TaxTMI 
TaxTMI 
2023 (2) TMI 35
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....ility and legal ownership. FACTS 2. The relevant facts of the present case are that during the Assessment Year 2014-15, the petitioner-Blackstone Capital Partners (Singapore) VI FDI Three Pte. Ltd. acquired equity shares of Agile Electric Sub Assembly Private Limited, a Company incorporated in India ("Agile") in two tranches, i.e. on 16th August, 2013 and 31st October, 2013. 3. During the year under consideration, i.e. Assessment Year 2016-17, the petitioner sold all the equity shares of Agile to Igarashi Electric Works Limited ("Igarashi") and other parties on 30th July, 2015. 4. The petitioner electronically filed its return of income for the Assessment Year 2016-17 on 29th September, 2016. In terms of the said return of income, the petitioner claimed that the gains earned by it on sale of Agile shares were not taxable in India by virtue of Article 13(4) the Double Tax Avoidance Agreement entered into and subsisting between India and Singapore ("India-Singapore DTAA") based on the Tax Residency Certificate ('TRC'). In its return of income, the petitioner made all the requisite disclosures with regard to the investment and sale of shares like the petitioner is a non-re....
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.... upon the advice of Deloitte Haskins & Sell LLP for taxation of capital gain on part of M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd. On open source enquiry it is revealed that Black Stone Group Inc is a USA based alternative investment Management Company and thus controlled and managed from USA. As per filings of Blackstone Group with Securities Exchange Commission, USA, the funds were raised by Blackstone Group Inc., for investing through Blackstone Capital Partner VI (BCP VI), therefore, it appears that the source of funds and management of affairs of Blackstone Capital Partners (Singapore) VI FDI Three Pte Ltd., was from USA. Hence, M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd., is not entitled for treaty benefit of Singapore. There is an apprehension that M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd., is not beneficial owner of this transaction. As per the information received in case of the assessee, the assessee has indulged in following transactions during the year: Shares sold by Purchased by Amount received Nature of Transaction BLACKSTONE CAPITAL PARTNERS (SINGAPORE) VI FDI THREE PTE. ....
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....I have reason to believe that an amount at least of Rs.4,01,31,77,340/-has escaped assessment in case of BLACKSTONE CAPITAL PARTNERS (SINGAPORE) VI FDI THREE PTE. LTD. for the A.Y. 2016-17 within the meaning of Section 147/148 of Income Tax Act, 1961. 5.2 It would be worthwhile to submit here that in the case of Rajesh Jhaveri Stock Brokers Pvt Ltd V ACIT (2007) 291 ITR 500/161 Taxman 316 (SC), Hon'ble Supreme Court has held that: "All that is required for the Revenue to assume valid jurisdiction u/ s 148 is the existence of cogent material that would lead a person of normal prudence, acting reasonably, to an honest belief as to the escapement of income from assessment." It is also pertinent to mention that on similar lines, in the case of CIT v. Nova Promoters & Finlease (P) Ltd (ITA NO. 342 of 2011), the Hon'ble Delhi High Court, which is the jurisdictional High Court, has held as below: "We are aware of the legal position that at the stage of issuing the notice under Section 148 the merits of the matter are not relevant and the Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeab....
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....based on information received from another officer who had no rational connection for formation of belief. 9. However, the objections were disposed of by the respondent vide the impugned order dated 10th January, 2022 which is reproduced hereinbelow:­ "To, BLACKSTONE CAPITAL PARTNERS (SINGAPORE) VI FDI THREE PTE. LTD. 1, MARINA BOULEVARD, 28-00 ONE MARINA BOULEVARD SINGAPORE 999999, FOREIGN India PAN: AAFCB5584L Assessment Year 2016-17 Dated: 10/01/2022 DIN & Letter No: ITBA/AST/F/17/2021-22/1038599433(1) Sir/Madam/ M/s, Subject: Order disposing objections filed by assessee vide letter dated 28.12.2021 against reason recorded-regd. 1. Attention is drawn towards the reply dated 28.12.2021 vide which objections have been filed by the assessee (Although compliance date for filling objection was given of 09.12.2021 w.r.t letter dated 02.09.2021 containing reasons for opening of case) in response to notice under section 148 of the Income Tax Act, 1961 issued for AY 2016-17 on 31.03.2021. I have gone through the objections. The assessee has broadly raised objections related to the transactions forming the basis of reopening of....
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....or denial of benefits under the India-Singapore DTAA" "Based on the above contentions and facts in the case of the Assessee, it is submitted that the funding raised from Blackstone Group Inc. USA, does not impact the beneficial ownership of the Assessee and being a tax resident of Singapore it is eligible to claim benefits in terms of Article 13(4) of the India-Singapore DTAA" "Under the circumstances, it is submitted, and it will be appreciated that there is no chargeable income which has escaped assessment and hence, we request your goodself to drop re-assessment proceedings" 3. In this context, it is stated that the objections raised pertain to the issue under consideration and forms the legal claim which is to be examined during the course of assessment proceedings. Here, it is pertinent to note that the Hon'ble Delhi High Court in the case of CIT vs Nova Promoters & Finlease (P) Ltd.[2012] 18 taxmann.com 217 (Delhi) held, "We are aware of the legal position that at the stage of issuing notice u/s 148 the merits of the matter are not relevant and the assessing officer at that stage is required to form only a prima facie belief or opinion that inco....
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....e for which such a provision was enacted by the Legislators. Constructive interpretation of the Act and the Rules are of paramount importance. The Rule of constructive interpretation requires that the possible object and the purpose to be achieved is met out by adopting not only the balancing approach, but also by providing all reasonable opportunities to the persons, who all are connected or aggrieved. 5.5 The purpose of the Income-tax Act, more specifically, sections 147 and 148, is to ensure that the assessees, who have suppressed the fact at the time of filing of their income tax returns or if the Department is in possession of certain new materials in respect of the assessment of a particular year, then the assessee must be informed about the decision to reopen the assessment and after such information is provided, the procedures must be followed for the purpose of concluding the reassessment. 5.6 The intention of the statute is that the authorities on receipt of new material facts or regarding any suppression of materials by the assessee, is bound to initiate proceedings by invoking sections 147 and 148 of the Act. 5.7 The amended phraseology of ....
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....a check provided under the Statute to the officials, cannot be taken undue advantage of by the assessee. The word 'reason to believe' incorporated is to indicate the Officials that, they cannot reopen the assessment in a routine and mechanical manner. The Assessing Officer in the event of receipt of any new material or information regarding the suppression, must have a reason to believe and the reasons must be recorded in the files and thereafter issue notice to the assessee and the assessee on receipt of the notice & after compliance thereof, is entitled to seek the reasons from the department enabling them to adjudicate the matter in the manner known to law. 5.12 The very concept of income tax assessment is that the assessee is taxed by the Department based on the returns filed by the assessee. Section 2 provides 'definitions'. Section 2(8) defines 'assessment includes reassessment'. Thus, the very meaning of the assessment provided under the Act includes reassessment also. Thus, the re-assessment is not a separate concept and it is included within the meaning of the assessment under Section 2(8). Thus, an assessment and reassessment are part and ....
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....years and six years respectively. 5.15 The procedure of reopening of the assessment is contemplated under sections 148 to 153. Once again looking into the spirit of section 147, it is unambiguously enumerated that 'assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance'. 5.16 The language employed in section 147(1) is that 'which comes to his notice subsequently in the course of the proceedings under the section'. Thus, even after initiation of reopening of assessment proceedings under section 147. If during the course the proceedings any materials or information are received by the Assessing Officer that also can be taken into consideration for the purpose of reassessment. It is crystal clear that the reasons recorded before the initiation of the reopening of the assessment alone need not be a ground for reassessment. Even after reopening of the assessment if any materials or information are received by the Assessing Officer that also shall be included p....
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....e certain doubts in respect of the reasons or otherwise have been raised by the assessee, such benefit of doubt should be held in favour of the revenue and not in favour of the taxpayer. Contrariness is to be established by the assessee, while scrutinising the materials available with the Assessing Officer. 5.22 It is for the assessee to convince the Assessing Officer in respect of all such escaped assessments, information and materials available and submit the returns. This being the legal principles to be followed, the provisions are to be interpreted to achieve its purpose and the object and, therefore, the wider powers provided under Section 147 for reopening of the escaped assessments can never be restricted by imposing certain conditions on the Assessing Officer. 5.23 Considering the fact that there were some materials on record and the information with the Department of Income-tax, the reopening of the assessment of assessee has been upheld in various cases. Further, on various occasions the validity of the reassessment proceedings has been upheld in various cases. Reliance in this regard is placed on the following judicial pronouncements: In case ....
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....scaped assessment in the hands of the assessee for the assessment year 2004-05. [Para 11]" In case of Max Ventures Investments Holdings (P.) Ltd. vs ITO [2019] 105 taxmann.com 124 (Delhi), it was held as under: Section 68, read with sections 147 and 148, of the Income-tax Act, 1961 -Cash credit (Share application money)-Assessment year 2012-13-Assessee was engaged in business of rendering financial services -During financial year 2009-10, it received share application money of Rs. 87 crores from its promoter/founder AS towards fresh allotment of equity shares while authorised capital of assessee was Rs. 20 lakhs only-Application to SEBI seeking permission for allotment of shares was made as late as in 2014 only after questionnaire was issued by Assessing Officer-There was nothing to justify huge premium of Rs. 4,569 per share over face value of only Rs. 10 per share-Market value of shares at time of receipt of share application money was only Rs. 318 per share-Further, necessity for issuing shares worth Rs. 87 crores was unanswered -Assessee retained money received - No reason was shown for issuing shares -Further, genuineness of transaction on creditworthiness of....
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.... the AO was from credible source. Further on the basis of information available, the Assessing Officer formed a prima facie or tentative opinion that the assessee had indeed received income during the year on which tax has not been paid. The phrase "reasons to believe" meant to be the cause or justification for the Assessing Officer to know or suppose that income had escaped assessment. It does not mean that the Assessing Officer should have finally ascertained that the fact by legal evidence or conclusion. At that stage, the final outcome of the proceedings is not relevant. The only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether or not the material would conclusively prove escapement is not the aspect or concern at that stage but this aspect has to be examined subsequently in the reassessment proceedings. Reliance is placed on the decision of Hon'ble jurisdictional High Court in the case AGR INVESTMENT LTD. V. ADDL. COMMISSIONER OF INCOME TAX [2011]333 ITR 146 (DELHI) / [2011] 197 TAXMAN 177 (DELHI). The notice has been issued after due application of mind. A perusal of the reasons recorded for the iss....
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....e (a). In other words, there must be relevant material be are the assessing officer upon which he must reasonably and rationally arm the requisite opinion (belief). The question, therefore, is whether the letter of the Chief Mining Officer aforesaid does not constitute relevant material upon which the Income-tax Officer could have formed the requisite belief? It must be remembered that the formation of belief by the Income-tax Officer is essentially within his subjective satisfaction." 13. Therefore in view of the above, it can be concluded that there was alive and intelligible nexus between the reasons and the belief. There was sufficient material available with the AO to come to the belief that that income has escaped assessment and to record satisfaction, get approval and then issue the impugned notice in this case u/s 148. 14. In view of the above discussion, it is justified that the proceedings in the case of assessee have been validly initiated. The contentions raised by the assessee have been dealt on merits in great detail and objection to the re-opening of the case are accordingly disposed off as not maintainable and this communication should be considere....
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.... Partners VI L.P., a Delaware limited partnership and (ii) any Alternative Investment Vehicles or Parallel Funds (each as defined in the partnership agreement for the partnership referred to in clause (i) above). He emphasised that the impugned letter demonstrated that the reassessment had been initiated based on the information received by the respondent from another office of the Income-tax Department to which there was no independent application of mind or verification by the respondent. Hence, he submitted that the same tantamounted to 'borrowed satisfaction' which made the reassessment erroneous, arbitrary and contrary to law. 13. He contended that the respondent's reasons for reopening only stated that the respondent wanted to verify the nature and genuineness of the transaction. According to him, reopening could not have been ordered for the purpose of verification, if Department had not undertaken the same within the time limit stipulated in Section 143(2) of the Act. In any event, he submitted that re­assessment cannot be ordered for verification or making roving and fishing enquiries on mere suspicion and/or for examination of genuineness of the claim. 14. He fu....
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.... together 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 Contracting State of which the alienator is a resident. 4. Gains derived by resident of a Contracting State from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of this Article shall be taxable only in that State. (emphasis supplied)" 17. He contended that the Central Board of Direct Taxes vide its press release dated 1st March, 2013 had held out to the investors at large that DTAA benefits would be granted solely on the basis of TRC issued by the contracting state. The press release dated 1st March, 2013 is reproduced hereinbelow:­ "FINANCE MINISTRY'S CLARIFICATION ON TAX RESIDENCY CERTIFICATE (TRC) PRESS RELEASE, DATED 1-3-2013 Concern has been expressed regarding the clause in the Finance Bill that amends Section 90 of the Income-tax Act that deals with Double Taxation Avoidance Agreements. Sub-section (4) of Section 90 wa....
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.... the avoidance of double taxation and prevention of fiscal evasion with respect to taxes of income and capital gains was entered into between the Government of India and the Government of Mauritius and was notified on 6-12-1983. In respect of India, the Convention applies from the assessment year 1983-84 and onwards. 2. Article 13 of the convention deals with taxation of capital gains and it has five paragraphs. The first paragraph gives the right of taxation of capital gains on the alienation of immovable property to the country in which the property is situated. The second and third paragraphs deal with right of taxation of capital gains on the alienation of movable property linked with business or professional enterprises and ships and aircrafts. 3. Paragraph 4 deals with taxation of capital gains arising from the alienation of any property other than those mentioned in the preceding paragraphs and gives the right of taxation of capital gains only to that State of which the person deriving the capital gains is a resident. In terms of paragraph 4, capital gains derived by a resident of Mauritius by alienation of shares of companies shall be taxable only in Mauri....
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....e taxable in India on income from capital gains arising in India on sale of shares as per paragraph 4 of article 13. (emphasis supplied)" 19. He submitted that the Supreme Court in the subsequent judgment of Vodafone International Holdings B.V. vs. Union of India and Anr., (2012) 6 SCC 613 has held that Union of India vs. Azadi Bachao Andolan (supra) is correct law and TRC is sufficient evidence to show residence of the contracting state. 20. Learned senior counsel for the petitioner also pointed out that the petitioner fulfilled the expenditure test stipulated in Article 3 of the Protocol of the India-Singapore DTAA as its total annual expenditure on operations in Singapore was not less than SGD 200,000 or Indian Rs.50,00,000/-in the immediately preceding period of twenty-four months from the date the gains arose. Amended Article 3 of the Protocol of the India-Singapore DTAA vide Protocol No.1022 (E) dated 18^th July, 2005 governing the instant case is reproduced hereinbelow:- "Singapore Amended Protocol /Notification No 1022(E)/18-7-2005 (2005) 276 ITR 142(St.) Whereas the annexed protocol amending the Agreement between the Government of the Republic of In....
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....ll not be entitled to the benefits of article 1 of this protocol if its affairs were arranged with the primary purpose to take advantage of the benefits in article 1 of this protocol. 2. A shell/conduit company that claims it is a resident of a Contracting State shall not be entitled to the benefits of article 1 of this protocol. A shell/conduit company is any legal entity falling within the definition of resident with negligible or nil business operations or with no real and continuous business activities carried out in that Contracting State. 3. A resident of a Contracting State is deemed to be a shell/conduit company if its total annual expenditure on operations in that Contracting State is less than S$200,000 or Indian Rs. 50,00,000 in the respective Contracting State as the case may be, in the immediately preceding period of 24 months from the date the gains arise. 4. A resident of a Contracting State is deemed not to be a shell/conduit company if: (a) it is listed on a recognised stock exchange of the Contracting State; or (b) its total annual expenditure on operations in that Contracting State is equal to or more than S$200,000 or....
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....,718 equivalent to SGD 618,708 approx. The total business spending of the petitioner in the Assessment Year 2016 as reported to the Singapore Tax Authoritieswas as under:­ Total Business Spending "TBS") Expenses paid Amount (S$) Remuneration 0 Management fees 356,882 Other operating costs (please specify top 5) (i) Professional fees 148,657 (ii) GST expenses 27,498 (iii) Admin fees 7,582 (iv) Audit fees 4,248 (v) Custodian fees 2,757 (vi) Other operating costs 2,062 (vii) Total TBS 549,686 22. He emphasised that the assessee had submitted all the details viz. financial statements, submissions on the satisfaction of LOB clause, Deloitte opinion, etc. Even the certificate obtained from independent chartered accountant in Singapore with regard to the said expenses and satisfaction of LOB conditions was duly shared along with the objections. The Assessing Officer, while passing the order dated 10th January, 2022, had not questioned the satisfaction of the LOB clause. Consequently, he contended that the pet....
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....n the writ petition is not accorded to the writ petitioner even at the threshold by the interim protection granted." 25. He further submitted that the Supreme Court in Income Tax Officer, Cuttack and Others Vs. Biju Patnaik, 1991 Supp (1) SCC 161 has held that it is settled law that in an administrative action the order may not ex facie disclose the satisfaction by the officer of the necessary facts, but if the record discloses the same, the notice or the order does not per se become illegal. 26. Learned senior standing counsel for the respondent-revenue stated that the present case is a case of re-opening of Section 143(1) assessment within four years. Consequently, according to him, no fresh tangible material was required to re-open the assessment. He submitted that the only condition that had to be satisfied was that the satisfaction was not a pretence or a sham. He submitted that though there was no requirement of independent material, yet in the present case there was enough material on record warranting re-opening of the assessment. In support of his submission, he relied upon the judgment of this Court in Indu Lata Rangwala vs. Deputy Commissioner of Income Tax, 2016 S....
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....as been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return. 29. He stated that the petitioner is a shell / conduit company with negligible / nil business operations in Singapore / or with no real and continuous business activities carried out in Singapore. He vehemently contended that the petitioner is a company based in United States of America (USA) as its management was based there and the funds for investments in India had come from the USA. He emphasised that in the present case, the ultimate holding company is in USA and that India and USA DTAA does not provide for capital gains tax exemption. 30. He contended that from the Form-10K filed by Blackstone Group before United States Securities Exchange Commission in December, 2011 and relied upon by the Assessing Officer in the impugned order, it was apparent that Mr. Stephen A. Schwarzmann, founder of the Group is the sole commanding voice of the entire Blackstone Group with absolute powers. 31. He even placed on record Form-10K filed by the Blackstone....
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....l partner, Blackstone Group Management L.L.C., which is owned by our senior managing directors, manages all of our operations and activities. Our founder, Stephen A.Schwarzman will have the power to appoint and remove the directors of our general partner. The limited liability company agreement of our general partner provides that at such time as Mr.Schwarzman should cease to be a founder, Hamilton E.James will thereupon succeed Mr.Schwarzman as the sole founding member of our general partner, and thereafter such power will revert to the members of our general partner (our senior managing directors) holding a majority in interest in our general partner. "December 31 2015 2014 (Dollars in Millions) Private Equity BCP IV Carried Interest $ 144 $ 282 BCP V Carried Interest 288 1,050 BCP VI Carried Interest 359 233" 32. He contended that it was unbelievable that the petitioner with USD 1 only paid-up capital, independently took the commercial decision to acquire assets worth USD 53 Million, held them for two years and thereafter sold the same for USD 109 Million and earned a commercial gain of USD 55 Million. He emphasised that a single imp....
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....arch, 2013 neither qualifies as Circular nor statute. He stated that the Circular 789 is Mauritius-specific and does not apply to India-Singapore DTAA. He submitted that in any event the Supreme Court in Union of India vs. Azadi Bachao Andolan (supra) had stated that the Circular 789 does not crib, cabin or confine Assessing Officer's jurisdiction to make assessments in individual cases. He clarified that had the Supreme Court not carved out this exception in favor of assessment by the Assessing Officer in individual cases, Circular 789 would have been quashed on grounds of being ultra vires Section 119, as the CBDT has only the power to issue "general" directions and not restrict the Assessing Officer's jurisdiction in individual cases. He pointed out that on parity of reasoning, this Court in Tata Teleservices Limited Vs Central Board of Direct Taxes & Anr., 2016 SCC OnLine Del 2912 had quashed CBDT Instruction No.1/2015 dated 13th January, 2015 as it denuded the statutory jurisdiction of Assessing Officer in individual cases of assessments. 37. He submitted that the Bombay High Court in Aditya Birla Nuvo Ltd. vs. Dy. Director of Income-Tax (International Taxation) 4(2), Mumba....
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.... is concerned, as rightly pointed out by Mr. Aggarwal, that dealt with Section 147(a) as it then stood. Section 147(a) has undergone a change that has been explained in some detail by the Supreme Court in Kelvinator of India Ltd.'s case (supra) and in particular the following extract: "On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", whic....
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....ever, remain the same." 32. In view of the above authoritative enunciation of the legal position in light of the amended Section 147, the reliance by the Revenue on the decision of Biju Patnaik's case (supra) is to no avail." 41. He submitted that the minimum requirement of paid-up share capital for incorporating the Company in Singapore is USD 1 as per the guidelines of the Accounting and Corporate Authority of Singapore. He stated that the petitioner had complied with the same. During FY 2013, the petitioner had issued ordinary shares of USD 1,32,65,731 and redeemable preference shares of USD 3,97,97,196, i.e. total share capital of USD 5,30,62,928 [i.e. INR 344.6 Crores]. The same was apparent from financials of 2013. Accordingly, the data extracted from Recordowl.com was irrelevant. He contended that had the respondent even cursorily examined the website 'Recordowl.com', it would have realized that several companies, including major companies have been incorporated initially with a minimum paid-up capital of around USD 1. 42. Learned senior counsel for the petitioner stated that the petitioner had made a genuine investment in its hundred per cent (100%) subsi....
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....ted that the respondent's submission that TRC is not conclusive is contrary to law. He emphasised that the Vodafone International Holdings B.V. (supra) was a non-treaty case and the majority view of the Vodafone International Holdings B.V. (supra) decision clarified that Union of India vs. Azadi Bachao Andolan (supra) is correct law and TRC is sufficient evidence to show residence of the contracting state. He stated that the respondent had erroneously relied upon some comments in the minority judgment. Further, according to him, in the minority judgment, the comment that TRC is not conclusive is specifically restricted to round-tripping cases. He submitted that even in the minority judgment, the finality of the TRC qua foreign investors routing their investments through Mauritius, etc., is made emphatically clear as under:­ "No presumption can be drawn that the Union of India or the Tax Department is unaware that the quantum of both FDI and FII do not originate from Mauritius but from other global investors situate outside Mauritius". 46. In any case, according to him, a dissenting minority judgment cannot overrule either the majority of Vodafone International Holdi....
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....act, in Calcutta Discount Co. Ltd. vs. Income-tax Officer, [1961] 41 ITR 191 (SC), the Supreme Court has held that the alleged existence of 'reasons to believe' that income chargeable to tax has escaped assessment is an issue of jurisdiction and is therefore amenable to writ jurisdiction. The relevant portion of the said judgment is reproduced hereinbelow: "26. Mr Sastri next pointed out that at the stage when the Income Tax Officer issued the notices he was not acting judicially or quasi-judicially and so a writ of certiorari or prohibition cannot issue. It is well settled however that though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, it is well settled, will issue appropriate orders or directions to prevent such consequences. 27. Mr Sastri mentioned more than once the fact that the Company would have sufficient oppor....
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....ple has been reiterated in Principal Commissioner of Income-tax vs. Sheetal Dushyant Chaturvedi, [2022] 134 taxmann.com 328 (SC), Jeans Knit (P.) Ltd. Vs. Deputy Commissioner of Income-tax, Bangalore, [2017] 77 taxmann.com 176 (SC), Ganga Saran & Sons (P.) Ltd. Vs. Income-tax Officer, [1981] 6 taxman 14 (SC) and Synfonia Tradelinks (P.) Ltd. Vs Income Tax Officer, Ward-22(4), [2021] 435 ITR 642 (Delhi). 50. The judgment in Ghulam Ghouse (supra) deals with a challenge to the show cause notice and not with the subsequent order rejecting the objections, as in the present case. Consequently, the judgment in Ghulam Ghouse (supra) is inapplicable to the present case and the objection urged by the respondent is contrary to the decision of the Supreme Court in Calcutta Discount Ltd. (supra). RECOURSE TO SECTION 147 TO EXTEND THE TIME PERIOD FOR VERIFICATION / CLARIFICATION IS ILLEGAL 51. The reason given in the present case for reopening the assessment, namely, for verifying the nature and genuineness of the transaction of the petitioner in the assessment year is untenable in law as the return of income had been filed by the petitioner within time with full particulars (including ....
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....ls to place reliance on more reliable and authentic sources." (emphasis supplied) 53. Undoubtedly, information from a third party can form the basis for an examination/investigation by the Assessing Officer but the decision to reopen the assessment has to be of the Assessing Officer and not of the third party. In the present case, this Court finds that the respondent has merely done a 'cut and paste' job as it has issued the notice under Section 148 of the Act based on information forwarded by the TDS Officer of Igarashi without any independent application of mind or verification or investigation. Consequently, the impugned notice has been issued on borrowed satisfaction - which is impermissible in law. COMMON FOR COMPANIES TO BE INCORPORATED INITIALLY WITH MINIMUM PAID-UP SHARE CAPITAL 54. This Court takes judicial notice that it is quite common for companies to be incorporated as a special purpose vehicle for a particular investment / project and that too initially with a minimum paid-up share capital of USD 1. It is not in dispute that the petitioner was subsequently adequately capitalized and a genuine investment was made in India which had grown exponentially and f....
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.... any rational basis, the action of reopening of the Assessment is thus clearly contrary to law and is unsustainable....." 56. This Court is also of the view that the reasons for reopening should show that the Assessing Officer has recorded its satisfaction after considering all the facts. The requirement of recording reasons is a check against arbitrary exercise of power, for it is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is to be decided. Consequently, the Assessing Officer has to show that there is a live link or close nexus between the material before the Assessing Officer and the belief that there has been escapement of the income chargeable to tax. In fact, the Supreme Court in Income-tax Officer v. Lakhmani Mewal Das, [1976] 103 ITR 437 (SC) has held as under:­ "......It is, therefore, essential that before such action is taken the requirements of the law should be satisfied. The live link or close nexus which should be there between the material before the Income-tax Officer in the instant case and the belief which he was to form regarding the escapement of the income of the assess....
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....A. It is an Investment Fund governed by and complying with Singapore law rules and regulations. CONCEPT OF BENEFICIAL OWNERSHIP UNDER DTAA WAS ONLY QUA DIVIDEND, INTEREST AND ROYALTY AND NOT FOR CAPITAL GAINS 61. Under the India Singapore DTAA, at the relevant time, capital gain was to be taxed on the basis of legal ownership and not on the basis of beneficial ownership. In fact, the concept of beneficial ownership, at the relevant time under the India Singapore DTAA, was attracted for taxation purposes only qua three transactions i.e. dividend, interest and royalty and not for capital gains The relevant provisions of the India Singapore DTAA are reproduced hereinbelow:­ "ARTICLE 10 DIVIDENDS 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed: xx.......xx ARTICLE 11 INTEREST ....
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.... only provides for the allocation of taxation rights among the parties, as held by Supreme Court in the case of Union of India vs. Azadi Bachao Andolan (supra). Consequently, the claim of benefit in Article 13(4) of the DTAA does not qualify as a deduction, relief or exemption. The claim of benefit in Article 13(4) of the DTAA merely allocates the taxing rights vis-à-vis capital gains to Singapore. Consequently, the provisions of Explanation 2(b) to Section 147 of the Act is not applicable. 64. In addition, apart from merely citing the provision, the impugned order does not give any reason as to how the said Explanation applies. In the case of Prashant S. Joshi vs. Income-tax Officer, Ward 19(2)(4), (2010) 324 ITR 154 (Bom) while dealing with the same Explanation, the Bombay High Court has held that when the Assessing Officer applies the Explanation, he has to provide reasons in the order itself and not supplement it with an affidavit. REASONS RECORDED CANNOT EVOLVE OR BE ALLOWED TO GROW WITH AGE AND INGENUITY 65. In the present proceedings, the respondent has sought to raise additional pleas, which admittedly, did not form part of the reasons for reopening and have....
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..... LIMITATION OF BENEFIT (LOB) CLAUSE IN THE AMENDED PROTOCOL IS SATISFIED 67. The amended Protocol to the India-Singapore DTAA vide Notification No.1022 (E) dated 18th July, 2005 provides for an objective and not a subjective test, namely, the LOB clause. The Protocol limits the application of the DTAA to entities that are not shell/conduit companies in Singapore with negligible or nil business operations or with no real and continuous business activities carried out in Singapore. 68. The Protocol clarifies that a resident of Singapore is deemed not to be a shell/conduit company if its total annual expenditure on operations in Singapore is equal to or more than S$200,000, in the immediately preceding period of twenty four months from the date the gains arise. Consequently, requirement under the LOB clause as per the India-Singapore DTAA is on incurrence of specified amount of expenses in Singapore. 69. In the present case, the expenditure has admittedly been incurred in Singapore as required under the LOB clause and is confirmed as per the audited financial statement as well as the independent chartered accountant certificate. The same is also duly reported in the annua....
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..... 74. A combination of the source and residence rules inevitably led to double taxation and this, in turn, led to signing of numerous Double Taxation Avoidance Agreements (for short 'DTTAs') which are bilateral treaties that enable tax being levied in any one of the Contracting States. 75. The Act recognizes and gives effect to the DTAAs. Section 90(2) of the Act stipulates that in case of a non-resident taxpayer with whose country India has a DTAA, the provisions of the Act would apply only to the extent the same are more beneficial than the provisions of such DTAA. Accordingly, the taxability of income derived by petitioner would be governed by the provisions of India-Singapore DTAA to the extent that it is more favorable than the Act. 76. Section 90(4) of the Act provides that a non-resident taxpayer to whom a DTAA applies, shall not be entitled to claim any relief under DTAA unless a certificate of it being a resident (i.e. Tax Residency Certificate) of such country is obtained from the Government of that country. Section 90(4) of the Act clarifies that a non-resident taxpayer is eligible to claim DTAA benefits. 77. Article 1 of the India-Singapore DTAA states that ....
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....The Apex Court further held that the certificate of residence is conclusive evidence for determining the status of residence and beneficial ownership of an asset under the DTAA. The Supreme Court emphasised that the tax authorities were obliged to grant tax treaty relief to Mauritius entities so long as they were tax resident in Mauritius as confirmed by the Mauritius Revenue Authorities and that this was the only condition required to be satisfied to claim treaty relief; that there were no other provisions either in the domestic law or the tax treaty that permitted the tax authorities to exercise any discretion in disregarding the provisions of the treaty. The relevant portion of the Supreme Court judgment in Union of India vs. Azadi Bachao Andolan (supra) is reproduced hereinbelow:­ "9......Sometime in the year 2000, some of the income tax authorities issued show cause notices to some FIIs functioning in India calling upon them to show cause as to why they should not be taxed for profits and for dividends accrued to them in India. The basis on which the show cause notice was issued was that the recipients of the show cause notice were mostly 'shell companies'....
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....ed, improper or unjustified, for other non-tax reasons, unless it leads to a significant loss of tax revenues. Moreover, several of them allow the use of their treaty network to attract foreign enterprises and offshore activities. Some of them favour treaty shopping for outbound investment to reduce the foreign taxes of their tax residents but dislike their own loss of tax revenues on inbound investment or trade of non-residents. In developing countries, treaty shopping is often regarded as a tax incentive to attract scarce foreign capital or technology. They are able to grant tax concessions exclusively to foreign investors over and above the domestic tax law provisions. In this respect, it does not differ much from other similar tax incentives given by them, such as tax holidays, grants, etc. 123. Developing countries need foreign investments, and the treaty shopping opportunities can be an additional factor to attract them. The use of Cyprus as a treaty haven has helped capital inflows into eastern Europe. Madeira (Portugal) is attractive for investments into the European Union. Singapore is developing itself as a base for investments in South East Asia and China. Mauri....
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....is untenable in law as in the present case, the validity of Circular No.682, dated 30th March 1994 and Circular No.789, dated 13th April 2000, has already been upheld by the Supreme Court in Union of India vs. Azadi Bachao Andolan (supra). 85. Subsequently, the Supreme Court, in Vodafone International Holdings B.V. (supra) reiterated the law in Union of India vs. Azadi Bachao Andolan (supra) and held that what is rightly not acceptable is the use of artificial devices to avail treaty benefits, resulting in double non-taxation. The Supreme Court in the said judgment emphasised that in view of Circular No.789 dated 13th April 2000, the TRC certificate is sufficient evidence to show residence and beneficial interest/ownership and the Revenue cannot at the time of sale/disinvestment/exit from such FDI, deny benefits of the DTAA. 86. In the Finance Bill, 2013 as introduced in the Lok Sabha on 28th February, 2013, the Union of India sought to insert sub-Section 5 in Section 90 of the Act to stipulate precisely what the learned counsel for the respondent had argued namely that TRC shall be a necessary eligibility condition but shall not constitute sufficient evidence of residency an....
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....ritius) V-B Ltd. (hereafter referred to as 'Blackstone Mauritius') was incorporated on 10.05.2006 in Mauritius. On 01.06.2007, SKR BPO Services Pvt. Ltd. was incorporated in India..... xxx xxx xxx xxx 14. The DTAC is itself clear. We are however, saved the exercise of analyzing it in depth on its own terms in view of the circulars issued by the Central Board of Direct Taxes under Section 119 in respect of DTAC which are of crucial importance. Our task is made simpler still in view of the judgment of the Supreme Court in Union of India v. Azadi Bachao Andolan, [2004] 10 SCC 1. We will, therefore, refer to the circulars immediately. 15. (A) Circular No. 682 dated 30-3-1994, issued "Clarification regarding agreement for avoidance of double taxation with Mauritius"...... (B) Circular No.789 dated 13.04.2000 is important and reads as under:-.... xxx xxx xxx xxx 26. This brings us to a consideration of Mr. Joshi's submission on merits before us. Mr. Joshi contended that the real beneficiaries of the transaction do not actually reside and carry on business for gain in Mauritius and therefore, the entire transaction was noth....
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....year 2010-11 reads as under:­ "90(4) An assessee, not being a resident, to whom an agreement referred to in sub­section (1) applies, shall not be entitled to claim any relief under such agreement unless [a certificate of his being a resident] in any country outside India or specified territory outside India, as the case may be, is obtained by him from the government of that country or specified territory." (B) The Finance Bill, 2013 as introduced in the Lok Sabha on 28.02.2013 was to give effect to the financial proposals of the Central Government for the financial year 2013­14. Clause 21 of the bill proposed the following amendment:­ "21. In section 90 of the Income Tax Act,­ (a)to (b) ** (b) after sub-section (4) and before Explanation 1, the following sub-section shall be inserted, namely:- "(5) The certificate of being a resident in a country outside India or specified territory outside India, as the case may be, referred to in sub-section (4), shall be necessary but not a sufficient condition for claiming any relief under the agreement referred to therein." The proposed sub-section (5) was not i....
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.... Though accepting the arguments, the Court decided not to intervene in the matter. 93. Accordingly, this Court is of the view that the respondent-revenue cannot go behind the TRC issued by the other tax jurisdiction as the same is sufficient evidence to claim treaty eligibility, residence status, legal ownership and accordingly there is no capital gain earned by the petitioner liable to tax in India. Even the clarificatory press release dated 1st March, 2013 issued by the Finance Ministry pursuant to the 2013 amendment makes it clear that a TRC is to be accepted and tax authorities cannot go behind it. Further, since on the basis of repeated assurances by the Government of India which have been upheld by the Apex Court, the petitioner had invested in India, the respondent is estopped from arguing to the contrary. CONCLUSION 94. Keeping in view the aforesaid findings, this Court is of the view that no income chargeable to tax has escaped assessment in the present case. In Indu Lata Rangwala (supra), this Court has held that reopening of assessment based on the return of income must show 'reasons to believe' that income chargeable to tax has escaped assessment. The r....