SENSITECH EMEA B.V. vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE INTERNATIONAL TAX - 3(1)(2), DELHI & ANR.

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W.P.(C)/931/2024HC DelhiDLHC01059498202309 April 2024Bench: HON'BLE MR. JUSTICE YASHWANT VARMA,HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV3 pages
AI SummaryAllowed

What did the High Court hold?

The Delhi High Court held that the subscription of shares in an Indian entity constitutes a transaction on the capital account and, as such, does not give rise to any income. The Court found that the fundamental premise of the Revenue that this investment amounted to income which had escaped assessment was flawed. The Court relied on its previous decision in Angelantoni Test Technologies SRL vs. Assistant Commissioner of Income Tax and the Bombay High Court's decision in Vodafone India Services Pvt. Ltd. v. Union of India, which was accepted by the CBDT through Instruction No.2 of 2015. The Court noted that the CBDT directed field officers to adhere to the ratio decidendi of the Bombay High Court's judgment. Consequently, the Court found no basis for the Revenue's belief that income had escaped assessment, rendering the reassessment proceedings entirely without basis. The impugned notices and order were quashed.

What were the facts?

The petitioner, Sensitech EMEA B.V., filed a writ petition challenging the initiation of action under Section 148 of the Income Tax Act, 1961. The Revenue initiated this action based on the belief that income had escaped assessment. The core of the dispute revolves around the nature of a transaction where the petitioner subscribed to shares in an Indian entity. The petitioner contended that this was a capital account transaction and therefore not taxable income. The Revenue's action was based on notices issued under Section 148A(b) and Section 148, and an order under Section 148A(d). The Delhi High Court was considering the validity of these actions.

What were the issues?

1. Whether the subscription of shares in an Indian entity by the petitioner constitutes a transaction on the capital account and thus does not fall within the ambit of Section 148 of the Income Tax Act, 1961, for the purpose of re-assessment. Assessee's Contention: The subscription of shares in an Indian entity is a capital account transaction and does not give rise to any income. Therefore, the premise for initiating reassessment proceedings under Section 148 is flawed. Revenue's Contention: The Revenue initiated action under Section 148, implying a belief that income had escaped assessment. The specific arguments of the Revenue regarding why this transaction would constitute taxable income are not explicitly detailed in the judgment, but the initiation of action under Section 148 indicates their position that the transaction was not purely capital in nature and resulted in escaped income.

Which sections of the Income-tax Act were involved?

Section 148,Section 148A(b),Section 148A(d)

AI-generated summary — verify with the full judgment below

$~44 * IN THE HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) 931/2024, CM APPL. 3890/2024

SENSITECH EMEA B.V.

..... Petitioner Through: Mr. Kamal Sawhney, Mr. Nikhil Agarwal and Mr. Nishank Vashistha, Advs.

Versus

ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE INTERNATIONAL TAX - 3(1)(2), DELHI & ANR. ..... Respondent

Through: Mr. Vinish Phoghat, SPC for UOI. Mr. Aseem Chawla, SSC with Ms. Pratishtha Chaudhary, Mr. Aditya Gupta & Mr. Naveen Rohilla, Advs.

CORAM:

HON'BLE MR. JUSTICE YASHWANT VARMA

HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR

KAURAV

09.04.2024 O R D E R 1. This writ petition impugns the initiation of action under Section 148 of the Income Tax Act, 1961 [“Act”]. We had in terms of our order of 22 January 2024 succinctly noticed the challenge which stood raised. Before us today, it could not be disputed that the subscription of shares in an Indian entity would constitute a transaction on the capital account and thus not fall within the ambit of Section 148. 2. The view as expressed above finds resonance in the decision rendered by the Court in Angelantoni Test Technologies SRL vs. This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 22/04/2024 at 12:42:04

Assistant Commissioner of Income Tax [2023 SCC OnLine Del 8486] where while dealing with an identical question, we had observed as follows:- “6. It is settled law that investment in shares in an Indian subsidiary cannot be treated as ‘income’ as the same is in the nature of “capital account transaction” not giving rise to any income. In Nestle SA Versus Assistant Commissioner of Income Tax (W.P.(C) No. 12643/2018), this Court held that the allegation of the Revenue that the investment in the shares of Indian subsidiary amounted to income’ is flawed.

The relevant portion of the said judgment is reproduced hereinunder: “24. The principal objection of the Petitioner that its investment in the shares of its subsidiary cannot be treated as ‘income’ is well founded. The decision of the Bombay High Court in Vodafone India Services Pvt. Ltd. v. Union of India (supra) holding such investment in shares to be a ‘capital account transaction’ not giving rise to income was accepted by the CBDT. Para 2 of Instruction No.2 of 2015 dated 29th January, 2015 reads thus:

“2. It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned Writ Petition. In view of the acceptance of the above judgment, it is directed that the ratio decidendi of the judgment must be adhered to by the field officers in all cases where this issue is involved. This may also be brought to the notice of the ITAT, DRPs and CIT (Appeals).”

25.

Therefore, the fundamental premise of the Respondent that the above investment by the Petitioner in the shares of its subsidiary amounted to ‘income’ which had escaped assessment was flawed. The question of such a transaction forming a live link for reasons to believe that income had escaped assessment is entirely without basis and is rejected as such

.” 3. Following the aforesaid, we find ourselves unable to sustain the impugned notices dated 23 March 2023 and 27 April 2023 issued under Section 148A(b) and 148 respectively and the impugned order dated 27 April 2023 issued under Section 148A(d) of the Act. 4. The writ petition is accordingly allowed. Consequently, the This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 22/04/2024 at 12:42:04

aforenoted impugned notices and the impugned order are hereby quashed.

YASHWANT VARMA, J.

PURUSHAINDRA KUMAR KAURAV, J. APRIL 9, 2024/neha This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 22/04/2024 at 12:42:04

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