The Delhi High Court upheld the decision of the Income Tax Appellate Tribunal ( ITAT ) in an issue pertaining to India-Singapore DTAA to set aside the order as the assessee was not given an opportunity to counter the allegations.
In this case, the revenue has appealed against the ITAT order.
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The assessee, Zebra Technologies Asia Pacific Pet. Ltd., is a company that is a tax resident of Singapore and wanted to avail the benefit of the India-Singapore Double Taxation Avoidance Agreement ( DTAA ).
For the assessment year ( AY ) 2017-18, the assessee claimed non-taxability of Rs. 19.53 crore and USD $2.09 million under the India-Singapore DTAA by contending that it had no permanent establishment ( PE ) in India or had no knowledge of the transfer of technical knowhow. Thus, according to the assessee, the above-mentioned income was not chargeable to tax in India under the DTAA.
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After the assessment proceedings, the assessing officer ( AO ) passed the assessment order by accepting the income returned by the assessee.
The Commissioner of Income Tax ( CIT ) held that the arrangement was a tax avoidance scheme involving treaty shopping, with the US parent company using a Singapore subsidiary to claim benefits under the India-Singapore DTAA, and due to which the assessee would not be entitled to the benefits under the India-Singapore DTAA.
The assessee approached the ITAT for relief. The ITAT observed that the CIT did not provide the assessee an opportunity to rebut the allegations that it was merely a conduit without any substance and had entered into an agreement for the purposes of taking an advantage of the DTAA.
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The High Court, comprising Justice Vibhu Bakhru and Justice Swarna Kanta Sharma, observed that “a plain reading of the SCN indicates that the CIT had called upon the petitioner to show cause why the proceedings under Section 263 of the Act not be taken in view of what was stated to be the failure on part of the AO to conduct the necessary inquiries. “
The bench observed that the assessee was not given an opportunity to counter the CIT’s allegations that it was a conduit company without substance.
The High Court dismissed the appeal filed by the revenue and upheld the decision of ITAT.
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