TaxTMI 
TaxTMI 
2023 (2) TMI 35
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....ant 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-resident in India and majority of its Directors were resi....
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....ne 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. LTD. M/s Igarashi Electric Works Ltd. 4,01,31,77,340/­ Sale of shares 3. Analysis of ITR:­ a. The as....
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....6-17 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 chargeable to tax has escaped assessment." 5.3 The assessment / re-assessment proceedings in this case for A.Y. 2016-17 pertain to period within four years from the end of relevant assessment years at the time of issue....
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....INGAPORE) 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 the case and secondly, on the initiation of proceedings under section 148 of the Act. 2. The objections raised by the assessee related to initiation of proceedings under Section 147 are summarized as follows: a. Inaccurate Reasons for formation of belief b. Re-assessment cannot be done in absence of any tangible material ....
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....s 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 income chargeable to tax has escaped assessment" 4.1t is pertinent to note here that the Delhi High Court in the case of Convergys Customer Management vs Assistant Director of Income Tax [2013] 357 ITR 177 (Delhi) has held, "It is a well settled proposition that at the time of issuance of notices under section 148, the Assessing Officer is not expected to form any definitive or conclusive opinion about the taxability of the disputed ....
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....47 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 'reason to believe' must be interpreted that the Assessing Officer on receipt of any such new material or materials in relation to suppression of fact by the assessee has made out a prima facie opinion that it is a fit case for reopening of the assessment, then he can issue notice under section 148 and thereafter the procedure of furnishing the reasons, receiving objections and conducting scrutiny and all other procedures contemplated under the provisions of the Act will follow. 5.8 The....
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....ice & 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 parcel of the procedures and, therefore, there cannot be any doubt in respect of the power of reassessment provided under the Act. 5.13 The Income Tax Department may not be aware of the income of the assessees. They are assessing the tax based on the returns filed by the respective assessees. Thus, the very concept of assessment is that the Officer who is scrutinizing the returns is not aware of the income of an individual. For this reason only Act provides adequate power to deal with the cases, where there is evasion or supp....
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....mes 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 part and parcel of the proceedings and sufficient explanations shall be called for from the assessee and, accordingly, a reassessment order can be passed. Thus, two circumstances arise after the conclusion of the assessment. Firstly, if the assessment is finalized, the reopening in respect of the escaped assessments can be made if any new materials or suppression of materials are identified. On such reopening of the assessment and during the course of the proceedings, if the Assessing Officer noticed any other materials or information in respect of escaped....
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....ect 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 of Raymond Woollen Mills Ltd. vs ITO [1999] 236 ITR 34 (SC), the case of the Revenue was that the assessee was charging to its profit and loss account, fiscal duties paid during the year as well as labour charges, power, fuel, wages, chemicals, etc. However, while valuing its closing stock, the elements of fiscal duty and the other direct manufacturing costs were not included. This resulted in undervaluation of inventories and understatement of profits. This information was obtained by the Revenue in a subsequent year's assessment proceeding. It has been held as under: "In this case, we do not have to ....
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....cation 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 individual providing money were apparently not established - Whether revenue was justified in issuing reassessment notice - Held yes [Paras 11, 12 and 13] 6. The objection raised by the assessee are vague and not based on tangible material and do not carry any substance. As explained in the reasons recorded, there was specific, concrete and relevant information/material exposing the real nature of the transactions. As per information available at the time of recording reasons for reopening, the assessee, during the financial year 2015-16 relevant to A.Y. 2016-17 has been involved in following transactions: Shares sold by Purchased by ....
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....onclusively 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 issue of the notice would clearly show that AO has independently considered the information received. The information has been considered and the belief of escapement notice has been made after due application of mind by the AO. 12. Further, it is stated that there is nothing on record to doubt the fact that the information was reflected on ITS-AIR details. It is submitted that at the stage when reasons are recorded under Section 148(2), the Assessing Officer is not expected to hold an enquiry, with the participation of the assessee, and come to a final determination that the amount in question represented the income of the assessee. He is required only to reach prima facie or tentative belief. The formation of the belief must be ba....
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....d 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 considered as a speaking order. 15. Assessee stated "We also request your goodself that once the objection is disposed off and before framing of assessment pursuant to the aforesaid notice, kindly provide us an opportunity to make detailed submission on the merits of the case and also provide us a personal hearing" 15.1 During the course of assessment proceedings the assessee will be afforded adequate opportunity (if required personal hearing) to explain the case and the resultant order will be passed after an objective appraisal of the evidences available. MANOJ KUMAR CIRCLE INT TAX 1(1)(2)" 10. Aggrieved by the aforesaid order, the petitioner filed the present writ petition. On 10th March, 2022, this Court passed the following interim order:­ "Keeping ....
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....ding 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 further stated that all the following details were duly filed along with the objections dated 28th December, 2021:­ i. Demat statements and share certificate evidencing the legal ownership of Agile shares; ii. Bank statement (with relevant entries pertaining to sale transaction) establishing that investment and sale through banking channels; iii. Copies of FIRCs evidencing the transaction; iv. Audited financial statements for FY 2013, FY 2014 and FY 2015 disclosing investments and sale of Agile shares; v. Copies of the resolution passed by the Board of Directors for undertaking key decisions concerning investments in Agile and sale; vi. Memorandum and Articles of Association. 15. He contended that at no stage, on the basis of the aforesaid documents, the Assessing Officer or Depart....
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....39;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 was introduced last year by Finance Act, 2012. That subsection requires an assessee to produce a Tax Residency Certificate (TRC) in order to claim the benefit under DTAA. DTAAs recognize different kinds of income. The DTAAs stipulate that a resident of a contracting state will be entitled to the benefits of the DTAA. In the explanatory memorandum to the Finance Act, 2012, it was stated that the Tax Residency Certificate containing prescribed particulars is a necessary but not sufficient condition for availing benefits of the DTAA. The same words are proposed to be introduced in the Income-tax Act as sub-section (5) of Section 90. Hence, it will be clear that nothing new has been done this year which was not there already last year. However, it has been pointed out that the language of the proposed sub-section (5) of Section 90 could mean that the Tax Residency Certificate produced by a resident ....
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....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 Mauritius according to Mauri­tius tax law. Therefore, any resident of Mauritius deriving income from alienation of shares of Indian companies will be liable to capital gains tax only in Mauritius as per Mauritius tax law and will not have any capital gains tax liability in India. 4. Paragraph 5 defines 'alienation' to mean the sale, exchange, transfer or relinquishment of the property or the extinguishment of any rights in it or its compulsory acquisition under any law in force in India or in Mauritius. B. CIRCULAR NO.789 CLARIFICATION REGARDING TAXATION OF INCOME FROM DIVIDENDS AND CAPITAL GAINS UNDER THE INDO-MAURITIUS DOUBLE TAX AVOIDANCE CONVENTION (DTAC) CIRCULAR NO.789, DATED 13-4-2000 1. The provisions of the Indo-Mauritius DTAC of 1983 apply to 'residents' of both India and Mauritius. Article 4 of the DTAC defines a resident of one State to mean "any person who, under the laws of that State is liable to taxation therein by reason of his domicile, residen....
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....ol /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 India and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income shall enter into force on 1st August, 2005, under Article 7 of the protocol amending the Agreement for giving effect to the provisions of the said Protocol; Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby directs that all the provisions of the said protocol amending the Agreement between the Government of the Republic of India and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income shall be given effect to in the Union of India with effect from the 1st day of August, 2005. Annexure Protocol amending the agreement between the Government of the Republic of India and the Government of the Republic of Singapore for the avoidance of double taxation and the prevention of fiscal evasion....
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....tate is equal to or more 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. (Explanation: The cases of legal entities not having bona fide business activities shall be covered by article 3.1 of this protocol.) Article 4 Paragraph 2 of article 12 (Royalties and fees for technical services) of the agreement shall be deleted and replaced by the following paragraph: "2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10%." Article 5 It is agreed that there shall be an inter-governmental group consisting of representatives of the revenue authorities of the two Contracting States which shall review the working of the provisions of this protocol at least once a year or earlier at the request of either Contracting State and may make recommendations for improvements including improvements to the provisions ....
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....the Protocol. 23. He lastly submitted that the order disposing of the objections was totally arbitrary and non-speaking as it did not deal with the petitioner's submissions at all. He stated that the order disposing of the objections showed no justification whatsoever for the reopening and in view of the same, the reopening ought to be quashed. ARGUMENTS ON BEHALF OF THE RESPONDENT 24. Per contra, Mr.Sunil Agarwal, learned senior standing counsel for the respondent-revenue submitted that ordinarily no writ lies against the Show Cause Notice. He emphasised that scope of interference with the Show Cause Notice in a writ jurisdiction is extremely restricted in comparison to the appellate jurisdiction that this Court exercises under Section 260A of the Act. In support of his submission, he relied upon the judgment of the Supreme Court in Special Director and Another vs. Mohd. Ghulam Ghouse and Another, (2004) 3 SCC 440, wherein it has been held as under:­ "5. This Court in a large number of cases has deprecated the practice of the High Courts entertaining writ petitions questioning legality of the show-cause notices stalling enquiries as proposed and retarding investigative pr....
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....that where the return initially filed is processed under Section 143 (1) of the Act, and an intimation is sent to an Assessee, it is not an 'assessment' in the strict sense of the term for the purposes of Section 147 of the Act. In other words, in such event, there is no occasion for the AO to form an opinion after examining the documents enclosed with the return whether in the form of balance sheet, audited accounts, tax audit report etc. xxx xxx xxx xxx 57. . ..... where reopening is sought of an assessment in a situation where the initial return is processed under Section 143(1) of the Act, the AO can form reasons to believe that income has escaped assessment by examining the very return and/or the documents accompanying the return. It is not necessary in such a case for the AO to come across some fresh tangible material to form 'reasons to believe' that income has escaped assessment." 27. He also relied upon the judgment of the Supreme Court in Raymond Woollen Mills Ltd. Vs. Income-Tax Officer, [1999] 236 ITR 34 (SC), wherein it has been held has under:­ "In this case, we do not have to give a final decision as to whether there is suppression of mater....
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....arned counsel for the respondent-revenue is reproduced hereinbelow:­ "In this report, references to "Blackstone," the "Partnership", "we", "us" or "our" refer to The Blackstone Group L.P. and its consolidated subsidiaries. Unless the context otherwise requires, references in this report to the ownership of Mr.Stephen A. Schwarzman, our founder, and other Blackstone personnel include the ownership of personal planning vehicles and family members of these individuals. "Blackstone Funds," "our funds" and "our investment funds" refer to the private equity funds, real estate funds, funds of hedge funds, credit-focused funds, collateralized loan obligation ("CLO") and collateralized debt obligation ("CDO") vehicles, real estate investment trusts and registered investment companies that are managed by Blackstone. Private Equity We are currently investing from our sixth general private equity fund, Blackstone Capital Partners VI ("BCP VI") and our second energy fund, Blackstone Energy Partners II ("BEP II") Private Equity Funds Our Private Equity investment professionals are responsible for selecting, evaluating, structuring, diligencing, negotiating, executing, managing an....
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....ax exemption under Article 13(4) of India-Singapore DTAA vide Protocol No. 1022(E) dated 18th July, 2005 governing the instant case. He stated that expenditure threshold of Singapore $200,000 applies to expenditure on operations and not on any accounting entry created in account books. He stated that the petitioner's AFS shows that major part of expenditure being Management expenses had been paid to a Group company. He contended that it was the holding company which incurred expenditure in control and management of petitioner and then directed the petitioner just to make a mere accounting entry in its books. He stated that Audit expenses could not qualify as operational expenditure because audit expenses are incurred even by a company in liquidation. Without prejudice, he stated that even if Audit expenses were considered as operational expenses, the amount is much below the threshold amount necessary to satisfy India-Singapore DTAA test. 34. He submitted that Section 90(4) of the Act only talks about TRC as "eligibility condition". It does not say that TRC is "sufficient" evidence of residency, which is a slightly higher threshold. He contended that the TRC is not binding on any ....
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....tments vs. Deputy Commissioner of Income-Tax., [2021] 433 ITR 270 (Del) on the basis of facts on record by detailed speaking judgment expressly rejected assessee's reliance on Circular 789 and allowed the Assessing Officer to complete the assessment. REJOINDER ARGUMENTS 38. In rejoinder, learned senior counsel for the petitioner re-emphasised that the petitioner had made a full disclosure as it had filed its return of income for Assessment Year 2016-17, wherein all the particulars, i.e. the petitioner being a non-resident, details of the holding petitioner, directors of the petitioner and the claim of benefit as per Article 13(4) of the India-Singapore DTAA had been disclosed. He stated that the tax authorities had duly processed the said tax return by passing an intimation under Section 143(1) of the Act and after processing the same, the Department had chosen not to take up the petitioner's return for verification or examination. He pointed out that the time limit for issuing the notice under Section 143(2) of the Act had expired on 31st December, 2018. Therefore, he submitted that Section 148 could not have been invoked to verify or examine the genuineness of any claim that ha....
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.... on fulfilment of certain preconditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in section 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote herein below the relevant portion of Circular No. 549 dated October 31, 1989 ([1990] ....
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....hich is reproduced hereinbelow:­ "Agile Electric Sub - Assembly Private Limited (Rs. in Crores) FY 2013-14 to FY 2015-16 Particulars FY 2013-14 FY 2014­15 FY 2015­16 Amount Increase % Increase Net Worth 155.01 169.83 196.3 41.29 26.64% Income from Operations 251.21 290.7 353.22 102.01 40.61% Total Income 253.22 296.59 366.41 113.19 44.70% Profit before Tax 8.05 22.99 40.81 32.76 406.96% EPS 0.85 2.8 4.98 4.13 485.88% Source: XBRL F5 from MCA website" 43. As regards the nature of expenditure incurred, he stated that the petitioner paid management fees to Blackstone Singapore Pte Ltd., Singapore (under an advisory agreement), who acted as fund manager to the petitioner. The petitioner's financial statement which reflected this expenditure was duly audited as per the Singapore law and the audited financial statement was on record. Further, the expense in the nature of audit fees was a pre-requisite for undertaking business operations and in undertaking other statutory compliances in Singapore. The management fees in the case was incurred in Singapore and paid to another Singapore-based entity; therefore, the same satisfied ....
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....the Vodafone International Holdings B.V. (supra). The said fact had been noted in the Andhra Pradesh High Court ruling in the case of Sanofi Pasteur Holding SA V. Department of Revenue, Ministry of Finance, [2013] 354 ITR 316 (AP), wherein it has been held, "In any event, the prima facie analyses by the Bombay High Court in Aditya Birla Nuvo Ltd. (supra) must yield to the binding precedents inter alia, Azadi Bachao Andolan and Vodafone". Hence, he submitted that the respondent ought to be estopped in line with the Supreme Court judgment of estoppel in Pepsico India Holdings Private Limited Vs. State of Kerala and Ors., (2009) 13 SCC 55. 47. Additionally, the petitioner drew attention to certain paragraphs of Supreme Court's ruling in the case of Vodafone International Holdings B.V. (supra), wherein it has been observed that the group parent company is involved in giving principal guidance by providing general policy guidelines to group subsidiaries. He pointed out that the Supreme Court has held "Setting up of a WOS Mauritius subsidiary/SPV by principal/genuine substantial long-term FDI in India from/through Mauritius, pursuant to the DTAA and Circular No.789 can never be consider....
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....e existence of such alternative remedy is not however always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action. 28. In the present case the Company contends that the conditions precedent for the assumption of jurisdiction under Section 34 were not satisfied and come to the court at the earliest opportunity. There is nothing in its conduct which would justify the refusal of proper relief under Article 226. When the Constitution confers on the High Courts the power to give relief it becomes the duty of the courts to give such relief in fit cases and the courts would be failing to perform their duty if relief is refused without adequate reasons. In the present case we can find no reason for which relief should be refused. 29. We have therefore come to the conclusion that the Company was entitled to an order directing the Income Tax Officer not to take any action on the basis of the three impugned notices. 30. We are informed that assessment orders were in fact made on March 25, 1952, by the Income Tax Officer in the proceedings started on the basis of these impugned notices. T....
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.... faced with severe paucity of time, the Assessing Officer had attempted to travel the path of Section 147 in the vain attempt to enlarge the time available for framing the assessment. This is not permissible in law." IMPUGNED NOTICE ISSUED ON BORROWED SATISFACTION 52. The Assessing officer in the present proceedings has sought to place reliance upon the data extracted from a third-party online source having URL: https://recordowl.com. In this regard, it would be instructive to note here that the Supreme Court, recently in the case of Hewlett Packard India Sales Pvt. Ltd. (Now HP India Sales Pvt. Ltd.) v. Commissioner of Customs (Import), Nhava Sheva, 2023 SCC OnLine SC 31, has issued a note of caution to the governmental authorities such as Commissioner of Customs (Appeal), to refrain from using online sources to arrive at any conclusion, since the information available therein is based on crowd - sourced and user - generated editing model, veracity whereof may be disputed and might promote misleading information. The relevant extract of the aforesaid judgment is as under: ­ "14. At the outset, we must note that the adjudicating authorities while coming to their respective ....
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....sistant Commissioner of Income-tax, Circle 5(1), New Delhi, [2015] 57 taxmann.com 355 (Delhi), this Court has held as under:­ "13. The reason to believe recorded by the Assessing officer is not based on any material that had come to the knowledge of the Assessing Officer. There is a mere suspicion in the mind of the assessing officer and the notice under section 147/148 has been issued for the purpose of verification and for clearing the cloud of suspicion. The reasons to believe recorded do not show as to on what basis the Assessing Officer has formed a reasonable belief that the said amount of Rs. 2,00,000/-had escaped assessment. It is apparent the Assessing Officer suspects that the income has escaped assessment. However, mere suspicion is not enough. The reasons to believe must be such, which upon a plain reading, should demonstrate that such a reasonable belief could be formed on some basis/ foundation and had in fact been formed by the Assessing Officer that income has escaped assessment. No such reasonable belief can be inferred from the purported reasons to believe recorded. 14. The words "reason to believe" indicate that the belief must be that of a reasonable per....
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.... recorded is for the year ended 31st December, 2011, whereas the petitioner was incorporated on 25th June, 2013. Thus, the said Form 10K does not pertain to the petitioner and does not show any live-link between the reasons and the material shown in the reasons for reopening. 58. Though, the Form 10K for the year ended 31st December 2015 was not before the Assessing Officer and not relied upon by the Assessing Officer at any stage of the proceedings, yet the said Form 10K now produced does not include the petitioner in the list of subsidiaries. In fact, the decision making power of Mr.Stephan A. Schwarzmann is qua the entities to which the Form 10K pertains and not towards the petitioner - as the petitioner is not a part of the list of subsidiaries mentioned in Form 10K. 59. Admittedly, Blackstone Group is one of the largest asset management or investment adviser companies in the world. What it primarily does is to manage fund of others like sovereign wealth funds (like Singapore, Qatar etc.) which belong to Governments and major pension funds set up by countries and companies. Blackstone does not have proprietary funds but as a group at times to show its confidence in the invest....
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....ervices arising in a Contracting State and paid to resident of the other Contracting State may be taxed in that other State. 2. [However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties and fees for technical services, the tax so charged shall not exceed 10 per cent.] xx......xx ARTICLE 13 CAPITAL GAINS 1. Gains derived by a resident of a Contracting State from the alienation of immovable property, referred to in Article 6, and situated in the other Contracting State may be taxed in that other State. 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of....
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.... is apparent from the record that the petitioner had placed on record its Audited Financial Statements as well as Independent Chartered Accountant Certificate to show that the LOB clause was satisfied. The said fact has not been disputed by the Assessing Officer and the respondent cannot raise the said disputes for the first time in writ proceedings. 66. It is settled law that the reasons recorded cannot evolve or be allowed to grow with age and ingenuity. The reasons which are recorded cannot be supplemented by affidavits. If the reasons are allowed to be added, subtracted or deleted, then by the time the matter reaches the Court, the Assessing Officer would be allowed to change its reasons for believe. The Supreme Court in New Delhi Television Ltd v Deputy Commissioner of Income Tax, [2020] 116 taxmann.com 151 (SC) has held that the Assessing Officer is not allowed to alter its reasons, which must be considered only based on their recordings. The relevant portion of the said judgment is reproduced hereinbelow:­ "If the Revenue is to rely upon the second proviso and wanted to urge that the limitation of 16 years would apply, then in the notice or at least in the reasons in ....
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....se or the Independent Chartered Accountant certificate at any stage except in the present proceedings. Consequently, the petitioner is a bonafide entity and not a shell / conduit entity as it complies with the LOB clause to the India-Singapore DTAA as the expenditure has been incurred in Singapore and the same has been certified by an independent chartered accountant and accepted by the authorities in Singapore i.e. Income Tax authorities, Monetary Authority of Singapore. Accordingly, the allegation of treaty shopping is irrelevant in the present case as the India-Singapore DTAA has a limitation of benefit clause which the petitioner satisfies RESPONDENT-REVENUE CANNOT GO BEHIND THE TRC 71. This Court is in agreement with the argument of learned senior counsel for the petitioner that the entire attempt of the respondent in seeking to question the TRC is wholly contrary to the Government of India's repeated assurances to foreign investors by way of CBDT Circulars as well as press releases and legislative amendments and decisions of the Courts in Union of India vs. Azadi Bachao Andolan (supra) Vodafone International Holdings B.V. (supra), Commissioner of Income-tax (International T....
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....ates" 78. Further, as per Article 3(1)(d) of the India-Singapore DTAA, a Company has been inter-alia defined as "any body corporate or any entity which is treated as a company or body corporate under the taxation laws in force in the respective Contracting States". 79. Article 4 of the India-Singapore DTAA states that the term "resident of a Contracting State" means any person who is a resident of a Contracting State in accordance with the taxation laws of that State. As per Singapore tax laws, a company is resident in Singapore if the management and control of its business is exercised in Singapore. 80. The petitioner has a valid TRC dated 3rd February, 2015 from the IRAS Singapore evidencing that it is a tax resident of Singapore and thereby is eligible to claim tax treaty benefits between India and Singapore. 81. As early as March 30, 1994, CBDT issued Circular No.682 in which it was emphasised that any resident of Mauritius deriving income from alienation of shares of an Indian company would be liable to capital gains tax only in Mauritius as per Mauritius tax law and would not have any capital gains tax liability in India. This circular was a clear enunciation of the provi....
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.... the policy of the Government of India with regard to denial of tax benefits to such FIIs. Thereafter, to further clarify the situation, the CBDT issued a Circular No.789 dated 13.4.2000. Since this is the crucial Circular, it would be worthwhile reproducing its full text. The Circular reads as under.... xxx xxx xxx xxx 49. As early as on March 30, 1994, the CBDT had issued circular no.682 in which it had been emphasised that any resident of Mauritius deriving income from alienation of shares of an Indian company would be liable to capital gains tax only in Mauritius as per Mauritius tax law and would not have any capital gains tax liability in India. This circular was a clear enunciation of the provisions contained in the DTAC, which would have overriding effect over the provisions of sections 4 and 5 of the Income-tax Act,1961 by virtue of section 90(1) of the Act. If, in the teeth of this clarification, the assessing officers chose to ignore the guidelines and spent their time, talent and energy on inconsequential matters, we think that the CBDT was justified in issuing 'appropriate' directions vide circular no.789, under its powers under section 119, to set thing....
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....ir economy. Many of them do not appear to be too concerned unless the revenue losses are significant compared to the other tax and non-tax benefits from the treaty, or the treaty shopping leads to other tax abuses........ xxx xxx xxx xxx 134. We may also refer to the judgment of Gujarat High Court in Banyan & Berry v. CIT [1996] 222 ITR 831/ 84 Taxman 515 where referring to McDowell & Co. Ltd.'s case (supra), the Court observed: ". . . The facts and circumstances which lead to McDowell's decision leave us in no doubt that the principle enunciated in the above case has not affected the freedom of the citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the framework of law, unless the same fall in the category of colourable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity." (p. 850) This accords with our own view of the matter...... xxx xxx xxx xxx 146. We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non-est merely on the basis of some un....
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....oresaid proposed amendment. On the very next day, namely 1st March, 2013 the Finance Minister vide Press release clarified, "The Tax Residency Certificate produced by a resident of a contracting state will be accepted as evidence that he is a resident of that contracting state and the Income Tax Authorities in India will not go behind the TRC and question his resident status". 88. Consequently, the Government of India vide Press Release dated 1st March, 2013 once again reiterated that TRC shall be treated as a sufficient condition for claiming relief under the DTAA. It is pertinent to mention that Press Release dated 1st March, 2013 was not Mauritius-specific and it clarified beyond doubt that the TRC produced by a resident of a contracting state would be accepted as evidence of tax residency, and the Income Tax authorities in India will not go behind the TRC and question the resident status of the assessee. Moreover, the proposed sub-Section 5 of Section 90 was not inserted in the Act. 89. The Punjab and Haryana High Court, in the case of petitioners group company i.e. Serco BPO (P.) Ltd vs Authority for Advance Rulings, New Delhi, (2015) 60 taxmann.com 433 (Punjab & Haryana) af....
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....xxx xxx xxx 30. In view of the circular, it is incumbent upon the authorities in India to accept the certificates of residence issued by the Mauritian authorities. Circular No. 789 is a statutory circular issued under section 119 of the Act. It is obviously based upon the trust reposed by the Indian authorities in the Mauritian authorities. Once it is accepted that the certificate has been issued by the Mauritian authorities, the validity thereof cannot be questioned by the Indian authorities. This is a convention/treaty entered into between two sovereign States. A refusal to accept the validity of a certificate issued by the contracting States would be contrary to the convention and constitute an erosion of the faith and trust reposed by the contracting States in each other. It is for the Government of India to decide whether or not such a certificate ought to be accepted. Once it is established that it has been issued by the contracting State i.e. Mauritius, a failure to accept the residence certificate issued by the Mauritian authorities would be an indication of breakdown in the faith reposed by the Government of India in the Government of Mauritius and the Mauritian authorit....
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....the Supreme Court in Union of India v. Azadi Bachao Andolan [2003] 263 ITR, 706/132 Taxman 373. We will be referring to this judgment more than once for it also answers the other questions conclusively.......These observations are a complete answer to Mr.Joshi's submissions on behalf of the respondents on this point." 90. The aforesaid judgment of the High Court has been accepted by the Tax Department and has not been challenged before the Supreme Court. 91. Consequently, the TRC is statutorily the only evidence required to be eligible for the benefit under the DTAA and the respondent's attempt to question and go behind the TRC is wholly contrary to the Government of India's consistent policy and repeated assurances to Foreign Investors. In fact, the IRAS has granted the petitioner the TRC after a detailed analysis of the documents, and the Indian Revenue authorities cannot disregard the same as doing the same would be contrary to international law. 92. The respondent's reliance on the decision in GE Capital Mauritius Overseas Investments (supra), is misconceived on facts, as in the case of GE Capital Mauritius Overseas Investments (supra), the Court was concerned with examining....