitioner under the BTA consisted of 7000 employees. The TPO accordingly determined the arm's length price in excess of Rs.2414.00 crores. The Advocate General submitted that the short fall of Rs.2350.20 crores would have rightly accrued to the petitioner and would have been taxed as a capital gain. The TPO determined the arm's length price per share to be Rs.4,87,797/-. After noting that the sale consideration shown was only Rs.64 crores, he determined the shortfall to be Rs.23,50,20,43,185/- and, accordingly, made an adjustment in that sum in respect of the sale of the call centre business by the petitioner to HWP (India).

138. Before going further, it is necessary to set out sections 92-A and 92-B. By the Finance Act, 2002 w.e.f. 1st April, 2002 the words 'For the purposes of sub-section (1)' were added at the beginning of subsection 2 of section 92-A. Section 92-A and section 92-B of the Act, so far as they are relevant, are as under :-

'92-A. Meaning of associated enterprise.-(1) For the purposes of this section and Sections 92, 92-B, 92-C, 92-D, 92-E and 92-F, 'associated enterprise' in relation to another enterprise, means an enterprise-

(a) which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or

(b) in respect of which one or more persons who participate, directly or indirectly or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise.

[(2) For the purposes of sub-section (1), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year.-]

(a) one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or

(b) any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or

..........

92-B. Meaning of International Transaction.-

(1) For the purposes of this section and Sections 92, 92-C, 92- D and 92-E, 'international transaction' means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises.

(2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise.

[Explanation.-For the removal of doubts, it is hereby clarified that-

(i) the expression 'international transaction' shall include-

(a) the purchase, sale, transfer, lease or use of tangible property including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing;

(b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature;'

139. Section 92-B(2) requires firstly, the existence of two associated enterprises and a third party. Secondly, the transaction in sub-section (2) of section 92-B – the relevant transaction – should be between the enterprise and a person other than an associated enterprise (third party). Thirdly, there should exist a prior agreement in relation to the relevant transaction or the terms of the relevant transaction should be determined in substance between the third party and the associated enterprise. Fourthly, the prior agreement should be between the other associated enterprise and the third party. Fifthly, one of the associated enterprises must be a non-resident.

The fifth condition is apparent from the words in sub-section (2) 'for the purposes of sub-section (1)'. Sub-section (1) in turn operates in respect of international transactions between associated enterprises either or both of whom are non-residents.

140. The prior agreement must be 'in relation to' the relevant transaction. The words 'in relation to' are of wide import. There must be a link, an effective nexus between the prior agreement and the relevant transaction. It is not necessary that the prior agreement must stipulate all the terms and conditions of the relevant transaction. It is sufficeient even if some of the terms and conditions of the relevant transactions are stipulated in the prior agreement. Sub-section (2) of section 92-B would not cease to apply even if there are some variations to the relevant transaction subsequently so long as it can be established that the prior agreement was in relation to the relevant transaction. The extent of the relationship of the relevant transaction to the prior agreement for the purpose of section 92B(2) must depend upon the facts of each case. If for instance, the nature and the purpose of the relevant transaction is entirely different from what was contemplated in the prior agreement, section 92-B(2) would not operate in respect thereof.

This is also established by the concluding words of sub-section (2) 'the terms of the relevant transaction are determined in substance between such other person and the associated enterprise.'

Thus for the operation of section 92-B, it is not necessary that the terms and conditions of the relevant transactions are finalized in all respects in the prior agreement. So long as the terms of the relevant transaction are determined 'in substance' between such other person and the associated enterprise it is sufficient. The words 'in substance' indicate quite clearly that each transaction would have to be considered on its own facts. In other words, the authorities would have to consider whether the terms and conditions of a particular relevant transaction were determined 'in substance' between the other person and the associated enterprise. The decision would depend upon the facts and circumstances of each case.

141. According to the respondents, section 92-B(2) would operate in this case in the following manner.

The relevant transaction is the BTA dated 8th May, 2007 for the sale of the call centre business the signatories to which are the petitioner and HWP (India). The petitioner, an Indian company, is the 'enterprise'. The 'person other than an associated enterprise' is the Hutchison group, which includes not merely the signatory to the BTA viz. HWP (India) – an Indian company, but also HTIL, which is a nonresident. The 'associated enterprise' is VIH BV, also a non-resident. The SPA dated 11th February, 2007 is the prior agreement in relation to the relevant transaction viz. the BTA dated 8th May, 2007.

142. This is how the Advocate General sought to explain the TPO's observations 'therefore in this case the consideration of Rs.64.00 crores has moved from seller to buyer'. VIH BV purchased the share of CGP Investment Holdings Company, which was ultimately the holding company in respect of 51.96% of the equity share capital of Hutchison Essar Limited (subsequently named Vodafone Essar Limited) at a price of about US$ 11.08 billion. VIH BV however, was not interested in retaining the call centre business of the petitioner and had agreed therefore, to sell the same to HTIL or its affiliate / nominee, for which it had to receive the consideration. The sum of US$ 11.08 billion was presumably arrived at after reducing the value of the equity interest in the Hutchison Essar Limited by an amount payable by HTIL to VIH BV in respect of the call centre business. The TPO therefore, considered the seller to be VIH BV and the buyer to be HTIL. Under the SPA however, HTIL was the seller and VIH BV was the buyer.

143. It is difficult to comprehend the TPO's observations that in this case the consideration of Rs.64.00 crores moved from the seller to the buyer, even assuming the above inferences to be correct i.e. if in fact the amount payable under the SPA stood reduced to the extent of the value of the call centre business. That, however, would not indicate an inherent lack of jurisdiction on the part of the TPO in determining whether the transaction is an international transaction or not. Nor would it constitute the TPO clutching at jurisdiction although he has none. Assuming this rather involved reasoning to be an error, it can be rectified or remedied by the DRP or by the ITAT.

144. Mr. Salve submitted that the ingredients necessary to bring the case within the ambit of section 92-B(2) are absent. His case is this. Firstly, the relevant transaction viz. the BTA / sale of the call centre business was between two Indian companies viz. the petitioner and HWP (India). Secondly, there is no agreement between HWP (India) and the petitioner's associated enterprise VIH BV. Thirdly, the SPA is not in relation to the relevant transaction i.e. the BTA and nor were the terms of the BTA determined in substance between HWP (India) and VIH BV. Fourthly, the SPA was, in any event, not prior to the relevant agreement viz. the actual sale of the call centre or even the execution of the BTA. Absent, therefore, in this case are the essential conditions of section 92B (2). Lastly, even assuming these three questions are answered against the petitioner, it would make no difference as the petitioner and HWP (India) were, in any event, associated enterprises when the BTA was entered into / the call centre business was sold.

145. The first two contentions are dealt with together.

The petitioner's case is this. The petitioner and HWP (India) are Indian companies. The call centre business was therefore, transferred by the petitioner, an Indian company, to HWP (India), another Indian company. Section 92-B requires at least one of the parties to be a non-resident. As both the parties to the transaction were Indian companies, section 92-B did not apply. There was no agreement between HWP (India) and the associated enterprise of the petitioner viz. VIH BV. The findings to the contrary are perverse and without jurisdiction. The reliance by the TPO upon the doctrine of substance over form and lifting of corporate veil had been negatived by the Supreme Court in Vodafone International Holding BV vs. Union of India and another (2012) 3 ITR 1.

146. We will first consider the Advocate General's contention that HWP (India) is a party to the SPA as part of the vendor group i.e. Hutchison group and even otherwise. He submitted that the obligations of the SPA in respect of the transaction involving the sale of the call centre business would accrue to and be binding upon HWP (India).

We do not find this case to be wholly inarguable or improbable. If this contention is ultimately upheld, it may well follow that the SPA at least in so far as it is relevant to the BTA/sale of the call centre business was between VIH BV and HWP (India). That then would be the prior agreement in relation to the BTA and/ or MOU. And the associated enterprise – VIH BV – is a non resident.

147. The provisions of the SPA prima-facie foreshadowed the sale of the call centre business by the petitioner to an affiliate of the vendor i.e. HTIL. The SPA has several provisions relating to and in connection with the sale of the call centre business. Some of these provisions which have been set out earlier are the definitions of the terms 'affiliate', 'call centre business', 'call centre disposal', 'disclosure letter', 'GSPL Transfer Agreement', 'vendor group' in clause 1.1.

The expression 'call centre business' is defined to mean the petitioner's business of providing contact centre service from India. The expression 'call centre disposal' is defined to mean the disposal of the petitioner's call centre business. The expression 'GSPL Transfer Agreement' is defined to mean the BTA to be entered into by the petitioner and 'an affiliate of HWL' relating to the call centre business 'substantially in the form of Attached Disclosure Letter'. The term 'affiliate' would certainly include HWP (India), which is a subsidiary of HTIL and HWL. The definition of vendor group is important. It means the vendor i.e. HTIL and its affiliates. The exclusion of the wider group does not exclude HWP (India).

148. Added to these clauses is the fact that it is not the petitioner's case that HWP (India) never considered itself bound by the provisions of the SPA relating to the sale of its call centre business. Even assuming that it did not agree to any part or aspect thereof and that it ultimately insisted on any variation, there is nothing to suggest that HWP (India) never considered itself bound to dispose of its call centre

149. The petitioner was admittedly a part of Hutchison group. Although it was not a signatory to the SPA so far as the transaction relating to the sale of the call centre is concerned, it may well, therefore have been required to sell the same as per the terms of the SPA itself, including under clause 8.8 and or 10.1 thereof. Upon the sale, it would be entitled to the benefits in respect thereof including the payment of the consideration.

150. The respondents invoked the group of companies doctrine based upon the judgment of the Supreme Court in Chloro Controls (I) P. Ltd. vs. Severn Trent Water Purification Inc. (Appeal No.7135-7136 of 2012). The Advocate General also relied upon the judgment in Pankaj Aluminium Industries (P) Ltd. vs. Bharat Aluminium Co. Ltd. (2011) 166, Comp. Cas. 64 (Del.) (paragraphs 21 and 26) and Rajesh & Co. vs. Ravissant P. Ltd. (2012) 173 Comp. Cas. 451 (Del.), (paragraph 6.)

The Supreme Court observed that in the international context, a doctrine had been developed whereby an arbitration agreement entered into by a company being one within a group of companies can bind its non-signatory affiliates or sister or parent concerns if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non- signatory affiliates. It was held that this principle would apply provided the transactions were with the group of companies and there was a clear intention of the parties to bind the signatory as well as the non-signatory parties. Intention of the parties was held to be an essential ingredient. Moreover, this doctrine would apply in exceptional cases. In the context of the present agreements, it is also interesting to note the observations to the effect that the transaction should be of a composite nature where the performance of the mother agreement may not be feasible without the aid, execution and performance of the supplementary or ancillary agreements for achieving the common object and collectively having a bearing on the dispute. The Supreme Court expressed a word of caution that pleas to this effect would be examined carefully and by definite reference to the language of the contract and the intention of the parties. Implied consent was held to be a basis to bind a non signatory to an arbitration agreement.

151. Firstly, it would require consideration whether this doctrine applies in matters relating to taxation. Assuming it does, it is apparent that several questions of fact would have to be considered especially as regards the intention of the parties. In the case before us, for instance, the question would be whether the parties, including HWP (India) intended that HWP (India) would be bound by the terms of the SPA relating to the sale of the call centre business.

152. As the Advocate General rightly pointed out this doctrine did not fall for the consideration of the Supreme Court in the Vodafone judgment. Whether it is applicable in the present case is one of the issues which must be decided in the assessment proceedings and any challenge thereto.

Moreover, as the Advocate General rightly pointed out, in the Vodafone judgment, the Supreme Court did not hold that the corporate veil of HWP (India) cannot be pierced. Thus although the judgment may assist the petitioner to a considerable extent, it does not preclude the respondents from invoking the doctrine.

153. The submission that HWP (India) was a party to the SPA would also require consideration of various other provisions of the SPA including those relied upon by the Advocate General in respect of his contention that the SPA was the prior agreement in relation to the transaction pertaining to the sale of the call centre business i.e. BTA. We will refer to these clauses later.

154. The Advocate General also contended that HTIL, in any event, was an agent of HWP (India) in respect of the SPA as far as it related to the said transaction. Agency is a question of fact and, in any event, a mixed question of law and of fact. Although HWP (India) was not a signatory to the SPA, it would be open to the department to establish that HWP (India) constituted HTIL as its agent and/or authorized HTIL to make representations on its behalf in the SPA regarding all the terms and conditions of the SPA relating to the sale of the call centre business. If that is established, prima-facie at least it would indicate that HWP (India) had, so far as the sale of the call centre business is concerned, entered into the transaction with VIH BV. The requirements of a prior transaction in section 92-B would then be met.

155. For the purposes of section 92-B, it is not necessary that the associated enterprise of the enterprise and the third party are signatories to the prior agreements. Indeed, section 92-B(2) does not mandate such an agreement to be only in writing. The prior agreement could also be oral. Whether an agreement was entered into or not in that event would be a question of fact. It would be an adjudicatory and not a jurisdictional fact.

156. In view of this, it is difficult in a writ petition to reject outright the respondents' contention that the SPA constitutes an agreement between the Hutchison group including HWP (India) at least so far as the sale of the call centre is concerned and the Vodafone group.

157. It is necessary, however, not for us but for the authorities under the Act to consider finally, conclusively on merits whether HWP (India) can be said to be a party to the SPA in relation to the BTA and/or the MOU, which deal with the sale of the call centre business or that the terms of the relevant transaction i.e. BTA were in relation to the SPA or were determined in substance between such other person viz. HWP (India) and the petitioner's associated enterprise viz. VIH BV.

158. The next question is in relation to Mr. Salve's third contention - whether the relevant transaction i.e. the BTA / sale of the call centre business was in relation to the SPA and/or the terms thereof were determined by the SPA.

159. That the BTA was foreshadowed by and was a part of the SPA is evidenced from what we said above and also by clauses 8.8, (c), (f) and (j), 8.13, 10.1, 10.2, 13 and 27 of the SPA. Clause 1.1 defines terms specifically in connection with the BTA such as 'Call Centre Business', 'Call Centre Disposal', 'GSPL Transfer Agreement' and 'Transaction Documents'.

160. Clause 8.8 required the vendor i.e. HTIL on completion to deliver or procure the delivery to the purchaser i.e. VIH BV of the GSPL Transfer Agreement duly executed by the parties thereto. The parties to the 'GSPL Transfer Agreement' are the seller i.e. the petitioner and the affiliate of HWL. HWP (India) was ultimately nominated to be the purchaser. Clause 8.13 of the SPA further provided that if clauses 8.2 to 8.11 including 8.8 (j) are not fully complied with by the vendor i.e. HTIL or the purchaser i.e. VIH BV by the completion date, the vendor or the purchaser, as the case may be, would be entitled inter-alia to terminate the agreement.

161. Clause 10.1 provided that following completion, the purchaser i.e. VIH BV would procure that the petitioner complies with its obligations under the GSPL Transfer Agreement. Thus the SPA expressly contemplated the possibility of VIH BV being required to ensure that the petitioner would comply with its obligations under the GSPL Transfer Agreement. It would follow that the SPA contemplated the formation of the GSPL agreement for without the formation of the agreement, there would be no question of compliance of the obligations therein.

Clause 10.2 goes a step further and requires HTIL to indemnify and hold harmless not merely the purchaser but also the purchaser as an agent for any member of its group against any loss (other than in relation to taxation) incurred or sustained as a direct result of the call centre disposal and any net liability (excluding any liabilities to taxation) arising as a result of the continuation of the business of the petitioner in the ordinary and usual course, save and except to the extent that any such loss or liability arises as a result of any act or omission including any breach of the GSPL Transfer Agreement by GSPL following completion. Such indemnities posit or, in any event, are likely to posit a transaction / agreement.

162. Clause 13 provided for what was to be done qua the GSPL Transfer Agreement following completion. It provided for various safe-guards to be procured by the purchaser until such time as the call centre disposal and all matters contemplated by GSPL Transfer Agreement shall have been completed. It is, for instance, provided that till such time, there would be no change in the Board of Directors or in the authorized and issued share capital of the petitioner, nor any transfer or disposal of any share capital in the petitioner or any interest therein. Nor was there to be any creation, allotment, issue or grant of any option to subscribe for any share capital in the petitioner.

163. It is not possible to come to the conclusion in this petition that the BTA / sale of the call centre business was not in relation to the SPA insofar as it concerned the sale of the call centre business.

164. The fourth question is whether the SPA was prior in point of time to the BTA / the sale of the call centre business.

165. Mr. Salve submitted that the requirement of section 92-B(2) of a prior agreement being absent the provisions thereof are inapplicable to this transaction. Mr.Salve submitted that in any event section 92- B(2) would not apply, as the petitioner was an associated enterprise of HTIL up till the signing of the BTA. It is only after the BTA was entered into that the petitioner became an associated enterprise of VIH BV. In support of this contention, he relied upon the fact that the BTA was signed by the directors of the Hutchison group. Section 92- B(2) applies when a transaction is entered into by an enterprise with a person other than an associated enterprise. Mr. Salve submitted that VIH BV never agreed to purchase the call centre business and therefore, the sale of the call centre business cannot be said to be contemplated under the SPA.

166. As we mentioned earlier, the BTA / sale of the call centre business was foreshadowed in the SPA in several material respects. The question now is which of these agreements preceded the other. In other words, the question is whether as contended by the petitioner, the petitioner was still a part of HTIL group and an associated enterprise thereby of HWP (India) when the BTA was signed or whether as contended by the respondents, the BTA was signed after the petitioner ceased to be a part of the HTIL group and became a part of the Vodafone group. Upon the sale of the CGP share, the petitioner became a part of the Vodafone group. Till then, it was a part of the HTIL group. If the petitioner and HWP (India) were associated enterprises, sub-section (2) of section 92-B would not apply for the BTA, then could not be said to be a transaction entered into between an enterprise with a person other an associated enterprise.

167. The terms and conditions of the SPA and the BTA themselves indicate that the question whether the BTA preceded the SPA or not is arguable and requires consideration not merely as a question of law but as a question of fact as well. It is sufficient to furnish only a few illustrations.

168. Clause 1.1 defines the completion to mean inter-alia completion of the sale and purchase of the share. The share in turn is defined as the one ordinary share of CGP. Clause 8 deals with the completion. The caption to clause 8.8 is 'Vendor's Completion Obligations'. Clause 8.8 opens with the words 'On Completion'. Read with the definition of 'completion', these words would mean on completion of the sale and purchase of the CGP share. It is arguable therefore, that what follows in clause 8.8 is upon the completion of the sale of the CGP share. Clause 8.8(j) provides that on completion the vendor i.e. HTIL shall deliver or procure the delivery to the purchaser i.e. VIH BV of the GSPL Transfer Agreement. Clause 1.1 defines GSPL Transfer Agreement to be entered into between the petitioner and an affiliate of HWL (Hutchison Whampoa Limited) relating to the call centre business i.e. BTA. Thus prima-facie it appears that the BTA was to be delivered by HTIL to VIH BV or as it may direct in writing on completion i.e. on completion of the sale of the CGP share.

169. The fact that clause 8.8.(c ) required the delivery of the duly executed transfer in respect of the share in favour VIH BV or its nominee together with relative share certificate would not be conclusive of the matter. The physical delivery of the share is not necessary for the sale and purchase thereof to be completed. The physical delivery of a share can follow completion of a transaction of the sale and purchase thereof. Indeed the same could be said by the petitioner of the BTA / GSPL Transfer Agreement to wit that the physical delivery of the agreement, depending upon the circumstances, could follow the formation of the transaction pertaining to the sale of the call centre business.

170. The completion date under the SPA admittedly is 8th May, 2007. The BTA is also dated 8th May, 2007. The answer to the question whether the sale and purchase of the share preceded the sale of the call centre business or vice-versa or whether they were simultaneous requires a consideration of various facts, circumstances and factors. The answer to these questions certainly requires a construction of the clauses of the SPA, the MOU and the BTA. The interpretation of the clauses of the contracts perse are questions of law. It also requires a consideration of the surrounding facts and circumstances, including the conduct of the parties. These are questions of fact. A resolution of the question is, therefore, a mixed question of law and of fact.

171. The petitioner also contends that in fact the sale of the call centre business preceded even the BTA by virtue of the MOU dated 5th April, 2007. He contended that the transaction relating to the sale of the call centre business was concluded by virtue of the MOU dated 5th April, 2007. The MOU envisaged that the petitioner and the newly formed Hutchison Group Entity negotiated and entered into a definitive independent agreement. The sale of the call centre business was thus negotiated and was not brought about by the BTA. It is, therefore, contended that there was no international transaction. The MOU cannot be attributed to the petitioner acting as a representative of a third party in selling the call centre and therefore, the third party test in section 92-B(2) was never satisfied. Lastly, it is submitted that the department had abandoned the reasonings of the TPO and has adopted / supported the reasonings of the AO. The AO came to the conclusion that the transfer of the call centre business was after the petitioner became a Vodafone group company. This conclusion, it is contended, is patently flawed as it overlooks the sequence of clause 8 of the SPA.

172. The Advocate General however, contended that the MOU is ante dated. He stated that the petitioner had tendered a copy of the unsigned and undated draft MOU to the TPO on 25th October, 2011. On 15th December, 2011, the petitioner along with its submission to the AO submitted a copy of a MOU purported to have been signed on 25th April, 2007. He contended that the terms of the two drafts of the MOU were different. More important for the purpose of this petition, is the respondents' contention that the MOU was in fact signed only on or after or on or about 25th October, 2011 when it was first submitted to the TPO and that a copy of the MOU tendered along with the petitioner's submissions before the AO purportedly dated 25th April, 2007 was ante dated. In support of this contention, he submitted that if in fact the petitioner and HWP (India) were part of the same group, there was no need for an MOU to be signed prior to the BTA.

173. Whether the MOU was ante-dated or not is a question of fact which must be decided by the authorities / Tribunal under the Act.

174. Even assuming that the MOU was not ante dated and was executed prior to the SPA, the petitioner does not have an open and shut case. The matter wound not end there. The terms and conditions of the MOU require serious consideration. The most important question is whether the MOU constituted an agreement at all or whether it was only an agreement to enter into an agreement, which is not enforcible in law.

Recital 'C' of the MOU states that the petitioner 'wishes' to sell and HWP (India) 'wishes' to purchase the call centre business and that they had engaged in discussion on the terms on which such sale and purchase 'may' take place. Recital 'D' states that the parties agreed to enter into an MOU 'to facilitate the discussions referred to in recital 'C' above'. The recitals therefore, do not indicate that there was a concluded contract.

175. The operative clauses of the MOU, prima-facie at least, do not indicate a binding agreement either. For instance clause 4 states that 'The parties will agree the conditions upon the satisfaction of which the sale of the Business occur, which will include:' what follows in clauses (a) to (d). The conditions stipulated in clauses (a) to (d) in clause 4 are only some of the conditions agreed upon.

176. Clause 6 reads as under:-

'6. Definitive Agreement and Good Faith Payment

(a) The Parties agree to use all reasonable endeavours to negotiate, on an exclusive basis, the terms of a Business Transfer Agreement ('Definitive Agreement') which will record the terms on which 3GSPL will sell, and HWP will purchase, the Business within 90 days after the date hereof (or such other date as the Parties may otherwise agree) (the 'Exclusivity Period').

(b) In consideration for the grant of the exclusivity under Paragraph 6(a) above and to demonstrate its intention to conclude the negotiation of the Definitive Agreement within the Exclusivity Period, HWP shall pay to 3GSPL within 10 days after the execution of this MoU an amount of Rs. 640,000,000 ('Good Faith Payment'). If this MoU is terminated for whatever reason by either Party other than as a result of the Parties signing the Definitive Agreement, then 3GSPL shall immediately refund or procure that there is refunded to HWP (or as it may direct in writing) the Good Faith Payment. Upon the Parties entering into the Definitive Agreement within the Exclusivity Period, the Good Faith Payment shall be automatically applied and be deemed to satisfy HWP's obligation to pay the Purchase Price for the Business pursuant to the terms of the Definitive Agreement.'

Clause 6(a) indicates that the parties were yet to agree upon the terms of the BTA. Further this was required to be done within 90 days.

Thus even assuming that the MOU was executed on 25th April, 2007, as alleged by the petitioner, the period of 90 days was to expire around 25th July, 2007 i.e. much after the transfer of the CGP share, which even according to the petitioner, took place on 8th May, 2007. Clause 6(b) makes this clearer. It demonstrates HWP (India)'s intention to conclude the negotiations within the 'exclusivity period' i.e. 90 days from the date of the MOU. The payment of the sum of Rs.64.00 crores, as clause 6 itself indicates, was only a Good Faith Payment. It wasn't payment pursuant to a concluded agreement.

177. It is difficult in a writ petition to express any view conclusively in respect of these allegations. It is a matter which must be decided by the fact finding authorities under the Act.

178. It was also contended by Mr. Salve that the BTA was independently negotiated by the petitioner and HWP (India). The same, he said, is substantiated by the fact that in the draft BTA, the consideration was of Rs.33.75 crores, whereas the consideration under the final BTA was Rs.64.00 crores. There were also other substantial differences which have been ignored by the TPO and the AO.

179. As we held earlier, section 92B(2) would apply even if there is a modification of the prior agreement. The test is whether the relevant agreement is in relation to the prior agreement. This relationship would not disappear or snap merely on account of a modification or alteration in the relevant transaction. A view to the contrary would enable an assessee to render the provisions of section 92B(2) nugatory by the simple expedient of altering the provisions of the relevant agreement.

180. The Advocate General also submitted that the petitioner is not entitled to contend that HWP (India) and the petitioner were associated enterprises, as the petitioner had admitted in ground XXX of the petition that they had operated as separate and independent entities and must be recognized to have an existence independent from their 'respective group companies'. He also relied upon ground NNNN of the petition for in clause (iv) thereof, the petitioner stated that the respondents had ignored the independent existence of HWP (India) and the petitioner, separate and distinctive 'from their respective group companies'. The words 'respective group companies' would indicate that each of them i.e. the petitioner and HWP (India) belonged to different groups. The two groups being the Hutchison group and the Vodafone group. If that were so, they would not be associated enterprises.

181. The Advocate General also relied upon the petitioner's objections contained in its Chartered Accountant's letter dated 15th December, 2011, addressed to the Assistant Commissioner of Income-tax – AO. The Advocate General relied upon grounds F, N, and U(iv) under the caption 'OBJECTIONS WITH RESPECT TO CALL CENTRE BUSINESS SALE TRANSACTION'. In ground F, the objection was on the basis that the BTA had been entered into between the resident entities. The further contention in this ground was that the BTA was not a transaction between the associated enterprises. In ground N, it was contended that the TPO erred in ignoring the separate existence of VIH BV and the petitioner on the one hand and HTIL and HWP (India) on the other. In ground U(iv), a grievance was raised that it was unclear as to why the TPO had ignored the 'independent existence of HWP (India) and VISPL (petitioner) separate and apart from their respective holding companies'.

182. It is unnecessary to refer to the judgments relied upon by the Advocate General in respect of his submission that admissions in pleadings stand on a higher footing than evidentiary admissions, and are binding on the party that makes them and constitutes a waiver of proof. We presume that to be so. The Advocate General submitted that in view of the pleadings, the petitioner is not entitled to contend that at the time of the transaction HWP (India) and the petitioner were part of the same group or associate enterprises.

183. It is not necessary for us to conclusively decide whether these averments constitute an admission or not. The petitioner may well be entitled to contend that the documents i.e. the petition and the objections before the AO must be read as a whole. If for instance, these grounds were only in the alternative or on a demurer, the averments may not constitute an admission. Further, it would be open to the petitioner to explain the admissions. Having said that however, the fact remains that this is an issue which can and must be decided by the authorities under the Act. They are not purely jurisdictional issues. We see no reason to invoke our extra-ordinary writ jurisdiction and decide such involved issues.

184. From the record as it stands, it cannot be said with any degree of certainty either in favour of the petitioner or against the petitioner whether the BTA was entered into before or after the petitioner ceased to be a part of the Hutchison group.

185. This brings us to Mr. Salve's fifth contention on this point. Mr. Salve submitted that it would make no difference even if it is assumed that the BTA was executed after the petitioner became a part of the Vodafone group.

186. Mr. Salve submitted that it makes no difference whether the SPA was signed first or whether the BTA was signed first. The entire purpose of the SPA was not to sell the call centre business but to retain it. VIH BV was not interested in purchasing the call centre business but was interested in retaining the control over the petitioner in view of the options held by it to purchase 15% of the shares of Hutchison Essar Limited (Vodafone Essar Limited). Mr. Salve submitted that the petitioner could have sold / transferred the call centre business to HWP (India) much prior to the SPA. In that event, there would have been no question of the transaction falling within the purview of section 92-B(2) as it would have been one between the two associated enterprises, both of which are Indian companies.

187. It is not for this Court to ascertain or even speculate for the parties having nevertheless structured their transaction in the manner in which they actually did. The petitioner and HWP (India) could indeed have entered into a transaction for the sale of the call Centre business much before the SPA was even contemplated. If, however, they did not do so, the Income Tax Authorities are entitled to proceed on the basis of the transactions as they occurred. The relevant question is whether the call centre business was sold before or after the sale of the CGP share. If it was after, the authorities would be entitled to consider the petitioner as being in the Vodafone group.

188. Mr. Salve submitted that in view of clause 13(c) of the SPA, it is irrelevant whether the sale of the CGP share preceded the sale of the call centre business or not. At the point of time when the BTA was signed, HTIL directors were still on the Board of Directors of the petitioner. Thus the petitioner at that point of time viz. when the BTA was signed was still an affiliate of HTIL and not of VIH BV and therefore, the petitioner and HTIL were associated enterprises when the BTA was signed. Thus section 92-B did not apply to the sale of the call centre business, as the transaction was between the two associated enterprises, HWP(India) also being a part of the Hutchison group. The provision in clause 13(c) of the SPA relied upon this regard was that until the call centre disposal and all matters contemplated under the BTA were completed, there was to be no change in the members of the Board of Directors of the petitioner.

189. Clause 13(c) by itself does not answer the question whether the sale of the CGP share took place before the disposal of the call centre. The respondents' contention that the sale of the call centre business took place after the sale of the CGP share is not improbable even on the plain language of clause 13(c). The words 'The Purchaser shall procure that until such time as the Call Centre Disposal' would indicate that the call centre had not been disposed of at least on the date of the SPA i.e. 11th February, 2007.

190. Even assuming that the directors of the Hutchison group continued on the Board of Directors of the petitioner, it is a moot point whether after the sale of the CGP share to VIH BV, the petitioner could be said to be an associate enterprise of any member of Hutchison group. Clause 13(3) provides that there should be no change in the member of Board of Directors of the petitioner till the call centre disposal and completion of all the matters contemplated under the BTA. This arrangement could well have been only for the purpose of implementation of the completed transfer.

191. To say the least, it requires consideration whether such an arrangement can fall within section 92-A(2) (e) and (f). It is not inarguable that the clauses (e) and (f) of sub-section (2) contemplated appointments regarding the actual working / management of the enterprises and not merely an interim arrangement for the purpose of ensuring the implementation of an agreement to sell an asset of the enterprise. Further this would not be a pure question of law. It would be a mixed question of law and of fact. The exact nature and purpose of clause 13(c) and the role of the existing directors would have to be ascertained and the principles of section 92-A applied to the particular fact situation. Indeed this would be an important question of law and it is quite possible that the matter would find its way back to this Court but in an appeal under the Act and not in a writ Petition under Article 26.

192. Mr. Salve lastly submitted that as the petitioner and HWP (India) were associated enterprises during the previous assessment year i.e. assessment year 2008-2009, section 92-B (2) would not apply. Section 92-A(2)(a) provides that for the purposes of sub-section (1) of section 92-A(2), enterprises shall be deemed to be associated enterprises, if, at any time during the previous year, one enterprise holds directly or indirectly, shares carrying not less than 26% of the voting power in the other enterprise. During the previous year 2008- 2009, HTIL held more than 26% of the voting power in the petitioner and HWP (India). Accordingly, the petitioner and HWP (India) were, for the purpose of section 92-A(2)(a) associated enterprises. This deeming provision of associated enterprises is for the purpose of subsection (1) of section 92-A, which in turn provides for the meaning of associated enterprise inter-alia for the purpose of section 92-B. Mr. Salve submitted that during the previous year, a company could have been an associated enterprise of a number of companies on account of the change in the share holding or a reconstitution in the Board of Directors. In a year of transition, a company can, therefore, be an associated enterprise of more than one company. In the present case, during the previous year, the petitioner was an associated enterprise of HTIL as well as VIH BV.

Mr. Salve submitted that in view of section 92-A read with section 92-B, it matters not whether the BTA was signed before or after the petitioner became a part of the Vodafone group. Even if it was signed after the petitioner became a part of the Vodafone group, it would make no difference because during the previous year 2008- 2009 that is during the period 1st April, 2008 to 31st March, 2009, admittedly the petitioner at some stage was an associated enterprise of HWP (India).

Thus, it would make no difference whether or not the sale of the CGP share preceded the sale of the call centre business. The petitioner would for the purpose of sections 92-A and 92-B be an associated enterprise of Hutchison group including HTIL and HWP (India).

193. This submission is however, of no assistance to the petitioner's case. Section 92-B(2) merely requires the existence of an enterprise referred to therein to have an associated enterprises. Thus if during a particular previous year, the enterprise is an associated enterprise of more than one company, it would make no difference for the purpose of section 92-B(2). Section 92-B(2) does not exclude from its ambit a case where the enterprise was during the previous year an associated enterprise of more than one entity.

194. We must keep in mind that it is not for us in this writ petition to consider the merits of the rival contentions in detail with a view to deciding the same. It is necessary for us only to examine whether the petitioner has clearly established that there is a patent or inherent lack of jurisdiction in the TPO on account of the transaction being clearly a domestic transaction and not an international transaction; that there is nothing to be considered in the matter on behalf of the respondents and that the respondents have clutched at jurisdiction although they had none.

195. In the result, we are unable to agree with Mr. Salve's contention that the TPO's lack of jurisdiction to consider the transaction relating to the sale of the call centre business / BTA is so obvious and clear as to entitle the petitioner to invoke the extra-ordinary writ jurisdiction of this Court instead of being compelled to file an appeal before the ITAT. It cannot be said that he "clutched at jurisdiction" or that his decision with respect to the jurisdictional facts was "so patently and loudly obtrusive" that it has left on it "an indelible stamp of infirmity or vice which cannot be obliterated or cured on appeal or revision" and, therefore, warrants interpretation in a writ petition. There are several issues of fact and of law on every material aspect which must be considered by the authorities under the Act. This is not a fit case for invoking the extra-ordinary jurisdiction under Article 226.

Re: (C) The rewriting of the call options in July, 2007 did not constitute an assignment of options and thus there is no international transaction of the kind alleged. This issue stands settled by the judgment of the Supreme Court in the case of Vodafone International Holdings B.V. v. Union of India & Anr., (2012) 341 ITR 1.

196. We referred earlier to the two Framework Agreements (FW Agreements) dated 1st March, 2006 and to the subsequent corresponding FW Agreements dated 5th July, 2007.

When the SPA was entered into Asim Ghosh and his group of companies and Analjit Singh and his group of companies held 23.97% and 38.78% shares in the Telecom Investment (India) Pvt. Ltd. (TII). The TII in turn held the shares in Hutchison Essar Limited. As a result thereof, Asim Ghosh and Analjit Singh held 4.68% and 7.577% respectively in Hutchison Essar Limited.

197(A). The agreement dated 1st March, 2006, titled 'Centrino Framework Agreement' was entered into between the petitioner, one Asim Ghosh and three companies controlled by him viz. Goldspot Mercantile Company Private Limited, Plustech Mercantile Company Private Limited and Centrino Trading Company Private Limited. The relevant provisions thereof read as under :

'1.1 Definitions

"Affiliate" when used with reference to any corporate entity shall mean another company controlled by, controlling or under common control with that entity, where "control" means either (i) the ownership, either directly or indirectly, of more than fifty percent (50%) of the voting shares or comparable interests in such entity or other company, as the case may be, or (ii) the right to elect the majority of the directors of such entity or other company, as the case may be, where such rights may be exercised without the consent of any third party;

4.4 Call Option

GSPL shall, subject to the conditions set out below, have the right at any time to purchase all, but not part only, of the Plustech Shares (the "CallShares") held by Goldspot (the "Call Option")in accordance with the procedure laid down in clause 4.5 below and at a fair market value determined in accordance with clause 4.6 below.

GSPL may exercise the Call Option at any time after:

(a) GSPL or its nominee exercises the Subscription Option for subscribing such number of Subscription Shares which would result in GSPL and/or nominee, in aggregate, holding more than 50% of the issued share capital of Centrino; or

(b) CGP exercises the TII Option which would result in CGP and/or its nominee holding, in aggregate, more than 50% of the issued share capital of TII; or

(c) GSPL becomes eligible under all applicable Indian laws and regulations to hold all of the Subscription Shares.

Each of Goldspot and Plustech hereby agrees to abide by the directions of GSPL in connection with the Transfer of the Call Shares to GSPL and undertakes to do or procure all necessary things and execute all necessary forms, documents and agreements to implement such directions and the Parties agree if the Call Option is exercised at any time after the Subscription Notice is issued, then GSPL shall, in its absolute discretion, have the option to withdraw the Subscription Notice or complete there-under.

4.9 Assignability or Transfer of Rights

The Parties agree that the Subscription Option (all or part only) may be freely assigned or transferred by GSPL without the consent of the other Parties, that the Call Option set out in Clause 4.4 may be assigned or transferred only to an Affiliate of GSPL, without the consent of Goldspot, and that the Put Option set out in Clause 4.3 may not be assigned or transferred without the prior written consent of GSPL.'

(B) An identical agreement titled 'Framework Agreement' also dated 1st March, 2006, was entered into between the petitioner, one Analjit Singh and three companies ultimately controlled by him viz. Scorpios Beverages Private Limited, M.V. Health Services Private Limited and N.D. Callus Info Services Private Limited. The operative clauses, it was agreed, are identical to those of the 'Centrino Framework Agreement'.

198(A). In the corresponding Centrino Framework agreement dated 5th July, 2007 'Completion date' is defined in clause 1 to mean 8th May, 2007. Clauses 4, 4.1(b) and 4.4(a), (b) and (d) of the new Framework Agreement read as under :-

'4. Subscription and transfer of shares

4.1 Restrictions on subscription or transfer

….......

(b) Any Transfer of Shares in AG Mercantile by AG to any of AG's spouse or adult children shall be subject to the prior consent of Vodafone, such consent not to be unreasonably withheld provided that AG's aggregate indirect interest in the issued equity share capital of HEL through the direct holding of shares in AG Mercantile shall at all times be at least 51% of Nadal's issued share capital.

….......

4.4 Call Option

(a) GSPL shall have the right (the 'Call Option') at any time to :

(i) purchase or require that any wholly owned subsidiary of Vodafone Group Plc purchase, at its sole discretion, any or all of the AG Mercantile Shares held by AG at any time, and from time to time; and

(ii) require that any other Nominated Person not referred to in Clause 4.4(a)(i) above purchase all, but not part only, of the AG Mercantile Share held by AG at any time, and from time to time, such AG Mercantile Shares being referred to as the 'Call Shares', in accordance with the procedure laid down in Clause 4.5 below and at fair market value determined in accordance with Clause 4.6 below.

(b) Each of AG and AG Mercantile hereby agree to abide by the directions of GSPL in connection with the Transfer of the Call Shares to GSPL or its Nominated Person and undertake to do or procure all necessary things and execute all necessary forms, documents and agreements to implement such directions.

….......

(d) In consideration of the grant of the Call Option by AG to GSPL, GSPL or an Affiliate shall pay to AG an aggregate amount of US$6.3 million per annum accruing on a daily basis (the 'Option Payment'). GSPL's obligation to pay AG the Option Payment as aforesaid shall be deemed to be effective from 1 May 2007. The Option Payment for the period from 1 May 2007 to 30 April 2008 will be paid as soon as practicable and in any case by the 20th Business Day after the date of this Agreement and the Option Payment for each twelve (12) month period from 1 May 2008 shall be paid in four equal instalments in arrears on 1 August, 1 November, 1 February and 1 May, commencing on 1 November 2008. The Option Payment shall be paid to AG until AG ceases to hold indirectly through his interest in TII, any equity interest in HEL, or, if earlier, 7 May 2017. The Option Payment shall be paid by GSPL or any of its Affiliate by wire transfer to AG's bank account in India designated by AG in advance.'

(B) The Framework Agreement dated 1st March, 2006, with Analjit Singh was also referred to earlier. A new Framework Agreement dated 5th July, 2007, was entered into between the parties to the corresponding 1st March, 2006, Framework Agreement, similar to the Asim Ghosh Framework Agreement dated 5th July, 2007. The amount payable to Analjit Singh, however, was US $ 10.2 million per annum. In this agreement also, VIH BV was an additional party, referred to as a confirming party.

199. We also referred to the TPO having called upon the petitioner to show cause why the assignment of the right of call options by the petitioner to its associated enterprise or subsidiaries of the associated enterprise had not been disclosed as an international transaction and that he requested the petitioner to give the arm's length price in respect thereof. The TPO in the impugned order dated 31st October, 2011, dealt with the FW Agreements with reference to the ones entered into between the petitioner and the said Analjit Singh and the group of companies controlled by him. He dealt with the matter as follows:

Under the 2006 FW Agreements, the call options could only be exercised by the assessee – the petitioner. Vodafone Group Plc was an additional party in the 2007 FW Agreements ; the petitioner continued to be a party to the 2007 FW Agreements, as it was an affiliate of Vodafone by the time it was entered into. Prior thereto, it was a 100% subsidiary of Hutchison Telecom Services India Holding Limited. Vodafone acquired the 15% option to buy HEL shares through the said Analjit Singh, Asim Ghosh and another entity. The TPO rejected the petitioner's contention that all the FW Agreements gave call options only to the petitioner and that there were no assignments and there were accordingly no international transactions in respect thereof. The TPO held that the petitioner was a 100% subsidiary of VIH BV and that the FW Agreements were international transactions between the petitioner and VIH BV. As per clause 4.2(a) of the 2006 FW Agreements, the options to subscribe to the shares were with the petitioner or its nominee and that HTIL, which was at that time its associated enterprise did not have the option. On the other hand, under clause 4.2 (a), the petitioner's AE i.e. VIH BV became a party to the FW Agreements and clause 4.4 which conferred the call options had undergone a change in that as it added any wholly owned subsidiary of Vodafone Group Plc which showed that the call options rights have been assigned to VIH BV or its subsidiaries. There was no other need to add VIH BV to the 2007 agreements. Nor was there any need to include the subsidiaries or Vodafone Group Plc in call options clause if no benefit was sought from the petitioner. The clauses in so far as they conferred the discretion upon the petitioner in respect of the call option must be seen in the context of the controlled companies. So seen, the petitioner being a 100% subsidiary of VIH BV cannot exercise the option on its behalf. Further there was no apparent reason for the petitioner to retain the rights to purchase Hutchison Essar Limited's shares as it would in the absence of the shares of the group companies be a minority shareholder.

The said Analjit Singh and Asim Ghosh were to be paid US $ 10.2 million and US $ 6.3 million per annum p.a. respectively to keep the call options alive. The payment of this amount was as per the documents to be made by the petitioner. However, the amounts had in fact been paid by VIH BV. VIH BV had not treated this amount as a debt. This shows that the options were held by the petitioner – assessee for the benefit of its AE viz. VIH BV. The FW Agreements of the year 2007 were entered into pursuant to the SPA. The doctrines of lifting the corporate veil and substance over forms are applicable. The substance of the transaction was for VIH BV to acquire HTIL stake in Hutchison Essar Limited. It follows therefore that the petitioner had assigned its right of call option to VIH BV for no consideration. This was an international transaction which the assessee failed to report. The TPO invoked the provisions of section 92-C(3) and determined the ALP of the transaction. Analjit Singh and his group companies and Asim Ghosh and his group companies held 7.57% and 4.68% of shares in Hutchison Essar Limited. The TPO computed the ALP of the aggregate of 12.25% at Rs.6178,88,26,177/-.

200. The petitioner challenged the findings of the TPO before the AO. The AO by his draft assessment order dated 29th December, 2011 observed that he was bound to assess the income in conformity with the ALP determined by the TPO and proceeded to deal with the assessee's objections. The AO independently came to the conclusion that there was an assignment of call options to Vodafone Group Plc. After noting the arm's length price determined by the TPO of Rs.6178,88,26,177/- and taking the cost of acquisition of Rs.73,44,15,000/-, the AO computed the short term capital gain to be Rs.6105,44,11,177/-. The AO has also initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars and concealing the taxable income.

201. It would be convenient to refer to Mr. Salve's analysis of the judgment of the Supreme Court in Vodafone International B.V. v. UOI, (2012) 341 ITR, 1, after noting the observations in the judgment itself. As the judgment of the Supreme Court was the main plank on which the challenge is based, we will refer to it in considerable detail.

(A) It is necessary first to note the dispute and the proceedings in the Vodafone case. The Assistant Director of Income Tax (International Taxation) had issued a notice dated 19th September, 2007 to VIH BV under section 201(1) and 201(1A), calling upon it to show case why it should not be treated as an assessee in default for failure to withhold the tax. A Division Bench of this Court dismissed VIH BV's writ petition. VIH BV challenged the order by filing a petition for special leave to the Supreme Court. The Supreme Court by an order dated 23rd January, 2009 (2009) 179 Taxman 129 (SC) directed the authorities to determine the jurisdictional issue raised by VIH BV as a preliminary issue and clarified that the VIH BV would be entitled to challenge the decision on the preliminary issue, if decided against it, before this Court. Paragraph 4 of the order is as follows :

'4.It is made clear that the petitioner shall be entitled to question the decision of the authority on the preliminary issue before the High Court, in the event the same is decided against it. The question of law to that extent shall remain open. We are sure that the decision of the authority shall be based on the interpretation of the agreement in question and in accordance with law.'

The authorities upheld the jurisdiction. The petitioner challenged this order by filing Writ Petition No.1325 of 2010 in this Court. A Division Bench of this Court by an order and judgment dated 8th September, 2010 dismissed the writ petition (2010) 329 ITR 126 (Bom).

Thereafter the notice was issued under section 163 of the said Act, calling upon VIH BV to show case why it should not be treated as an agent / representative assessee of HTIL.

The Supreme Court by its order and judgment dated 20th January, 2012 over ruled the judgment of the Division Bench of this Court.

202. The Framework agreements of 1st March, 2006 and 5th July, 2007 were specifically referred to in the judgment. The extent of the shareholding in HEL pertaining to these agreements and the amounts payable to Analjit Singh and Asim Ghosh there-under were also referred to. The judgment refers to the call options to acquire 15.03% proportionate indirect equity ownership of HEL as call options were also granted under other Framework agreements with which we are not concerned. The nature of the Framework agreements was discussed and clause 4.4 of the 5th July, 2007 Framework agreement was specifically referred to and construed.

Mr. Salve relied upon the following observations in the judgment delivered by Chief Justice Kapadia and Justice Swatanter Kumar (as their Lordships then were).

'56.To explain the GSPL route briefly, it may be mentioned that on February 11, 2007, the AG group of companies held 23.97 per cent. In TII, AS group of companies held 38.78 per cent. in TII whereas SMMS held 54.21 per cent. in Omega. Consequently, holding of AG in HEL through TII stood at 4.68 per cent. Whereas holding of AS in HEL through TII stood at 7.577 per cent. and holding of SMMS in HEL through Omega stood at 2.77 per cent. which adds up to 15.03 per cent. in HEL. These holdings of AG, AS and SMMS came under the option route. In this connection, it may be mentioned that GSPL is an Indian company indirectly owned by CGP. It held call options and subscription options to be exercised in future under circumstances spelt out in TII and IDFC framework agreements (keeping in mind the sectoral cap of 74 per cent.).

..........

76.Under the Hutchison structure, the business was carried on by the Indian companies under the control of their board of directors, though HTIL, as the group holding company of a set of companies, which controlled 42 per cent. plus 10 per cent. (pro rata) shares, did influence or was in a position to persuade the working of such board of directors of the Indian companies. In this connection, we need to have a relook at the ownership structure. It is not in dispute that 15 per cent. out of 67 per cent. stakes in HEL was held by AS, AG and IDFC companies. That was one of the main reasons for entering into separate shareholders and framework agreements in 2006, when Hutchison structure existed, with AS, AG and IDFC. HTIL was not a party to the agreements with AS and AG, though it was a party to the agreement with IDFC. That, the ownership structure of Hutchison clearly shows that AS, AG and SMMS (IDFC) group of companies, being Indian companies, possessed 15 per cent. control in HEL. Similarly, the term sheet with Essar dated July 5, 2003, gave Essar the RoFR and right to tag along with HTIL and exit from HEL. Thus, if one keeps in mind the Hutchison structure in its entirety, HTIL as a group holding company could have only persuaded its downstream companies to vote in a given manner as HTIL had no power nor authority under the said structure to direct any of its downstream companies to vote in a manner as directed by it (HTIL). The facts of this case show that both the parent and the subsidiary companies worked as a group since 1994. That, as a practice, the subsidiaries did comply with the arrangement suggested by the group holding company in the matter of voting, failing which the smooth working of HEL generating huge revenues was not possible. In this case, we are concerned with the expression "capital asset" in the income-tax law. Applying the test of enforceability, influence/persuasion cannot be construed as a right in the legal sense. One more aspect needs to be highlighted. The concept of "de facto" control, which existed in the Hutchison structure, conveys a state of being in control without any legal right to such state. This aspect is important while construing the words "capital asset" under the income-tax law. As stated earlier, enforceability is an important aspect of a legal right. Applying these tests, on the facts of this case and that too in the light of the ownership structure of Hutchison, we hold that HTIL, as a group holding company, had no legal right to direct its downstream companies in the matter of voting, nomination of directors and management rights. As regards continuance of the 2006 shareholders/ framework agreements by SPA is concerned, one needs to keep in mind two relevant concepts, viz., participative and protective rights. As stated, this is a case of HTIL exercising its exit right under the holding structure and continuance of the telecom business operations in India by VIH by acquisition of shares. In the Hutchison structure, exit was also provided for Essar, Centrino, NDC and SMMS through exercise of put option/TARs, subject to sectoral cap being relaxed in future. These exit rights in Essar, Centrino, NDC and SMMS (IDFC) indicate that these companies were independent companies. Essar was a partner in HEL whereas Centrino, NDC and SMMS controlled 15 per cent. of shares of HEL (minority). A minority investor has what is called as a "participative" right, which is a subset of "protective rights". These participative rights, given to a minority shareholder, enable the minority to overcome the presumption of consolidation of operations or assets by the controlling shareholder. These participative rights in certain instances restrict the powers of the shareholder with majority voting interest to control the operations or assets of the investee. At the same time, even the minority is entitled to exit. This "exit right" comes under "protective rights". On examination of the Hutchison structure in its entirety, we find that both, participative and protective rights, were provided for in the shareholders/framework agreements of 2006 in favour of Centrino, NDC and SMMS which enabled them to participate, directly or indirectly, in the operations of HEL. Even without the execution of SPA, such rights existed in the above agreements. Therefore, it would not be correct to say that such rights flowed from the SPA. One more aspect needs to be mentioned. The framework agreements define "change of control with respect to a shareholder", inter alia, as substitution of limited or unlimited liability company, whether directly or indirectly, to direct the policies/ management of the respective shareholders, viz., Centrino, NDC, Omega. Thus, even without the SPA, upon substitution of VIH in place of HTIL, on acquisition of CGP share, transition could have taken place. It is important to note that "transition" is a wide concept. It is impossible for the acquirer to visualise all events that may take place between the date of execution of the SPA and completion of acquisition. Therefore, we have a provision for standstill in the SPA and so also the provision for transition. But, from that, it does not follow that without SPA, transition could not ensue. Therefore, in the SPA, we find the provisions concerning vendor's obligations in relation to the conduct of business of HEL between the date of execution of the SPA and the closing date, protection of investment during the said period, agreement not to amend, terminate, vary or waive any rights under the framework/ shareholders agreements during the said period, the provisions regarding running of business during the said period, assignment of loans, consequence of imposition of prohibition by way of injunction from any court, payment to be made by VIH to HTIL, giving of warranties by the vendor, use of Hutch Brand, etc. The next point raised by the Revenue concerns termination of the IDFC framework agreement of 2006 and its substitution by a fresh framework agreement dated June 5, 2007, in terms of the SPA. The submission of the Revenue before us was that the said agreement dated June 5, 2007 (which is executed after the completion of acquisition by VIH on May 8, 2007) was necessary to assign the benefits of the earlier agreements of 2006 to VIH. This is not correct. The shareholders of ITNL (renamed as Omega) were Array through HTIL Mauritius and SMMS (an Indian company). The original investors through SMMS (IDFC), an infrastructure holding company, held 54.21 per cent. of the share capital of Omega; that, under the 2006 framework agreement, the original investors were given put option by GSPL (an Indian company under Hutchison Teleservices (India) Holdings Ltd. (Ms)) requiring GSPL to buy the equity share capital of SMMS ; that on completion of acquisition on May 8, 2007, there was a change in control of HTIL Mauritius which held 45.79 per cent. in Omega and that changes also took place on June 5, 2007, within the group of original investors with the exit of IDFC and SSKI. In view of the said changes in the parties, a revised framework agreement was executed on June 6, 2007, which again had call and put option. Under the said agreement dated June 6, 2007, the investors once again agreed to grant call option to GSPL to buy the shares of SMMS and to enter into a shareholders agreement to regulate the affairs of Omega. It is important to note that even in the fresh agreement the call option remained with GSPL and that the said agreement did not confer any rights on VIH. One more aspect needs to be mentioned. The conferment of call options on GSPL under the framework agreements of 2006 also had a linkage with intra-group loans. CGP was an investment vehicle. It is through the acquisition of CGP that VIH had indirectly acquired the rights and obligations of GSPL in the Centrino and NDC framework agreements of 2006 (see the report of KPMG dated October 18, 2010) and not through execution of the SPA. Lastly, as stated above, apart from providing for "standstill", an SPA has to provide for transition and all possible future eventualities. In the present case, the change in the investors, after completion of acquisition on May 8, 2007, under which SSKI and IDFC exited leaving behind IDF alone was a situation which was required to be addressed by execution of a fresh framework agreement under which the call option remained with GSPL. Therefore, the June, 2007 agreements relied upon by the Revenue merely reiterated the rights of GSPL which rights existed even in the Hutchison structure as it stood in 2006. .......... ..........

83. .................................................... On a perusal of Hutchison structure, we find that HTIL had, through its 100 per cent. wholly owned subsidiaries, invested in 42.34 per cent. of HEL (i.e., direct interest). Similarly, HTIL had invested through its non-100 per cent. Wholly owned subsidiaries in 9.62 per cent. of HEL (through the pro rata route). Thus, in the sense of shareholding, one can say that HTIL had an effective shareholding (direct and indirect interest) of 51.96 per cent. (approx. 52 per cent.) in HEL. On the basis of the shareholding test, HTIL could be said to have a 52 per cent. Control over HEL. By the same test, it could be equally said that the balance 15 per cent. Stakes in HEL remained with AS, AG and IDFC (Indian partners) who had through their respective group companies invested 15 per cent. in HEL through TII and Omega and, consequently, HTIL had no control over 15 per cent. stakes in HEL. At this stage, we may state that under the Hutchison structure shares of Plustech in the AG group, shares of Scorpios in the AS group and shares of SMMS came under the options held by GSPL. Pending exercise, options are not management rights. At the highest, options could be treated as potential shares and till exercised they cannot provide right to vote or management or control. In the present case, till date GSPL has not exercised its rights under the framework agreement 2006 because of the sectoral cap of 74 per cent. which in turn restricts the right to vote. Therefore, the transaction in the present case provides for a triggering event, viz., relaxation of the sectoral cap. Till such date, HTIL/VIH cannot be said to have a control over 15 per cent. stakes in HEL. It is for this reason that even the FIPB gave its approval to the transaction by saying that VIH was acquiring or has acquired effective shareholding of 51.96 per cent. in HEL.

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86.Applying the "nature and character of the transaction" test, the High Court came to the conclusion that the transfer of the CGP share was not adequate in itself to achieve the object of consummating the transaction between HTIL and VIH. That, intrinsic to the transaction was a transfer of other "rights and entitlements" which rights and entitlements constituted in themselves "capital assets" within the meaning of section 2(14) of the Income-tax Act, 1961. According to the High Court, VIH acquired the CGP share with other rights and entitlements whereas, according to the appellant, whatever VIH obtained was through the CGP share (for short "High Court approach"). ..........

88.We have to view the subject-matter of the transaction, in this case, from a commercial and realistic perspective. The present case concerns an offshore transaction involving a structured investment. This case concerns "a share sale" and not an asset sale. It concerns sale of an entire investment. A "sale" may take various forms. Accordingly, tax consequences will vary. The tax consequences of a share sale would be different from the tax consequences of an asset sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applying the above principles governing shares and the rights of the shareholders to the facts of this case, we find that this case concerns a straightforward share sale. VIH acquired upstream shares with the intention that the congeries of rights, flowing from the CGP share, would give VIH an indirect control over the three genres of companies. If one looks at the chart indicating the ownership structure, one finds that the acquisition of the CGP share gave VIH an indirect control over the tier I Mauritius companies which owned shares in HEL totalling to 42.34 per cent. ; CGP India (Ms), which in turn held shares in TII and Omega and which on a pro rata basis (the FDI principle), totalled up to 9.62 per cent. in HEL and an indirect control over Hutchison Tele-Services (India) Holdings Ltd. (Ms), which in turn owned shares in GSPL, which held call and put options. Although the High Court has analysed the transactional documents in detail, it has missed out this aspect of the case. It has failed to notice that till date options have remained unencashed with GSPL. Therefore, even if it be assumed that the options under the framework agreements 2006 could be considered to be property rights, there has been no transfer or assignment of options by GSPL till today. Even if it be assumed that the High Court was right in holding that the options constituted capital assets even then section 9(1)(i) was not applicable as these options have not been transferred till date. Call and put options were not transferred, vide SPA dated February 11, 2007, or under any other document whatsoever. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Further, the High Court has failed to examine the nature of the following items, namely, non-compete agreement, control premium, call and put options, consultancy support, customer base, brand licences, etc. On facts, we are of the view that the High Court, in the present case, ought to have examined the entire transaction holistically. VIH has rightly contended that the transaction in question should be looked at as an entire package. The items mentioned hereinabove, like, control premium, non-compete agreement, consultancy support, customer case, brand licences, operating licences, etc., were all an integral part of the holding subsidiary structure which existed for almost 13 years, generating huge revenues, as indicated above. Merely because at the time of exit capital gains tax becomes not payable or exigible to tax would not make the entire "share sale" (investment) a sham or a tax avoidant. The High Court has failed to appreciate that the payment of US$ 11.08 bn was for purchase of the entire investment made by HTIL in India. The payment was for the entire package. The parties to the transaction have not agreed upon a separate price for the CGP share and for what the High Court calls as "other rights and entitlements" (including options, right to non-compete, control premium, customer base, etc.). Thus, it was not open to the Revenue to split the payment and consider a part of such payments for each of the above items. The essential character of the transaction as an alienation cannot be altered by the form of the consideration, the payment of the consideration in instalments or on the basis that the payment is related to a contingency ("options", in this case), particularly when the transaction does not contemplate such a split up. Where the parties have agreed for a lump sum consideration without placing separate values for each of the above items which go to make up the entire investment in participation, merely because certain values are indicated in the correspondence with the FIPB which had raised the query, would not mean that the parties had agreed for the price payable for each of the above items. The transaction remained a contract of outright sale of the entire investment for a lump sum consideration (see Commentary on Model Tax Convention on Income and Capital dated January 28, 2003, as also the judgment of this court in the case of CIT v. Mugneeram Bangur and Co. (Land Department) [1965] 57 ITR 299 (SC)). Thus, we need to "look at" the entire ownership structure set up by Hutchison as a single consolidated bargain and interpret the transactional documents, while examining the offshore transaction of the nature involved in this case, in that lig

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ht." Mr. Salve also placed considerable reliance upon the following paragraphs in the concurring judgment delivered by Radhakrishnan, J. '229.HTIL had 15 per cent. interest in HEL by virtue of FWAs, SHAs call and put option agreements and subscription agreements and not controlling interest as such in HEL. HTIL, by virtue of those agreements, had the following interests : Rights (and options) by providing finance and guarantee to Asim Ghosh group of companies to exercise control over TII and indirectly over HEL through TII shareholders agreement and the Centrino framework agreement dated March 1, 2006 ; (ii) Rights (and options) by providing finance and guarantee to Analjit Singh group of companies to exercise control over TII and indirectly over HEL through various TII shareholders agreements and the N.D. Callus framework agreement dated March 1, 2006. ............. ........ 235.Vodafone, on acquisition of CGP, is in a position to replace the directors of holding company of 3GSPL so as to get control over 3GSPL. 3GSPL has call option as well as the obligation of the put option. Rights and obligations which flow out of call and put options have already been explained by us in the earlier part of the judgment. Call and put options are contractual rights and do not sound in property and hence they cannot be, in the absence of a statutory stipulation, considered as capital assets. Even assuming so, they are in favour of 3GSPL and continue to be so even after entry of Vodafone. 236.We have extensively dealt with the terms of the various FWAs, SHAs and term sheets and in none of those agreements HTIL or Vodafone figure as parties. SHAs between Mauritian entities (which were shareholders of the Indian operating companies) and other shareholders in some of the other operating companies in India held shares in HEL related to the management of the subsidiaries of AS, AG and IDFC and did not relate to the management of the affairs of HEL and HTIL was not a party to those agreements, and hence there was no question of assigning or relinquishing any right to Vodafone. 237.IDFC FWA of August, 2006, also conferred upon 3 GSPL only call option rights and a right to nominate a buyer if investors decided to exit as long as the buyer paid a fair market value. June 2007 agreement became necessary because the composition of Indian investors changed with some Indian investors going out and other Indian investors coming in. On June 2007, changes took place within the group of Indian investors, in that SSKI and IDFC went out leaving IDF alone as the Indian investor. The parties decided to keep June 2007 transaction to effectuate their intention within the broad contours of June 2006 FWA. On June 6, 2007, FWA has also retained the rights and options in favour of 3GSPL but conferred no rights on Vodafone and Vodafone was only a confirming party to that Agreement. Call and put options, we have already mentioned, were the subject matter of three FWAs, viz., Centrino, N. D. Callus, IDFC and in Centrino and N.D. Callus FWAs, neither HTIL was a party, nor was Vodafone. HTIL was only a confirming party in IDFC FWA, so also Vodafone. Since HTIL, and later Vodafone were not parties to those SHAs and FWAs, we fail to see how they are bound by the terms and conditions contained therein, so also the rights and obligations that flow out of them. HTIL and Vodafone have, of course, had the interest to see the SHAs and FWAs, be put in proper place but that interest cannot be termed as property rights, attracting capital gains tax. 238.We have dealt with the legal effect of exercising call option, put option, tag along rights, RoFR, subscription rights and so on and all those rights and obligations we have indicated fall within the realm of contract between various shareholders and interested parties and in any view, are not binding on HTIL or Vodafone. Rights (and options) by providing finance and guarantee to AG Group of Companies to exercise control over TII and indirectly over HEL through TII SHA and Centrino FWA dated March 1, 2006, were only contractual rights, as also the revised SHAs and FWAs entered into on the basis of SPA. Rights (and options) by providing finance and guarantee to AS group of companies to exercise control over TII and indirectly over HEL through various TII SHAs and N. D. Callus FWA dated March 1, 2006, were also contractual rights, and continue to be so on entry of Vodafone. .......... 241.Fresh set of agreements of 2007 as already referred to were entered into between IDFC, AG, AS, 3GSPL and Vodafone and in fact, those agreements were irrelevant for the transfer of CGP share. FWAs with AG and AS did not constitute transaction documents or give rise to a transfer of an asset, so also the IDFC FWA. All those FWAs contain some adjustments with regard to certain existing rights, however, the options, the extent of rights in relation to options, the price etc. all continue to remain in place as they stood. Even if they had not been so entered into, all those agreements would have remained in place because they were in favour of 3GSPL, subsidiary of CGP. .......... 243.The High Court has ignored the vital fact that as far as the put options are concerned there were preexisting agreements between the beneficiaries and counter parties and fresh agreements were also on similar lines. Further, the High Court has ignored the fact that the term sheet agreement with Essar had nothing to do with the transfer of CGP, which was a separate transaction which came about on account of independent settlement between Essar and Hutch group, for a separate consideration, unrelated to the consideration of CGP share. The High Court committed an error in holding that there were some rights vested in HTIL under SHA dated July 5, 2003, which is also an agreement, conferring no right to any party and accordingly none could have been transferred. The High Court has also committed an error in holding that some rights vested with HTIL under the agreement dated August 1, 2006, in fact, that agreement conferred right on Hutchison Telecommunication (India) Ltd., which is a Mauritian company and not HTIL, the vendor of SPA. The High court has also ignored the vital fact that FIPB had elaborately examined the nature of call and put option agreement rights and found no right in presenti has been transferred to Vodafone and that as and when rights are to be transferred by AG and AS group companies, it would specifically require Government permission since such a sale would attract capital gains, and may be independently taxable. We may now examine whether the following rights and entitlements would also amount to capital assets attracting capital gains tax on transfer of CGP share." 203. Mr. Salve submitted that the findings of the TPO are contrary to the judgment of the Supreme Court in Vodafone International Holdings BV v. UOI (hereinafter referred to as 'Vodafone case') (2012) 341 ITR 1 and are even otherwise perverse. The Supreme Court rejected the argument on behalf of the Revenue that the options vested in HTIL under the 2006 FW Agreements and were transferred in favour of VIH BV by the 2007 FW Agreements. Mr. Salve submitted that when VIH BV was before the FIPB it had become necessary to review the fair market value in a manner that the Indian shareholders got a higher price at the time of exit. Accordingly, the new FW Agreements of 5th July, 2007 were executed. The rewriting of the agreements was due to the regulatory requirements and were not transactions at all, much less were they international transactions. Thus, the findings of the TPO that the options were assigned to and vested in VIH BV by virtue of the 2007 Framework agreements are contrary to the findings of the Supreme Court. The Supreme Court also rejected the application of the doctrines of lifting the corporate veil and substance over form in that case. Thus, even the basis of the findings viz. by lifting the corporate veil and invoking the doctrine of substance over form was contrary to the judgment of the Supreme Court. The difference between clause 4.4 in the 2006 Framework agreements and clause 4.4 in the 2007 Framework agreements was only one of form and not of substance. Only the language of clauses 4.4 and 4.9 in the 2006 and 2007 FW Agreements differ. He submitted that clause 4.9 of the 2006 FW Agreements entitled the petitioner to assign the call options to any of its affiliates. The definition of affiliate in those agreements would include holding companies and subsidiaries. The same did not constitute an assignment or a transaction. The findings of the TPO to the contrary are without jurisdiction, perverse and contrary to law. Accordingly, the finding that there was an assignment of the call options is without jurisdiction, perverse and contrary to law. Further, the finding that VIH BV became a party to the 2007 Framework agreements is patently incorrect. VIH BV was only a confirming party to the agreement and, accordingly, neither assumed any liability nor was conferred any rights thereunder. The finding of the TPO that the petitioner is not the owner of the options; that its associated enterprise viz. VIH BV became the owner of the options amounted to holding that the options vested initially in HTIL under the 2006 FW Agreements and then in favour of VIH BV under the 2007 FW Agreements. This argument was rejected by the Supreme Court in the Vodafone case. Thus no international transaction had taken place in respect of the options. The Supreme Court was invited to hold that 15% of the rights were transferred by Hutchison to Vodafone on account of recasting of the FW Agreements and therefore, there was a transfer of capital assets viz. call options in India. However, the majority judgment and the minority concurring judgment categorically held that there was no transfer of the call options. The Supreme Court however, held that the options are purely contractual rights; call options in any event always vested in the petitioner and that the same position continued even under the new 2007 FW Agreements and that there was no transfer of the call options. Further, these findings in the Vodafone case, according to Mr. Salve, are findings of law as they are based on the construction of the terms and conditions of the FW Agreements. The judgment of the Supreme Court constituted legal inferences flowing from the clauses of the two Framework agreements. In other words, according to him, the finding of the Supreme Court with respect to the Framework agreements constituted findings on a question of law. It cannot, therefore, be suggested that they were casual observations as suggested on behalf of the respondents. The contention that Vodafone obtained something valuable under the Framework agreements are contrary to the judgment of the Supreme Court and cannot be revisited. Although the statutory principles of estoppel do not apply to tax proceedings, the Court ought not to encourage re-opening issues settled by the Supreme Court (M/s. Radhasoami Satsang, Saomi Bagh, Agra v. Commissioner of Income Tax (1992) 1 SCC 659). It is improper and unfair of the department to raise the same question despite the same having been considered and answered by the Supreme Court in the Vodafone case. 204. Mr. Salve did not deny that the call options were very valuable. He admitted that Vodafone indirectly obtained a degree of persuasive control over these call options consistent with a holding – subsidiary relationship. He, however, submitted that this was achieved by the transfer of the CGP share which shifted the persuasive control from HTIL to Vodafone. The same did not lead to a taxable transaction in India as held by the Supreme Court. Income tax would be chargeable only if the value was transferred in some manner. The respondents had not established that there was a transfer of the value. Lastly, he submitted that some of the Advocate General's submissions were contrary to the basis of the impugned orders. Relying upon the judgment of the Supreme Court in Mohinder Singh Gill & Anr. v. The Chief Election Commissioner, New Delhi & Ors. (1978) 1 SCC 405, he submitted that adjudicative orders have to be sustained for reasons stated in the order and not for reasons discovered in defence to proceedings for judicial review thereof. 205. The judgment of the Supreme Court was delivered on 20th January, 2012, after the order of the TPO and the draft order of the AO dated 31st October, 2011 and 29th December, 2011, respectively. When the impugned orders were passed, the judgment of the Division Bench of this Court held the field. It would undoubtedly now be necessary for any Court or Tribunal to construe the Framework agreements in the light of the judgment of the Supreme Court as it over-ruled the judgment of this Court. There can be no doubt about that. The judgment of the Supreme Court would have to be construed in several respects, including the effect and applicability thereof upon the petitioner who was not a party to those proceedings. The question of issue estoppel, therefore, would not operate against the respondents qua the assessment proceedings in respect of the petitioner. Any decision on a question of law would undoubtedly be binding as a precedent even on third parties. 206. The Advocate General submitted that there was no issue before the Supreme Court as to whether apart from the SPA and the transfer of CGP share, the 2007 Framework agreements conferred any rights upon VIH BV. This, he submitted, was not relevant to the issue before the Supreme Court. He emphasized the fact that the 2007 Framework agreements were entered into after the SPA and the transfer of the CGP share and the issue before the Supreme Court was whether it was by virtue of the SPA or by virtue of the transfer of the CGP share that VIH BV obtained the benefit of the 2006 Framework agreements from HTIL. As far as the Framework agreements were concerned, the issue before the Supreme Court was whether the call options contained in the Framework agreements were rights in property and whether such rights stood transferred / assigned to VIH BV upon the execution of the SPA or upon the transfer of the CGP share to VIH BV by HTIL so as to constitute a taxable transfer of the assets of VIH BV in India. The Advocate General submitted that there was, therefore, no issue before the Supreme Court as to whether apart from the SPA or the transfer of the CGP share any rights were conferred upon VIH BV under the 2007 Framework agreements. He contended that this was not relevant to the issues before the Supreme Court which is evident from the fact that the 2007 Framework agreements were executed after the SPA and after the CGP share was transferred. 207. As Mr. Salve rightly submitted, the Supreme Court did consider the Framework agreements. One of the reasons it was necessary for us to refer to the relevant portions of the judgment of the Supreme Court in detail was to indicate that the provisions of the Framework agreements were not only considered but were not only considered but were also construed by the Supreme Court in detail. We cannot accept the respondents suggestion. It is not possible for a High Court to come to the conclusion that the Supreme Court did not consider the same. It is irrelevant whether each of the terms of the Framework agreements were individually set out or analyzed by the Supreme Court or not. In any event, clause 4.4 was specifically referred to. The construction of the provisions per se without anything more and in the absence of anything else is a question of law and a decision in respect thereof would be binding on all Courts, Tribunals and authorities. 208. Nor are we inclined to accept the Advocate General's submission that the observations in paragraph 88 of the Vodafone judgment that the 'call and part options were not transferred vide the SPA dated February 11, 2007 or any other document whatsoever' were observations on facts in issue and are, therefore, neither ratio nor obiter and not binding in subsequent proceedings even between the same parties. We are not entitled to restrict the ambit of the words of the Supreme Court 'any other document' to mean a document prior to the transfer of the CGP share on 8th May, 2007. The words "any other document" would certainly include the 2007 Framework agreements which were so elaborately dealt with in the judgment. If there is an ambiguity, it is for the parties to have the same clarified by the Supreme Court. 209. The judgment of the Supreme Court would undoubtedly be the petitioner's main plank and supports its case to a considerable extent, especially as it is the very agreements that fall for consideration even in the proceedings relating to the petitioner's assessment. Mr. Salve rightly contended that the Supreme Court had analyzed the Framework Agreements and held that the call options are contractual rights; that they vested and continue to vest in the petitioner and that they had not been transferred or assigned by the petitioner. We proceed, as indeed we must, that before the ITAT, a very heavy burden would rest upon the Revenue even regarding the petitioner's assessment in view of the judgment in Vodafone's case. Every Court, Tribunal, authority or person is bound to give the observations of the Supreme Court, including in respect of the Framework Agreements, their full effect. The suggestion that they are casual observations is rejected. A view to the contrary would tantamount to judicial indiscipline. This is not just our prima facie view. Needless to say it would be necessary to consider the judgment even in the present proceedings. That, however, can and in the facts of this case ought to be done by the authorities under the Act. It could have been done even by the TPO and the AO. Their orders were, however, passed prior to the judgment of the Supreme Court and the occasion for them to consider this judgment does not arise at this stage. It will, however, be necessary for the ITAT to do so. We see no reason to short-circuit the proceedings in this regard as there are or are likely to be other aspects including facts which will also require consideration. 210. The matter regarding the petitioner's assessment, however, does not end there. It does not end there although the judgment in Vodafone's case assists it to a considerable degree. There are other additional aspects which require consideration. 211. We observed earlier that we are not entitled to restrict the ambit of the observations of the Supreme Court in paragraph 88 of the judgment and in particular the words 'or any other document whatsoever'. That would not, however, prevent the respondents in proceedings pertaining to the petitioner who was not a party to the proceedings before the Supreme Court from relying upon any other facts, circumstances or evidence. The judgment of the Supreme Court does not prevent the department from doing so. Whether it has done so or not is one of the issues which would be required to be determined by the ITAT. The other question, and equally important, would be whether the department is now entitled to rely upon any other facts, circumstances or documents in support of their contentions. These issues can certainly also be considered by the ITAT. Whether or not to permit a party – assessee or the department – to rely upon any other facts, circumstances or documents will also be a question which may arise before the Tribunal. The machinery having been put in motion, we see no reason to invoke our extra-ordinary jurisdiction to short-circuit the same. 212. There has been an important development after the judgment of the Supreme Court. The Finance Act of 2012 amended the definition of 'transaction' contained in section 2(47) by introducing an explanation thereto. Section 2(47), as amended, reads as under : '2. Definitions …....... (47) 'transfer', in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into; or is treated by him as, stock-intrade of a business carried on by him as, stock-intrade of a business carried on by him, such conversion or treatment; or (iva) the maturity or redemption of a zero coupon bond; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1992); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation 1.-For the purposes of sub-clauses (v) and (vi), 'immovable property' shall the same meaning as in clause (d) of section 269UA. Explanation 2.-For the removal of doubts, it is hereby clarified that 'transfer' includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India.' Explanation 2 was introduced with retrospective effect from 1st April, 1962. 213. The amendment to section 2(47) raises several important questions of fact and of law. Whether or not it affects the proceedings which were the subject matter before the Supreme Court is not relevant for the purpose of this Writ Petition. But, whether it is relevant or not for the purpose of the assessment proceedings in respect of the petitioner which are the subject matter of this Writ Petition, is relevant. The effect of the amendment would have to be considered. It cannot be brushed aside. 214. Section 2(47), as amended, even on a cursory glance raises various issues. It is necessary to note four preliminary aspects of Explanation 2 to section 2(47). Firstly, as the opening words, 'For the removal of doubts it is hereby clarified that …...', indicate it is a clarificatory amendment. Secondly, it is an inclusive definition as is evident from the words ' 'transfer' includes.....'. Thirdly, the amendment is with retrospective effect from 1st April, 1962. Fourthly, the Finance Act 2012 which introduced, inter-alia, the amendment to section 2(47) and section 92CA(2B) is a validating act in view of section 119 thereof. 215. Explanation 2 to section 247 broadly has four elements. (i) Disposal or parting with or creating any interest in an asset. (ii) The asset or any interest in the asset. (iii) The disposing of or parting with the asset or creating any interest therein may be (a) Direct or indirect. (b) Absolute or conditional. (c) Voluntary or involuntarily. (d) By amendment or otherwise. (iv) A non-obstante provision regarding the nature of a transfer. If an act, arrangement, transaction etc. constitutes a transfer as defined in the section it would be so notwithstanding the transfer of rights having been categorised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. 216. Two aspects of a transfer are clarified - the asset itself and the manner in which it is dealt with. The asset is no longer restricted to the asset per se or a right therein, but also extends to 'any interest therein'. Prior to the amendment, the words 'any interest therein' were absent. Further, the nature of the disposal is also expanded. It now includes the creation of any interest in any asset. Moreover, the disposal of or creation of any interest in the asset may be direct or indirect, absolute or conditional, voluntary or involuntary. It may be by way of an agreement or otherwise. Further, the concluding words constitute a non-obstante provision. It provides that the transfer contemplated therein would be notwithstanding that it has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. It would be evident, therefore, that a lot more must now be seen and considered than before while arriving at a conclusion whether the terms and conditions of the Framework agreement constituted a transfer or assignment of the call options by one party to another. 217. At the cost of repetition, we are not concerned here with whether the amendment is valid or not. One of the issues, however, that does arise is whether the amendment, albeit clarificatory, would make a difference in the construction of the provisions of the Framework agreements themselves, to wit as regards the construction of the clauses thereof without the aid of any other material for interpreting them. Vodafone's case obviously considered the ambit of the term 'transfer' prior to the amendment. In the present assessment proceedings, it is the amended definition which would have to be considered. 218. We do not find it either necessary or proper to indicate the application of section 2(47) as amended to the present proceedings. The application would depend upon the facts on record or those may be permitted to be brought on record. 219. There is another aspect. The petitioner may well contend that the amended definition makes no difference it being clarificatory in nature. The provisions thereof must, therefore, be deemed always to have been in existence. We will presume that it would be open to the petitioner to contend, therefore, that the judgment of the Supreme Court would remain entirely unaffected for the Supreme Court must be deemed to have considered the term as per its true ambit, as always intended by the Parliament. On the other hand, it may be equally open to the Revenue to contend that certain ingredients of a transfer were not considered by the Revenue itself in the proceedings relating to Vodafone's case on account of the Revenue itself not having appreciated or realized the actual ambit of the term 'transfer' which are now clarified by the amendment. Even assuming that the Revenue cannot re-open the Vodafone case, it cannot be barred from relying upon the true ambit of the term "transfer" in future cases, including the proceedings in respect of the petitioner. Thus, even assuming that the judgment of the Supreme Court remains unaffected by the clarificatory amendment, the Revenue would be entitled hereafter in other cases, at least, to appreciate, analyze and construe the transactions relating to call options, including the Framework agreements in a proper perspective which it may not have done earlier. 220. These are important issues. There is no justification for withdrawing the proceedings from the channel provided by the Income Tax Act, bypassing the Tribunal and considering all these questions in exercise of the High Court's extra-ordinary jurisdiction under Article 226. 221. Mr. Salve contended that adjudicatory orders can be sought to be sustained only for the reasons stated in the order and not for reasons discovered in proceedings for judicial review thereof. The contention was based on the judgment of the Supreme Court in Mohinder Singh Gill & Anr. v. The Chief Election Commissioner, New Delhi & Ors. (1978) 1 SCC 405. He, therefore, opposed the Advocate General's application to file a further affidavit. 222. Mr. Salve's submission, in fact, indicates another reason not to entertain a Writ Petition if it involves taking a proceeding out of the stream of alternate remedies provided by a statute. In further proceedings, the authorities under the Act may be permitted to adduce further evidence and advance further and/or other submissions which they would be barred from doing in a Writ Petition. 223. There is one difference of vital importance between the Vodafone case and the case before us. We have already referred to the proceedings that led to Vodafone challenging the order under sections 195, 201(1) and 201(1A). In the Vodafone case, the Revenue proceeded on the basis of a concession and on a demurer. The Revenue did not raise the defence of an alternative remedy that was available to VIH BV even in that case. It was agreed by both the learned counsel that even in that case, VIH BV had an alternate remedy of challenging the notices before the CIT (Appeals). The Revenue, however, invited the Supreme Court to proceed on the basis of the record available in the Writ Petition. It is not open to this Court to speculate or even try and speculate the decision, had the defence of an alternate remedy been taken. However, in the case before us, the defence of an alternate remedy has not only been taken, but has been taken in a very substantial manner and we have found the same to be well founded. In other words, the Revenue in the case before us has not invited a decision on the merits of the matter alone. That they defended the contentions on the merits is irrelevant. 224. We are conscious of the fact that in the earlier round in the Vodafone case, the Supreme Court had, by its order dated 23rd January, 2009 [(2009) 179 Taxman 129 (SC)] permitted VIH BV to question the decision of the authority on the preliminary issue before this Court in the event of the same being decided against it. The defence, therefore, of an alternate remedy may not have been available before the High Court. Nothing, however, prevented the Revenue from raising a contention of an alternate remedy before the Supreme Court in the final proceedings before the Supreme Court. Even the decision of the authority on the preliminary issue can be appealed against before the CIT (Appeals) and/or the ITAT, as the case may be. The respondents in this case are not bound by the stand taken by them in the Vodafone case. There is no basis for the Court to compel the Revenue in this case to abide by the stand taken by it in the Vodafone case. 225. In the circumstances, the Writ Petition is dismissed. There shall be no order as to costs. The respondents shall not serve the order of the DRP or the final assessment order of the AO on the petitioner upto and including 30th November, 2013.
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