2016 (9) TMI 864 - HC - Income Tax

Reopening of assessment - technology transfer - whether Sun Pharmaceutical alone had developed the technology and transferred through circuitous route to avoid taxation and Unimed Technologies Ltd. did not have any infrastructure facilities for such purpose? - Held that - In the present case, as per the reasons recorded, previously Sun Pharma and Sun BVI had a Technology Transfer agreement. However, in the present case, technology was transferred by Unimed to Sun BVI for a declared consideration of 4 lac USD which, Sun BVI a subsidiary of Sun Pharma based in British Virgin Islands sold the same technology to M/s CARACO for 1.17 crores USD. The statement of Sudhir Valia key person in the group of companies and at that time director of Sun BVI and presently the director of Sun Pharma was recorded under Section 131(1A) of the Act in which he accepted that Sun BVI had no facility of R & D and manufacturing. During the inquiry, revenue also found material to suggest that Sun BVI had acquired technology from Unimed. Unimed also did not have elaborate R & D facility or necessary work force for such purpose. Such R & D facility was only available with the assessee and its research centre. The Assessing Officer therefore formed a belief that Sun BVI is shell company used only as a device to deviate the taxable profits of Sun Pharma as Sun BVI had also not developed any technology on its own. It was found that Sun BVI and CARACO both were subsidiaries of assessee. The assessee company had capacity to produce such technology and in fact between 199702, Sun Pharma had supplied such technology developed by it to M/s CARACO. In view of such evidence on record, the Assessing Officer concluded that technology in question transferred was actually done by the assessee to CARACO but was routed through other companies only to avoid payment of tax. In our opinion, these reasons do not lack validity. As noted, elaborate reasons have been recorded by the Assessing Officer which demonstrate how prima facie it can be shown that technology developed by Sun Pharma through use of its research and development facilities was routed to CARACO through Unimed and Sun BVI in British Virgin Islands which ensured that the entire amount escaped assessment in the hands of Sun Pharma. At the stage of considering notice for reopening, one has to see only prima facie whether on the basis of tangible material on record, the Assessing Officer could form a valid belief that income chargeable to tax has escaped assessment. At that stage, it is not necessary to verify whether invariably such income would be brought to tax. The contention that full and true disclosure have been made cannot be accepted. What was disclosed by Sun Pharma was that its subsidiary received consideration of 1.17 crores USD for transfer of penalty to CARACO. It obviously did not reveal whether Unimed or Sun BVI had any R & D development capabilities.

Summary

Issues Involved:
1. Validity of the notice to reopen the assessment for the assessment year 2004-2005.
2. Inconsistent stands of the Revenue in reopening assessments of Unimed Technologies Ltd. and Sun Pharmaceutical Industries Ltd.
3. The impact of the demerger of Unimed Technologies Ltd. on the reopening of the assessment.

Detailed Analysis:

1. Validity of the Notice to Reopen the Assessment for the Assessment Year 2004-2005:

The petitioner challenged the notice dated 29.3.2011 issued by the respondent Assessing Officer to reopen the assessment for the assessment year 2004-2005. The original return filed by Unimed Technologies Ltd. was accepted without scrutiny under section 143(1) of the Income Tax Act. The Assessing Officer issued the notice based on the belief that Unimed Technologies Ltd. had transferred technology to Sun Pharma Global Inc. (Sun BVI) for US$ 4,00,000, which was later sold to Caraco for US$ 1.17 crores. The Assessing Officer contended that Sun BVI did not have the necessary infrastructure to add significant value to the technology, implying that the technology was indirectly transferred to Caraco to avoid taxation in India.

2. Inconsistent Stands of the Revenue in Reopening Assessments of Unimed Technologies Ltd. and Sun Pharmaceutical Industries Ltd.:

The petitioner argued that the Assessing Officer had also reopened the assessment of Sun Pharmaceutical Industries Ltd. for the same transaction, suggesting that the technology was developed by Sun Pharmaceutical Industries Ltd. and not Unimed Technologies Ltd. This inconsistency was evident in the reasons recorded for reopening the assessments. In the case of Unimed Technologies Ltd., the Assessing Officer claimed that the technology was developed by Unimed and transferred at an understated price. Conversely, in the case of Sun Pharmaceutical Industries Ltd., the Assessing Officer asserted that Sun Pharmaceutical Industries Ltd. developed the technology and used Unimed Technologies Ltd. and Sun BVI as conduits to transfer the technology to Caraco, thereby avoiding taxes.

The Court noted that both notices for reopening could not coexist as the same income could not be taxed twice. The reasons recorded in the case of Sun Pharmaceutical Industries Ltd. substantially undermined the reasons recorded in the case of Unimed Technologies Ltd. The Court observed that if the Revenue contends that Sun Pharmaceutical Industries Ltd. developed the technology, the grounds for reopening the assessment of Unimed Technologies Ltd. must fail.

3. The Impact of the Demerger of Unimed Technologies Ltd. on the Reopening of the Assessment:

The petitioner also contended that Unimed Technologies Ltd. was demerged in 2009, and Milmet Pharma Ltd., which inherited a division of Unimed Technologies Ltd., could not be held responsible for transactions that took place during the financial year 2003-2004. The Court, however, did not delve into this issue as it quashed the notice for reopening the assessment based on the inconsistency in the Revenue's stands.

Conclusion:

The Court allowed the petition of Unimed Technologies Ltd. and quashed the impugned notice dated 29.3.2011. It was held that the reasons recorded for reopening the assessment of Unimed Technologies Ltd. were substantially destroyed by the reasons recorded for reopening the assessment of Sun Pharmaceutical Industries Ltd. Consequently, the notice for reopening the assessment of Unimed Technologies Ltd. was invalidated. The petition filed by Sun Pharmaceutical Industries Ltd. was dismissed, and the assessment would be based on the material brought on record, irrespective of the observations made.