1

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

MEMORIAL ON BEHALF OF 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..................................................................................................................

MEMORIAL ON BEHALF OF RESPONDENT

LIST OF ABBREVIATIONS

&
Anr.
AAR
AIR
AO
Art
AY
Bom
CIT
Co.
Del
DTAA
HC
IIPL
IML
ITAT
ITR
Jour
Kar

And
Another
Authority for Advance Rulings
All India Reporter
Assessment Officer
Article
Assessment Year
Bombay
Commissioner of Income Tax
Company
Delhi
Double Taxation Avoidance Agreement
High Court
Intaxicate India Private Limited
Intaxicate Mauritius Limited
Income Tax Apellate Tribunal
Income Tax Report
Journal
Karnataka

Ltd.
Mad

Limited
Madras

Mum

Mumbai

Ors

Pg.

Others
Paragraph
Page

Pvt.
ROI
SC
SCC
SCL
Sec

Private
Return of Income
Supreme Court
Supreme Court Cases
Sebi and Corporate Laws
Section

W.P.(C)

Writ Petition Civil

v.

Versus

MEMORIAL ON BEHALF OF RESPONDENT

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)236ITR103AAR
3. Income Tax Officer v. Muthoot M. George Chits (India), (1990)34ITD1a(Delhi)
4 Cal Dive Marine Construction (Mauritius) Ltd , AAR/789/2008
5. CWT v. Spencer & Co.,(1973) 88 ITR429
6 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 Mum
9 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
2011
11. Integrated Container Feeder v. JCIT, (2005) 278 ITR 182 (Mum.

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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 929
14 Mashreque Bank Vs. Director of Income-tax, (ITA No. 1341/Bom/2007
15. Satellite Television Asianv.Deputy Commissioner of Income Tax [AAR no 805810/2009] ,
16. Vidyut Investments Limited v. Securities and Exchange Board of India,(2008) 86 SCL 35 SAT
17. Padmaraje R. Kadambandev. Commissioner of Income-tax, Pune, AIR 1992 SC
1495
19. 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 1637
24. R.K Dalmia v. Delhi Administration , A.I.R 1962 S.C 1821
25Wallshares & 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

MEMORIAL ON BEHALF OF RESPONDENT

LEGAL DATABASES

1. Manupatra
2. 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 1961
Companies Act, 2013
India Mauritius Double Taxation Avoidance Agreement
Securites and Exchange Board of India Guidelines
BOOKS
1. Income Tax Act , Taxmann Publications, 2014
2. Ramaiyyas Guide to Companies Act , Ramaiya (Revised by Arvind P Datar, S.
Balasubramanian) , 2014
MEMORIAL ON BEHALF OF RESPONDENT

3. A Comparative Study of Companies Act 2013 with Rules and Companies Act 1956,
Taxmann, 2015
4. Treatise on Double Tax Avoidance Treaty, B.V Venkataramaih,2011
5. 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.

MEMORIAL ON BEHALF OF RESPONDENT

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
MEMORIAL ON BEHALF OF RESPONDENT

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.

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10

SUMMARY OF ARGUMENTS
A. 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 evasion

B. 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

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11

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)1 of the
Income Tax Act, 1961.
A.1. The Assessee-in-Default proceedings have already been intiated by Income Tax
department.

1Section 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 : Provided that 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 subclause ( 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
designed prima facie for the avoidance of income-tax [except in the case of a resident
applicant falling in sub-clause ( iii ) of clause ( b ) of section 245N ]

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12

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
applicant2. 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.
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. AAR3,the Delhi High Court held that.
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

2Section 245N(a) of Income Tax Act, 1961.

3[W.P.(C) 3959/2012]

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13

an assesse under Section2(7)4 of Income Tax Act, 1961. An assesseeassessed under the
Act, theassessee could not maintain an application for advance ruling.5
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. 6 In the
instant case the authority have already proceeded notice against the taxpayer and that no
remedies before this forum.
In SEPCOIII Electric Power Construction Corporation v. Mr. Srinivas Gunduluri,7the
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.
4 Section2(7) of Income Tax Act : assessee" means a person by whom 3 any 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;

5Chennai Port Trust vs The Income Tax Officer,

6M/s. Microsoft Operations Pvt Ltd. v. DIT, New Delhi [AAR No.781/2008]

7SEPCOIII Electric Power Construction Corporationv. Mr. Srinivas Gunduluri (AAR/1009/2010)

See also, CIT v. McleodRusselKolkatta Ltd.((2008) 215 CTR 230))]

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14

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 evasion
The Authority shall not allow the application where the question raised in the application,
relates to a transaction or issue which is designed prima facie for the avoidance of incometax8.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.9
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
8Supra n 1

9Timken India Limited v.The Timken Company, (AAR/617/2003)

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15

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.10 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.11
10 Indian companies act 1956

11 Chamber of Commerce , Hapur v. Commissioner Of Income Tax ,[1996]4ITR397(All)

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16

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; and
b) 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. 12
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 India13 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.14

12 Sec 592 Sec 602 , Indian companies act 1956

13 A.I.R 1993 SC 1637, See also R.K Dalmia v. Delhi Administration ,A.I.R 1962 S.C 1821

14 Supra n 2 see also India Entry Strategies for Foreign Investors , Ritambhara Agarwal
(www.intelligere.in)

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17

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.1516
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.17 And it also used to declare huge cash dividends to it sole
shareholder IML. And if a company declares and pays dividend in India, it will be treated as
a domestic company18
As a resident IIPL is liable to pay tax on any income earned in India and worldwide.

15 Sec 5(1) of the Income Tax Act 1961

16 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

17 Moot Proposition ,p. 3

18 Application No.P-16 of 1998 , (1999)236ITR103AAR

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18

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 company19
The term Income includes20:
-

Profit and gains

Dividends21

Profit is surplus remaining after total costs are deducted from total revenue, and the basis on
which tax is computed and dividend is paid. It is the best known measure of success in
an enterprise.

19 Supra n 4

20 Sec 2(24) of the Income Tax Act 1961

21 Supra n 8

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19

Profit is reflected in reduction in liabilities, increase in assets, and/or increase in owners'

equity. It furnishes resources for investing in future operations, and its absence may result in
the extinction of a company22
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.23

24

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 200325. IIPL promptly withheld appropriate taxes on all
dividends it paid as per India Mauritius Treaty.

26

From 2003 to 2014 IIPL used various

strategies for profit repatriation.

C1. Intaxicate India Pvt Ltd (IIPL) is Liable to pay Divided Distribution Tax:

22 http://www.businessdictionary.com/definition/profit.html#ixzz3Pf5OIaUy

23 Sec 2(35) of the Companies Act 2013

24 Income Tax Officer v. Muthoot M. George Chits (India), (1990)34ITD1a(Delhi)

25 Moot Proposition, p. 3

26 India-Mauritius Double Taxation Avoidance Treaty, 1983

MEMORIAL ON BEHALF OF RESPONDENT

20

Investment in Indian companies can be made by both non-resident as well as resident Indian
entities27. 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.
IIPL a 100% subsidiary of IML is an Indian resident and as per Sec 5(1) of the Income tax
act28 a resident is liable to pay tax on its worldwide income. Also an income of company
mainly comprises of profits and dividends29.
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 India30 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.31

27 Notification No.FEMA.278/2013-RB

28 Sec 5(1) of the Income Tax Act 1961

29 Supra n 8

30 Supra n 13

31 Ibid

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21

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.32
Also in the case of Cal Dive Marine Construction (Mauritius) Ltd.33, 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 .
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 company34 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
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)35, In
addition to the income-tax on total income of a domestic company for any assessment year,
Any amount declared, distributed or paid by such company
32 Section 45 of Income Tax Act, 1995

33 AAR/789/2008

34 Moot Proposition , p. 3

35 Income Tax Act, 1961

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22

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.36
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

37

deals with the provisions relating to the issuance of debentures.

As per Sec.2(30) 38,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

36 Ibid

37 Companies Act 2013

38 Ibid

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23

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.39A Compulsorily Convertible Debenture is
a debt which is compulsorily liable to be discharged by conversion into equity40.
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.41

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. 42
39CWT v. Spencer & Co.,(1973) 88 ITR429

40W.P. (C) 1648/2013

41 Moot Composition ,p.6

42 Double Tax Avoidance Treaty ,1983

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24

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.43
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 19544, 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 /17.4.1996 gives 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 office is 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 Bank45

43 V ltd (AAR NO. 546/2012)

44 Income Tax Act,1961

45 280 ITR 117 (Kol)

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25

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.

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26

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.46
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 Tax47.
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 between tax prevention in a legal manner
and evasion which, of course, is illegal. If a person has incurred the liability to tax, then
anything done to prevent payment thereof is, undoubtedly, an evasion. Ought involving an
element of illegality and to circumvent the provisions of tax law to prevent payment of tax,
46 Sec 276 C of the Income Tax Act 1961

47 Moot Composition , p.7

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27

then also the transaction if a person has not incurred the liability to tax and colourable
transaction to not be countenanced48
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)49 of the Income
Tax Act, 1961.

48 1986 15 ITD 711 Mum

49 Sec 221 (1) -(1) When an assessee is 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 under subsection (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 :

MEMORIAL ON BEHALF OF RESPONDENT

28

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
D.

EVADE TAX.
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.
Respectfully
Sd/(Counsel for the Respondent)

MEMORIAL ON BEHALF OF RESPONDENT