2022 (12) TMI 1020 - HC - Income Tax

Reopening of assessment u/s 147 - deemed escapement of income chargeable to tax - principal allegation against the petitioner is that the petitioner, which is a foreign company incorporated under the laws of Mauritius, had sold shares of an Indian company going by the name Bharti Infotel Pvt. Ltd, against which TDS was not deducted - HELD THAT - There is no dispute that the petitioner/ assessee has not filed its return for AY 2016-2017. Therefore, in our opinion, the objections raised by the petitioner/assessee with regard to the aspects referred to hereinabove, can be dealt with by the AO. We have put this aspect to Ms Sethna; Ms Sethna says that while the matter can be remitted to the concerned AO, she/he should deal with the objections which have been articulated in detail in the writ petition. Apart from anything else, it is Ms Sethna s contention that the broad aspects referred to hereinabove with regard to the fact that the petitioner has in its possession a tax residency certificate, which allows it to take benefit of Article 13 of the DTAA, is a facet which is required to be dealt with by the AO. Given this position taken by the respondents/revenue, as indicated AO will take a decision with regard to whether or not this is a fit case for triggering reassessment proceedings.

Summary

Issues:
Interpretation of Section 147 of the Income Tax Act, 1961 regarding initiation of proceedings without filing a return; Validity of impugned order and notice; Jurisdiction of the assessing officer; Benefit of Double Taxation Avoidance Agreement (DTAA) between India and Mauritius; Conclusive proof of tax residency certificate (TRC) under DTAA.

Analysis:
The petitioner, a foreign company incorporated in Mauritius, challenged an Impugned Order and Notice related to a transaction involving the sale of shares worth Rs.1295 crores without TDS deduction. The petitioner claimed entitlement to DTAA benefits based on possession of a tax residency certificate and registered loss on the transaction. The respondent revenue argued that Section 147 of the Act allowed proceedings due to non-filing of return, citing Explanation 2. The High Court found the AO had jurisdiction due to the non-filing of the return for AY 2016-2017, but directed a detailed examination of objections raised by the petitioner.

The Court emphasized that the AO must consider objections, including DTAA benefits, and grant a personal hearing to the petitioner's representative. The AO was instructed to pass a speaking order addressing objections and merits. If adverse, the petitioner could seek legal recourse within four weeks. The Court highlighted the need for the AO to determine if reassessment proceedings were warranted based on TRC's conclusive proof under DTAA.

The respondents argued that TRC's significance was tentative, not final. Consequently, the AO was tasked with deciding on reassessment proceedings based on the TRC's validity. The Court closed the pending application, instructing parties to comply with the digitally signed order. The judgment underscored the importance of addressing objections and DTAA benefits in reassessment proceedings, ensuring a fair and comprehensive review of the petitioner's contentions.