whether the interest paid qualifies as penalty charges for late payment as per Article 11(6), whereby the exemption afforded by the said Article would stand excluded. If not, the exemption afforded by Article 11(1) would squarely apply and the interest paid by Ascendas to the assessee company in Netherlands owing to the sale of shares of VITP Ltd. would not be taxable in India.

THE HONBLE SRI JUSTICE SANJAY KUMAR AND THE HONBLE SRI JUSTICE U.DURGA PRASAD RAO                    

I.T.T.A. NOS.55 OF 2014 and batch

16-06-2017

The Director of Income-tax (International Taxation), Hyderabad .. Appellant

M/s. Vanenberg Facilities BV  .. Respondent

 Counsel for the Appellants in                  : Ms. K.Mamata
  ITTA Nos.55 and 71 of 2014 and the      Choudary
  Respondents in WP No.41469 of 2015  

^Counsel for the Respondents in   Mr. Nishanth Thakkar
  ITTA Nos.55 and 71 of 2014 and the and Mr.  T.Bala Mohan Reddy Petitioner in WP No.41469 of 2015

<Gist:

>Head Note:    


? CASES REFERRED:    

1. [2007] 107 ITD 367 (Ahmedabad)
2. (2012) 6 SCC 613
3. ITA No.4672/Mum/2003 and batch dated 08.02.2012 of the
    Income Tax Appellate Tribunal, Mumbai Bench J, Mumbai.
4. [2008] 115 ITD 167 (Mumbai)
5. [2010] 122 ITD 216 (Mumbai)
6. [2014] 365 ITR 560 (Bombay)
7. [2011] 133 ITD 543 (Mumbai)
8. ITA Nos.692 and 693 of 2012 dated 22.08.2014
9. [2002] 256 ITR 1 (Delhi)
10. [2010] 320 ITR 561 (SC)
11. 2006 (3) ARBLR 159 (Delhi)
12. 2008 (3) ARBLR 283 (Delhi)
13. AIR 1979 SC 381
14. [2002] 256 ITR 395 (Bombay)
15. [2012] 204 Taxman 363 (Delhi)
16. [2001] 248 ITR 447 (Patna)
17. [2010] 325 ITR 139 (Karnataka)
18. Income Tax Appeal No.2277 of 2013 dated 01.02.2016
19. [2012] 344 ITR 37 (Delhi)
20. [2015] 362 ITR 272 (Delhi)
21. AIR 1963 SC 677
22. [1993] 201 ITR 674 (Karnataka)
23. [2009] 309 ITR 434 (SC)
24. [1967] 63 ITR 232 (SC)
25. [2013] 219 Taxman 19 (Delhi)
26. [2010] 323 ITR 130 (Delhi)
27. (2000) 2 SCC 718
28. (2007) 15 SCC 401



THE HONBLE SRI JUSTICE SANJAY KUMAR        
AND
THE HONBLE SRI JUSTICE U.DURGA PRASAD RAO          

I.T.T.A. NOS.55 AND 71 OF 2014  
AND
W.P.NO.41469 OF 2015  

C O M M O N   J U D G M E N T  
(Per Honble Sri Justice Sanjay Kumar)

        The two appeals by the revenue under Section 260A of the
Income-tax Act, 1961 (for brevity, the Act) arise out of the common
order dated 15.03.2013 passed by the Income Tax Appellate
Tribunal, A Bench, Hyderabad (hereinafter, the Tribunal),
allowing I.T.A.Nos.739 and 2118/Hyd/2011 filed by Vanenburg
Facilities B.V. (hereinafter, the assessee company) pertaining to
the assessment year 2005-06.  I.T.T.A.No.55 of 2014 relates to
I.T.A.No.2118/Hyd/2011, while I.T.T.A.No.71 of 2014 arises out of
I.T.A.No.739/Hyd/2011.  W.P.No.41469 of 2015 was filed by the
assessee company seeking a direction to the revenue to refund the
amount of Rs.49,00,73,615/- along with future interest pursuant
to the aforestated common order dated 15.03.2013 and the
consequential order dated 28.05.2013 of the Assistant Director of
Income Tax (International Taxation)-II, Hyderabad.
        The assessee company is incorporated in the Kingdom of
Netherlands. It has its registered office at Vanenburgerallee, Putten
of Netherlands, and is a resident of Netherlands as per Article 4 of
the Convention between the Republic of India and the Kingdom of
Netherlands for the avoidance of double taxation and the
prevention of fiscal evasion with respect to taxes on income and on
capital (hereinafter, the DTAA).  The assessee company made
investments in the equity share capital of an Indian company,
Baan IT Park India Pvt Ltd., which was incorporated on
02.04.1997.  The assessee company invested, in all, a sum of
Rs.55,95,12,000/- in the said company from 14.08.1997 to
23.03.2000.  The Indian company was renamed as Vanenburg IT  
Park India Private Limited (hereinafter, VITP Limited) on
13.12.1999 and became a wholly owned subsidiary of the assessee
company. The assessee company made the aforestated investments  
in the Indian company basing on the approval dated 12.06.1997
granted by the Foreign Investment Promotion Board, Government
of India.  VITP Limited commenced the business of developing,
maintaining and operating an industrial park at Madhapur in
Hyderabad after obtaining requisite approvals from the Secretariat
for Industrial Assistance, Department of Industrial Policy and
Promotion, Government of India.  The first phase of the project was
completed in June, 2000, and the second phase in August, 2002.
      During the financial year 2004-05, the assessee company
sold all its shares in VITP Limited to Ascendas Property (Fund)
India Pte Limited (hereinafter, Ascendas) for a consideration of
Rs.224.50 crore in terms of the Share Purchase Agreement dated
17.12.2004.  However, the Memorandum of Understanding dated  
20.09.2004 entered into earlier by the assessee company with
Ascendas mentioned the sale consideration as Rs.228.00 crore.  In
any event, the assessee company earned income by way of capital
gains upon the sale of the aforestated shares.  Before the payment
of the entire sale consideration and during the pendency of the
application of the assessee company under Section 197 of the Act,
order dated 03.01.2005 was passed by the revenue under Section
195(2) of the Act directing Ascendas to deduct tax at source from
the remittance of sale consideration and to deposit the same.
Consequently, a sum of Rs.35.24 crore was withheld by Ascendas
on 02.03.2005 from the payment of Rs.224.50 crore and deposited
with the revenue.  Further, as a sum of Rs.49,43,750/- was paid to
the assessee company by Ascendas towards interest on delayed  
payment of sale consideration, a sum of Rs.20,67,476/- was
deposited by Ascendas with the revenue on 22.03.2005 as tax
deducted at source thereon.  The assessee company filed its return
of income claiming refund of the entire amount deducted towards
tax at source and deposited into the Government account.
      The case of the assessee company before the Assistant
Director of Income Tax (International Taxation)-II, Hyderabad, the
Assessing Officer (hereinafter, the AO), was that the transaction
giving rise to the aforestated capital gains was not taxable in India
as it was covered by Article 13 of the DTAA, which would override
the local law, in terms of Section 90 of the Act.  In the alternative,
the assessee company claimed that as VITP Limited was registered
under Section 10(23G) of the Act, the capital gains arising from
transfer of its shares were exempt from taxation under the Act.  As
regards taxability of the interest paid to it by Ascendas, the
assessee company claimed that payment and receipt thereof was in
Netherlands and could not therefore be said to have accrued or
arisen through or from any property in India or from any asset or
source of income in India or through transfer of a capital asset
situated in India.
      By assessment order dated 25.02.2008 under Section 143(3)
of the Act, the AO rejected all the three claims of the assessee
company. As regards the first claim relating to the exemption
claimed under the DTAA, the AO examined Article 13 thereof.
Article 13 of the DTAA reads as under:
      CAPITAL GAINS
1.      Gains derived by a resident of one of the States from the
alienation of immovable property referred to in Article 6
and situated in the other State may be taxed in that other
State.
2.      Gains from the alienation of movable property forming
part of the business property of a permanent
establishment which an enterprise of one of the States
has in the other State or of movable property pertaining to
a fixed base available to a resident of one of the States in
the other State for the purpose of performing independent
personal services, including such gains from the
alienation of such permanent establishment (alone or
with the whole enterprise) or of such fixed base, may be
taxed in that other State.
3.      Gains from the alienation of ships or aircraft operated in
international traffic or movable property pertaining to the
operation of such ships or aircraft, shall be taxable only
in the State in which the place of effective management of
the enterprise is situated.  For the purposes of this
paragraph, the provisions of paragraph 3 of Article 8A
shall apply.
4.      Gains derived by a resident of one of the States from the
alienation of shares (other than shares quoted on an
approved stock exchange) forming part of a substantial
interest in the capital stock of a company which is a
resident of the other State, the value of which shares is
derived principally from immovable property situated in
that other State other than property in which the
business of the company was carried on, may be taxed in
that other State.  A substantial interest exists when the
resident owns 25 per cent or more of the shares of the
capital stock of a company.
5.      Gains from the alienation of any property other than that
referred to in paragraphs 1, 2, 3 and 4 shall be taxable
only in the State of which the alienator is a resident.
However, gains from the alienation of shares issued by a
company resident in the other State which shares form
part of at least a 10 per cent interest in the capital stock of
that company, may be taxed in that other State if the
alienation takes place to a resident of that other State.
However, such gains shall remain taxable only in the
State of which the alienator is a resident if such gains are
realised in the course of a corporate organization,
reorganization, amalgamation, division or similar
transaction, and the buyer or the seller owns at least 10
per cent of the capital of the other.
6.      The provisions of paragraph 3 shall not affect the right of
each of the States to levy according to its own law at tax
on gains from the alienation of shares or jouissance
rights in a company, the capital of which is wholly or
partly divided into shares and which under the laws of
that State is a resident of that State, derived by an
individual who is a resident of the other State and has
been a resident of the first-mentioned State in the course
of the last five years preceding the alienation of the shares
or jouissance rights.

      The claim of the assessee company was that Article 13(4) and
Article 13(5) of the DTAA dealt specifically with capital gains
arising from transfer of shares and therefore, unless the
transaction fell within the inclusive clauses therein, it could not be
taxed in India.  The assessee company claimed that in the light of
the specific provisions made for capital gains arising out of transfer
of shares in Articles 13(4) and 13(5), the same would override the
general provisions in the other paragraphs of Article 13.
      While agreeing with this latter proposition, the AO opined
that in the present case the issue related to taxability of capital
gains arising from alienation of shares, the value of which was
principally derived from immovable property used in the business
of such company, whereas Article 13(4) of the DTAA dealt with
taxability of gains arising from alienation of company shares, the
value of which was principally derived from immovable property
other than that used in the business of such company.  The AO
further observed that there was no dispute regarding non-
applicability of Article 13(4), which provided for taxation in India of
capital gains in respect of transfer of shares where the value mainly
comprised non-business immovable property located in India.  The
AO further observed that in case the value of the transferred shares
comprised mainly business-purpose immovable property located in
India, then Article 13(4) would not be applicable and for deciding
the taxability of such capital gains, other paragraphs of Article 13
had to be examined.
      The AO categorically observed that the provisions of Article
13(4) of the DTAA were not applicable to the present facts and that
Article 13(5) of the DTAA, being the residuary clause, would be
applicable only if the capital gains were not taxable under any
other paragraph of Article 13.  Holding so, the AO opined that
Article 13(1), relating to capital gains arising from alienation of
immovable property referred to in Article 6 of the DTAA, would be
applicable.  Referring to Article 6, the AO observed that immovable
property thereunder was to have the same meaning which it would
have under the law of the State in which the property in question
is situated. The AO then referred to Section 2(47) and Section
269UA(d) of the Act and on the strength of these provisions, she
concluded that the shares of VITP Limited partake the character of
immovable property under the Act and, therefore, the capital gains
arising from alienation of such shares are chargeable to tax in
India under Article 13(1) of the DTAA.
        Coming to the second claim of the assessee company, the AO  
found that the shares in question were transferred on 02.03.2005,
long before the approval and notification of VITP Limited under
Section 10(23G) of the Act on 09.12.2005.  Though this approval
was granted with retrospective effect from 01.04.2002, the AO
observed that as the investments made by the assessee company in
VITP Limited were between August, 1997 and March, 2000, it
could not claim exemption under Section 10(23G) of the Act.
Further, she found that, to claim the benefit of Section 10(23G) of
the Act, the concern has to be notified under Section 80-IA(4)(iii) of
the Act, but industrial parks were included in the ambit of
infrastructure facility under Section 80-IA(12)(ca) only in the year
2000, relevant to the assessment year 2000-01.  The AO therefore
concluded that any investment made in VITP Limited prior to
01.04.2002 would not be eligible for exemption under Section
10(23G) of the Act.  She further held that the benefit under Section
10(23G) was for attracting further investment in the
infrastructure sector and thereby, any further investments in old
projects were entitled to get benefit thereunder. She therefore
limited the applicability of the exemption under Section 10(23G) to
further investments in the infrastructure sector and not to past
investments.  Referring to the decision of another Bench of the
Tribunal in VBC FERRO ALLOYS LTD. V/s. ASSISTANT      
COMMISSIONER OF INCOME- TAX, CIRCLE 3(4), HYDERABAD ,          
the AO stated that the same was not accepted by the revenue as an
appeal was pending before the High Court and refused to apply the
ratio laid down therein.  Similarly, reliance placed by the assessee
company on Circular No.772/1998 dated 23.12.1998 was rejected
on the ground that the investment should have been made after
01.04.1997, being the date of insertion of Section 10(23G) in the
statute, but prior to 01.06.1998 in a specified infrastructure facility
and as industrial parks were not covered under the definition of
infrastructure facility at that point of time, the circular did not
come to the aid of the assessee company.  She also rejected the
argument of the assessee company that Section 10(23G) of the Act
would apply with reference to the arising of the capital gain and
not the date of making of the investment, for availing exemption
thereunder.  She held that it was the point of investment which
would determine the availability of the benefit under Section
10(23G) and not the point of arising of the income.  In effect, the
AO held that the capital gains arising from the sale of shares of
VITP Limited were chargeable to tax in India under Article 13(1) of
the DTAA and such gains were not exempt from taxation under
Section 10(23G) of the Act.
        As regards the last limb of the assessee companys claim with
regard to non-taxability of the interest, the AO opined that the
interest arose through a transaction involving sale of a capital asset
situated in India and would therefore be deemed to have accrued or
arisen in India under Section 9(1)(v) of the Act.
      She accordingly determined the income from capital gains at
Rs.156,93,64,751.27, taking the sale consideration as Rs.224.50
crore and upon deducting the acquisition cost (Rs.59,95,12,000/-)
and the expenditure incurred in connection with the transfer
(Rs.5,27,13,857.87).  The total tax payable was quantified at
Rs.32,86,48,544/- and after adjusting the tax deducted at source,
viz., Rs.35,44,67,476/-, she found Rs.2,58,18,932/- to be
refundable to the assessee company.
        While so, the Deputy Director of Income Tax (International
Taxation)-II, Hyderabad, reopened the aforestated assessment
under Section 147 of the Act.  By draft assessment order dated
29.12.2010, he opined that the sale consideration for transfer of
the shares in VITP Limited should be taken as Rs.228.00 crore and
not Rs.224.50 crore, as the assessee company could not
satisfactorily explain the reason for reduction in the share value.
Further, he directed reduction of the cost of acquisition to
Rs.55,95,12,000/- and the expenditure incurred towards transfer
to Rs.4,09,48,050/-, as expenditure claimed during earlier years
had already been debited to the profit & loss account of those
years.  He calculated tax on the interest income at 40%, treating it
as income from other sources.  He accordingly worked out the
capital gains at Rs.167,95,39,950/- and held the assessee
company liable to pay a sum of Rs.3,37,89,697/-.
        Aggrieved by the assessment order dated 25.02.2008 under
Section 143(3) of the Act, the assessee company filed an appeal in
I.T.A.No.0078/AC(IT)-II/CIT(A)-V/2010-11 before the
Commissioner of Income Tax (Appeals)-V, Hyderabad (hereinafter,
the CIT(A)).  As regards the draft assessment order dated
29.12.2010 under Section 147 of the Act, the assessee company
raised objections before the Dispute Resolution Panel (DRP),
Hyderabad.
   The assessee companys appeal was dismissed by the CIT(A) by
order dated 25.03.2011.  The issues for decision were framed by
the CIT(A) as under:
(1)     Whether the transaction in question, i.e., sale of shares of
Indian Subsidiary to the Singapore based company was in
principle taxable in India or not
(2)     If it is taxable, then does it fall under any of the clauses of
DTAA between India and Netherlands
(3)     In case, the taxability is still determined then what is the
applicability of Section 10(23) in this case

      On the first issue, the CIT(A) held that the transaction, being
the sale of an Indian asset, was taxable in India.  As regards the
second issue, the CIT(A) affirmed the finding of the AO that Article
13(1) of the DTAA would be applicable in terms of the definition of
immovable property in Section 269UA of the Act and other Indian
laws.  He observed that he had no hesitation in agreeing with the
AO that the transaction in question fell within the purview of
Article 13(1) of the DTAA and the capital gains arising out of the
transfer of shares in question were taxable in India. As regards the
second issue, he agreed with the AO that Section 10(23G) of the
Act would not come to the aid of the assessee company.  He
rejected the applicability of the law laid down in VBC FERRO
ALLOYS LTD.1 on the ground that the said judgment did not relate
to the specific facts of the appeal before him and could not
therefore be applied.  He observed that the approval of the Central
Board of Direct Taxes was an essential ingredient to claim
exemption under Section 10(23G) of the Act and agreed with the
AO that such exemption could not be availed by the assessee
company as VITP Limited was granted statutory approvals long
after investments were made therein by the assessee company.
Dealing with the last ground in the appeal relating to the interest
income, the CIT(A) held that the interest payment could not be
divorced from the original payment, as both pertained to the same
transaction, and accordingly upheld the addition made by the AO
in that regard.
      Upon the objections raised by the assessee company, the
DRP issued directions under Section 144C(5) of the Act on
20.09.2011. While upholding reopening of the assessment under
Section 147 of the Act, the DRP found that the sale consideration
could not be taken as Rs.228.00 crore when the actual payment
was only Rs.224.50 crore, in terms of the Share Purchase
Agreement. The DRP rejected the objection of the assessee company
with regard to deduction of the expenditure incurred during earlier
years.  As regards charging of tax at 40% on the interest income,
the DRP directed reassessment by the AO by applying the relevant
provisions.  The AO was further directed to charge interest under
Section 234D only on the refund, if any, under Section 143(1) and
not on the refund under Section 143(3).  The objections of the
assessee company were thus partly accepted.
      Aggrieved by the dismissal of its appeal by the CIT(A) vide
the order dated 25.03.2011, the assessee company filed a further
appeal in I.T.A.No.739/Hyd/2011 before the Tribunal. It also filed
an appeal in I.T.A.No.2118/Hyd/2011 in relation to the reopening
of the assessment under Section 147 of the Act and the directions
given by the DRP, Hyderabad, upon such reassessment.  
      Both these appeals were disposed of by the common order
dated 15.03.2013 passed by the Tribunal. Perusal thereof reflects
that, having disposed of I.T.A.No.739/Hyd/2011 on merits, the
Tribunal opined that there was no need to consider the issues in
I.T.A.No.2118/Hyd/2011 and allowed the said appeal for statistical
purposes. Dealing with the substantial appeal in I.T.A.No.739/
Hyd/2011, the Tribunal observed that the finding of the AO,
confirmed in appeal, that Article 13(1) of the DTAA would have
application to the transaction in question was unsustainable.
Considering the scope of Section 269UA(d) of the Act and the
definition of transfer under Section 2(47) of the Act, the Tribunal
concluded that the definitions of immovable property under
various provisions of the Act differed and the definition under
Section 269UD was only for a specific purpose.  The Tribunal
therefore opined that the said definition could not be held to be the
law of the State under Article 6 of the DTAA.  Further, the
Tribunal held that a share in a company could not be considered to
be immovable property in terms of the law laid down by the
Supreme Court in VODAFONE INTERNATIONAL HOLDINGS B.V.          
V/s. UNION OF INDIA .  The Tribunal also referred to orders passed
by the Authority on Advance Rulings relating to the DTAA and
concluded that the assessee company had not sold immovable  
property or any rights directly attached to immovable property.  In
effect, the Tribunal held Article 13(1) of the DTAA to be
inapplicable.  As Article 13(4) could not be invoked because the
immovable property of VITP Limited was used in its business, the
Tribunal held that the only provision which could be invoked in
the circumstances was Article 13(5).  As the inclusive clause
therein, which would make the transaction in relation to sale of
shares taxable in India, did not apply, the Tribunal observed that
the residuary paragraph to the effect that gains from alienation of
any property other than that referred to in paragraphs 1, 2, 3 and
4 shall be taxable only in the State where the alienator is a
resident, would apply.  The Tribunal held that as the assessee
company sold shares in an Indian company which had business  
property, Article 13(4) was not applicable and as the assessee
company did not sell immovable property or any rights in
immovable property in which the shareholders enjoyed ownership
as contemplated in Section 269UA(d) of the Act, Article 13(1) was
not applicable.  Therefore, the assessee company was held entitled,
under Article 13(5) of the DTAA, to exemption from taxation of its
capital gains in India as the same were taxable in Netherlands.
      Dealing with the alternate claim of the assessee company
that it would be entitled to exemption under Section 10(23G) of the
Act, the Tribunal rejected the finding of the AO that the
investments made prior to 01-04-2002 by the assessee company
were not eligible for exemption thereunder.  The Tribunal pointed
out that the Act did not provide that such exemption would be
applicable only for further investments. Referring to the objective
underlying the introduction of this statutory provision, the
Tribunal observed that the provision was an extended benefit for
attracting investments in the infrastructure sector and not for
attracting further investments in existing old infrastructure
projects.  The Tribunal observed that the Central Government had
formulated the Industrial Park Scheme, 1999, notified under SO
No.193(E) dated 30.03.1999 and made operational from 1997 itself,
for providing tax exemption under Section 80-IA of the Act for
setting up industrial parks for the period beginning from
01.04.1997. Reference was made to the amendment of Section  
80-IA(4)(iii) of the Act, including industrial parks notified by the
Central Government in accordance with the scheme framed and
notified for the period beginning on 01.04.1997 and ending on
31.03.2002, and the Tribunal observed that VITP Limited was
granted approval by the Central Government on 16.09.1999 under
the said scheme for setting up an industrial park.  Investment by
the assessee company in VITP Limited was therefore held to qualify
for exemption under Section 10(23G).  Referring to the view taken
by the co-ordinate Bench of the Tribunal in VBC FERRO ALLOYS  
LTD.1, the Tribunal observed that the AO and the CIT(A) ought not
to have denied relief pursuant to the aforestated judgment merely
on the ground that the same was not to the liking of the revenue.
Reference was made to the judgment of the Mumbai Tribunal in
CROMPTON GREAVES LIMITED V/s. JOINT COMMISSIONER OF            
INCOME-TAX, CIRCLE 6(2), MUMBAI , which followed VBC    
FERRO ALLOYS LTD.1, and the Tribunal held that the AO and the  
CIT(A) erred in not extending the exemption provided under the
statute to the assessee company on the ground that investments
made prior to 01.04.2002 would not be eligible therefor. The
Tribunal therefore upheld the assessee companys claim that its
capital gains were exempt from taxation in India, on both counts,
i.e., by virtue of the DTAA as well as Section 10(23G) of the Act.
      Considering the taxability of the interest paid by Ascendas to
the assessee company, the Tribunal disagreed with the opinion of
the AO and the CIT(A) in this regard.  The Tribunal found that
Section 9(1)(v) of the Act had no applicability and therefore, the
interest could not be said to have accrued or arisen or deemed to
have accrued or arisen in India.  The Tribunal accordingly held
that the interest paid by the non-resident to the assessee company
abroad was ineligible to be brought to tax under Section 9 of the
Act. The opinion of the AO that this interest was paid on account of
a transaction involving the sale of a capital asset in India was not
accepted by the Tribunal as the said interest was paid by Ascendas
to compensate for the delay in remitting the sale consideration and
it could not be considered to be part of the sale consideration.  The
Tribunal further opined that even if it were to be considered as part
of the sale consideration, it would be exempt under the DTAA and
therefore, either way, the interest received by the assessee company
abroad from the non-resident could not be brought to tax in India.
In the light of these findings, the Tribunal opined that there was
no need to consider the issues raised in I.T.A.No.2118/ Hyd/2011
relating to reopening of the assessment under Section 147 of the
Act and the directions of the DRP on such reassessment, as they
had become academic in nature.  The appeal was accordingly
allowed for statistical purposes.
      It is against the allowing of these two appeals that the
present ITTAs were filed by the revenue.  In I.T.T.A.No.55 of 2014,
the revenue framed the following substantial question of law for
consideration:
Whether, on the facts and circumstances of the case, the
Honble ITAT was correct in allowing the appeal for statistical
purposes even without considering on merits the grounds so
raised

   This appeal is yet to be admitted.
   I.T.T.A.No.71 of 2014 was admitted on 20.02.2014 for
consideration of the following substantial questions of law:

1.      Whether on the facts and circumstances of the case, the
Honble Income Tax Appellate Tribunal was correct in
interpreting Article 13(1) and Article 13(4) of India-
Netherlands DTAA, as giving rights to Netherlands and not
to the source country, India, where the capital gains
arise/accrue to the assessee
2.      Whether on the facts and circumstances of the case, the
Honble Income Tax Appellate Tribunal was correct in
interpreting the conditions laid out in Section 10(23G) of the
Income Tax Act, 1961, by stating that approval from Central
Government as brought out in Finance Act, 1998 and
clarified in Circular No. 772 of 1998, dated 23.12.1998, is
not necessary at the time of bringing in an investment, to be
eligible for the exemption under section 10(23G)
3.      Whether on the facts and circumstances of the case, the
Honble Income Tax Appellate Tribunal was correct in
holding that the interest paid by the purchaser on account of
delayed payment of sale consideration does not accrue/arise
or does not deem to accrue/arise in India or does not partake
the character of the sale consideration itself

        Heard Ms. K.Mamata Choudary, learned senior standing
counsel for the revenue, and Sri Nishanth Thakkar, learned
counsel representing Sri T.Bala Mohan Reddy, learned counsel for
the assessee company.
        Sri Nishanth Thakkar, learned counsel, raised a preliminary
objection as to the maintainability of the revenues appeal in
I.T.T.A.No.71 of 2014.  He would contend that it is not open to the
revenue to now claim that Article 13(4) of the DTAA would have
application as the AO, and thereafter, the CIT(A) specifically held
that Article 13(4) of the DTAA had no application to the transaction
in question.  He would further contend that once the Tribunal
disagreed with the conclusion of the AO and the CIT(A) that Article
13(1) of the DTAA had application to the transaction, the revenue
necessarily has to limit its appeal to this aspect of the matter and
could not now claim that Article 13(4) of the DTAA could be
invoked to bring the transaction within the Indian taxation regime.
        Learned counsel also advanced various contentions on the
merits of the matter, including applicability of Section 10(23G) of
the Act to the case on hand.  However, as the preliminary issue
raised by him goes to the very maintainability of this appeal, we
deem it appropriate to consider the same at the threshold.
        At the outset, it may be noticed that Article 13(4) of the DTAA
is in two parts.  Firstly, it states that gains derived by a resident of
one of the States from alienation of shares, other than shares
quoted on an approved stock exchange, forming a substantial
interest (25%) in the capital stock of a company which is a resident
of the other State, the value of which shares is derived principally
from immovable property situated in that other State, would be
taxed in that other State.  This is the inclusive clause whereby the
State in which the property is situated gains ascendance. The
exclusionary clause however states that in the event value of such
shares is derived principally from immovable property in which the
business of the company is carried on, the capital gains arising
from the sale thereof would not be taxed in the State where the
property is situated.
      Significantly, under show-cause notice dated 23.04.2007,
while calling upon the assessee company to furnish its reply as
regards the exemption claimed by it under the DTAA, the AO stated
as under:
VITP is engaged in the business of providing infrastructure
facilities for software development companies under STP
scheme and as part of pursuit of this object VITP has
established and the value of the shares of the VITP is derived
principally from the said infrastructure facilities of the
Software Park which are leased out to and used by the
100% EOU software companies and thus the same cannot be    
said to be the property in which the business of VITP is
carried on, though the said Software Park is a business
asset of VITP. And since the capital gains in question arise
from the sale of shares of VITP, the principal value of which
is derived not from immovable property in which the
business of VITP is carried on, the same are chargeable to
tax in India as per the DTAA.  Hence, your claim that the
capital gains are not chargeable to tax in India under the
Income-tax Act, 1961 is without any merit.

      The import of this notice, therefore, was that the inclusive
clause of Article 13(4) of the DTAA would apply, making the capital
gains earned by the assessee company taxable in India.
      In its reply dated 03.05.2007, the assessee company stated
that under Article 13(4) of the DTAA, capital gains arising from the
sale of shares of an Indian company would be liable to tax in India
only if the value of such shares is derived primarily from
immovable property held by such Indian company, other than
property in which its business is carried on. It pointed out that
VITP Limited was engaged in the business of providing
infrastructure facilities for software development companies under
the STP scheme and pursuant thereto, the value of its shares was
derived principally from the said infrastructure facilities/software
park which were leased out to and used by the 100% EOU software
companies. The assessee company therefore asserted that the
immovable property owned by VITP Limited was used for the
purpose of its business and therefore, the value of its shares was
derived principally from the said immovable property.  The capital
gains arising from sale of such shares was therefore claimed to be
exempt as per the exclusionary clause in Article 13(4) of the DTAA.
        The assessment order dated 25.02.2008 reflects that this
explanation of the assessee company found favour with the AO.
This is evident from the fact that the AO observed, time and again,
that there was no dispute regarding non-applicability of Article
13(4), which merely provided for taxation in India of capital gains
in respect of transfer of shares whose value mainly comprised non-
business immovable property located in India and that the
provisions of Article 13(4) were therefore not applicable to the
present facts.  Having opined so, the AO went on to hold that such
transfer of shares would fall within Article 13(1) of the DTAA as the
shares partake the character of immovable property.
        Basing on the initial interpretation of Article 13(4) by the AO
and the change in her views, after considering the reply of the
assessee company, Sri Nishanth Thakkar, learned counsel, would
contend that once the said changed view was confirmed in appeal
by the CIT(A), it was not open to the Director of Income-tax,
(International Taxation), Hyderabad, the appellant in this appeal,
to urge an argument which would result in varying the said
finding in the assessment order which was confirmed in appeal.
Learned counsel would contend that permitting him to do so at
this stage would be nothing short of allowing him to exercise
revisionary jurisdiction under Section 263 of the Act. Learned
counsel would point out that the same is barred by the law of
limitation as the provision itself indicates that such power could be
exercised only within two years from the end of the financial year
in which the order was passed. Learned counsel would state that
the statutory provisions which permit varying the findings in an
assessment order are: (i) Section 147, (ii) Section 154 and (iii)
Section 251. As the AO had taken a conscious decision that Article
13(4) had no application to the present case, reversing her initial
interpretation of Article 13(4) as set out in the notice dated
23.04.2007, learned counsel would assert that neither Section 147
relating to reopening the assessment nor Section 154 relating to
rectification of mistakes had any role to play.  Learned counsel
would point out that under the Explanation to Section 251(2), the
CIT(A) was empowered to consider and decide any matter arising
out of the proceedings in which the order appealed against was
passed, notwithstanding that such matter was not raised before
him.  Learned counsel would further point out that under Section
250(1) of the Act, the AO was given notice of the appeal to be heard
by the CIT(A) and had the right to raise this issue, if any doubt was
entertained by the AO as regards applicability of Article 13(4) of the
DTAA to the present case. He would therefore contend that the AO
and the CIT(A) had ample opportunity to seek to undo the finding
as regards non-applicability of Article 13(4) of the DTAA to the
transaction in question but they failed to do so.
      It may be noticed that even in the report submitted to the
CIT(A), the AO reiterated that, by transferring shares held in VITP
Limited to Ascendas, the assessee company transferred its
controlling rights and the rights of enjoyment in respect of
immovable property situated in India, whereby Article 13(1) of the
DTAA stood attracted. The CIT(A) accordingly restricted his
consideration to whether the income from the transaction in
question was taxable within the meaning of Article 13(1) of the
DTAA and, while upholding the finding of the AO as regards non-
applicability of Article 13(4), he confirmed applicability of Article
13(1) of the DTAA to the transaction. In effect, neither the AO nor
the CIT(A) chose to raise the issue as to applicability of Article 13(4)
to the transaction, in the place of Article 13(1) of the DTAA.  The
confirmed finding of both was that the transaction in question was
taxable in India only under Article 13(1) of the DTAA.        
      It may also be noted that Section 253(4) of the Act
empowered the AO to file cross-objections before the Tribunal after
receipt of notice in the appeals filed by the assessee company and
raise the issue as to applicability of Article 13(4) of the DTAA, if any
doubt had been entertained in this regard at least at that stage.
However, the AO did not choose to do so.  It is only before this
Court that the issue is sought to be raised now, having been
dropped by the AO after the initial notice dated 23.04.2007.  No
argument in this regard was ever advanced by the departmental
representative on behalf of the revenue before the Tribunal. In that
view of the matter, the submission of Sri Nishanth Thakkar,
learned counsel, that permitting the revenue to argue at this stage
that capital gains arising from the transaction in question are
taxable under Section 13(4) of the DTAA would amount to
circumventing restrictions built into the statute to secure finality to
the assessment order, merits serious consideration.
        An abundance of case law was cited by Sri Nishanth
Thakkar, learned counsel, in support of his contention:
        In ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE          
16(1), MUMBAI V/s. PRAKASH L.SHAH , the Mumbai Bench of      
the Income Tax Appellate Tribunal observed that the power to
modify the assessment order to the advantage of the revenue, apart
from suo motu action by the Assessing Officer under Sections 147
or 154, lies only with the CIT under Section 263, which cannot be
usurped by the departmental representative while arguing the
appeal. Scope of arguments of the departmental representative is
restricted to support the view taken by the Assessing Officer and he
can strengthen the view taken by the Assessing Officer from any
angle he likes, but cannot bring out an altogether different case de
hors the view of the Assessing Officer.  It was further observed that
his area of arguments is unlimited but within the boundary limits
marked by the Assessing Officer.  This judgment attained finality
as no appeal was preferred by the revenue.
        In MAHINDRA & MAHINDRA LTD. V/s. DEPUTY      
COMMISSIONER OF INCOME-TAX, TDS RANGE 1(1), MUMBAI ,          
the Mumbai Bench of the Income Tax Appellate Tribunal was
dealing with the issue as to whether an additional ground as to the
order passed by the Assessing Officer being void ab initio as it was
barred by limitation could be raised for the first time before it.
Observing that it is the settled legal position that there can be no
embargo on any party raising a legal ground for the first time,
provided relevant material for deciding that question already exists
on record and no further investigation of facts is required,  the
Mumbai Bench held that the question of limitation would go to the
very jurisdiction and the right of the assessee to raise an additional
ground of limitation before it for the first time could not be
curtailed as it involved a question of law and no fresh investigation
of facts was called for. The additional ground of appeal was
therefore admitted for consideration on merits. As regards the
contention of the revenue that the double taxation avoidance
agreement between India and the United Kingdom had no
application to the payments made by the assessee, the Bench
found that at no stage did the Assessing Officer deny that the said
agreement was not applicable.  In such a situation, the Bench held
that it is impermissible for the departmental representative to come
out with a submission contrary to the finding of the Assessing
Officer.  The Bench observed that it could not permit the
departmental representative to take a contrary stand from the one
taken by the Assessing Officer as he had no jurisdiction to go
beyond the order passed by the Assessing Officer and raise a point
different from that considered by the Assessing Officer or the
CIT(A).  The Bench further observed that the scope of his
arguments was confined to supporting or defending the impugned
order and the departmental representative could not set up an
altogether different case and allowing him to take up a new
contention de hors the view taken by the Assessing Officer would
mean that the departmental representative was stepping into the
shoes of the CIT exercising jurisdiction under Section 263.  In
appeal, the Bombay High Court in DIRECTOR OF INCOME-TAX    
(INTERNATIONAL TAXATION) V/s. MAHINDRA & MAHINDRA          
LTD.  confirmed this judgment.  Significantly, the only issue raised
before the High Court was with regard to the limitation aspect and
not with regard to the power of the revenue to raise a ground in
appeal contrary to the assessment order.
        In ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE          
6(3) V/s. MAERSK GLOBAL SERVICE CENTRE (INDIA) (P.) LTD. ,      
the Mumbai Bench of the Income Tax Appellate Tribunal observed
that the departmental representative has a duty to defend the order
of the Assessing Officer while arguing the appeal filed by the
revenue and is fully competent and free to support the reasoning of
the Assessing Officer from any other angle so as to put forward a
strong case for the revenue.  The Bench however pointed out that
there is a marked distinction between supporting the order of the
Assessing Officer on the one hand and in finding flaws in the order
of the Assessing Officer in an attempt to show that the Assessing
Officer had failed to do what was required to be done by him.  The
Bench observed that, in its considered opinion, if the departmental
representative was allowed to fill in the gaps left by the Assessing
Officer, it would amount to conferring jurisdiction of the CIT under
Section 263 upon the departmental representative, which is not
permitted by the statute.  The Bench therefore concluded that the
departmental representative could not be allowed to argue contrary
to what has been done by the Assessing Officer as the same is not
permissible within the framework of the statutory provisions. This
order was confirmed by the Bombay High Court in THE
COMMISSIONER OF INCOME TAX-6, MUMBAI V/s. M/S. MAERSK            
GLOBAL SERVICE CENTRE (I) PVT. LTD. . The Bombay High      
Court observed that the Income Tax Appellate Tribunal had not
allowed the revenues representative to travel beyond the order of
the Transfer Pricing Officer and the Assessing Officer so as to make
out a different case and held that it was fully justified in doing so.
        In COMMISSIONER OF INCOME-TAX V/s. KELVINATOR OF          
INDIA LTD. , a Full Bench of the Delhi High Court observed that
when the Assessing Officer considered the matter in detail and the
view taken is a possible one, the order cannot be changed by way
of exercising jurisdiction for rectification of a mistake under
Section 154.  It was further observed that it is well settled that
what cannot be done directly cannot be done indirectly and if the
Assessing Officer did not possess the power of review, he cannot be
permitted to achieve the said objective by taking recourse to
initiating a proceeding of reassessment or by way of rectification of
a mistake.  It was further pointed out that in a case of this nature,
the revenue is not without remedy as Section 263 of the Act
empowered the Commissioner to review an order which is
prejudicial to the revenue.  This judgment was confirmed by the
Supreme Court in COMMISSIONER OF INCOME-TAX, DELHI V/s.        
KELVINATOR OF INDIA LTD. .  Therein, the Supreme Court  
observed that reopening of the assessment under Section 147
could be done under the conditions mentioned therein, i.e., if the
Assessing Officer has reason to believe that any income chargeable
to tax has escaped assessment.  The Supreme Court further
observed that one needs to give a schematic interpretation to the
words reason to believe, failing which, Section 147 would give
arbitrary powers to the Assessing Officer to reopen assessments on
the basis of a mere change of opinion, which cannot be, per se, a
reason to reopen.  The Supreme Court pointed out that one must
keep in mind the conceptual difference between power to review
and power to reassess, and as the Assessing Officer has no power
of review but only has the power to reassess, it must be based on
fulfillment of certain preconditions and in the garb of reopening
the assessment, a review cannot be permitted to take place.  This
judgment was cited in the context of the Assessing Officer himself
being bound by his finding that Article 13(4) had no application
and, therefore, what could not be done by him could not be
achieved indirectly in the present appeal.
        In MORGAN SECURITIES AND CREDITS PVT. LTD. V/s.        
MOREPEN LABORATORIES LTD. , a learned Judge of the Delhi    
High Court observed that allowing a judgment-debtor to raise
objections to an Award despite failing to file an application under
Section 34 of the Arbitration and Conciliation Act, 1996 within
time, would be to allow him to indirectly do something which he
could not do directly.  This view was confirmed in appeal by a
Division Bench of the Delhi High Court in MOREPEN
LABORATORIES LTD. V/s. MORGAN SECURITIES AND CREDITS            
PVT. LTD. .  These judgments are pressed into service in support
of the contention that it is no longer open to the revenue to exercise
revisional power under Section 263 of the Act after expiry of the
prescribed limitation period.
        In JAGIR SINGH V/s. RANBIR SINGH , the Supreme Court    
was considering whether revisional jurisdiction under Section 397
CrPC could be exercised by the High Court. The Supreme Court
observed that the object of Section 397(3) CrPC was to prevent
multiple exercises of revisional powers so as to secure finality to the
order.  A person aggrieved by an order of an inferior Criminal Court
is given the option to approach either the Sessions Judge or the
High Court and once he exercises the option, he is precluded from
invoking the revisional jurisdiction of the other authority.  This
judgment is relied upon to support the contention that it is too late
in the day for the revenue to seek to exercise revisional jurisdiction
under Section 263 of the Act, having failed to do so at the
appropriate time.
        Sri Nishanth Thakkar, learned counsel, would further
contend that under Section 260A (6) of the Act, this Court is
empowered to determine any issue which has not been determined
by the Tribunal or has been wrongly determined by the Tribunal.
He would point out that as applicability of Article 13(4) of the
DTAA to the transaction was never raised before the Tribunal, it
cannot be permitted to be raised before this Court for the first time
in third appeal.  Learned counsel would point out that no
arguments were advanced by the revenue on the applicability of
Article !3(4) and therefore, the Tribunal proceeded on the basis that
it could not be invoked, as the immovable property of the Indian
company was used in its business, and only considered
applicability of Article 13(1).  Learned counsel would therefore
argue that applicability of Article 13(4) does not arise for
consideration out of the order under appeal.  Reliance in this
regard is placed by him upon the following precedents:
        In COMMISSIONER OF INCOME-TAX V/s. TATA      
CHEMICALS LTD. , a Division Bench of the Bombay High Court  
was dealing with the contention that though a question was not
raised before the Income Tax Appellate Tribunal, Section 260A(6)(a)
of the Act empowered the High Court to determine any issue which
was not determined by such Tribunal.  The Division Bench
observed that a careful reading of the section would show that the
High Court can decide only that question which was raised but not
determined by such Tribunal and therefore, it is necessary that the
question sought to be raised ought to have been raised before such
Tribunal and then, if it has not determined it, one can say that it
has not been determined by such Tribunal and the High Court
should look into it.  On facts, the Bench found that the issue was
not raised before the Income Tax Appellate Tribunal and therefore
did not choose to dwell on the same.
        In C & C CONSTRUCTION (P.) LTD. V/s. COMMISSIONER OF        
INCOME-TAX , a Division Bench of the Delhi High Court was
dealing with the issue as to whether a contention which was not
raised before the Income Tax Appellate Tribunal could be decided
by the High Court by taking recourse to Section 260A(6)(a) of the
Act.  The Bench observed that the word determined means that
the issue was not dealt with though it was raised before such
Tribunal as the word determined presupposes that an issue was
raised or argued but there was failure on the part of such Tribunal
in deciding or adjudicating the same.  The Bench further observed
that in a given case, a substantial question of law may arise
because of the facts and findings recorded by the Income Tax
Appellate Tribunal, but the said issue/question is not determined.
In such cases, the Bench observed that an appeal under Section
260A of the Act can be entertained.
        In COMMISSIONER OF INCOME-TAX V/s. PRABHAT        
ZARDA FACTORY , a Division Bench of the Patna High Court  
upheld the plea that a contention raised before it was never raised
by the department at any stage, be it before the Assessing Officer or
the Income Tax Appellate Tribunal, and therefore, it was not open
to the revenue to raise the same in appeal.
        In DAVANGERE MAGANUR BASSAPPA V/s. INCOME-TAX            
OFFICER , a Division Bench of the Karnataka High Court found
that the ground sought to be raised before it had not been raised
by the assessee before the Income Tax Appellate Tribunal and held
that if the assessee failed to raise the question before the said
Tribunal, he could not raise it for the first time in appeal.
        In COMMISSIONER OF INCOME TAX-11, MUMBAI V/s. M/S.        
KANGA & CO. , a Division Bench of the Bombay High Court  
observed that it was unable to understand how an additional
question of law could arise from the impugned order of the Income
Tax Appellate Tribunal, when no foundation had been laid for the
same before the authorities or the said Tribunal.  The Bench
observed that the question did not arise from the order of the said
Tribunal and therefore, such a question could not be urged in the
appeal under Section 260A of the Act.  The Bench further observed
that there are questions of fact which ought to be raised before the
authorities and in the absence thereof, the additional question of
law sought to be raised by the revenue could not be considered.
        In COMMISSIONER OF INCOME-TAX V/s. EICHER LTD. , a      
Division Bench of the Delhi High Court rejected a new contention
urged by the revenue on the ground that no such plea had been
taken before the Income Tax Appellate Tribunal and the entire case
was argued on a different basis.  The Bench observed that even
before the Commissioner (Appeals), the matter proceeded on the
same basis and once no such plea, as was being advanced before it,
was taken by the department before the Commissioner (Appeals) or
before the Income Tax Appellate Tribunal, it could not be raised for
the first time in the appeal filed under Section 260A of the Act.
        In COMMISSIONER OF INCOME-TAX V/s. JAYSHREE          
GEMS & JEWELLERY , a Division Bench of the Delhi High Court  
was dealing with disallowance of certain expenses by the Assessing
Officer. The claim for allowing such expenses was upheld by the
Income Tax Appellate Tribunal. The Bench observed that the
grounds of appeal urged before the said Tribunal did not disclose
that the revenue had ever argued that the claim for reduction of
these amounts itself evidenced that the appellant did not carry on
any manufacturing activity.  The Bench therefore concluded that
the revenue could not be permitted to urge this new aspect for the
first time under Section 260A of the Act.
        As applicability of Article 13(4) of the DTAA was never put in
issue before the Tribunal, Sri Nishanth Thakkar, learned counsel,
would contend that there was no determination by the Tribunal of
the same, whereby the revenue could now ask this Court to sit in
appeal over such determination and examine the validity thereof.
      Reliance is placed on JASWANT SUGAR MILLS LTD.,  
MEERUT V/s. LAKSHMICHAND  in this regard.  Therein, the  
Supreme Court observed that the expression determination
signifies an effective expression of opinion which ends a
controversy or a dispute by some authority to whom it is submitted
under a valid law for disposal and the expression order must also
have a similar meaning, except that it need not end the dispute.
      Sri Nishanth Thakkar, learned counsel, would advert to the
arguments advanced by the departmental representative on behalf
of the revenue before the Tribunal, referred to in paragraph 16 of
the common order under appeal, and point out that the entire
emphasis was only on applicability of Article13(1) of the DTAA and
no arguments whatsoever were urged as to applicability of Article
13(4) thereof.  In consequence, he would point out that the
Tribunal recorded in paragraph 32 of the order that since the
assets of the Indian company are immovable property but were
used in its business, Article 13(4) cannot be invoked.  Learned
counsel would therefore contend that as this issue was treated as a
foregone conclusion, no opportunity was ever given to the assessee
company to establish, on facts, as to how it would fall within the
exclusionary part of Article 13(4), whereby the capital gains earned
by it would not be subject to taxation in India.
      Learned counsel would further submit that even if the
Tribunal had determined an issue which was not in dispute before
it, such determination would be liable to be struck down.  He
placed reliance on KARNATAKA STATE FOREST INDUSTRIES        
CORPN. LTD. V/s. COMMISSIONER OF INCOME-TAX , wherein a        
Division Bench of the Karnataka High Court held that the power of
the Income Tax Appellate Tribunal in an appeal arising under
Section 254 can be exercised only in relation to the grounds
arising in the appeal and it cannot go beyond its scope and decide
a question which did not form the subject matter of the appeal.
      In MCORP GLOBAL (P.) LTD. V/s. COMMISSIONER OF      
INCOME-TAX, GHAZIABAD , the Supreme Court, relying on    
HUKUMCHAND MILLS LTD. V/s. CIT , reiterated that the Income  
Tax Appellate Tribunal is not authorized to take back the benefit
granted to an assessee by the Assessing Officer and that it has no
power to enhance the assessment.
        In ESTER INDUSTRIES LTD. V/s. COMMISSIONER OF        
INCOME-TAX , a Division Bench of the Delhi High Court observed
that the assessee therein, in fourth appeal maintainable only on
the ground of a substantial question of law under Section 260A of
the Act, could not be allowed to raise a contention afresh so as to
set the ball rolling back once again to the Assessing Officer after a
lapse of several years.
      In VAN OORD ACZ INDIA (P.) LTD. V/s. COMMISSIONER OF    
INCOME-TAX , a Division Bench of the Delhi High Court was
concerned with the plea of the assessee that it was not liable to pay
any tax in India, a plea which had been accepted by the income-tax
authorities.  The return filed by the assessee was processed under
Section 143(a)(i) of the Act. But it was sought to be contended by
the revenue before the High Court that there was no determination
of the issue involved.  The Bench observed that the fact remained
that by accepting the return as filed, the assessee had been
refunded tax at source and the implication thereof was that it was
not liable to pay tax.  In case a higher authority passes an order to
the contrary, it would be open to the authorities to treat the
assessee as in default but without the same, the position was that
the assessee could not be treated as liable to pay any tax.
      Learned counsel would therefore contend that it is not open
to this Court, in exercise of appellate jurisdiction under Section
260A of the Act, to do what the Tribunal itself could not have done
in the light of the aforestated judgments.  He would vigorously
contend that it is not open to the revenue to now argue that Article
13(4) of the DTAA would have application, contrary to the findings
recorded by the AO and the CIT(A).
          Answering the aforestated preliminary objections as to the
maintainability of this appeal, Ms. K.Mamata Choudary, learned
senior standing counsel, would contend that Article 13(4) of the
DTAA would be applicable on facts to the present case and in terms
thereof, the assessee company is liable to be taxed in India.  She
would assert that the interpretation and applicability of the correct
provision of the DTAA is purely a question of law and not of fact
and could therefore be determined in the present appeal.  She
would point out that Article 13(4) of the DTAA was put in issue by
the assessee company itself right from the stage of the show-cause
notice dated 23.04.2007 and therefore, it cannot be said that the
issue is being raised for the first time.  She would point out that by
virtue of the reopening of the assessment under Section 147 of the
Act, the AO could not have introduced Article 13(4) of the DTAA as
it would amount to a change in opinion, which is impermissible in
exercise of Section 147 jurisdiction.  She would further state that
revisional power under Section 263 of the Act could not have been
exercised as the order of the AO was not prejudicial to the interests
of the revenue.  She would argue that it is well within the power of
this Court to entertain this issue for consideration in the present
appeal by exercising power under Section 260A(6) of the Act.  She
would point out that the grounds of appeal filed by the assessee
company before the CIT(A) specifically raised this issue, as is
evident from paragraph 3 of the order dated 25.03.2011 passed by
the CIT(A).  She would also point out that the Tribunal took note of
the contention of the AO that the subject capital gains were taxable
in India under Article 13(1) whereas the assessee claimed
exemption by virtue of Article 13(4) and (5) of the DTAA and
contend that it is not open to the assessee company to now state
that Article 13(4) was never in issue.
        In response to the aforestated contentions of the learned
senior standing counsel, Sri Nishanth Thakkar, learned counsel,
would contend that the grounds of appeal filed by the assessee
company merely asserted that the AO erred in law and on facts in
applying Article 13(1) of the DTAA as the provisions of Article 13(4)
and Article 13(5) were specifically applicable to the case, as they
dealt with capital gains arising from alienation of shares.
        Having considered the rival submissions in the light of the
case law cited, we are of the opinion that the question as to
whether applicability of Article 13(4) of the DTAA was raised before
the CIT(A) or the Tribunal is only one facet of the matter. The fact
remains that the AO, having initially opined that the inclusive
clause in Article 13(4) of the DTAA would be applicable to the
transaction thereby making it taxable in India, thereafter accepted
the plea of the assessee company that it was not applicable. This
acceptance by the AO is explicit from the assessment order.  Having
agreed with the assessee company on this aspect, the AO held that
Article 13(1) of the DTAA would be applicable to the transaction.
This finding, which was confirmed in appeal by the CIT(A), is now
sought to be discarded by the revenue.  The learned senior
standing counsel fairly concedes that Article 13(1) was wrongly
applied by the authorities to the transaction and contends that it is
Article 13(4) which would have application, as the exclusionary
clause therein would not apply. The record however reflects that
this issue was never raised by the revenue before the Tribunal.
        That apart, we are at a loss to understand as to why the
revenue did not choose to exercise revisionary power under Section
263 of the Act at the appropriate time in the event this error on the
part of the AO in applying Article 13(1) of the DTAA was noticed.  It
is relevant to note that Section 263 of the Act permits revision of
any order of the Assessing Officer if the Principal Commissioner/
Commissioner considers such order to be erroneous in so far as it
is prejudicial to the interests of the revenue.
        In MALABAR INDUSTRIAL COMPANY LIMITED V/s.        
COMMISSIONER OF INCOME TAX, KERALA , the Supreme Court          
held that a bare reading of Section 263 made it clear that the
pre-requisite for exercise of revisional jurisdiction was that the
order of the Assessing Officer should be erroneous in so far as it
was prejudicial to the interests of the revenue.  Therefore, the
revisional authority had to be satisfied that (i) the order of the
Assessing Officer was erroneous and (ii) it was prejudicial to the
interests of the revenue.  The Supreme Court further observed that
the phrase prejudicial to the interests of the revenue has to be
read in connection with the erroneous order passed by the
Assessing Officer and in the event, the Assessing Officer adopted
one of the courses permissible in law, which had resulted in loss of
revenue, or where two views were possible, and the Assessing
Officer had taken one view with which the Commissioner did not
agree, it could not be treated as an erroneous order prejudicial to
the interests of the revenue, unless the view taken by the Assessing
Officer was unsustainable in law. This view was reiterated in
COMMISSIONER OF INCOME TAX V/s. MAX INDIA LIMITED .  It      
is therefore clear that in the event the order of the Assessing Officer
is erroneous, being unsustainable in law, it can be revised in
exercise of power under Section 263 of the Act.
      In the present case, it is fairly conceded by the learned senior
standing counsel that the finding of the AO, which was confirmed
thereafter in appeal, that Article 13(1) of the DTAA would apply to
the alienation of shares by the assessee company treating the same
as sale of immovable property, was erroneous being contrary to the
settled legal position, both as regards application of the definition
of immovable property in the Act,  as well as the legal status of a
corporate entity when juxtaposed to its shareholders.  That being
so, it was well within the power of the Commissioner to exercise
jurisdiction under Section 263 of the Act at the right time so as to
set right this misconceived notion of the AO. However, no such
exercise was undertaken within time. Notwithstanding the same, it
was still open to the CIT(A) to exercise jurisdiction under the
Explanation to Section 251(2) of the Act and set right this wrong.
However, neither the AO, who did not choose to amend her
blunder by raising this issue when called upon to submit a report,
nor the CIT(A), who blindly accepted the finding of the AO that
Article 13(1) of the DTAA would govern the transaction while
approving her finding that Article 13(4) of the DTAA had no
application, took remedial steps at the right time. Even thereafter,
it was open to the revenue to raise the issue before the Tribunal by
filing cross-objections.  Alas, at that stage also, the revenue did not
choose to wake up.  It is only before this Court that the issue as to
whether the transaction in question would fall within Article 13(4)
of the DTAA was raised, in the substantial questions of law framed
in the grounds of appeal.  In effect, the revenue now wants to fall
back on the initial view taken by the AO in the show-cause notice
dated 23.04.2007.  Much water has flown under the bridge since
that date as the AO, being satisfied with the reply of the assessee
company under its letter dated 03.05.2007, accepted its plea that
the exclusionary clause under Article 13(4) would apply to the
transaction, contrary to her initial view and, thereupon, went on to
arrive at the misconceived opinion that Article 13(1) of the DTAA
would be applicable, by treating the sale of shares as equivalent to
sale of immovable property.  Therefore, notwithstanding the stray
mention of Article 13(4) of the DTAA in the proceedings before the
CIT(A) and thereafter, before the Tribunal, the irrefutable fact
remains that the AO arrived at the considered conclusion that
Article 13(4) would not apply to the transaction and that it would
be taxable in India only under Article 13(1). This finding was
confirmed in appeal and was never challenged before the Tribunal
by way of cross-objections. It is therefore too late in the day for the
revenue to introduce this new element in the third appeal before
this Court.
      We are not inclined to agree with the learned senior standing
counsel for the revenue that the question as to applicability of
Article 13(4) of the DTAA would be a pure question of law. Whether
immovable property from which the companys shares principally
derived their value was property in which the business of the
company was carried on or not is a question of fact.  As rightly
pointed out by Sri Nishanth Thakkar, learned counsel, this aspect
of the matter was never put in issue, be it before the CIT(A) or
before the Tribunal.  The assessee company was therefore never put
on notice that it had to tender evidence on this aspect. Without a
factual finding as to whether the immovable property of VITP
Limited was property in which its business was carried on, the
question of applying one or the other parts of Article 13(4) at this
stage would not arise.  In consequence, the contention of the
learned senior standing counsel that interpretation of Article 13(4)
of the DTAA is purely a question of law does not merit acceptance.
Therefore, the issue of applicability of Article 13(4) of the DTAA to
the subject transaction, so as to make it taxable in India, cannot be
permitted to be raised at this late stage.
      Thus, the appeal would necessarily have to be restricted to
the finding of the Tribunal that Article 13(1) of the DTAA had no
application to the transaction.
      As already pointed out, the learned senior standing counsel
concedes this position and accepts that the finding of the Tribunal
to this effect is valid and correct. Even otherwise, we are not
inclined to disturb this finding of the Tribunal.
      In VODAFONE INTERNATIONAL HOLDINGS B.V.2, the      
Supreme Court pointed out that a company is a separate legal
persona and the fact that all its shares are owned by one person
has nothing to do with its separate legal existence. This being the
settled legal position, the ridiculous analogy adopted by the AO
that by virtue of their shareholding in the company, the
shareholders acquire rights in the property owned by such
company does not withstand judicial scrutiny. Further, the AO and
the CIT(A) failed to note the difference between alienation of the
companys immovable property, falling under Article 13(1) of the
DTAA, and alienation of the companys shares by a shareholder,
attracting Article 13(4) or (5) thereof.  The legal distinction between
the concept of a share sale as opposed to an asset sale, succinctly
summed up by the Supreme Court in VODAFONE    
INTERNATIONAL HOLDINGS B.V.2 , was completely ignored by the    
AO and the CIT(A). Further, the AO and the CIT(A) erred in
equating alienation of a companys shares to alienation of its
immovable property, by applying the ludicrous logic that shares
partake the character of immovable property.  Thus, on both
counts, the finding of the Tribunal does not warrant interference.
As the learned senior standing counsel fairly concedes this point,
we need not belabour further.
      As we are not inclined to entertain the new issue as to
applicability of Article 13(4) of the DTAA to the transaction, so as to
make it taxable in India, the arguments advanced by both sides as
well as the case law cited need no further discussion.
      That being so, as the Tribunal rightly held that alienation of
shares by the assessee company to Ascendas did not fall under
Article 13(1) of the DTAA and that the residuary clause in Article
13(5) thereof would have application, we confirm the finding of the
Tribunal that the capital gains earned by the assessee company
from the subject transaction are covered by the exemption afforded
by Article 13(5) of the DTAA and the same would therefore not be
taxable in India.
      In the light of our aforestated finding, we are not required to
go into the alternate claim of the assessee company that it is also
entitled to exemption from taxation under Section 10(23G) of the
Act.  The arguments advanced in this regard as well as the case law
cited are accordingly eschewed from further consideration.
      The last issue is as to whether the interest paid to the
assessee company by Ascendas is taxable in India.  The finding of
the AO, as confirmed by the CIT(A), was that the same was liable to
be taxed in India by virtue of Section 9(1)(v) of the Act.  However, as
rightly pointed out by the Tribunal, the provisions of the
aforestated section cannot be stretched beyond what has been spelt
out therein in clear terms.  The relevant part of the section merely
states that income by way of interest payable by a person who is a
non-resident, where such interest is payable in respect of any debt
incurred, or moneys borrowed and used, for the purposes of a
business or profession carried on by such person in India, would
be deemed to be income accruing or arising in India.  On the face of
it, Section 9(1)(v) has no applicability whatsoever to the interest
paid to the assessee company by Ascendas as there is no evidence
of a debt being incurred or monies being borrowed for any
business purposes in the present case.
      While so, it is contended by Ms. K.Mamata Choudary,
learned senior standing counsel, that the provision of law which is
actually applicable is Section 9(1)(i) and not Section 9(1)(v).  This
provision reads to the effect that all income accruing or arising,
whether directly or indirectly, through or from any business
connection in India, or through or from any property in India, or
through or from any asset or source of income in India, or through
the transfer of a capital asset situated in India would be deemed to
have accrued or arisen in India.  Ms. K.Mamata Choudary, learned
senior standing counsel, would contend that as the interest arose
out of the transaction involving transfer of a capital asset in India,
it would be taxable in India.  She would further contend that
Article 11 of the DTAA has no application to this payment of
interest, as it stood excluded therefrom being penal interest.
      Per contra, Sri Nishanth Thakkar, learned counsel, would
assert that the subject payment of interest was not by way of a
penalty. He would rely on the letter dated 15.02.2005 addressed by
Ascendas to the assessee company. Thereunder, Ascendas referred  
to the Share Purchase Agreement dated 17.12.2004 and the
closing date recorded therein and stated that, notwithstanding the
satisfaction or waiver of the conditions precedent set forth in
Schedule VIII of the said agreement, the parties had agreed to defer
the closing date in consideration of payment of interest as follows:
Ascendas undertook that it would pay interest at 7% per annum on
INR 169.50 crore with effect from 15.02.2005 and the same would
be payable until completion of the transaction.  Learned counsel
would state that it was by virtue of this agreement between the
parties to defer the closing date that Ascendas undertook to pay
interest for such delayed payment of the sale consideration.
Further, he would rely on Article 11 of the DTAA.
      Article 11(1) states that interest arising in one of the States
and paid to a resident of the other State would be taxed in that
other State. Therefore, the interest arising out of sale of shares of
VITP Ltd. but paid to the assessee company in Netherlands would
normally be taxable in Netherlands.  However, Article 11(6) makes
it clear that the term interest as used in the Article means income
from debt-claims of every kind, but penalty charges for late
payment shall not be regarded as interest for the purpose of the
said Article.
      Sri Nishanth Thakkar, learned counsel, would contend that
as both the parties to the sale of shares had mutually agreed to
defer the closing date and Ascendas voluntarily undertook to pay
interest for such late payment of the sale consideration, the same
does not partake the character of penalty charges.  We find merit in
this contention.
      It is significant to note that the AO opined that the interest
arose through a transaction involving sale of a capital asset
situated in India and would therefore be deemed to have accrued or
arisen in India.  But the CIT(A) found in appeal that this interest
was inextricably linked to the original transaction of sale of shares
and therefore, payment of interest arose as a part of the said
transaction.  He therefore concluded that the payment for the sale
of shares of VITP Limited involved two components, i.e., the
original payment and the penal payment on account of delay, and
therefore the interest payment could not be divorced from the
original payment, as both pertained to the same transaction.  In
effect, the CIT(A) held it to be part of the sale consideration itself.
The Tribunal, on the other hand, held that Section 9(1)(v) had no
application whatsoever and if the interest payment was construed
to be part of the sale consideration, it would stand exempted from
taxability in India by virtue of the DTAA.
      Before us, the question of law raised in relation to this aspect
is that the interest either accrued or arose or is deemed to have
accrued or arisen in India.  Even if so, such interest income would
not be taxable in India by virtue of Article 11 of the DTAA unless it
is covered by the exclusion in Article 11(6) thereof. The issue,
therefore, is whether the interest paid qualifies as penalty charges
for late payment as per Article 11(6), whereby the exemption
afforded by the said Article would stand excluded.  If not, the
exemption afforded by Article 11(1) would squarely apply and the
interest paid by Ascendas to the assessee company in Netherlands 
owing to the sale of shares of VITP Ltd. would not be taxable in
India.
      Perusal of the Share Purchase Agreement dated 17.12.2004
reflects that the closing date was stipulated under Clause 4.1
thereof to be no later than 90 days from the effective date, being the
date of execution of the agreement.  It was further provided that in
the event the conditions precedent under Clause 5 were not
fulfilled or not waived by the buyer on or before 90 days from the
effective date or the extended date mutually agreed, the parties
would have the right to rescind the agreement without any liability
towards each other.  Significantly, no penalty charges for late
payment were envisaged in the aforestated agreement.  On the
other hand, the agreement contemplated extension of the closing
date by the parties. It appears that the closing date, which could be
mutually extended, was so extended as recorded in the letter dated
15.02.2005 addressed by Ascendas to the assessee company.  As  
consideration for such extension of the closing date, Ascendas
undertook to pay interest at 7% per annum on the sale
consideration, payment of which stood deferred consequent to the
extension of the closing date.  In effect, payment of the said interest
did not partake the nature of penalty charges as it was not penal in
character, in any manner.  Therefore, Article 11(1) of the DTAA
applied on all fours, and irrespective of whether such interest
accrued or arose or is deemed to have accrued or arisen in India
under Section 9(1)(i) of the Act, it stood exempted from taxation in
India under the DTAA.  The finding of the Tribunal to this effect
therefore does not warrant interference.
      The questions of law arising in this appeal are answered
accordingly.  In consequence, I.T.T.A.No.71 of 2014 is dismissed.
      As we have upheld the order of the Tribunal holding that the
capital gains arising out of the sale of shares by the assessee
company of VITP Limited to Ascendas stood exempted from  
taxation in India under Article 13(5) of the DTAA, we agree with the
Tribunal that the directions for reassessment by the DRP, the
subject matter of I.T.T.A.No.55 of 2014, are rendered purely
academic and do not warrant further consideration on merits.  In
consequence, the said appeal shall also stand dismissed as no
question of law, much less a substantial one, is raised therein.
      W.P.No.41469 of 2015 was filed by the assessee company
contending that, pursuant to the common order dated 15.03.2013
passed by the Tribunal, the Assistant Director of Income-tax
(International Taxation)-II, Hyderabad, issued order dated
28.05.2013, quantifying the amount refundable to it at
Rs.49,00,73,615/-, but despite the same, the Deputy
Commissioner of Income Tax-2, International Taxation, Hyderabad,
issued letter dated 30.11.2015 informing it that as the revenues
stay petition in I.T.T.A.No.71 of 2014 was yet to be disposed of by
this Court, the issue of refund to the assessee company was kept
on hold.  The assessee company therefore sought a consequential
direction to the revenue to refund the said amount along with
further interest.
      As we have now dismissed I.T.T.A.No.71 of 2014 along with
I.T.T.A.No.55 of 2014, there is no reason for the revenue to
continue to withhold the refund payable to the assessee company
pursuant to the order of the Tribunal, which now stands
confirmed.  Be it noted that Section 240 of the Act requires the
Assessing Officer, except as otherwise provided in the Act, to refund
the amount due as a result of any order passed in appeal to the
assessee without his having to make a claim in that behalf.  The
revenue shall therefore endeavour to give effect to the order passed
by the Tribunal in I.T.A.No.739/Hyd/2011, which now stands
confirmed by virtue of the dismissal of I.T.T.A.No.71 of 2014, and
refund the amount payable in consequence thereof expeditiously
and in any event, not later than twelve weeks from the date of
receipt of a copy of this order.
      To sum up, I.T.T.A.Nos.55 of 2014 and 71 of 2014 are
dismissed, confirming the common order dated 15.03.2013 of the
Income Tax Appellate Tribunal, A Bench, Hyderabad, in
I.T.A.Nos.739/Hyd/2011 and 2118/Hyd/2011.  W.P.No.41469 of  
2015 is allowed to the extent indicated above. In the
circumstances, parties shall bear their own costs.

____________________  
SANJAY KUMAR, J  
___________________________    
U.DURGA PRASAD RAO, J    
16th JUNE, 2017