The Delhi High Court has recently ruled in favour of Blackstone Capital Partners, that there is no capital gain earned by the petitioner liable to tax in India in the matter before them.
The core issue that came up for consideration in the present writ petition filed by the aggrieved petitioner-assessee was whether the respondent-revenue can go behind the tax residency certificate issued by the other tax jurisdiction and issue reassessment notice under Section 147 of the Income Tax Act, 1961 to determine issues of residence status, treaty eligibility and legal ownership.
The transfer of shares by petitioner in the Agile-Igarashi transaction, as reflected in the returns of income was perused and notice under Section 148 of the Income Tax Act was issued against the assessee 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 residents of Singapore.
Porus F. Kaka, senior counsel for the petitioner submitted that the reasons to reopen the assessment were erroneous, contrary to law inasmuch as no reasonable person properly instructed in law could have entertained a belief that income had escaped assessment. He also stated that no new tangible material/fact had been disclosed by the respondent in the reasons to show any escapement of income.
Sunil Agarwal, 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 pretense or a sham.
He further 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. He went on to further argue 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 the United States of America (USA) as its management was based there and the funds for investments in India had come from the USA.
He emphasized that, in the present case, the ultimate holding company is in the USA and that India-USA DTAA does not provide for capital gains tax exemption.
It was observed by the Division Bench of Justice Manmohan and Justice Manmeet Pritam Singh Arora, 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 held that no income chargeable to tax has escaped assessment in the present case.
Thus, the Delhi High Court ruled in favour of Blackstone Capital Partners held that the impugned reassessment proceedings are without jurisdiction and the impugned Notice under Section 148 of the Income Tax Act and the impugned Order and subsequent draft Assessment Order under Section 144C of the Act were quashed.
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