2012 (5) TMI 312 - HC - Income Tax

Capital gains in the hands of the Foreign Company - assessment in the hands of an agent under Section 163 - held that - - Under sub-Section (3) of Section 149 if the person on whom a notice is issued under Section 148 is a person treated as the agent of a non-resident under Section 163 and the assessment, re-assessment or re-computation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant Assessment Year - The notice under Section 163 is in aid of the action of the Revenue in bringing to tax the capital gains arising out of the transfer of shares of the Bermudian Company because according to the Revenue, this involved the transfer of a capital asset in India - the plain consequence of the provisions of Section 149(3) is that no assessment, re-assessment or re-computation can take place after 31 March 2008 - Decided in favor of the assessee

Summary

Issues:
Challenge to order passed by Deputy Commissioner of Income Tax treating petitioner as agent of foreign company for assessing capital gains.

Analysis:
1. Challenge to Order: The petitioner challenged an order passed by the Deputy Commissioner of Income Tax treating them as an agent of a foreign company, Techpac Holdings Ltd., based in Bermuda, for assessing capital gains. The order proposed to assess capital gains of Rs. 575.39 crores in the hands of the petitioner as an agent under Section 163 of the Income Tax Act, 1961 for Assessment Year 2005-06.

2. Business Connections: The judgment detailed the complex corporate structure involving Techpac Holdings Ltd. and its subsidiaries across various countries. It highlighted the acquisition of shares of Techpac Holdings Ltd. by Ingram Micro Asia Holdings Inc. and subsequent merger of Indian entities. The petitioner was alleged to have a business connection with the Bermudian Company.

3. Legal Grounds Challenge: The petitioner raised two primary legal grounds challenging the order. Firstly, it argued that no income accrued to the Bermudian Company from the transfer of shares, hence, the petitioner could not be treated as a representative assessee under Section 160(1)(i). Secondly, the notice issued under Section 163 was contended to be time-barred under Section 149(3) as it was issued after the expiry of the two-year limitation period.

4. Limitation Issue: The court focused on the limitation aspect of the case, emphasizing the provisions of Section 149(3) which restricts the issuance of notices after the expiry of two years from the end of the relevant Assessment Year. The court analyzed relevant legal precedents, including the Supreme Court judgment in Claggett Brachi Co. Ltd. v. CIT, to support the conclusion that the proceedings initiated by the First Respondent were beyond the limitation period.

5. Judgment: The court, after considering the limitation issue, concluded that it was not necessary to express an opinion on the first legal submission made by the petitioner. Consequently, the court allowed the petition by quashing and setting aside the impugned order under Section 163, ruling in favor of the petitioner. No costs were awarded in the matter.

This detailed analysis of the judgment showcases the intricate legal arguments, the complex corporate structures involved, and the critical application of statutory provisions and legal precedents in resolving the issues raised by the petitioner.