Law of Domestic Transfer Pricing

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S. 92BA(i)/ 40A(2)(b) Domestic Transfer Pricing: Entire law on what constitutes “Specified Domestic Transactions” explained. The Dept’s contention that a shareholder has beneficial interest in the assets of the company is contrary to all canons of Company law.


We cannot, and the law does not permit us, to hold that HDFC Ltd. is the beneficial owner of 22.64% of the shares in the Petitioner by clubbing the share holding of HDFC Investments Ltd. with the shareholding of HDFC Ltd. If we were to do this, we would be effectively holding that HDFC Ltd., being a shareholder of HDFC Investments Ltd., is the beneficial owner of the shares which HDFC Investments Ltd. holds in the Petitioner. This, in law, is clearly impermissible because a shareholder of a company can never have any beneficial interest in the assets (movable or immovable) of that company. In the present case, if we were to accept the contention of the Revenue, it would mean that HDFC Ltd. is the beneficial owner of the shares which HDFC Investments Ltd. holds in the Petitioner. This would be contrary to all canons of Company Law. It is well settled that a shareholder of a company can never be construed either the legal or beneficial owner of the properties and assets of the company in which it holds the shares. This being the position in law, we find that the Revenue is incorrect in trying to club the shareholding of HDFC Investments Ltd. in the Petitioner along with the shareholding of HDFC Ltd. in the Petitioner, to cross the threshold of 20% as required in explanation (a) to section 40A(2)(b). We are supported in the view that we take by a decision of the Supreme Court in the case of Bacha F. Guzdar Vs. Commissioner of Income Tax [(1955) 27 ITR 1]. 

HDFC Bank Ltd vs. ACIT (Bombay High Court)

PRONOUNCED ON : 20th December, 2018 JUDGMENT [ PER B. P. COLABAWALLA J. ]:

1. By this Petition, the Petitioner – bank seeks a writ of certiorari for quashing the impugned order dated 29th December, 2016 (Exh “F”) and the impugned reference dated 29th December, 2016. The impugned order dated 29th December, 2016 (Exh “F”) passed by Respondent No.1 holds that certain transactions entered into by the Petitioner are “Specified Domestic Transactions” (for short “SDTs”) as per section 92BA(i) of the Income Tax Act, 1961 (for short the “I.T. Act”) and the Arms Length Price (“ALP”) of the said transactions are required to be determined by making a reference to Respondent No.2. It is pursuant to this order that the reference dated 29th December, 2016 was made to Respondent No.2 under section 92CA(1) of the I.T. Act for determination of the ALP in the Petitioner’s case for the Assessment Year (for short “A.Y.”) 2014-15. It is the case of the Petitioner that the impugned order as well as the impugned reference are ex-facie without jurisdiction, illegal, unsustainable, contrary to the principles of natural justice and contrary to law, and therefore, ought to be quashed and set aside by us in our writ jurisdiction. This is how the present Writ Petition Pg 2 of 57WP462OF2017.doc has been filed.

2. Before we set out the legal submissions of the respective parties, the brief facts of the case and which would be necessary to determine the controversy before us, are as under:-

(a) The Petitioner is a public limited company registered under the Companies Act, 1956 and is also registered as a banking company with the Reserve Bank of India (“RBI”). The primary business of the Petitioner is banking. The Petitioner filed its assessment of income for the Assessment Year (“A.Y.”) 2014-15 on 30th November, 2014 declaring a total income of Rs.12595,27,63,920/-. The Petitioner, along with the return of income, also filed Form 3CEB inter alia disclosing certain ‘specified domestic transactions’ entered into by it during the relevant year. Thereafter, the Petitioner’s case was selected for scrutiny assessment.

During the scrutiny, the Petitioner again filed a copy of Form 3CEB on 11th June, 2016. It is the case of the Petitioner that the SDTs entered into by it and reported in Form 3CEB were similar to the transactions entered into by the Petitioner in the earlier assessment year, namely, A.Y.

Pg 3 of 57 WP462OF2017.doc 2013-14 and the Transfer Pricing Officer (for short the “TPO”) had accepted that all the transactions entered into by the Petitioner were at an ALP. This was held by the TPO in his order dated 24th October, 2016.

(b) It is in these circumstances that the Petitioner has averred that it was surprised to receive a show cause notice from Respondent No.1 on 29th December, 2016 at 01.39 a.m., vide an e-mail, for the alleged non-reporting of certain related party transactions for the A.Y. 2014-2015 and required the Petitioner to provide the reasons why the same should not be reported to Respondent No.2 for determination of the ALP. This show cause notice was to be replied to by the Petitioner by 11.00 a.m. on the same date i.e. 29th December, 2016. According to Respondent No.1 certain transactions (mentioned hereinafter) were entered into by the Petitioner with related parties as per section 40A(2)(b) which were not reflected in form 3CEB filed by the Petitioner. Those transactions are as under:

i. The Petitioner purchased Loans from HDFC Ltd and its subsidiaries amounting to Rs.5164 Cr and Rs.27.72 Cr respectively.

ii. The Petitioner has received services from HBL Global Private Ltd. (for short “HBL Global”) for which the Pg 4 of 57 WP462OF2017.doc Petitioner paid an amount 492.5 Cr. and the Petitioner was having beneficial ownership of HBL Global. iii. The Petitioner has paid interest amount 4.41 Crore to HDB Welfare Trust which was a Trust created by the Petitioner.

(c) Since Respondent No.1 was of the opinion that these transactions were entered into with related parties as set out in section 40A(2)(b) of the IT Act, they ought to have found place in Form 3CEB filed by the Petitioner. Since this was not done, the show cause notice was issued.

(d) According to the Petitioner no personal hearing was given to them by Respondent No.1 in relation to these transactions. Be that as it may, the Petitioner, vide its letter dated 29th December, 2016, submitted a reply with respect to each of these above mentioned three transactions and gave an explanation as to why they could not be termed as SDTs. This being the case the Petitioner stated that there was no requirement on their part to disclose the same in Form 3CEB and correpondingly there was no question of making a reference to the TPO for determining the ALP in relation to these three transactions.

(e) In a nutshell, it was the Petitioner’s case that the Pg 5 of 57 WP462OF2017.doc transaction referred to in item (i) above [the purchase of loans from HDFC Ltd], firstly did not relate to A.Y. 2014- 2015 but in fact the aforesaid transaction was entered into by the Petitioner in the earlier year and were relating to A.Y. 2013-2014. For A.Y. 2013-14 transfer pricing assessment had already been completed and become final. The Petitioner further submitted that in any event, none of the promoters of the Petitioner held more than 20% of the shareholding individually and hence these transactions did not take place with a person as contemplated under section 40A(2)(b) of the IT Act. The other submission with reference to this transaction was that admittedly this transaction was a transaction of purchase of loans which could never be termed as an expenditure, and therefore, the same did not come within the ambit of section 92BA(i) of the IT Act.

(f) As far as the transaction listed at item (ii) is concerned [payment of Rs.492.50 Cr to HBL Global for services rendered], the Petitioner submitted that it did not have any direct shareholding in HBL Global as that company was a subsidiary of Atlas Documentary Facilitators Co. Pvt. Ltd.

Pg 6 of 57 WP462OF2017.doc (“ADFC Ltd.”) in which the Petitioner has a 29% shareholding. The Petitioner submitted that indirect shareholding is not covered or contemplated under section 40A(2)(b)of the Act, and therefore, the transactions with HBL Global was not covered under the said section. This being the case, the contention of the Petitioner was that this transaction also could never fall within the ambit of a SDT as understood under section 92BA(i). In support of this argument, the Petitioner submitted that the Petitioner cannot be regarded as the beneficial owner of the shares of HDL Global as the beneficial owner of these shares was ADFC Ltd. and not the Petitioner.

(g) As far as the transaction listed in item (iii) is concerned [payment of interest of Rs.4.41 Cr to HDB Trust], the Petitioner submitted that HDB Welfare Trust was established for providing general welfare measures such as medical relief and educational assistance to the employees of the Petitioner bank. The Petitioner bank further submitted that as the beneficiaries of the HDB Welfare Trust were the employees of the Petitioner and not the Petitioner, the Trust does not come within the ambit of a person/party Pg 7 of 57 WP462OF2017.doc as required under section 40A(2)(b) of the Act.

(h) After considering these objections of the Petitioner, Respondent No.1, vide his impugned order dated 29th December, 2016, rejected the objections that the aforesaid transactions were not SDTs, and therefore, held that domestic transfer pricing provisions would be applicable. In a nutshell, Respondent No.1 held that the Petitioner was involved in the transaction of purchase of loan which is a business asset of the Petitioner and the purchase of such asset from a related party falls under section 40A(2)(b)of the IT Act. Respondent No.1 further held that the consolidated holding of the promoters was in excess of 20 % of the shareholding of the Petitioner and hence, the beneficial ownership clause was applicable. Respondent No.1 further went on to hold that since the Petitioner holds 29% shareholding of ADFC Ltd., which in turn holds 98.4% of the shares of HBL Global, the Petitioner had beneficial ownership and voting rights of more than 20% of HBL Global and hence the transaction with HBL Global was with a person/party as covered by section 40A(2)(b) of the I.T. Act. As far as the Trust was concerned, Respondent No.1 held Pg 8 of 57 WP462OF2017.doc that the Petitioner possesses more than 20% of the rights in the said Trust which makes it a related party as per the provisions of section 40A(2)(b) of the Act. It is in these circumstances that Respondent No.1 passed the impugned order and thereafter, on the very same day (namely, on 29th December, 2016) made a reference (in relation to all the abovementioned three transactions) under section 92CA(1) of the Act to Respondent No.2 for determining the ALP.

(i) Once this reference was made, Respondent No.2 issued a notice dated 30th December, 2016 under section 92CA(2) of the I.T. Act asking the Petitioner to produce various information in relation to international transactions and/or SDTs referred to by Respondent No.1 vide his letter dated 29th December, 2016. This was for A.Y. 2014-2015. To this letter of Respondent No.2, the Petitioner replied by contending that certain basic documents which the Petitioner had maintained with respect to the international transactions / SDTs reported by the Petitioner in Form No.3CEB were already submitted and those transactions were accepted to be SDTs. It was the case of the Petitioner that the transactions referred to Respondent No.2 by Pg 9 of 57 WP462OF2017.doc Respondent No.1 were not SDTs, and therefore, the Petitioner was not obliged in law to submit any documents to Respondent No.2 with reference to these transactions. The Petitioner also alleged that the reference made to Respondent No.2 was not only bad in law, but also appeared to be made in undue haste by Respondent No.1.

(j) It is thereafter, and in these facts and circumstances, that the present Writ Petition has been filed seeking quashing and setting aside of the impugned order dated 29th December, 2016 passed by Respondent No.1 as well as the impugned reference dated 29th December, 2016 under which Respondent No.1 made a reference to Respondent No.2 for determining the ALP for the above mentioned three transactions and which, according to Respondent No.1, were SDTs.

(k) After this Petition was filed on 23rd June, 2017, the Division Bench of this Court recorded that the matter has debatable issues which require consideration, and therefore, the matter was placed for hearing on 14th July, 2017. The Division Bench directed that till then the TPO shall not pass Pg 10 of 57 WP462OF2017.doc any final order. The Division Bench also recorded that if possible an endeavor shall be made to dispose of this Petition finally at the stage of admission. Thereafter, the matter has been adjourned from time to time and has now come up before us and with the consent of parties we have heard it finally. In these circumstances we issue Rule. The Respondents waive service. By consent, Rule is made returnable forthwith and heard finally.

3. In this factual backdrop, learned Senior Counsel Mr J.D. Mistri appearing on behalf of the Petitioner, submitted that in the facts of the present case there were three transactions which the Revenue had alleged, were SDTs. They are – (1) Loans of Rs.5164 Crores purchased by the Petitioner from the promoters (HDFC Ltd.) and loans of Rs.27.72 Crores purchased from the subsidiaries; (2) Payment of Rs.492.50 Crores by the Petitioner to HBL Global for rendering services; and (3) payment of interest of Rs.4.41 Crores by the Petitioner to HDB Welfare Trust. Mr Mistri submitted that it is only when the aforesaid transactions, or any of them, are a SDT, and which are not reported by the assessee, then the A.O. is required to issue a show cause notice to the assessee and pass an order disposing of the objections of the assessee before referring the said SDT to the Pg 11 of 57 WP462OF2017.doc TPO for determining the ALP. He submitted that to challenge the order of the A.O. there is no other alternate efficacious remedy and in fact this Court in the case of Vodafone India Services Pvt. Ltd. Vs. Union of India [361 ITR 531] has held that such an order passed by the A.O. rejecting the objections of the assessee that the transactions are not SDTs, can be challenged by way of a Writ Petition. Another reason stated by Mr Mistri why the Writ Petition came to be filed was that once the transaction is treated as a SDT, penalty under section 271G of the Act (at 2% of the value of the alleged SDT) is leviable, even if the TPO was to come to the conclusion that the transactions were at the ALP. It is in these circumstances, Mr Mistri submitted that the Petitioner has been constrained to approach this Court in its extraordinary, equitable and discretionary jurisdiction under Article 226 of the Constitution of India.

4. Thereafter, Mr Mistri submitted that neither of the three transactions are a SDT as wrongly held by Respondent No.1. He submitted that as far as the loans of Rs.5164 Crores purchased by the Petitioner from the promoters as well as Rs.27.72 Crores purchased from the subsidiaries is concerned, he stated that the aforesaid transaction is not a transaction relating to the assessment Pg 12 of 57WP462OF2017.doc year in question, namely, A.Y. 2014-15. In this regard he relied upon the annual accounts of the Petitioner annexed at pages 100 & 101 of the paper book. According to Mr Mistri, this submission was not even considered by the A.O. in the impugned order while rejecting the objections of the Petitioner. Mr Mistri submitted that this transaction related to A.Y. 2013-14, for which the Transfer Pricing Assessment was already completed. This being the case, at the outset, Mr Mistri submitted that this transaction could never be taken for A.Y. 2014-15 and be treated as a SDT.

5. Thereafter, Mr Mistri submitted that in any event, this transaction of purchasing loans could never be a SDT. Mr Mistri submitted that for a transaction to fall within the meaning of a SDT under section 92BA(i) of the Act, the transaction has to be one which is not an international transaction and in which any expenditure in respect of which payment has been made or is to be made by the assessee to a person referred to in section 40A(2)(b) of the Act. He submitted that section 40A(2)(b) of the Act refers to certain persons, and the transaction in question, namely, the purchase of loans from the promoters of the Petitioner (HDFC Ltd.) did not fall within any of the persons mentioned in section 40A(2)(b) read with explanation (a) thereof, and which is appended to section 40A(2)(b) Pg 13 of 57WP462OF2017.doc of the Act. In this regard, he brought to our attention section 40A(2)(b)(iv) of the Act and contended that the person referred to in the said sub-section has to have a substantial interest in the business or profession of the assessee (in the present case the Petitioner). He submitted that explanation (a) sets out what is the meaning of ‘substantial interest’ and stipulates that in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of the shares carrying not less than 20% of the voting power. In the facts of the present case, Mr. Mistri submitted that admittedly HDFC Ltd. is the beneficial owner of only 16.39% of the shares of the Petitioner and hence section 40A(2)(b) was not at all applicable to the present transaction. He submitted that the Revenue had grossly erred in clubbing the shareholding of HDFC Ltd. with the shareholding of its subsidiary, namely, HDFC Investments Ltd. (and which has a 6.25% shareholding in the Petitioner), to cross the threshold of 20%. To put it differently, Mr Mistri submitted that HDFC Ltd. holds 16.39% of the shareholding of the Petitioner and HDFC Investments Ltd. holds 6.25% of the shares of the Petitioner. To cross the threshold of 20% as required under section 40A(2)(b), the Revenue is seeking to club both these shareholdings together. He submitted that in law, this can never be done. He submitted that in law, the Parent Company (here Pg 14 of 57WP462OF2017.doc HDFC Ltd.) can never be said to be the beneficial owner of the properties of its subsidiary (here HDFC Investments Ltd.). He submitted that the shares held by HDFC Investments Ltd in the Petitioner was nothing but the movable property of HDFC Investments Ltd. This being the case, Mr. Mistri submitted that the Revenue could never club the two shareholdings together to cross the threshold of 20% as required by section 40A(2)(b) read with explanation (a) thereof. In support of this proposition, Mr. Mistri placed reliance on the following decisions of the Supreme Court:-

(a) Bacha F. Guzdar Vs. CIT [(1955) 27 ITR 1 (SC)];

(b) Vodafone International Holdings BV Vs. UOI [341 ITR 1 (SC)]; and

(c) BA Mohota Textile Traders Pvt. Ltd. Vs. DCIT [397 ITR 616 (Bom)].

6. To further substantiate this argument, Mr Mistri also placed reliance on the meaning of the word “beneficial owner” as appearing in the Black’s Law Dictionary as well as Tax Laws Lexicon (2012 Edition). According to Mr Mistri, Black’s Law Dictionary defined ‘beneficial owner’ as ‘one recognized in equity as the owner of something because use and title belong to that person, even though the legal title may belong to someone else; especially one from whom property is held in Trust’. Similarly, according to Mr Mistri, Tax Pg 15 of 57 WP462OF2017.doc Laws Lexicon (2012 Edition) defines ‘beneficial owner’ as ‘the person who is not the legal owner but has the right to deal with the property as his own and has a right to enjoy the income.’ Mr. Mistri submitted that even section 89 of the Companies Act, 2013 requires a disclosure to be made to the Company (in the present case the Petitioner) by the owner of the shares if the owner is not the beneficial owner. In the present case no such disclosure is required to be made by HDFC Investments Ltd., and in fact, no such disclosure has been made in terms of section 89, by HDFC Investments Ltd. He therefore submitted that HDFC Ltd. (the parent company of HDFC Investments Ltd.) could never be said to be the beneficial owner of the shares owned by HDFC Investments Ltd. in the Petitioner.

7. Mr Mistri then submitted that it is undisputed that there cannot be more than one beneficial owner of the shares. It cannot be that two different persons are the beneficial owners of the same shares. If we were to accept the submission of the Revenue, the same would lead to a complete absurdity. Mr Mistri submitted that take for example Company ‘A’ has a wholly owned subsidiary, Company ‘B’. In turn, the shares of Company ‘C’ are held 90% by Company ‘B’ and 10% by Company ‘A’. If one was to give the interpretation as sought for by the Revenue, then it would mean that Company ‘A’ Pg 16 of 57WP462OF2017.doc beneficially owns 100% of Company ‘C’ which would lead to an absurd situation that Company ‘B’; though owning 90% of the shareholding in Company ‘C’, would not be regarded as having a substantial interest in Company ‘C’ as Company ‘B’ cannot be said to be the beneficial owner of its 90% shareholding in Company ‘C’. Further, if the interpretation of the Revenue was to be held as correct then one will not have to not stop there and then also see the shareholders of Company ‘A’ as the beneficial owner of the shares of Company ‘C’. This would then lead to absurd results, namely, that then even Company ‘A’ also would not have a substantial interest in Company ‘C’ and it would be the shareholders of Company ‘A’ that would have a substantial interest in Company ‘C’. This, according to Mr Mistri, would lead to startling results. He therefore submitted that such an interpretation has to be avoided at all costs.

8. Mr Mistri further submitted that a Guidance Note issued by the Institute of Chartered Accountants of India on Report under section 92E, specifically provides that for the purposes of section 40A(2)(b) one has to consider only direct shareholding and not derivative or indirect shareholding. He submitted that though the Guidance Note is not binding on this Court, the Supreme Court in the case of CIT Vs Virtual Soft Systems Ltd. [404 ITR 409 (SC)] has Pg 17 of 57 WP462OF2017.doc held that the Guidance Note can be used as an aid to interpret the provision. In furtherance of this argument, Mr Mistri submitted that wherever the Legislature intended, they have used the term “directly or indirectly” throughout the Income Tax Act, 1961. Some of the examples given by Mr Mistri were sections 92A(1), 92A(2), 285A, 9(1)(i), and explanation 5 to section 9(1), to name a few. Mr Mistri submitted that in fact the term “directly or indirectly” is used more than 40 times in the Act. What is important to note is that this very term, ‘directly or indirectly’ is conspicuously absent in explanation (a) to section 40A(2)(b) of the Act, was the submission of Mr. Mistri. If the interpretation of the Revenue was to be accepted, the same would tantamount to doing serious violence to the language of the statute by introducing words in explanation (a) to section 40A(2)(b) which have not been provided by the Legislature. Mr. Mistri submitted that this is more so when one takes into consideration that explanation (a) to section 40A(2)(b), being a deeming provision, must be interpreted strictly. He, therefore, submitted that the present transaction, namely, purchase of loans by the Petitioner from HDFC Ltd. and its subsidiary can never be termed as a SDT.

9. In the alternative to the above argument, Mr Mistri Pg 18 of 57 WP462OF2017.doc submitted that the purchase of these loans can never be an ‘expenditure’ as covered under sections 28 to 37 of the Act. It was basically a purchase of an asset and hence not an ‘expenditure’ covered under section 92B(A)(i). Mr Mistri submitted that section 40A would be applicable when an amount expended or paid is claimed as a deduction whereas loans purchased by the Petitioner is not claimed as a deduction and which is reflected as an asset in the balance-sheet. He submitted that even the A.O. accepts in the impugned order that the transaction of purchase of loans is an asset of the Petitioner. Mr Mistri submitted that section 92BA(i) would apply only when an expenditure is incurred for which a payment is made to a party covered under section 40A(2)(b) of the Act. In the present case, the purchase of loans was not an ‘expenditure’ but payment made for acquiring an asset, and hence, the same could never fall within the ambit of section 92BA(i) at all. Mr Mistri submitted that it is not possible to purchase an asset without making payment but that by itelf, without anything more, would not mean that such payment is an ‘expenditure’ as understood under the Act. He submitted that for purchasing an asset the purchaser pays a price for acquiring the asset and it is referred to as the consideration for the purchase of that asset and not an ‘expenditure’ for that asset. He submitted that the consideration paid for acquiring the asset can Pg 19 of 57 WP462OF2017.doc never be said to be in the nature of ‘expenditure’ so as to come within the ambit of section 92BA(i) of the Act. Mr Mistri was at pains to point out that an asset would be reflected in the balance-sheet of the company whereas ‘expenditure’ would not find place in the balance- sheet but would be reflected in the Profit & Loss Account. These loans that were purchased by the Petitioner are reflected in the balance-sheet of the Petitioner bank and not in the Profit & Loss Account. This is another reason why Mr Mistri submitted that the present transaction, namely, purchase of loans by the Petitioner, could never fall within the definition of a SDT under section 92BA(i) of the Act.

10. As far as the transaction with HBL Global is concerned, namely, the payment made by the Petitioner of Rs.492.50 Crores to HBL Global for rendering services, Mr Mistri submitted that the Petitioner bank holds 29% shares of a company called Atlas Documentary Facilitators Co. Pvt. Ltd. (“ADFC Ltd.”) which in turn holds 98.4% shares of HBL Global. He submitted that admittedly the Petitioner does not have any shareholding in HBL Global and hence the Petitioner does not beneficially own more than 20% of the shares of the HBL Global Pvt. Ltd. or vice versa, as contemplated under section 40A(2)(b) of the Act. He, therefore, submitted that the Pg 20 of 57WP462OF2017.doc payment of Rs.492.50 Crores for the services rendered by HBL Global to the Petitioner was not a transaction that could fall within section 92BA(i) of the Act to be termed as a SDT. Mr. Mistri submitted that Respondent No.1 erred in holding that merely because the Petitioner holds 29% shares of ADFC Ltd., which in turn holds 98.4 % shares in HBL Global, the Petitioner would be regarded as a beneficial owner of the shares and voting rights of HBL Global. Once again, Mr Mistri submitted that Respondent No.1 has completely misconstrued meaning of the word “beneficial owner” of the shares. He submitted that the legal and beneficial owner of shares of HBL Global is only ADFC Ltd. and cannot be said to be any shareholder of ADFC Ltd. He submitted that it is now well settled that the shareholders of a company cannot be said to have any beneficial interest in the assets of that company. He submitted that 98.4% shareholding of ADFC Ltd. in HBL Global was an asset / movable property of ADFC Ltd. By no stretch of the imagination, therefore, could the Petitioner be held to be the beneficial owner of the shares held by ADFC Ltd in HBL Global. He, therefore, submitted that this transaction could never be termed as a SDT as understood under section 92BA(i) read with section 40A(2)(b) of the Act. Mr Mistri submitted that if the logic of Respondent No.1 was to be taken to its logical conclusion, then it would mean that it is not even the Pg 21 of 57 WP462OF2017.doc Petitioner who is the beneficial owner of the shares of HBL Global, but it is the shareholders of the Petitioner who were the beneficial owners of the shares of HBL Global. As stated earlier, Mr Mistri submitted that this would lead to an absurd situation. He submitted that this could never been the intention of the Legislature as such an interpretation would lead to startling results and therefore has to be avoided.

11. As far as the transaction of payment of interest of Rs.4.41 Crores to HDB Welfare Trust is concerned, Mr Mistri submitted that the beneficiaries of the said Trust are the employees of the Petitioner and not the Petitioner. He, therefore, submitted that the Trust does not come within the ambit of section 40A(2)(b) of the Act as explanation (b) to section 40A(2)(b) clearly provides that the Petitioner must be beneficially entitled to 20% of the profits in the said Trust. He submitted that in the facts of the present case this transaction did not fall within explanation (a) of section 40A(2)(b), but explanation (b) to the said section. He submitted that Respondent No.1 had proceeded on a factually wrong assumption that the Petitioner possesses more than 20% of the rights in the said Trust which makes it a related party as per the provisions of section 40A(2)(b) of the Act. He, therefore, submitted that even this Pg 22 of 57 WP462OF2017.doc transaction could never fall within the ambit and scope of a SDT as contemplated under section 92BA(i) of the Act.

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