The Madras High Court upheld the reassessment against a Hongkong-based company, Watanmal Boolchand as prima facie the case of ‘Business Connection’ was established.
The petitioner-company, Watanmal Boolchand & Co. Ltd., is a body incorporated in Hong Kong under the Companies Ordinance 1932, that is, relevant Laws of Hong Kong and is engaged in the trading business and branded and unbranded products and general merchandise. The brands are owned by the petitioner-company either by way of Brand Registration or Assignments. It has no manufacturing facility of its own. The petitioner-company sources the goods mainly from China and shifts the goods directly to its customer in Africa and South America. The petitioner-company has continued its business in Hong Kong since 1948.
The respondent authority initiated the proceedings under Section 148 of the Act cannot be termed as a “reassessment”, but only an assessment, inasmuch as the petitioner has not filed any return of income under the Act for the assessment year 2010-11 and the activities being carried on by the petitioner-company came to light pursuant to the survey conducted in the premises of Watanmal India under Section 133A of the Act.
The writ petitioner contended that it is a classic case where the respondents exercised their power without jurisdiction. The basic principles to be adhered to under the provisions of the Income Tax Act had been violated. Admittedly, the petitioner- company is a non-resident and was not assessed any income under the territory of India. When there is no income derived within the territory of India, there is no question of filing any return of income, nor payment of tax would arise. The mixed questions of facts and law, necessarily to be considered by the respondents, are not considered in its right perspective and by adopting an erroneous interpretation of the provisions of the Act, impugned proceedings are initiated under Section 148.
The respondent authority objected to the contentions raised on behalf of the petitioner by stating that the writ petitions are not maintainable. It is not as if the respondents have initiated proceedings without any basis under Section 147 of the Act and issued notice under Section 148 of the Act. There are abundant materials to establish that the entire business activities of the petitioner-company are happening in India and therefore, they are amenable to the provisions of the Income Tax Act and thus, the initiation of assessment proceedings under Section 148 is in order and there is no infirmity as such.
The authority while Relying on Explanation 2(a) to Section 147 contended that, where no return of income has been filed by the assessee although his total income or the total income of any other person in respect of which he is assessable under the Act during the previous year exceeded the maximum amount, which is not chargeable to income tax is a ground for initiation of proceedings under Section 147.
The single judge bench of Justice S.M. Subramanian noted that the respondent-Department able to establish that the sanction as contemplated under Section 151 has been granted by the competent authority and further regarding the plea that the petitioner has not been assessed in India, the said facts are controverted by the Department by placing evidences and materials and the details. All those materials and evidence were analysed by the competent authority and the findings made during the analysis were also made available in the impugned show cause notice. The show cause notice is self- sufficient to form an opinion that the matter requires an elaborate adjudication in depth in order to cull out the truth behind the pleadings made by the petitioner.
The court added that the business transactions, which all are complex in nature and made by the traders, many times in a calculated manner are to be adjudicated with expertise in the field and such an exercise must be allowed to be done by the competent authorities of the Income Tax Department and in the event of interference at the earliest stage and in the absence of any ground regarding the jurisdiction, the Court must in all fairness allow the authorities to proceed with the adjudication and pass an order of assessment enabling the petitioner to prefer an appeal even thereafter if any grievance exists.
The court concluded that the petitioner could not able to establish any acceptable ground for the purpose of interference at the stage of issuance of a notice under Section 148 and the issuance of show cause notice and contrarily the respondents could able to establish that sufficient materials are available on record, which were considered and scrutinised and a finding on such analysis is also recorded in the impugned show cause notice, there is no reason whatsoever to interfere with the actions of the respondent and thus, all the writ petitions fail and stand dismissed. In view of the fact that the respondents had already completed the assessment process and passed an assessment order and kept the same in a sealed cover, the respondents are permitted to open the sealed cover and communicate the assessment orders to the petitioner without any further delay enabling the petitioner to proceed further, if any grievance exist.
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