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TMI Blog2016 (3) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 2,501.72 crores (conversion rate being 1 Australian dollar = ₹ 34.l27). Even if we were to assume that by virtue of Ingram Micro Asia purchasing the 100% shareholding of the Petitioner, there was a transfer of a capital asset in India, the same could never be taxed as capital gains in the hands of the Petitioner company. This is for the simple reason that the shares of the Petitioner company have been transferred to Ingram Micro Asia by the Petitioner's shareholders and therefore the transferor in the aforesaid transaction is the shareholders of the Petitioner and not the Petitioner company. In these circumstances, if there was any liability towards capital gains tax, if at all (we are not called upon to consider this aspect), it was that of the shareholders of the Petitioner and not the Petitioner itself. This being the position in law, the Assessing Officer could never have reason to believe that income of the Petitioner chargeable to tax in India had escaped assessment. If the Assessing Officer could not have had any reason to form the aforesaid belief, then naturally what follows is that no notice under section 148 of the Act could be issued in the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No.1 could not have any reason to believe that income chargeable to tax had escaped assessment. This argument is canvassed on the basis that admittedly the Petitioner is not a transferor of any capital asset in India and hence there was no question of levying any capital gains tax on the Petitioner. 4. It is therefore the case of the Petitioner that the impugned Assessment Order is wholly without jurisdiction and it is in these circumstances that the Petitioner has sought to justify invocation of our writ jurisdiction under Article 226 of the Constitution of India without first exhausting the statutory remedies available to it under the Act for challenging the impugned Assessment Order. 5. To understand the present controversy, it would be necessary to refer to some relevant facts which are as under:- (a) The Petitioner is a company incorporated under the laws of Bermuda and is the holding company of the entire Techpac Group. Respondent No.1 is the Deputy Commissioner of Income Tax (OSD-II) who has passed the impugned Assessment Order dated 25th March, 2013 under section 144 of the Act for A.Y. 2005-06 inter alia holding that the Petitioner is liable to pay capital gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Techpac Group. Accordingly, in November 2004, Ingram Micro Asia acquired the shares of the Petitioner company under a share purchase agreement in which Ingram Micro Asia was the purchaser, the shareholders of the Petitioner company (described in Schedule I to the said agreement) were the sellers, and Ingram Micro Inc., USA (the ultimate holding company of the Ingram Group) was the guarantor. The consideration under the said share purchase agreement was set out in clause 2 thereof and inter alia came to a sum of approximately AUD 730 million (Australian dollars). After the aforesaid acquisition, the Indian entity of the Ingram Group [Ingram Micro India Pvt. Ltd.] was merged into the Indian entity of the Techpac Group [Tech Pacific India] and post the merger, the name of Tech Pacific India was changed to Ingram Micro India Ltd (hereinafter referred to as Ingram Micro India ). In other words, Tech Pacific India continued to exist post the merger, but under a new name viz. Ingram Micro India. In this fashion, the Ingram Micro Group took over the Techpac Group. (e) During the course of search and seizure proceedings carried out at the premises of Ingram Micro India [earlier k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e period of limitation prescribed under the Act. In other words, this Court quashed the order of Respondent No.1 treating Ingram Micro India as an agent of the Petitioner company. This order has not been challenged by the Revenue and has attained finality. (i) In this Writ Petition, it is the specific stand of the Petitioner that after passing of the aforesaid order dated 30th November, 2011 (in Writ Petition No.285 of 2011), it was not aware of any proceedings being taken by the Revenue authorities to make any assessment in the hands of the Petitioner company of the alleged capital gains arising from the transfer of its shares. It is the specific case of the Petitioner that no notice of whatsoever nature either inter alia under section 148 or under section 142(1) or under section 143(2) of the Act has been served on the Petitioner and the Petitioner was not aware of any other procedure / proceedings sought to be adopted by the Revenue authorities in this regard. (j) Be that as it may, on 29th October 2013, Ingram Micro Inc., USA (having its address at 1600 E. St. Andrew Place, Santa Ana, CA 92705, USA) received the impugned Assessment Order dated 25th March, 2013 passed unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that in the facts of the present case, it was the shares of the Petitioner company that were transferred by its shareholders to Ingram Micro Asia. If there was any capital gains that accrued to any person in this transaction, if at all, the same would be in the hands of the shareholders of the Petitioner and not in the hands of the Petitioner company viz. Techpac Holdings Ltd. To put it simply, he gave an illustration that if A transferred his shares in Larsen Toubro Ltd to B , the capital gains if at all could be taxed in the hands of A but certainly not in the hands of Larsen Toubro Ltd . To attract capital gains, Mr Mistry submitted that (i) the person who is sought to be taxed has to have transferred a capital asset; and (ii) some gain ought to have arisen by virtue of such transfer in the hands of the transferor. In the facts of the present case, Techpac Holdings Ltd. (the Petitioner) has neither transferred any capital asset and neither has it received any gain by virtue of any such transfer. In this view of the matter, he submitted that the Revenue Authorities have proceeded on a total misconception in seeking to tax capital gains, if any, in the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44 of the Act on 25th March, 2013. In these circumstances, Mr Malhotra submitted that there was no merit in the contention of the Petitioner that they were not served with the notices under sections 148, 142(1) or 143(2) of the Act; (C) The Assessing Officer clearly had reason to believe that income chargeable to tax had escaped assessment because by virtue of the aforesaid share purchase agreement entered into in November, 2004 there was clearly a transfer of a capital asset in India as contemplated under section 9(1)(i) of the Act. Mr Malhotra submitted that as a consequence of the said agreement, Ingram Micro India [earlier known as Tech Pacific India] alongwith all its assets and liabilities was transferred to Ingram Micro Asia. Since Ingram Micro India [earlier known as Tech Pacific India] was a company situated in India, there was clearly a transfer of a capital asset in India and therefore by virtue of the provisions of section 9(1)(i) of the Act, the income from such transfer was deemed to accrue in India. Mr Malhotra submitted that as the income was earned towards consideration of transfer of its business / economic interest i.e. Ingram Micro India [earlier known as Tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances, we cannot accede to the contention of Mr Malhotra that service of the aforesaid notices on Ingram Micro India [earlier known as Tech Pacific India] (which is a subsidiary of the Petitioner) would be good service on the Petitioner. 10. We must also not lose sight of the fact that in the present case Ingram Micro India [earlier known as Tech Pacific India] was not the assessee or even a representative assessee of the Petitioner. In fact, the Revenue in the earlier round of litigation, sought to treat Ingram Micro India [earlier known as Tech Pacific India] as an agent of the Petitioner under the provisions of section 163 of the Act. Being aggrieved by this action of the Revenue, Ingram Micro India [earlier known as Tech Pacific India] approached this Court in its writ jurisdiction by filing Writ Petition No.285 of 2011. This Court by its order dated 30th November, 2011 quashed the order of the Revenue Authorities passed under section 163 of the Act treating Ingram Micro India [earlier known as Tech Pacific India] as the agent of the Petitioner. Once this Court struck down the action of the Revenue treating Ingram Micro India [earlier known as Tech Pacific India] as an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court decision [at pg 392 of the ITR report] reads thus:- The first point raised by Mr Sastri is that the proceedings taken by Respondent No.1 under Section 34 of the Act are invalid because the notice required to be issued under the said section has not been issued against the assessees contemplated therein. In the present case the Income Tax Officer has purported to act under Section 34(1)(a) against the three firms. The said sub-section provides inter alia that if the Income Tax Officer has reason to believe that by reason of the omission or failure on the part of the assessee to make a return of his income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income tax has been underassessed , he may, within the time prescribed, serve on the assessee a notice containing all or any of the requirements which may be included in the notice under subsection (2) of Section 22 and may proceed to reassess such income, profits or gains . The argument is that the service of the requisite notice on the assessee is a condition precedent to the validity of any reassess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime allowed under sub-section (1) of section 139 of the Act or before the end of the relevant assessment year, inter alia to furnish a return of income. Section 143(2) in turn applies where a return has been furnished either under section 139 or in response to a notice under sub-section (1) of section 142 of the Act. Therefore, clearly, sub-section (2) of section 143 would come into play only when a return is furnished under section 139 or a return is furnished in response to a notice under subsection (1) of section 142. This would clearly establish that a notice under section 142(1) and under section 143(2) can never be issued on the same date. Furthermore in the facts of the present case, section 143(2) could never apply because admittedly no return had ever been filed by the Petitioner. We find that the Assessment Order merely records that notices under sections 148, 142(1) and 143(2) have been served on the Petitioner. Apart from the fact that this is factually incorrect, we find that there is a total non-application of mind on the part of the Assessing Officer in issuing a notice under section 143(2) of the Act. We therefore have no hesitation in holding that the Assessment Or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before any notice under section 148 of the Act can be issued for initiating assessment / re-assessment proceedings, the Assessing Officer ought to have reason to believe that any income chargeable to tax has escaped assessment for that particular assessment year. This reason to believe is a sine-qua-non for issuance of the notice under section 148. 16. The facts of the present case and as more elaborately set out earlier in the judgment, clearly show that the shares of the Petitioner company were transferred by its shareholders to Ingram Micro Asia. The Petitioner itself has not transferred anything. In order to attract capital gains tax there are two requirements that need to be fulfilled (1) that there is a transfer of a capital asset; and (2) there is a gain by virtue of such transfer. If these conditions are satisfied, then capital gains tax is to be computed as set out in section 48 of the Act. The facts of the present case would clearly show that the Petitioner has not transferred any capital asset in India that would give rise to any capital gains tax in their hands. This is borne out from the share purchase agreement which itself stipulates that the 100% shareholdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as we fail to see how the Petitioner company can enter into any agreement for sale of its own shares. The shares of the Petitioner company are held by its shareholders who are the owners of the shares and who alone can transfer the same to a third party. Therefore, we are unable to understand the basis of the argument of Mr Malhotra that the share purchase agreement was ostensibly between the Petitioner company and Ingram Micro Asia. 18. In view of our earlier findings the Petitioner must succeed. However, it is clarified that we have not examined whether any capital gains have accrued to the shareholders of the Petitioner. If the Revenue Authorities are of the opinion that in fact capital gains have accrued to the shareholders of the Petitioner, they are free to take such action against the shareholders of the Petitioner as are permitted in law. Equally, if such proceedings are adopted by the Revenue against the shareholders of the Petitioner, all contentions to contest the same are left open. Thus all contentions of all the parties concerned are kept open in that regard. For all the aforesaid reasons, rule is made absolute and the Petition is granted in terms of prayer clause ..... X X X X Extracts X X X X X X X X Extracts X X X X
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