FT&TR Reference under India-Hong Kong Tax Treaty Not Permissible for Pre-2019 Taxable Events to Extend Limitation: Delhi HC [Read Order]

The Delhi High Court held that an FT&TR reference under the India-Hong Kong Tax Treaty cannot be used for pre-2019 taxable events to extend the limitation period, as it dismissed the Revenue’s appeals and upheld the finding that the assessment orders were time-barred.

The case arose from a search conducted at the premises of the AMQ Group. Proceedings were initiated against Sanjay Jain (Assessee) based on the material found during the search. The statutory time limit for completing the assessments was 31 December 2018.

Before the limitation period expired, the Assessing Officer made a reference on 4 December 2018 to the Foreign Tax and Tax Research Division seeking information from the Hong Kong authorities. It was not disputed that no information was received in response. The Revenue claimed that this reference extended the limitation period up to 31 December 2019.

The Commissioner of Income Tax (Appeals) upheld the assessment orders. On further appeal, the Income Tax Appellate Tribunal held that the assessments were barred by limitation, relying on an earlier judgment of the Delhi High Court in PCIT v. Sneh Lata Sawhney.

Before the High Court, the revenue counsel argued that the Tribunal had erred in relying on the case involved the India–Switzerland tax treaty, while the present matter concerned the India-Hong Kong tax treaty.

They argued that the protocol to the India-Hong Kong treaty permitted the exchange of information even for periods preceding the date on which the treaty came into force, making the FT&TR reference valid and entitling the department to extended limitation.

A Division Bench comprising Justice Dinesh Mehta and Justice Vinod Kumar observed that the India-Hong Kong treaty allows disclosure of information that precedes the date on which the agreement came into force but this permission is conditional. The court explained that such information can be sought only if it is relevant to a fiscal year or taxable event occurring after the treaty became effective.

The court pointed out that the India-Hong Kong tax treaty came into force on 30 November 2018 and the taxable event occurs at the beginning of the assessment year. On this basis, information could be sought only for assessment years following the effective date of the treaty and not for assessment year 2017-18.

The court observed that the Assessing Officer could not have sought information for assessment year 2017-18 under the India-Hong Kong tax treaty. So, the reference made to FT&TR was improper and could not be used to claim the benefit of extended limitation under Section 153B.

The court ruled that although the Tribunal relied on PCIT v. Sneh Lata Sawhney, its final conclusion was correct on the facts of the present case. The appeals filed by the Revenue were dismissed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates