VODAFONE MAURITIUS LIMITED vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE INTERNATIONAL-TAX 3(1)(1), DELHI & ANR.

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W.P.(C)/12600/2022HC DelhiDLHC01032803202208 December 2022Bench: HON'BLE MR. JUSTICE RAJIV SHAKDHER,HON'BLE MS. JUSTICE TARA VITASTA GANJU5 pages
AI SummaryRemanded

What did the High Court hold?

The High Court disposed of the writ petition by remitting the matter back to the Assessing Officer (AO). The Court directed the AO to first determine whether the case is fit for exercising jurisdiction, taking into account the objections raised by the petitioner in the writ petition. Specifically, the AO is to deal with the aspects concerning the petitioner's tax residency certificate and its entitlement to the benefits of Article 13 of the India-Mauritius DTAA. The AO is also to consider the petitioner's claim of loss on the transaction. The AO must accord a personal hearing to the petitioner's authorized representative and grant liberty to file written submissions. A speaking order is to be passed by the AO on both the objections and the merits of the case. If the AO's decision is adverse to the petitioner, the petitioner will have four weeks from the date of service of the order to take recourse to an appropriate remedy, and the decision will not be given effect to during this period. The Court noted that the AO's observations regarding the TRC not being conclusive proof were tentative.

What were the facts?

The assessee, Vodafone Mauritius Limited, is a foreign company incorporated in Mauritius. The revenue is represented by the Assistant Commissioner of Income-Tax. The assessment year in question is 2016-2017. The challenge is to an order dated July 28, 2022, and a notice dated July 29, 2022, issued by the Assessing Officer (AO) initiating reassessment proceedings. The material fact is that the assessee sold shares worth Rs. 1295 crores of an Indian company, Bharti Infotel Pvt. Ltd., in FY 2015-2016. The consideration was paid by Bharti Enterprises (Holding) Pvt. Ltd. The assessee claims it registered a loss of Rs. 28,73,49,89,247/- on this transaction and possesses a tax residency certificate from Mauritius, entitling it to the benefits of Article 13 of the India-Mauritius DTAA. The AO initiated proceedings under Section 147/148 of the Income Tax Act, 1961, alleging non-deduction of TDS and escapement of income, despite the assessee not filing a return.

What were the issues?

1. Whether the Assessing Officer had the jurisdiction to initiate reassessment proceedings under Section 147/148 of the Income Tax Act, 1961, against the petitioner, a foreign company that had not filed a return for AY 2016-2017, considering its claim of loss and entitlement to benefits under the India-Mauritius DTAA (Article 13)? Assessee's Contention: The petitioner argues that the AO lacked jurisdiction to initiate proceedings. It relies on its tax residency certificate from Mauritius and the provisions of Article 13 of the India-Mauritius DTAA. The petitioner also highlights that it registered a significant loss on the transaction. The petitioner cites the Supreme Court judgment in Union of India v. Azadi Bachao Andolan (2004) 10 SCC 1 in support of its claims. Revenue's Contention: The revenue contends that under the unamended provision of Section 147 of the Act, specifically Explanation 2, the AO had the jurisdiction to commence proceedings as no return was filed by the petitioner, deeming it a case of escapement of income chargeable to tax.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 148A(d)

AI-generated summary — verify with the full judgment below

NEUTRAL CITATION NO : 2022/DHC/005719

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$~2 * IN THE HIGH COURT OF DELHI AT NEW DELHI

Decision delivered on: 08.12.2022 + W.P.(C) 12600/2022 & CM Nos.38193-94/2022

VODAFONE MAURITIUS LIMITED

..... Petitioner Through: Ms Fereshte D. Sethna, Ms Anuradha Dutt, Mr Mrunal Parekh, Mr Ameya Pant and Mr Sohum Dua, Advs.

versus

ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE INTERNATIONAL-TAX 3(1)(1), DELHI & ANR. .... Respondents Through: Mr Sunil Agarwal, Sr. Standing Counsel and Mr Tushar Gupta, Jr. Standing Counsel with Mr Utkarsh Tiwari, Adv. for R-1/Revenue.

Mr Ravi Prakash, CGSC with Ms Shruti Shiv Kumar and Ms Usha, Advs. for R-2/UOI

CORAM:

HON'BLE MR. JUSTICE RAJIV SHAKDHER

HON'BLE MS. JUSTICE MINI PUSHKARNA [Physical Hearing/Hybrid Hearing (as per request)] RAJIV SHAKDHER, J. (ORAL): CM No.38194/2022 1. Allowed, subject to just exceptions. W.P.(C) 12600/2022 & CM No.38193/2022 [Application filed on behalf of the petitioner seeking interim relief] 2. The substantive prayers made in the writ petition read as follows : “(a) that this Hon'ble Court be pleased to issue a writ of certiorari or writ of mandamus or any other appropriate writ, order or Digitally Signed By:ATUL JAIN Signing Date:21.12.2022 19:51:36 Signature Not Verified

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direction in the nature of certiorari/mandamus, under Article 226/227 of the Constitution of India, calling for all the papers and proceedings of Respondent No.1 pertaining to the Impugned Order dated 28 July 2022 and Impugned Notice dated 29 July 2022, and after examining the validity, legality and propriety thereof, to quash and set aside the Impugned Order and Impugned Notice.

(b) Pending the hearing and final disposal of the writ petition, for an order restraining the Respondents, its officers, subordinates, agents from relying upon and/or taking any coercive or other steps in connection with escapement proceedings initiated against the Petitioner in pursuance of the Impugned Notice.”

3.

Ms Fereshte D. Sethna, who appears on behalf of the petitioner, says that the principal allegation against the petitioner is that the petitioner, which is a foreign company incorporated under the laws of Mauritius, had sold shares worth Rs.1295 crores, of an Indian company going by the name Bharti Infotel Pvt. Ltd, against which TDS was not deducted. 3.1. Ms Sethna goes on to state that the consideration was paid by another entity, namely, Bharti Enterprises (Holding) Pvt. Ltd. 4. The record shows that this transaction occurred in Financial Year (FY) 2015-2016, relatable to Assessment Year (AY) 2016-2017. 5. It is Ms Sethna’s submission that no TDS was deducted by the aforementioned Indian company. 6. Ms Sethna also states that the petitioner has, in its possession, a tax residency certificate issued under the laws of Mauritius, and therefore, is entitled to take benefit of the provisions of Article 13 of the Double Taxation Avoidance Agreement [in short, “DTAA”] forged between India and Mauritius. 6.1 Besides this, according to Ms Sethna, the petitioner has registered a loss on the said transaction amounting to Rs.28,73,49,89,247/-. Digitally Signed By:ATUL JAIN Signing Date:21.12.2022 19:51:36 Signature Not Verified

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7.

In sum, it is Ms Sethna’s contention that notwithstanding the fact that no return was filed by the petitioner, the concerned assessing officer (AO) had no jurisdiction to trigger the impugned proceedings. 8. Mr Sunil Agarwal, who appears on behalf of respondent no.1/revenue, contends, based on the unamended provision of Section 147 of the Income Tax Act, 1961 [in short, “Act”], that since the return was not filed, the concerned AO was within his jurisdiction to commence proceedings under Section 147/148 of the Act. 8.1 In this behalf, Mr Agarwal has drawn our attention to Explanation 2 appended to the unamended Section 147 of the Act. 8.2 In other words, it is Mr Agarwal’s contention that this was a case of deemed escapement of income chargeable to tax, as no return was filed by the petitioner. 9. As indicated above by us, 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. 9.1. 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. 10. 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. 10.1. We may note that in support of her submission, Ms Sethna also relies Digitally Signed By:ATUL JAIN Signing Date:21.12.2022 19:51:36 Signature Not Verified

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upon the judgment rendered by the Supreme Court in Union of India v. Azadi Bachao Andolan (2004) 10 SCC 1. 11. Having regard to the submissions made by learned counsel for the parties, the writ petition is disposed of with the following directions: (i) The matter is remitted to the concerned AO. (ii) The concerned AO, before moving ahead in the matter, will determine as to whether this is a fit case for exercising jurisdiction, having regard to the objections articulated in the writ petition. In particular, the concerned AO will deal with the aspects referred to hereinabove. (iii) The concerned AO will accord personal hearing to the authorized representative of the petitioner and grant liberty to file written submissions in support of the pleas made before her/him. (iv) The AO will pass a speaking order, both, with regard to the objections raised by the petitioner and on merits. (v) In case the decision taken by the AO is adverse to the interests of the petitioner, the petitioner will have liberty to take recourse to an appropriate remedy, albeit, as per law. However, if such an eventuality arises, the said decision will not be given effect to for four weeks from the date when the order is served on the petitioner 12. At this stage, Ms Sethna draws our attention to the following observations made in the order passed by the AO under Section 148A(d) of the Act: “… The assessee has furnished TRC as its proof of residence in Mauritius. But it must be appreciated that Tax residency Certificate (TRC) is not conclusive proof to determine whether the assessee is resident of Mauritius as per DTAA and whether benefit of the said DTAA would be allowed to assessee or not. The same position has been upheld by various judicial pronouncements.…” Digitally Signed By:ATUL JAIN Signing Date:21.12.2022 19:51:36 Signature Not Verified

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12.1. Mr Agarwal says that the aforementioned observations extracted from the order passed under Section 148A(d) of the Act are only tentative and not final. 13. Given this position taken by the respondents/revenue, as indicated by us hereinabove, the AO will take a decision with regard to whether or not this is a fit case for triggering reassessment proceedings. 14. Consequently, the pending application shall stand closed. 15. Parties will act based on the digitally signed copy of the order passed today.

RAJIV SHAKDHER, J

MINI PUSHKARNA, J

DECEMBER 8, 2022

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Digitally Signed By:ATUL JAIN Signing Date:21.12.2022 19:51:36 Signature Not Verified

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