BEFORE THE AUTHORITY FOR ADVANCE RULINGS

(INCOME TAX)

NEW DELHI

AAR No. 100 of 2015

Between

1. Intaxicate India Pvt. Ltd., Bangalore................................................ Applicant

And

2. Commissioner of Income-tax, Bangalore......................................... Respondent

TABLE OF CONTENTS

Table of Contents.................................................................................................. List of Abbreviations..............................................................................................Index of Authorities.............................................................................................. Statement of Jurisdiction...................................................................................... Statement of facts.................................................................................................Statement of Issues...............................................................................................Summary of Arguments........................................................................................Arguments advanced...........................................................................................Prayer..................................................................................................................

LIST OF ABBREVIATIONS

&And

Anr.Another

AARAuthority for Advance Rulings

AIRAll India Reporter

AOAssessment Officer

ArtArticle

AYAssessment Year

BomBombay

CITCommissioner of Income Tax

Co.Company

DelDelhi

DTAADouble Taxation Avoidance Agreement

HCHigh Court

IIPLIntaxicate India Private Limited

IMLIntaxicate Mauritius Limited

ITATIncome Tax Apellate Tribunal

ITRIncome Tax Report

JourJournal

KarKarnataka

Ltd.Limited

MadMadras

MumMumbai

OrsOthers

Paragraph

Pg.Page

Pvt.Private

ROIReturn of Income

SCSupreme Court

SCCSupreme Court Cases

SCLSebi and Corporate Laws

SecSection

W.P.(C)Writ Petition Civil

v.Versus

INDEX OF AUTHORITIES

Table of Cases:1. M/s. Microsoft Operations Pvt Ltd. v. DIT, New Delhi [AAR No.781/2008]2. Application No.P-16 of 1998 , (1999)236ITR103AAR3. Income Tax Officer v. Muthoot M. George Chits (India), (1990)34ITD1a(Delhi)4 Cal Dive Marine Construction (Mauritius) Ltd , AAR/789/20085. CWT v. Spencer & Co.,(1973) 88 ITR4296 V ltd (AAR NO. 546/2012)7. ABN Amro Bank, 280 ITR 117 (Kol)8. First Wealth-Tax Officer v. S.B. Garware, 1986 15 ITD 711 Mum9 H.G. CraigHarvey v. Commissioner of Income-tax,[2000] 244 ITR 578 (Mad)10. Hyosung corporation Korea v. Income Tax Department, AAR No. 1138, 1140-1144, 1150 of 201111. Integrated Container Feeder v. JCIT, (2005) 278 ITR 182 (Mum.12. SEPCOIII Electric Power Construction Corporation v. Mr. Srinivas Gunduluri (AAR/1009/2010)13 .Ishikawajma-Harima Heavy Industries Ltd.v. Director Of Income Tax, AIR 2007 SC 92914 Mashreque Bank Vs. Director of Income-tax, (ITA No. 1341/Bom/200715. Satellite Television Asianv.Deputy Commissioner of Income Tax [AAR no 805-810/2009] ,16. Vidyut Investments Limited v. Securities and Exchange Board of India,(2008) 86 SCL 35 SAT17. Padmaraje R. Kadambandev. Commissioner of Income-tax, Pune, AIR 1992 SC 149519. Royal Surgicalv.Collector of Customs,(1997)LC191Tri(Delhi)20 CIT v. McleodRusselKolkatta Ltd. ((2008) 215 CTR 230))]21 Timken India Limited v.The Timken Company, (AAR/617/2003)22 Chamber of Commerce , Hapur v. Commissioner Of Income Tax , [1996]4ITR397(All)23Ajay Agarwal v. Union of India, A.I.R 1993 SC 163724. R.K Dalmia v. Delhi Administration , A.I.R 1962 S.C 182125Wallshares & Stock Brockers v. Department of Income Tax, 2005 96 ITD 1 Mum 26Godrej & Boyce . Mfg.Co.Ltd .Mumbai v. Commissioner of Income Tax, A.I.R 2010 HC (MUM) 568

LEGAL DATABASES

1. Manupatra2. SCC Online 3. West Law 4. Hein Online

LEXICONS 1. AiyarRamanathanP , Advanced Law Lexicon, 3rd Edition, 2005, Wadhwa Nagpur. 2. Garner Bryana, Blacks Law Dictionary,7th Edition,1999

LEGISLATIONS Income Tax Act 1961Companies Act, 2013India Mauritius Double Taxation Avoidance AgreementSecurites and Exchange Board of India GuidelinesBOOKS1. Income Tax Act , Taxmann Publications, 20142. Ramaiyyas Guide to Companies Act ,Ramaiya (Revised by Arvind P Datar, S. Balasubramanian), 20143. A Comparative Study of Companies Act 2013 with Rules and Companies Act 1956, Taxmann, 20154. Treatise on Double Tax Avoidance Treaty, B.V Venkataramaih,20115. Company Law, Avatar Singh , 2013

STATEMENT OF JURISDICTION

THE RESPONDENT DO HEREBY SUBMIT THE MEMORANDUM FOR THE RESPONDENT UNDER SECTION 245 R BEFORE THE AUTHORITY FOR ADVANCE RULINGS.

STATEMENT OF FACTS

Intaxicate India Pvt. Ltd. (IIPL), a. private limited company incorporated as per the Indian Companies Act, 1956 in April 2000, is a wholly owned subsidiary of a Mauritian Company, Intaxicate Mauritius Ltd.,which has a Tax Residency Certificate (TRC) issued by the Mauritian Tax Authorities.. IIPL was a prompt taxpayer on its income earned. From 2000-2003, IIPL declared huge cash dividends to its sole shareholder and withheld appropriate taxes per India Mauritius tax treaty. However IIPL stopped declaring cash dividends post March 2003 and resorted to issuing equity shares to IML at a meagre face value, and then buying them back at a very high premium, thus repatriating profits as capital gains to IML.But post May 2013, IIPL started to issue compulsorily convertible debentures (CCDs) to IML in accordance with an agreement between IIPL and IML. In March 2014, IIPL bought back much of the CCDs issued to IML before the completion of the lock in period and paid the principal amount accumulated interests and premiums along with the additional amounts as compensation, as agreed upon.IIPL on filing for its return of income (ROI) with the Indian income-tax department was found to have failed to withhold tax under section 195 of the Act on the interest payments made to IML and was issued a Show-cause notice. IIPL instead filed an application with the Authority for Advanced Ruling (AAR) requesting for a ruling on the transactions undertaken that they should be taxable only as per India-Mauritius Double Taxation Avoidance Agreement.The matter is now pending before the Authority for Advanced Ruling.

STATEMENT OF ISSUES

A. THE APPLICATION FILED BY INTAXICATE INDIA PVT LTD IS NOT MAINTAINABLE.B. INTAXICATE INDIA PVT. LTD, INCORPORATED AS PER THE INDIAN COMPANIES ACT 1956 IS LIABLE TO PAY TAX.C. THE CORPORATE STRATEGIES ADOPTED BY IIPL WERE METHODS TO EVADE TAX.D. TAX EVASION STRATEGIES ADOPTED BY THE IIPL IS LEGALLY PUNISHABLE.

SUMMARY OF ARGUMENTSA. THE APPLICATION FILED BY INTAXICATE INDIA PVT LTD IS NOT MAINTAINABLE The Assessee-in-Default proceedings have already been intiated by Income Tax department. The commercial strategies are for tax evasionB. INTAXICATE INDIA PVT. LTD, INCORPORATED AS PER THE INDIAN COMPANIES ACT 1956 IS LIABLE TO PAY TAX.

A resident in India is liable to pay taxes on its worldwide income and also on any income which is received or is deemed to be received in India in the relevant previous year by or on behalf of such company.C. THE CORPORATE STRATEGIES ADOPTED BY IIPL WERE METHODS TO EVADE TAX. Intaxicate India Pvt Ltd (IIPL) is Liable to pay Divided Distribution Tax Payment on the redemption of CCDs other than the principle amount comes within the ambit of Interest:-D. TAX EVASION STRATEGIES ADOPTED BY THE IIPL IS LEGALLY PUNISHABLE Tax is a compulsory payment made to the government. People on whom a tax is imposed must pay the tax and refusal to pay tax is a punishable offence.

ARGUMENTS ADVANCED

A. THE APPLICATION FILED BY INTAXICATE INDIA PVT LTD IS NOT MAINTAINABLE The Intaxicate India PVT Ltd is a company incorporated in India under Indian Companies Act 1956.The application filed by IIPL is not maintainable as it falls within the purview of exceptions in allowing an application as mentioned in section 245R(2)[footnoteRef:2] of the Income Tax Act, 1961. [2: Section 245R(2) of Income Tax Act, 1961 : The Authority may, after examining the application and the records called for, by order, either allow or reject the application :Providedthat the Authority shall not allow the application where the question raised in the application,(i) is already pending before any income-tax authority or Appellate Tribunal [except in the case of a resident applicant falling in sub-clause (iii) of clause (b) of section 245N ] or any court;(ii) involves determination of fair market value of any property;(iii) relates to a transaction or issue which is designedprima faciefor the avoidance of income-tax [except in the case of a resident applicant falling in sub-clause (iii) of clause (b) of section 245N ]]

A.1. The Assessee-in-Default proceedings have already been intiated by Income Tax department. The advance ruling can be sought on any question of law or fact specified in the application in relation to a transaction which has been undertaken, or is proposed to be undertaken by an applicant[footnoteRef:3]. However, advance ruling cannot be sought where the question is already pending in the case of the applicant before any income tax authority, except in a case where the applicant is a resident notified by Central Government. [3: Section 245N(a) of Income Tax Act, 1961.]

The word question occurring in the proviso to Section 245-R(2) should be understood in a manner which sub-serves theobject of the proviso. An intimate and direct connection between thequestion raised in the application and the question pending is whatis contemplated by the proviso. In Net App B.V. v. AAR[footnoteRef:4],the Delhi High Court held that. [4: [W.P.(C) 3959/2012]]

Upon a return of income being filed, the matter is pending, in the sense that the AO has the right to take such steps, including issuance of notice. The rationale for the bar in the Proviso to s. 245R(2) is that if the applicant wishes to plan its affairs and transactions in advance, it is free to do but once it proceeds to file a return, the AARs jurisdiction to entertain the application for advance ruling is taken away, because the AO would then be seized of the matter, and would possess a multitude of statutory powers to examine and rule on the return.IIPL had already filed for Return of Income when it approached the AAR, i.e, the power of the Authority to issue an advance ruling culminated when the power of the AO to issue a notice commenced. Once such a power commences, the body or person becomes an assesse under Section2(7)[footnoteRef:5] of Income Tax Act, 1961. An assesseeassessed under the Act, theassessee could not maintain an application for advance ruling.[footnoteRef:6] [5: Section2(7) of Income Tax Act : assessee" means a person by whom3any tax] or any other sum of money is payable under this Act, and includes-(a)every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person;(b)every person who is deemed to be an assessee under any provision of this Act;(c)every person who is deemed to be an assessee in default under any provision of this Act;] [6: Chennai Port Trust vs The Income Tax Officer,]

Further, the company approached AAR without responding to the Show Cause Notice. The earlier referred to ruling was explained with reference to the facts therein and it was stated that in view of those facts, it was considered just and proper to allow the applicant therein to raise the question of tax deduction at source to steer clear of the uncertainty visiting the applicant therein, on account of the decision taken by the Assessing Officer quite contrary to the ruling in the case of the applicant which had become final. [footnoteRef:7] In the instant case the authority have already proceeded notice against the taxpayer and that no remedies before this forum. [7: M/s. Microsoft Operations Pvt Ltd. v. DIT, New Delhi [AAR No.781/2008]]

In SEPCOIII Electric Power Construction Corporation v. Mr. Srinivas Gunduluri,[footnoteRef:8]the application was rejected similarly in this case the authorities had given anotice to the applicant and assesse in default proceedings are going on thus the application is not maintainable under section 245R(2) Of Income tax Act. [8: SEPCOIII Electric Power Construction Corporationv. Mr. Srinivas Gunduluri (AAR/1009/2010) See also, CIT v. McleodRusselKolkatta Ltd.((2008) 215 CTR 230))]]

Thus in the case in hand the question put forward by applicant is already pending in Income Tax authority so application is not maintainable.A2.The commercial strategies are for tax evasionThe Authority shall not allow the application where the question raised in the application, relates to a transaction or issue which is designedprima faciefor the avoidance of income-tax[footnoteRef:9].In the case of Timken India ltd when there was prima facie tax evasion, the entire amount is liable to be taxed in India andaccordingly, the applicant is obliged to withhold Income-Tax atappropriate rate (under the Act or the Treaty) whichever is lesserunder section 195(1) of the Act.[footnoteRef:10] [9: Supra n 1] [10: Timken India Limited v.The Timken Company, (AAR/617/2003)]

There is no doubt with regard to the fact that the strategies adopted by the company are nothing but methods for evasion of tax.The entire transaction of the taxpayer from the beginning was sham as it was changing its nature of transactions as and when the Indian Income tax laws were changing only to avoid tax.when Dividend Distribution Tax was introduced in 2003, taxpayer stopped declaring dividends and rather resorted to buyback of shares. Once when Buyback Distribution Tax was introduced in 2013, the taxpayer resorted to other tax evasion methods like issue of CCD's and then buying them back at extraordinary redemption premium under various names to avoid Withholding Tax.Further, much of the income of the company was tax exempt in India. Even then, methods were adopted to avoid even the slightest amount of revenue payable to the Revenue. Thus, it can be concluded that the strategies adopted were prima facie for a tax evasion and hence the application can be held to be not maintainable.

B. INTAXICATE INDIA PVT. LTD, INCORPORATED AS PER THE INDIAN COMPANIES ACT 1956 IS LIABLE TO PAY TAX.Section 3 (1) (i) of the Companies Act, 1956 defines a company as A company registered and formed under this Act or an existing company.[footnoteRef:11] A company is an incorporated association which is an artificial person created for by law, having a separate entity, with a perpetual succession and a common seal.[footnoteRef:12] [11: Indian companies act 1956] [12: Chamber of Commerce , Hapur v. Commissioner Of Income Tax ,[1996]4ITR397(All)]

Sections 592 to Section 602 of the companies act 1956, both inclusive, shall apply to all foreign companies, that is to say, companies falling under the following two classes, namely :-a) Companies incorporated outside India which, after the commencement of this Act, establish a place of business within India; andb) Companies incorporated outside India which have, before the commencement of this Act, established a place of business within India and continue to have an established place of business within India at the commencement of this Act. [footnoteRef:13] [13: Sec 592 Sec 602 , Indian companies act 1956]

Intaxicate India Pvt. Ltd (IIPL) is a private limited company incorporated as per the Indian Companies Act 1956 .It also the 100% subsidiary of a Mauritian Company, namely Intaxicate Mauritius Ltd.In Ajay Agarwal v. Union of India[footnoteRef:14] the Supreme Court held that, Once a company has been duly registered and incorporated as an India company, it is subject to Indian laws and regulation, as applicable to other domestic Indian companies. Such subsidiary is treated as an Indian resident and an Indian Company for all Indian regulation (Including income Tax, FEMA 1999 and the Companies Act), despite being 100% foreign owned.[footnoteRef:15] [14: A.I.R 1993 SC 1637, See also R.K Dalmia v. Delhi Administration ,A.I.R 1962 S.C 1821] [15: Supra n 2 see also India Entry Strategies for Foreign Investors , Ritambhara Agarwal (www.intelligere.in)]

India has a federal level Income tax structure, governed by the provisions of Income tax Act, 1961 Act which enunciates that a resident in India is liable to pay taxes on its worldwide income and also on any income which is received or is deemed to be received in India in the relevant previous year by or on behalf of such company.[footnoteRef:16][footnoteRef:17] [16: Sec 5(1) of the Income Tax Act 1961] [17: Wallshares & Stock Brockers v. Department of Income Tax, 2005 96 ITD 1 Mum see also Godrej & Boyce . Mfg.Co.Ltd .Mumbai v. Commissioner of Income Tax, A.I.R 2010 HC (MUM) 568]

Intaxicate India Pvt Ltd, which is into financial services business such as investment in the securities of various information technology, real estate and other lucrative sector companies in India was a successful company with huge profits every year due to its calculated and well informed investment strategy.[footnoteRef:18] And it also used to declare huge cash dividends to it sole shareholder IML. And ifa companydeclares and paysdividendin India,itwill be treated as adomesticcompany[footnoteRef:19] [18: Moot Proposition ,p. 3] [19: Application No.P-16 of 1998 , (1999)236ITR103AAR]

As a resident IIPL is liable to pay tax on any income earned in India and worldwide.

C. THE CORPORATE STRATEGIES ADOPTED BY IIPL WERE METHODS TO EVADE TAX.A resident in India is liable to pay taxes on its worldwide income and also on any income which is received or is deemed to be received in India in the relevant previous year by or on behalf of such company[footnoteRef:20] [20: Supra n 4]

The term Income includes[footnoteRef:21]: [21: Sec 2(24) of the Income Tax Act 1961]

Profit and gains Dividends[footnoteRef:22] [22: Supra n 8]

Profit issurplusremaining aftertotal costsare deducted fromtotal revenue, and the basis on whichtaxis computed anddividendis paid. It is the best knownmeasureofsuccessin anenterprise.Profit is reflected inreductioninliabilities, increase inassets, and/or increase inowners' equity. It furnishesresourcesforinvestingin futureoperations, and its absence mayresultin the extinction of acompany[footnoteRef:23] [23: http://www.businessdictionary.com/definition/profit.html#ixzz3Pf5OIaUy]

According to the Companies Act, 2013 Dividend means the profit of a company, which is not retained in the business and is distributed among the shareholders in proportion to the amount paid-up on the shares.[footnoteRef:24] [footnoteRef:25] [24: Sec 2(35) of the Companies Act 2013] [25: Income Tax Officer v. Muthoot M. George Chits (India), (1990)34ITD1a(Delhi)]

In the instant case, Intaxicate India Pvt Ltd was a prompt tax payer on its income and used to declare huge cash dividends to its sole shareholder, Intaxicate Mauritius ltd, its parent company from the year 2000 to 2003[footnoteRef:26]. IIPL promptly withheld appropriate taxes on all dividends it paid as per India Mauritius Treaty. [footnoteRef:27] From 2003 to 2014 IIPL used various strategies for profit repatriation. [26: Moot Proposition, p. 3] [27: India-Mauritius Double Taxation Avoidance Treaty, 1983]

C1. Intaxicate India Pvt Ltd (IIPL) is Liable to pay Divided Distribution Tax:Investment in Indian companies can be made by both non-resident as well as resident Indian entities[footnoteRef:28]. A company incorporated under the Companies Act with the investment from foreign company is treated at par post establishment with any other Indian company within the scope of approval and subject to all Indian laws and regulations. [28: Notification No.FEMA.278/2013-RB]

IIPL a 100% subsidiary of IML is an Indian resident and as per Sec 5(1) of the Income tax act[footnoteRef:29] a resident is liable to pay tax on its worldwide income. Also an income of company mainly comprises of profits and dividends[footnoteRef:30]. [29: Sec 5(1) of the Income Tax Act 1961] [30: Supra n 8]

The strategy of the IIPL by selling of equity of shares at mere face value and buying them back at very high premiums and repatriation of profits to IML in the name of capital gains is mere facade, For companies incorporated in Mauritius there is no withholding tax on capital gains in India[footnoteRef:31] and the withholding tax on dividends is only 5%. The companies incorporated in Mauritius, at present, can opt not to pay any tax in Mauritius.[footnoteRef:32] [31: Supra n 13] [32: Ibid]

However in India any profits or gains arising from the transfer of a capital asset would be chargeable to income-tax under the head capital gains.[footnoteRef:33] [33: Section 45 of Income Tax Act, 1995]

Also in the case of Cal Dive Marine Construction (Mauritius) Ltd.[footnoteRef:34], the Authority for Advanced Ruling held that , the systematic business of buying and selling of shares and the disinvestment of shares in India by a Mauritius based company would be regarded as business profits hence gains arising on sales should be taxed as business profits . [34: AAR/789/2008]

The proposed strategy which was followed by the 100% subsidiary company till 2013, i.e facilitating such huge premiums which were paid out of the current and accumulate profits the company[footnoteRef:35] which resulted in the capital gains of IML were nothing but un- declared dividends, which would deem Sec 45 infructuos as all the gains and profit received by the company were used for the transaction between the companies. This would mean that there were no business profits and subsequently there would be no tax liability [35: Moot Proposition , p. 3]

A prompt tax payer until 2003, IIPL convoluted such strategy to avoid the Dividend Distribution Tax which was introduced in 2003 wherein according to sec 115 O (1)[footnoteRef:36], In addition to the income-tax on total income of a domestic company for any assessment year, [36: Income Tax Act, 1961]

Any amount declared, distributed or paid by such company By way of dividends (whether interim or otherwise). Whether out of current or accumulated profits, shall be charged to dividend distribution tax which is payable even if no income tax is payable by a domestic company on its total income.[footnoteRef:37] [37: Ibid]

The according to the aforesaid provision of the statue, it is vindictive that the buying and selling of shares by IIPL to IML was the method used for the evasion of the Dividend Distribution Tax and hence is liable to pay to pay it.C2. Payment on the redemption of CCDs other than the principle amount comes within the ambit of Interest:-Section 71 of Chapter IV [footnoteRef:38] deals with the provisions relating to the issuance of debentures. As per Sec.2(30) [footnoteRef:39],Debenture includes debenture stock, bonds or any other instrument of the company evidencing a debt, whether constituting a charge on the assets of the company or not. A company may issue debentures with an option to convert such debentures into shares, either wholly or partly at the time of redemption, which shall be approved by a special resolution passed at a general meeting [38: Companies Act 2013] [39: Ibid]

The CCD creates or recognizes the existence of a debt, which remains to be so till it, is repaid or discharges, either by payment or by conversion.[footnoteRef:40]A Compulsorily Convertible Debenture is a debt which is compulsorily liable to be discharged by conversion into equity[footnoteRef:41]. [40: CWT v. Spencer & Co.,(1973) 88 ITR429] [41: W.P. (C) 1648/2013]

IIPL, a wholly owned subsidiary started to issue Compulsorily Convertible Debentures to their parent company IML. IIPL bought back much of the CCDs issued to IML before the completion of the lock in period and ended up paying huge premium/sale consideration etc.[footnoteRef:42] [42: Moot Composition ,p.6]

The primary contention of the IIPL that payment made for the redemption of CCDs should be treated as capital receipts in the hands of IML. This cannot be done so as such exorbitant payment in the form premium / sale consideration all comes in the ambit of interest, hence such payment cannot be considered tax receipts.

According Article 11 of the DTAA, The term ' interest ' as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's profits, and, in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. [footnoteRef:43] [43: Double Tax Avoidance Treaty ,1983]

The definition of interest under Income Tax Act ,1961 as well Article 11 of the India Mauritius Tax Treaty include within its ambit any income that become payable as a debenture.[footnoteRef:44] [44: V ltd (AAR NO. 546/2012)]

Hence the entire payment other than the principle payment repayment by IIPL to IML on the redemption of CCDs comes under the bracket of interest

Sec 195[footnoteRef:45], seeks to avoid a revenue loss as a result of tax liability in the hands of a foreign resident, by deducting the same from payments made to them at source. In this context CBDT Circulars 649/31.3.1993 and 740 /17.4.1996gives some clarification payment by an Indian branch of a foreign company to its overseas head office, which lays down the law that, if a deduction for interest payment by a branch to overseas head officeis sought, then it is obligatory to deduct tax, since it presupposes a distinct Payer and Payee with separate identities and makes section 195 applicable. This principle was reiterated in the case of the landmark Kolkota Tribunal judgment of ABN Amro Bank[footnoteRef:46] [45: Income Tax Act,1961] [46: 280 ITR 117 (Kol)]

In the Instant case IIPL did not withhold the taxes for the entire interest payment, which clearly indicates that the redemption of CCD with such extraordinary premium was a strategy for evading Witholding Tax under sec 195 of the income tax act 1961. Therefore IIPL is liable to pay the Withholding Tax under sec 195 for failing to withhold the requisite tax for the interest payments of the CCDs.

D. TAX EVASION STRATEGIES ADOPTED BY THE IIPL IS LEGALLY PUNISHABLE.Tax is a compulsory payment made to the government. People on whom a tax is imposed must pay the tax and refusal to pay tax is a punishable offence. In the Income Tax Act, 1961, persons wilfully attempting to evade taxes, penalty or interest can be punished with rigorous imprisonment ranging from three months to seven years with fine.[footnoteRef:47] [47: Sec 276 C of the Income Tax Act 1961]

In the Instant case, the entire transaction of Intaxicate India Pvt Ltd from the beginning, the company was changing its nature of transactions as and when the Indian Income tax laws were changing only to avoid tax .When Dividend distribution tax was introduced in 2003; taxpayer stopped declaring dividends and rather resorted to buyback of shares. Once when Buy Back Distribution Tax was introduced in 2013, the taxpayer resorted to other tax evasion methods like issue of Compulsory Convertible Debentures and then buys them back at extraordinary redemption premium under various names such compensation , penalty etc to avoid Withholding Tax[footnoteRef:48]. [48: Moot Composition , p.7]

In the case of First Wealth-Tax Officer v. S.B. Garware , the Income Tax Appellate Tribunal opined that There is a silver line of distinction betweentaxprevention in a legal manner andevasion which, of course, isillegal. If a person has incurred the liability totax, then anything done to prevent payment thereof is, undoubtedly, anevasion. Ought involving an element of illegality and to circumvent the provisions of tax law to prevent payment of tax, then also the transaction if a person has not incurred the liability to tax and colourable transaction to not be countenanced[footnoteRef:49] [49: 1986 15 ITD 711 Mum]

In the instant case IIPL has precisely through various strategies tried to circumvent the provisions of tax laws to prevent the payment of requisite taxes on time albeit the fact that the company is liable to pay tax .Hence it is undoubtedly an evasion. Therefore Intaxicate India Pvt Ltd is liable to be punished under Sec 221(1)[footnoteRef:50] of the Income Tax Act, 1961. [50: Sec 221 (1) -(1) When anassesseeis in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable undersub-section (2) of section 220, be liable, by way of penalty, to pay such amount as the [Assessing] Officer may direct, and in the case of a continuing default, such further amount or amounts as the [Assessing] Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears:

]

PRAYER

In the light of Issues raised, arguments advanced and authorities cited, it humbly prayed and implored before this Honble Forum to kindly adjudge and declare that:

A. THE APPLICATION FILED BY INTAXICATE INDIA PVT LTD IS NOT MAINTAINABLE.B. B. INTAXICATE INDIA PVT. LTD, INCORPORATED AS PER THE INDIAN COMPANIES ACT 1956 IS LIABLE TO PAY TAX.C. C. THE CORPORATE STRATEGIES ADOPTED BY IIPL WERE METHODS TO EVADE TAX.D. TAX EVASION STRATEGIES ADOPTED BY THE IIPL IS LEGALLY PUNISHABLE.

And may pass any order that this court may deem, for this act of kindness the respondent in duty bound shall forever pray.RespectfullySd/-(Counsel for the Respondent)

MEMORIAL ON BEHALF OF RESPONDENT