In the recent case, the High Court Of Delhi quashed the reassessment notices for assessment year(AY) 2018-19 issued to petitioner. The court held that the interest income from Non-convertible Debentures (NCDs), taxed under Section 194LD of the Income Tax Act,1961 was wrongly reclassified as dividend subject to Dividend Distribution Tax (DDT), which should be paid by Genpact India Private Limited (GIPL), not the petitioner.
Genpact Luxembourg S.A.R.L,the petitioner-assessee, challenged the reassessment for the AY 2018-19 initiated by the order dated 29 March 2022 under Section 148A(d) and the notice issued on 30 March 2022 under Section 148.
The petitioner, a company incorporated in Luxembourg and a tax resident there, had invested in 4600 NCDs worth INR 4600 crores issued by GIPL. These NCDs carried an 11% annual coupon rate and were listed on the Bombay Stock Exchange. The interest income was declared and taxed at 5% under Section 194LD in the petitioner’s Return of Income.
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Assessment orders under Section 143(3) for AY 2015-16 and 2016-17 had accepted this tax treatment. For AY 2018-19, the petitioner received an intimation under Section 143(1) consistent with the previous years’ treatment.
Despite this, the respondents initiated reassessment with a notice under Section 148A(b) dated 11 March 2022, which led to a Section 148A(d) order and a subsequent notice under Section 148.The respondents initially claimed that the interest income was mischaracterized and should be treated as a dividend, subject to Dividend Distribution Tax (DDT).
The court noted that DDT is the responsibility of the company declaring or distributing the dividend (GIPL), not the recipient (the petitioner). Thus, even if the income were recharacterized as a dividend, GIPL would be liable for DDT.
The court emphasized the need for a clear and consistent link between the reasons for proposing reassessment and the final decision to commence reassessment, as highlighted in ATS Infrastructure Limited Vs. Assistant Commissioner of Income Tax Circle 1(1) and Others.
The division bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja allowed the writ petition and quashed the notice under Section 148A(b) dated 11 March 2022, the order under Section 148A(d) dated 29 March 2022, and the notice under Section 148 dated 30 March 2022.
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