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TMI Blog2020 (6) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. It was on that basis that respondent No.1 issued the impugned notice under Section 148 re-opening the assessment for the assessment year 2011-12. It is quite apparent that the view taken by respondent No.1 which led to the formation of belief that income of the petitioner chargeable to tax has escaped assessment is totally erroneous being contrary to the ruling of AAR. It stood totally contradicted by the judgment of this Court in AICFL - contrary to the stand taken by the Revenue itself in the said writ proceeding. It was the stand of the Revenue that AICFL was not the assessee under the Act and it did not file return of income. Claiming of any carry forward of loss or set off of loss by AIFCL did not arise. On the other hand, it was the specific case of the Revenue that returns of income were filed by the three series (funds) i.e., the present three writ petitioners each of which are recognised as assessees under the Act. It was admitted by the Revenue that it is the series (funds) which would be entitled to carry forward the loss declared in the earlier returns of income to the assessment year 2011-12 and subsequent years, if otherwise eligible. In the reasons reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions are identical. 3. Since learned counsel for the petitioners had argued Writ Petition No.2796 of 2019 as the lead case, facts of that case are adverted to hereunder for adjudication of the lis covering all the writ petitions. 4. Petitioner is Aberdeen Asia Pacific Including Japan Equity Fund. Petitioner is a sub-fund or series of Aberdeen Institutional Commingled Funds, LLC (AICFL), a Delaware (USA) based Limited Liability Company. AICFL has been organised for the purpose of investing and dealing in all securities and instruments across the world. AICFL has set up various investment schemes in the form of sub-funds or series with different sets of investors for investing in specific strategies. 5. Petitioners in the three writ petitions are the sub-funds or series of AICFL and have obtained necessary sub-account registration of Foreign Institutional Investors with the Securities Exchange Board of India (SEBI). 6. Originally AICFL was set up as a Trust under the laws of the State of Delaware, USA, to be precise on 09.12.1996, known as Aberdeen Delaware Business Trust with three sub-trusts. Petitioner was constituted as one of the sub-trusts under Aberdeen Delawa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic markets. 10. Notwithstanding the fact that petitioner is a sub-fund or series of AICFL, it has been treated as an independent entity for tax purposes by the tax authorities in India, both before and after conversion. 11. Prior to conversion, petitioner as a sub-trust had incurred and accumulated losses under the head capital gains to the tune of ₹ 5,83,56,060.00 from the assessment year 2009-10 to the assessment year 2010-11. Such losses were fully and properly disclosed by the petitioner in the returns filed for each of the assessment years. After conversion, these losses were carried forward by the petitioner, now organised as a sub-fund or series of the LLC, to assessment year 2011-12 and beyond in accordance with Section 74 of the Income Tax Act, 1961 (briefly the Act hereinafter). 12. On 16.04.2012, AICFL filed an application before the Authority for Advance Rulings (AAR) seeking an advance ruling on the following question:- Whether on the facts and in the circumstances of the case, Aberdeen Institutional Commingled Funds, LLC i.e., the applicant was entitled to carry forward accumulated capital losses as disclosed in the application to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was further mentioned that the said notice was issued after obtaining the necessary satisfaction of respondent No.2. 15. In accordance with the law laid down by the Supreme Court in GKN Driveshafts India Vs. ITO, 259 ITR 19 , petitioner requested respondent No.1 for a copy of the reasons recorded prior to re-opening of assessment vide letter dated 19.04.2018. 16. In the meanwhile petitioner also informed respondent No.1 on 11.06.2018 that a writ petition was being filed in the High Court to challenge the ruling of AAR. But without prejudice to the above, petitioner stated that it had discharged the tax arising pursuant to the ruling of the AAR and provided the details of the taxes discharged enclosing therewith the challans evidencing discharge of the outstanding tax liability. 17. Respondent No.1 thereafter provided a copy of the reasons recorded prior to issuance of notice under Section 148 of the Act vide letter dated 20.07.2018. It was mentioned in the reasons recorded that the application filed by the AICFL before the AAR was the principal source of tangible information coming to the possession of respondent No.1 from which he had reasons to believe that income ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned that the present petitioner had also joined AICFL as petitioner No.3 in Writ Petition No.9358 of 2018 in assailing the AAR ruling. In the said judgment this Court deleted the present petitioner and similarly situated the other two sub-funds who are presently petitioners in Writ Petition Nos.2803 and 3525 of 2019 respectively from the list of petitioners in Writ Petition No.9358 of 2018 on the ground that they had not approached AAR; only AICFL had approached AAR. 20.1. On the substantive issue this Court held that in accordance with the principles of private international law, the status of an entity incorporated abroad has to be determined even in India according to the law of the country where the entity was incorporated. It was held that in terms of the law of Delaware, USA, AICFL both as Trust and as LLC continues to be the same person. This position is accepted in India. Therefore, gain and loss earned by it in its earlier avatar would in law not be denied only because of change in status from Trust to LLC. However, this Court noted that AAR had answered the question in the negative not on the above ground of change of status but on the ground that AICFL was not the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed the claim of the petitioner for set off of loss amounting to ₹ 1,03,34,976.00, further disallowing petitioner s claim of carry forward of loss amounting to ₹ 1,68,81,499.00. 26. Aggrieved by the aforesaid, petitioner has preferred the present writ petition under Article 226 of the Constitution of India seeking the following reliefs:- (i) to set aside and quash the notice dated 23.03.2018 issued by respondent No.1 under Section 148 of the Act for the assessment year 2011-12; (ii) to set aside and quash the draft assessment order dated 06.05.2019 passed by respondent No.1 for the assessment year 2011-12; and, (iii) to set aside and quash the draft assessment order dated 07.05.2019 passed by respondent No.1 for the assessment year 2012-13. 27. Writ Petition No.3525 of 2019 was taken up for consideration on 18.12.2019. On that day, this Court while issuing notice returnable on 13.01.2020 granted ad-interim stay to the impugned notice dated 23.03.2018 issued under Section 148 of the Act for the assessment year 2011-12. 27.1. On 13.01.2020 this Court while adjourning the case on the request of learned counsel for the respondents, granted liberty t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erting back to the judgment of this Court, Mr. Kaka submits that this Court had clarified that while the benefit of carry forward and set off of loss was not available to the AICFL since it had never filed any return, it would be open to the three writ petitioners. Even the Revenue had admitted before this Court that it is the three series or funds i.e., the three writ petitioners which had filed returns of income being individually recognised as assessees under the Act entitled to carry forward the loss and claim set off. He submits that having taken such a stand by the Revenue in the case of AICFL, it is not open to the Revenue to take a contrary stand in the case of the present three petitioners. He therefore, submits that the formation of belief by respondent No.1 being contrary to the law laid down by the Supreme Court in Technip SA (supra) and of this Court in the case of AICFL (supra), the same is wholly untenable in law and on that basis no notice of reopening of assessment under Section 148 of the Act could have been issued or can be sustained. 28.1. Referring to the draft assessment order dated 06.05.2019 for the assessment year 2011-12, he submits that the sole grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 212 . 31. Submissions made by learned counsel for the parties have been considered. Also perused and considered the materials on record and the cases cited at the Bar. 32. In Technip SA (supra), Supreme Court held that questions as to the status of a corporation are to be decided according to the laws of its domicile or incorporation subject to certain exceptions including the exception of domestic public policy. This is because a corporation is a purely artificial body created by law. It can act only in accordance with the law of its creation. Therefore, if it is a corporation, it can be so only by virtue of the law by which it was incorporated and it is to this law alone that all questions concerning the creation and dissolution of the corporate status are referred unless it is contrary to public policy. However, Supreme Court carved out a distinction to the above principle by holding that the above general rule regarding determination of status will not apply when the issue relates to discharge of obligations or assertion of rights by a corporation in another country whether such obligation is imposed by or right arises under the statute or contract which is governed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the provisions of the Act. Taking the view that there was no specific provision in the Act allowing one assessee to carry forward and set off loss incurred by some other assessee, AAR answered the question posed before it in the negative and against AICFL. 35. When the above ruling of AAR was challenged by AICFL before this Court, the stand taken by the Revenue while opposing the writ petition was that it did not dispute the position in law that the status of AICFL under the conflict of law has to be decided by the law of the country in which the entity was incorporated, in this case the State of Delaware, USA. However, it was contended that AICFL was not an assessee under the Act and consequently it did not file any return of income. Therefore, it was not entitled to claim benefit of Section 74 of the Act. On the other hand, returns of income were filed by its three series (funds) i.e., the present three writ petitioners, which have been individually assigned separate Permanent Account Numbers (PANs). It was therefore, submitted that it was the three series (funds) each of which is recognized as an assessee under the Act which would be entitled to carry forward the accu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer came to the finding that the assessee i.e., Aberdeen Asia Pacific Including Japan Equity Fund, a series (fund) of AICFL, is a person which is separate from Aberdeen Delaware Business Trust Asia Pacific Inc Japan Fund. The latter existed as a trust fund and upon re-organization its legal status was converted into a series (fund) of the LLC. At present only the LLC exist as the Trust has ceased to exist. Consequently, the sub-trusts do not exist. Therefore, for the purpose of the Act each of them is a separate assessee. From the AAR application it came to the knowledge of the Assessing Officer that the loss claimed as set off under Section 74 of the Act amounting to ₹ 3,11,39,585.00 and the claim of carry forward of loss amounting to ₹ 2,72,16,475.00 by the assessee for the assessment year 2011-12, totalling ₹ 5,83,56,060.00, are not losses incurred by the assessee; rather those are losses incurred by Aberdeen Delaware Business Trust Asia Pacific Inc Japan Fund which is a different person being a trust fund or sub-trust. 37.1. In that context respondent No.1 observed that carry forward and set off of loss is a privilege given by the Act to an assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the said decision would not impact the case of the three series (funds) i.e., the present three writ petitioners to claim the benefit of carry forward and set off of loss under Section 74 of the Act if otherwise entitled under the law. 39. However, in the reasons recorded by respondent No.1 it was precisely on the ground of change of status that the claim of the assessee i.e., the petitioner was found to be not acceptable which led to formation of the belief that income of the petitioner chargeable to tax had escaped assessment for the assessment year 201112. Therefore, the very foundation for formation of such belief is erroneous, which has been contradicted by this Court. In other words, after the judgment of this Court in AICFL, the very basis for re-opening the assessment no longer survived. This position is buttressed in the draft assessment order dated 06.05.2019 passed by respondent No.1 for the assessment year 2011-12 under Section 143(3) read with Sections 147 and 144-C(1) of the Act. In the said order passed on reassessment it was clearly held that the old trust fund and the new LLC fund are separate legal entities for the purpose of the Act. Therefore, loss ..... 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