A Division Bench of the Delhi High Court has recently directed the Income Tax department to reconsider the taxability of the investment made by the private equity firm Blackstone Capital Partners in Agile Electric Sub-Assembly.
The Blackstone Group had agreed to buy a majority stake in the auto parts maker Agile Electric Sub Assembly Pvt. Ltd for about $110 million (around ₹ 650 crore), the PE firm’s fourth buyout deal in India.
Around 40.16 Crore Rupees was paid to Jose Kattadyil Joseph, one of the many stakeholders, after deducting tax at source (TDS) to the tune of about Rs. 2.67 Crores, as per the details placed on record, regarding the transaction with the aforementioned seller.
The petitioner, challenged the order passed under Section 148A(d) of the Income Tax Act, 1961 by the department in the writ petition before the Delhi HIgh Court.
On behalf of the petitioner, Porus Kaka submitted that it had purchased shares of an Indian company going by the name Agile Electric Sub-Assembly Pvt. Ltd. [Agile] and that according to the respondent-revenue has led to the escapement of income chargeable to tax.
It was contended that no income has accrued or arisen in India, the subject transaction is a capital account transaction and that the remittance was made to the seller after adjusting the withholding tax, as ascertained by the revenue.
On the contrary, in support of the revenue, Sunil Agarwal said that this is a case where the petitioner chose not to file a return, and therefore in terms of Explanation 2 to Section 147 of the Income Tax Act, non-filing of return would by force of law induct presumption of an escapement of income.
He also pointed out that the requirement for filing a return of income, which is set forth in Section 139 of the Income Tax Act, has to be read in the case of the petitioner along with Section 115A of the Act being a non-resident company.
In rebuttal, it was submitted that neither Section 139 or Section 115A of the Income Tax Act were applicable to the petitioner.
The disputed facts as to applicability of Section 139 and 115A were also directed to be reconsidered, along with other disputed facts, by the Bench of Justice Rajiv Shakdher and Justice Tara Vitasta Ganju, while remanding the matter to the file of the AO.
Disposing the petition, the Division Bench noted, “the Assessing Officer (AO) should have applied his mind as to whether the investment in shares of Agile by the petitioner was a capital account transaction, given the fact that there is no allegation of round-tripping.”
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