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TMI Blog2023 (2) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... vestigation by the Assessing Officer but the decision to reopen the assessment has to be of the Assessing Officer and not of the third party. In the present case, this Court finds that the respondent has merely done a cut and paste job as it has issued the notice under Section 148 of the Act based on information forwarded by the TDS Officer of Igarashi without any independent application of mind or verification or investigation. Consequently, the impugned notice has been issued on borrowed satisfaction - which is impermissible in law. This Court is of the view that the respondent has incorrectly referred to Explanation 2(b) to Section 147 of the Act as the same applies only if the assessee understates its income or claims excessive loss, deduction, allowance or relief in its return of income. Beneficial ownership under DTAA - Under the India Singapore DTAA, at the relevant time, capital gain was to be taxed on the basis of legal ownership and not on the basis of beneficial ownership. In fact, the concept of beneficial ownership, at the relevant time under the India Singapore DTAA, was attracted for taxation purposes only qua three transactions i.e. dividend, interest and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not show any live-link between the reasons and the material shown in the reasons for reopening. Though, the Form 10K for the year ended 31st December 2015 was not before the Assessing Officer and not relied upon by the Assessing Officer at any stage of the proceedings, yet the said Form 10K now produced does not include the petitioner in the list of subsidiaries. The respondent has not furnished any documents to show that the petitioner is a tax resident of USA. The petitioner is incorporated in Singapore and is managed by its board of directors based in Singapore. There is no dispute that Mr.Stephan A. Schwarzmann is not part of the board of directors of the petitioner and there is no material on record to rebut the petitioner s contention that he does not have any participation in the affairs/management of the petitioner. Consequently, the petitioner is neither a US based company nor its affairs are managed from USA. It is an Investment Fund governed by and complying with Singapore law rules and regulations. Reasons recorded cannot evolve or be allowed to grow with age and ingenuity - It is settled law that the reasons recorded cannot evolve or be allowed to grow with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a valid TRC dated 3rd February, 2015 from the IRAS Singapore evidencing that it is a tax resident of Singapore and thereby is eligible to claim tax treaty benefits between India and Singapore. As early as March 30, 1994, CBDT issued Circular No.682 in which it was emphasised that any resident of Mauritius deriving income from alienation of shares of an Indian company would be liable to capital gains tax only in Mauritius as per Mauritius tax law and would not have any capital gains tax liability in India. This circular was a clear enunciation of the provisions contained in the DTAA, which would have overriding effect over the provisions of Sections 4 and 5 of the Act by virtue of Section 90 of the Act. CBDT vide Circular No.789 dated 13th April 2000 once again clarified that the TRC shall serve as sufficient evidence of the taxpayer's residence and beneficial ownership for applying the DTAA. Consequently, the TRC is statutorily the only evidence required to be eligible for the benefit under the DTAA and the respondent s attempt to question and go behind the TRC is wholly contrary to the Government of India s consistent policy and repeated assurances to Foreign Inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MEET PRITAM SINGH ARORA For the Petitioner Through: Mr. Porus F. Kaka, Senior Advocate along with Mr. Vishal Kalra, Mr. S.S. Tomar and Mr. Divesh Chawla, Advocates. For the Respondent Through: Mr. Sunil Kumar Agarwal, Senior Standing Counsel for Revenue along with Mr. Tushar Gupta, Junior Standing Counsel for Revenue and Mr. Utkarsh Tiwari, Advocate. JUDGMENT MANMOHAN, J: ISSUE 1. The core issue that arises for consideration in the present writ petition is whether the respondent-revenue can go behind the tax residency certificate issued by the other tax jurisdiction and issue re-assessment notice under Section 147 of the Income Tax Act, 1961 (for short the Act ) to determine issues of residence status, treaty eligibility and legal ownership. FACTS 2. The relevant facts of the present case are that during the Assessment Year 2014-15, the petitioner-Blackstone Capital Partners (Singapore) VI FDI Three Pte. Ltd. acquired equity shares of Agile Electric Sub Assembly Private Limited, a Company incorporated in India ( Agile ) in two tranches, i.e. on 16th August, 2013 and 31st October, 2013. 3. During the year under consideration, i.e. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total foreign remittance of Rs.4,01,31,77,340/-, to M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd., stating nature of Payment as consideration paid for acquisition of Shares. Further, the reason for non-deduction of tax was explained that M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd., is a resident of Singapore and as such not subject to tax in India on Sale of said shares as per the provisions of India-Singapore DTAA. As per submission of the assessee, M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd., has sold the shares of M/s Agile Electric Sub Assembly Pvt Ltd., to M/s Igarashi Electric Works Ltd., for sale consideration of Rs. 4,01,31,77,340/-M/s Igarashi Electric Works Ltd., has relied upon the advice of Deloitte Haskins Sell LLP for taxation of capital gain on part of M/s Black Stone Capital Partners (Singapore) VI FDI Three PTE Ltd. On open source enquiry it is revealed that Black Stone Group Inc is a USA based alternative investment Management Company and thus controlled and managed from USA. As per filings of Blackstone Group with Securities Exchange Commission, USA, the funds were raised by Blackstone Group Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting to Rs 4,01,31,77,340/-has been carried out during the year under consideration. In view of above facts, genuineness and taxability of the above transaction carried out by the assessee during the year remained unverified. 5. Income chargeable to tax escaping assessment 5.1 As per information on record, the full and true disclosure with regard to the above transactions have not been made by the assessee company. In view of explanation 2 to clause (b) of proviso of Section 147 of the Income Tax Act, 1961, where a return of income has been furnished by the assessee but no assessment has been made and it is noticed that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return, deemed to be cases where income chargeable to tax has escaped assessment. Keeping in view all the above, I have reason to believe that an amount at least of Rs.4,01,31,77,340/-has escaped assessment in case of BLACKSTONE CAPITAL PARTNERS (SINGAPORE) VI FDI THREE PTE. LTD. for the A.Y. 2016-17 within the meaning of Section 147/148 of Income Tax Act, 1961. 5.2 It would be worthwhile to submit here that in the case of Rajesh Jha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (viii) Business Profile of the petitioner, list of board of Directors and copies of minutes of Board of Directors to demonstrate the decision making on behalf of the petitioner in Singapore. (ix) Valid TRC dated 03rd February, 2015 issued by the Inland Revenue Authorities of Singapore ( IRAS ) evidencing tax residency of Singapore. (x) Copy of the report from independent Chartered Accountant certifying expenses and satisfaction of Limitation of Benefit ( LOB ) clause as per Article 13 of the India-Singapore DTAA. 8. The petitioner submitted that reopening of assessment cannot be done on apprehension or to verify the genuineness and taxability of transaction. It was stated that the reasons recorded were based on mere suspicion and surmises. It was emphasised that reasons were purportedly based on information received from another officer who had no rational connection for formation of belief. 9. However, the objections were disposed of by the respondent vide the impugned order dated 10th January, 2022 which is reproduced hereinbelow: To, BLACKSTONE CAPITAL PARTNERS (SINGAPORE) VI FDI THREE PTE. LTD. 1, MARINA BOULEVARD, 28-00 ONE MARINA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no concrete 'reason to believe' that the income has escaped assessment for issuance of re-assessment notice It is submitted that in the case under consideration no income which is chargeable to tax has escaped assessment and hence, the re-opening made is misconceived/erroneous and bad in law The Assessee being a tax resident of Singapore regularly files its tax return and undertakes its tax compliances in terms of the Singapore tax laws. It holds a valid TRC issued by IRA Singapore and thereby is eligible to claim tax treaty benefits between India and Singapore. Therefore, it is submitted that the in terms of Article 13(4) of the India Singapore DTAA, the gains arising from the sale of said investments is taxable only in the resident state i.e. Singapore. Thus, the assessee objects to the reasons recorded for denial of benefits under the India-Singapore DTAA Based on the above contentions and facts in the case of the Assessee, it is submitted that the funding raised from Blackstone Group Inc. USA, does not impact the beneficial ownership of the Assessee and being a tax resident of Singapore it is eligible to claim benefits in terms of Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or facts and the new availability of materials to the Department are also to be dealt with for the purpose of taxation. In order to cover the loopholes in the Tax Regime, the provision of reopening of assessments are made and such provisions are to be certainly invoked by following the procedures contemplated under the Act. 5.3 Mere issuance of notice cannot be construed as a final order. Initiation of the proceedings is to be construed as information to the assessee and can never be concluded as a final proceeding. Thus, the issuance of notice is information provided to the assessee, enabling it to avail of all further opportunities contemplated under the statutes. 5.4 Thus, certain aspects which are contemplated under the provisions of the Act, cannot be interpreted, so as to defeat the purpose for which such a provision was enacted by the Legislators. Constructive interpretation of the Act and the Rules are of paramount importance. The Rule of constructive interpretation requires that the possible object and the purpose to be achieved is met out by adopting not only the balancing approach, but also by providing all reasonable opportunities to the persons, who all are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is certainly unwarranted. Such a procedure is not contemplated and not intended by the provision of law. By adopting the principles of constructive interpretation, any law enacted should achieve its purpose and the object sought to be achieved. If such argument is envisaged, then the very purpose and object of the provisions and the amendments made there-under will be defeated and the Authorities Competent would not be in a position to reopen any assessment at all. 5.11 Thus, the reason to believe has been incorporated for the subjective satisfaction of the Assessing Officer and not for the purpose of communicating all the reasons even at the initial stage of issuance of notice to the assessee under section 148. The provision is a check for the Income Tax Officials. Such a check provided under the Statute to the officials, cannot be taken undue advantage of by the assessee. The word 'reason to believe' incorporated is to indicate the Officials that, they cannot reopen the assessment in a routine and mechanical manner. The Assessing Officer in the event of receipt of any new material or information regarding the suppression, must have a reason to believe and the reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. 5.14 The power of reopening of the assessment is certainly wide in nature. If it is restricted, then the very purpose and object of the Income tax Act will be defeated. The wide power provided to the authorities competent are to reopen the assessment and to ensure that all external materials and the information received from various sources are also dealt with in accordance with the provisions of Law. Thus, it does not mean that the Income tax Authorities may reopen at any point of time. In order to protect the assessees a definite time limit has been provided under the Act itself. Thus, in the event of receiving any information or materials from any other sources, it can be a ground for reopening of the assessment and the period of limitation is four years and six years respectively. 5.15 The procedure of reopening of the assessment is contemplated under sections 148 to 153. Once again looking into the spirit of section 147, it is unambiguously enumerated that 'assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.19 The circumstances are narrated wherein certain materials and information are provided by the assessee at the time of filing of the returns and if the same has not been assessed by the Assessing Officer during the relevant assessment year and if it is subsequently noticed, then also the Assessing Officer is empowered to reopen the assessment in respect of the escaped assessments. 5.20 On a perusal of various circumstances incorporated under section 147 for reopening of the escaped assessment, flexible and wider power has been provided, enabling the Assessing Officer to reopen the assessment in the interest of revenue and to ensure that the assessees pay the correct tax with reference to the provisions of the Act. 5.21 Where certain doubts in respect of the reasons or otherwise have been raised by the assessee, such benefit of doubt should be held in favour of the revenue and not in favour of the taxpayer. Contrariness is to be established by the assessee, while scrutinising the materials available with the Assessing Officer. 5.22 It is for the assessee to convince the Assessing Officer in respect of all such escaped assessments, information and materials avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been held as under: In the present case it cannot be disputed at all that the material present before the Assessing Officer at the time of recording reasons for reopening the assessment did show a link between 'S' Ltd., described as an entry provider, with the assessee herein. Not only was there a link between the two names, but the material also disclosed the date on which the entry was taken, the cheque or DD number, the name of the bank and branch and the account number. With such precise material before the Assessing Officer, the existence of which is beyond challenge, it can hardly be said that the Assessing Officer could not have had even a prima facie belief that income chargeable to tax had escaped assessment in the hands of the assessee for the assessment year 2004-05. [Para 11] In case of Max Ventures Investments Holdings (P.) Ltd. vs ITO [2019] 105 taxmann.com 124 (Delhi), it was held as under: Section 68, read with sections 147 and 148, of the Income-tax Act, 1961 -Cash credit (Share application money)-Assessment year 2012-13-Assessee was engaged in business of rendering financial services -During financial year 2009-10, it received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Reliance is also placed on the following judgements: i) ITO Vs Lakhmani Mewal Das (SC) 103 ITR 437 ii) Phool Chand Bajrang Lal and others Vs ITO Anr. (SC) 203 ITR 456 iii) Raymond Woollen Mills Vs ITO Anr. (SC) 236 ITR 34 iv) Dosh Raj Udyog Vs ITO (All) 318 ITR 6 v) Sri Krishna (P) Ltd. Vs CIT (SC) 221 ITR 538 vi) Central Provinces Manganese Ore Co. Vs ITO (SC) 191 ITR 662 10. In the case of ACIT Vs Tube lnvestments of India Ltd. (ITAT, Chennai-TM)-133 ITD 79 Rajat Export Import India Pvt. Vs ITO (del) 341 ITR 135 , the court has held that What is necessary to reopen an assessment is not final verdict but a prima facie reason-once such reason is recorded by assessing authority he assumes jurisdiction to issue notice u /s 148''. 11. The information available with the AO was from credible source. Further on the basis of information available, the Assessing Officer formed a prima facie or tentative opinion that the assessee had indeed received income during the year on which tax has not been paid. The phrase reasons to believe meant to be the cause or justification for the Assessing Officer to know or su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aising figure (of coal) to the extent indicated in the letter, the assessee filed a writ petition before the Calcutta High Court which was allowed. The Revenue carried the matter in appeal to the Supreme Court. Reversing the judgment of the High Court, the Supreme Court held as under:- 3. It is well settled by various decisions of this Court that the notice under Section 148 read with Section 147 can be issued only where the Income tax officer has reason to believe that the income profits or gains chargeable to tax had been under assessed or escaped assessment and further that such escapement or under assessment was occasioned by reason of the failure of the assessee to disclose fully and truly all material facts necessary or the assessment of that year. (We are not concerned with Clause (b) of Section 147 here but only with Clause (a). In other words, there must be relevant material be are the assessing officer upon which he must reasonably and rationally arm the requisite opinion (belief). The question, therefore, is whether the letter of the Chief Mining Officer aforesaid does not constitute relevant material upon which the Income-tax Officer could have formed the requisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructed in law could have entertained a belief that income had escaped assessment. He also stated that no new tangible material/fact had been disclosed by the respondent in the reasons to show any escapement of income. 12. He stated that reasons erroneously stated that the Assessing Officer got information about the petitioner s income from the TDS officer of Igarashi, as all the details were available in the petitioner s return which had been processed under Section 143(1) of the Act. He contended that the respondent s reasons for reopening are verbatim copies of the communication (with errors) received from the ITO-TDS (TDS ward) dated 19th March, 2021 like the individual entity being Blackstone Capital Partners VI (BCP VI)-which did not exist. He clarified that BCP VI is the collective reference to (i) Blackstone Capital Partners VI L.P., a Delaware limited partnership and (ii) any Alternative Investment Vehicles or Parallel Funds (each as defined in the partnership agreement for the partnership referred to in clause (i) above). He emphasised that the impugned letter demonstrated that the reassessment had been initiated based on the information received by the respondent fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IRAS B. Article 13(4) of India-Singapore DTAA as it then stood ARTICLE 13 CAPITAL GAINS 1. Gains derived by a resident of a Contracting State from the alienation of immovable property, referred to in Article 6, and situated in the other Contracting State may be taxed in that other State. 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such fixed base, may be taxed in that other State. 3. Gains from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State of which the alienator is a resident. 4. Gains derived by resident of a Contracting State f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (5) of Section 90, this concern will be addressed suitably when the Finance Bill is taken up for consideration. (emphasis supplied) 18. He submitted that the Supreme Court in Union of India vs. Azadi Bachao Andolan, [2003] 132 Taxman 373 (SC) has upheld the validity of similar Circulars No.682 and 789 dated 30th March, 1994 and 13th April, 2000 issued by the CBDT. The Circular No.682 dated 30th March, 1994 and Circular No.789 dated 13th April, 2000 issued by the CBDT are reproduced hereinbelow: A. CIRCULAR NO. 682 SECTION 90 OF THE INCOME-TAX ACT, 1961 -DOUBLE TAXATION AGREEMENT -AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION WITH FOREIGN COUNTRIES CIRCULAR NO. 682, DATED 30-3-1994 1. A Convention for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes of income and capital gains was entered into between the Government of India and the Government of Mauritius and was notified on 6-12-1983. In respect of India, the Convention applies from the assessment year 1983-84 and onwards. 2. Article 13 of the convention deals with taxation of capital gains and it has five ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidend paid out at the rate of 5% or 15% depending upon the extent of shareholding of the Mauritius resident. Under the Income-tax Act, 1961, tax was deductible at source at the rates specified under section 115A, etc. Doubts have been raised regarding the taxation of dividends in the hands of investors from Mauritius. It is hereby clarified that wherever a Certificate of Residence is issued by the Mauritian Authorities, such Certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the DTAC accordingly. 3. The test of residence mentioned above would also apply in respect of income from capital gains on sale of shares. Accordingly, FIIs, etc., which are resident in Mauritius would not be taxable in India on income from capital gains arising in India on sale of shares as per paragraph 4 of article 13. (emphasis supplied) 19. He submitted that the Supreme Court in the subsequent judgment of Vodafone International Holdings B.V. vs. Union of India and Anr., (2012) 6 SCC 613 has held that Union of India vs. Azadi Bachao Andolan (supra) is correct law and TRC is sufficient evidence to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aragraphs 4, 5 and 6 of article 13 (Capital gains) of the agreement shall be deleted and replaced by the following: 4. Gains derived by a resident of a Contracting State from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of this article shall be taxable only in that State. Article 2 With regard to the article on Exchange of information (article 28), on a request made by a Contracting State, the Revenue Authority of the other Contracting State shall collect, and share with the first mentioned Contracting State, through its Competent Authority, whatever information it is competent to obtain for its own purposes under its law. Article 3 1. A resident of a Contracting State shall not be entitled to the benefits of article 1 of this protocol if its affairs were arranged with the primary purpose to take advantage of the benefits in article 1 of this protocol. 2. A shell/conduit company that claims it is a resident of a Contracting State shall not be entitled to the benefits of article 1 of this protocol. A shell/conduit company is any legal entity falling within the definition of resident with negligible or nil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This protocol, which shall form an integral part of the agreement, shall come into force on 1 August 2005. In witness whereof, the undersigned, being duly authorized by their respective Governments have signed this protocol. Done at New Delhi, India, this twenty-ninth day of June 2005, in two originals in English language each text being equally authentic. (emphasis supplied) 21. He stated that as per the audited financial statements for the year ending 31 st December, 2013, the assessee had incurred an expenditure of USD 284,212 equivalent to SGD 360,949 approx and as per financial statements for the year ending 31st December, 2014, the assessee had incurred an operational expenditure of USD 468,718 equivalent to SGD 618,708 approx. The total business spending of the petitioner in the Assessment Year 2016 as reported to the Singapore Tax Authoritieswas as under: Total Business Spending TBS ) Expenses paid Amount (S$) Remuneration 0 Management fees 356,882 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... writ petitions questioning legality of the show-cause notices stalling enquiries as proposed and retarding investigative process to find actual facts with the participation and in the presence of the parties. Unless the High Court is satisfied that the show-cause notice was totally non est in the eye of the law for absolute want of jurisdiction of the authority to even investigate into facts, writ petitions should not be entertained for the mere asking and as a matter of routine, and the writ petitioner should invariably be directed to respond to the show-cause notice and take all stands highlighted in the writ petition. Whether the show-cause notice was founded on any legal premises, is a jurisdictional issue which can even be urged by the recipient of the notice and such issues also can be adjudicated by the authority issuing the very notice initially, before the aggrieved could approach the court. Further, when the court passes an interim order it should be careful to see that the statutory functionaries specially and specifically constituted for the purpose are not denuded of powers and authority to initially decide the matter and ensure that ultimate relief which may or may n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC), wherein it has been held has under: In this case, we do not have to give a final decision as to whether there is suppression of material facts by the assessee or not. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority. The appeals are dismissed. There will be no order as to costs. 28. He submitted that Explanation 2 to sub-clause (b) to Section 147 empowers the Assessing Officer to order reopening where a return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate Equity Funds Our Private Equity investment professionals are responsible for selecting, evaluating, structuring, diligencing, negotiating, executing, managing and exiting investments, as well as pursuing operational improvements and value creation. After an initial selection, evaluation and diligence process, the relevant team of investment professionals (i.e., the deal team) submits a proposed transaction for review by the review committee of our private equity funds. Review committee meetings are led by an executive committee of several senior managing directors of our Private Equity segment. Following assimilation of the review committee s input and its decision to proceed with a proposed transaction, the proposed investment is vetted by the investment committee. The investment committee of our private equity funds is composed of Stephen A.Schwarzman, Hamilton E.James and selected senior managing directors of our Private Equity segment as appropriate based on the location and sector of the proposed transaction. The investment committee is responsible for approving all investment decisions made on the behalf of our private equity funds. Our general partner, Blacks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at even if Audit expenses were considered as operational expenses, the amount is much below the threshold amount necessary to satisfy India-Singapore DTAA test. 34. He submitted that Section 90(4) of the Act only talks about TRC as eligibility condition . It does not say that TRC is sufficient evidence of residency, which is a slightly higher threshold. He contended that the TRC is not binding on any statutory authority / courts unless the authority or courts enquires into it and comes to its own independent conclusion. He submitted that the TRC relied upon by the petitioner is non-decisive, ambiguous and ambulatory merely recording that the petitioner s futuristic assertions without any independent verification. According to him, TRC lacks the qualities of a binding order issued by an Authority. 35. He submitted that the Union of India vs. Azadi Bachao Andolan (supra) and Vodafone International Holdings B.V. (supra) give credence to a TRC subject to a caveat that if it were to be found that the entity in the treaty country is just an agent/puppet of a parent company in another country, then the asset will be treated as that of the parent company and the treaty wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax return by passing an intimation under Section 143(1) of the Act and after processing the same, the Department had chosen not to take up the petitioner s return for verification or examination. He pointed out that the time limit for issuing the notice under Section 143(2) of the Act had expired on 31st December, 2018. Therefore, he submitted that Section 148 could not have been invoked to verify or examine the genuineness of any claim that had become time-barred under Section 143(2) of the Act. 39. He emphasised that the alleged open source enquiry was neither done by the Assessing Officer nor was there any independent application of mind to the documents and nothing had been brought out in the reason to show application of mind by the Assessing Officer on the information received from another officer of the Income Tax Department. He reiterated that no notice for reopening the assessment could have been issued under the Act for making a fishing and roving enquiry based on suspicion. 40. He submitted that the judgment in Biju Patnaik (supra) dealt with different provisions of law and is no longer good law as held by this Court in the case of Alcatel-Lucent France v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only deleted the words reason to believe but also inserted the word opinion in section 147 of the Act. However, on receipt of representations from the companies against omission of the words reason to believe , Parliament reintroduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer. We quote herein below the relevant portion of Circular No. 549 dated October 31, 1989 ([1990] 182 ITR (St.) 1, 29), which reads as follows: 7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression 'reason to believe' in section 147. -A number of representations were received against the omission of the words 'reason to believe' from section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 296.59 366.41 113.19 44.70% Profit before Tax 8.05 22.99 40.81 32.76 406.96% EPS 0.85 2.8 4.98 4.13 485.88% Source: XBRL F5 from MCA website 43. As regards the nature of expenditure incurred, he stated that the petitioner paid management fees to Blackstone Singapore Pte Ltd., Singapore (under an advisory agreement), who acted as fund manager to the petitioner. The petitioner s financial statement which reflected this expenditure was duly audited as per the Singapore law and the audited financial statement was on record. Further, the expense in the nature of audit fees was a pre-requisite for undertaking business operations and in undertaking other statutory compliances in Singapore. The management fees in the case was incurred in Singapore and paid to another Singapore-based entity; therefore, the same satisfied the requirement in terms of the said protocol. The petitioner had als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra). The said fact had been noted in the Andhra Pradesh High Court ruling in the case of Sanofi Pasteur Holding SA V. Department of Revenue, Ministry of Finance, [2013] 354 ITR 316 (AP), wherein it has been held, In any event, the prima facie analyses by the Bombay High Court in Aditya Birla Nuvo Ltd. (supra) must yield to the binding precedents inter alia, Azadi Bachao Andolan and Vodafone . Hence, he submitted that the respondent ought to be estopped in line with the Supreme Court judgment of estoppel in Pepsico India Holdings Private Limited Vs. State of Kerala and Ors., (2009) 13 SCC 55. 47. Additionally, the petitioner drew attention to certain paragraphs of Supreme Court s ruling in the case of Vodafone International Holdings B.V. (supra), wherein it has been observed that the group parent company is involved in giving principal guidance by providing general policy guidelines to group subsidiaries. He pointed out that the Supreme Court has held Setting up of a WOS Mauritius subsidiary/SPV by principal/genuine substantial long-term FDI in India from/through Mauritius, pursuant to the DTAA and Circular No.789 can never be considered to be set up f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Act. The existence of such alternative remedy is not however always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action. 28. In the present case the Company contends that the conditions precedent for the assumption of jurisdiction under Section 34 were not satisfied and come to the court at the earliest opportunity. There is nothing in its conduct which would justify the refusal of proper relief under Article 226. When the Constitution confers on the High Courts the power to give relief it becomes the duty of the courts to give such relief in fit cases and the courts would be failing to perform their duty if relief is refused without adequate reasons. In the present case we can find no reason for which relief should be refused. 29. We have therefore come to the conclusion that the Company was entitled to an order directing the Income Tax Officer not to take any action on the basis of the three impugned notices. 30. We are informed that assessment orders were in fact made on March 25, 1952, by the Income Tax Officer in the proceedings started on the basis of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (Delhi), this Court has held, that it is evident that, faced with severe paucity of time, the Assessing Officer had attempted to travel the path of Section 147 in the vain attempt to enlarge the time available for framing the assessment. This is not permissible in law. IMPUGNED NOTICE ISSUED ON BORROWED SATISFACTION 52. The Assessing officer in the present proceedings has sought to place reliance upon the data extracted from a third-party online source having URL: https://recordowl.com. In this regard, it would be instructive to note here that the Supreme Court, recently in the case of Hewlett Packard India Sales Pvt. Ltd. (Now HP India Sales Pvt. Ltd.) v. Commissioner of Customs (Import), Nhava Sheva, 2023 SCC OnLine SC 31, has issued a note of caution to the governmental authorities such as Commissioner of Customs (Appeal), to refrain from using online sources to arrive at any conclusion, since the information available therein is based on crowd sourced and user generated editing model, veracity whereof may be disputed and might promote misleading information. The relevant extract of the aforesaid judgment is as under: 14. At the outset, we must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment after the lapse of many years is a serious matter. In Krown Agro Foods (P.) Ltd. v. Assistant Commissioner of Income-tax, Circle 5(1), New Delhi, [2015] 57 taxmann.com 355 (Delhi), this Court has held as under: 13. The reason to believe recorded by the Assessing officer is not based on any material that had come to the knowledge of the Assessing Officer. There is a mere suspicion in the mind of the assessing officer and the notice under section 147/148 has been issued for the purpose of verification and for clearing the cloud of suspicion. The reasons to believe recorded do not show as to on what basis the Assessing Officer has formed a reasonable belief that the said amount of Rs. 2,00,000/-had escaped assessment. It is apparent the Assessing Officer suspects that the income has escaped assessment. However, mere suspicion is not enough. The reasons to believe must be such, which upon a plain reading, should demonstrate that such a reasonable belief could be formed on some basis/ foundation and had in fact been formed by the Assessing Officer that income has escaped assessment. No such reasonable belief can be inferred from the purported reasons to believe r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that any income chargeable to tax has escaped assessment. Form 10K relied by the respondent in the reasons recorded is for the year ended 31 st December, 2011, whereas the petitioner was incorporated on 25th June, 2013. Thus, the said Form 10K does not pertain to the petitioner and does not show any live-link between the reasons and the material shown in the reasons for reopening. 58. Though, the Form 10K for the year ended 31st December 2015 was not before the Assessing Officer and not relied upon by the Assessing Officer at any stage of the proceedings, yet the said Form 10K now produced does not include the petitioner in the list of subsidiaries. In fact, the decision making power of Mr.Stephan A. Schwarzmann is qua the entities to which the Form 10K pertains and not towards the petitioner as the petitioner is not a part of the list of subsidiaries mentioned in Form 10K. 59. Admittedly, Blackstone Group is one of the largest asset management or investment adviser companies in the world. What it primarily does is to manage fund of others like sovereign wealth funds (like Singapore, Qatar etc.) which belong to Governments and major pension funds set up by countries and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing State, the tax so charged shall be exceed : xx xx ARTICLE 12 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to resident of the other Contracting State may be taxed in that other State. 2. [However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties and fees for technical services, the tax so charged shall not exceed 10 per cent.] xx xx ARTICLE 13 CAPITAL GAINS 1. Gains derived by a resident of a Contracting State from the alienation of immovable property, referred to in Article 6, and situated in the other Contracting State may be taxed in that other State. 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge the reasons for reopening, which is not permissible. Similarly, with respect to the issue of satisfaction of the requirement under the Limitation of Benefit Clause ( LOB ), as per the India-Singapore DTAA, it is apparent from the record that the petitioner had placed on record its Audited Financial Statements as well as Independent Chartered Accountant Certificate to show that the LOB clause was satisfied. The said fact has not been disputed by the Assessing Officer and the respondent cannot raise the said disputes for the first time in writ proceedings. 66. It is settled law that the reasons recorded cannot evolve or be allowed to grow with age and ingenuity. The reasons which are recorded cannot be supplemented by affidavits. If the reasons are allowed to be added, subtracted or deleted, then by the time the matter reaches the Court, the Assessing Officer would be allowed to change its reasons for believe. The Supreme Court in New Delhi Television Ltd v Deputy Commissioner of Income Tax, [2020] 116 taxmann.com 151 (SC) has held that the Assessing Officer is not allowed to alter its reasons, which must be considered only based on their recordings. The relevant portion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. 70. In the objections dated 28th December, 2021, the petitioner has furnished the details of compliance with the LOB clause to the India-Singapore DTAA. The Assessing officer has not questioned the satisfaction of the LOB clause or the Independent Chartered Accountant certificate at any stage except in the present proceedings. Consequently, the petitioner is a bonafide entity and not a shell / conduit entity as it complies with the LOB clause to the India-Singapore DTAA as the expenditure has been incurred in Singapore and the same has been certified by an independent chartered accountant and accepted by the authorities in Singapore i.e. Income Tax authorities, Monetary Authority of Singapore. Accordingly, the allegation of treaty shopping is irrelevant in the present case as the India-Singapore DTAA has a limitation of benefit clause which the petitioner satisfies RESPONDENT-REVENUE CANNOT GO BEHIND THE TRC 71. This Court is in agreement with the argument of learned senior counsel for the petitioner that the entire attempt of the respondent in seeking to question the TRC is wholly contrary to the Government of India s repeated assurances to foreign investors by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The relevant extract of Article 3(1)(j) is provided below: (j) the term person includes an individual, a company, a body of persons and any other entity which is treated as a taxable unit under the taxation laws in force in the respective Contracting States 78. Further, as per Article 3(1)(d) of the India-Singapore DTAA, a Company has been inter-alia defined as any body corporate or any entity which is treated as a company or body corporate under the taxation laws in force in the respective Contracting States . 79. Article 4 of the India-Singapore DTAA states that the term resident of a Contracting State means any person who is a resident of a Contracting State in accordance with the taxation laws of that State. As per Singapore tax laws, a company is resident in Singapore if the management and control of its business is exercised in Singapore. 80. The petitioner has a valid TRC dated 3rd February, 2015 from the IRAS Singapore evidencing that it is a tax resident of Singapore and thereby is eligible to claim tax treaty benefits between India and Singapore. 81. As early as March 30, 1994, CBDT issued Circular No.682 in which it was emphasised that any resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulted in panic and consequent hasty withdrawal of funds by the FIIs. The Indian Finance Minister issued a Press note dated April 4, 2000 clarifying that the views taken by some of the income-tax officers pertained to specific cases of assessment and did not represent or reflect the policy of the Government of India with regard to denial of tax benefits to such FIIs. Thereafter, to further clarify the situation, the CBDT issued a Circular No.789 dated 13.4.2000. Since this is the crucial Circular, it would be worthwhile reproducing its full text. The Circular reads as under . xxx xxx xxx xxx 49. As early as on March 30, 1994, the CBDT had issued circular no.682 in which it had been emphasised that any resident of Mauritius deriving income from alienation of shares of an Indian company would be liable to capital gains tax only in Mauritius as per Mauritius tax law and would not have any capital gains tax liability in India. This circular was a clear enunciation of the provisions contained in the DTAC, which would have overriding effect over the provisions of sections 4 and 5 of the Income-tax Act,1961 by virtue of section 90(1) of the Act. If, in the teeth of this cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... countries need to take, and do take, a holistic view. The developing countries allow treaty shopping to encourage capital and technology inflows, which developed countries are keen to provide to them. The loss of tax revenues could be insignificant compared to the other non-tax benefits to their economy. Many of them do not appear to be too concerned unless the revenue losses are significant compared to the other tax and non-tax benefits from the treaty, or the treaty shopping leads to other tax abuses .. xxx xxx xxx xxx 134. We may also refer to the judgment of Gujarat High Court in Banyan Berry v. CIT [1996] 222 ITR 831/ 84 Taxman 515 where referring to McDowell Co. Ltd.'s case (supra), the Court observed: . . . The facts and circumstances which lead to McDowell's decision leave us in no doubt that the principle enunciated in the above case has not affected the freedom of the citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the framework of law, unless the same fall in the category of colourable device which may properly be called a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a country outside India or specified territory outside India, as the case may be, referred to in sub-section (4), shall be necessary but not a sufficient condition for claiming any relief under the agreement referred to therein. 87. However, serious concerns were expressed by the Foreign investors with regard to the aforesaid proposed amendment. On the very next day, namely 1st March, 2013 the Finance Minister vide Press release clarified, The Tax Residency Certificate produced by a resident of a contracting state will be accepted as evidence that he is a resident of that contracting state and the Income Tax Authorities in India will not go behind the TRC and question his resident status . 88. Consequently, the Government of India vide Press Release dated 1st March, 2013 once again reiterated that TRC shall be treated as a sufficient condition for claiming relief under the DTAA. It is pertinent to mention that Press Release dated 1st March, 2013 was not Mauritius-specific and it clarified beyond doubt that the TRC produced by a resident of a contracting state would be accepted as evidence of tax residency, and the Income Tax authorities in India will not go behind th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, they cannot even to be considered to be residents of Mauritius. He submitted that in any event the real beneficiaries are the shareholders of these companies and they do not reside in Mauritius. Therefore, the Residency Certificate issued in favour of Blackstone Mauritius and Barclays are irrelevant and is no consequence whatsoever....... xxx xxx xxx xxx 30. In view of the circular, it is incumbent upon the authorities in India to accept the certificates of residence issued by the Mauritian authorities. Circular No. 789 is a statutory circular issued under section 119 of the Act. It is obviously based upon the trust reposed by the Indian authorities in the Mauritian authorities. Once it is accepted that the certificate has been issued by the Mauritian authorities, the validity thereof cannot be questioned by the Indian authorities. This is a convention/treaty entered into between two sovereign States. A refusal to accept the validity of a certificate issued by the contracting States would be contrary to the convention and constitute an erosion of the faith and trust reposed by the contracting States in each other. It is for the Government of India to decide whether or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s must be accepted provided of course it is established that it has been issued by the appropriate Mauritius Authorities. As we mentioned earlier it is not disputed that the Residence Certificate relied upon by Blackstone Mauritius and Barclays were issued by the Mauritius authorities. xxx xxx xxx xxx 35. This is a convenient stage to introduce the judgment of the Supreme Court in Union of India v. Azadi Bachao Andolan [2003] 263 ITR, 706/132 Taxman 373. We will be referring to this judgment more than once for it also answers the other questions conclusively .These observations are a complete answer to Mr.Joshi s submissions on behalf of the respondents on this point. 90. The aforesaid judgment of the High Court has been accepted by the Tax Department and has not been challenged before the Supreme Court. 91. Consequently, the TRC is statutorily the only evidence required to be eligible for the benefit under the DTAA and the respondent s attempt to question and go behind the TRC is wholly contrary to the Government of India s consistent policy and repeated assurances to Foreign Investors. In fact, the IRAS has granted the petitioner the TRC after a detailed analys ..... X X X X Extracts X X X X X X X X Extracts X X X X
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