Delhi High Court: The present writ petitions were filed seeking quashing of the impugned notices and orders passed under Section 148-A(b) and Section 148-A(d), respectively of the Income Tax Act, 1961 (‘the Act’). Petitioners also challenged the legality and constitutional validity of Explanation 1 to Section 148 of the Act. The Division Bench of Manmohan, ACJ., and Mini Pushkarna, J., opined that investment in shares in an Indian subsidiary could not be treated as ‘income’ as the same was in the nature of capital account transaction not giving rise to any income. The Court thus set aside the impugned orders and notices passed under Section 148-A(d) and Section 148 of the Act, respectively.
Petitioner, a foreign company, was a resident of Italy and it stated that during FY 2018-19, it had subscribed to 15,00,000 shares at face value of Rs. 10 each by making foreign inward remittance of Rs. 1,50,00,000 in its wholly owned Indian subsidiary namely, Angelantoni Test Technologies India (P) Ltd. in accordance with applicable regulations. It was further stated that since it had not earned any income from any source in India, it did not file return of income in India.
Petitioner submitted that the transactions in the present case were capital account transactions which were incapable of generating any income and the impugned orders and notices were passed merely to verify the transactions without any tangible material in possession of respondents to indicate escapement of income. It was also submitted that there was no information/material including the name of the company whose shares were purchased, referred to or relied upon in the impugned notice, which could trigger ‘suspicion’ of escapement of income chargeable to tax. Respondents stated that notices under Section 148-A(b) were issued in accordance with the Risk Management Strategy formulated by the Central Board of Direct Taxes (‘CBDT’) in terms of Explanation 1 to Section 148 of the Act.
The Court noted that in the present case, the assessees were foreign companies who had made remittances/investment in shares of their Indian subsidiaries. The Court opined that the transactions in the present case were capital account transactions. The Court relied on Nestle SA v. Asst. CIT (IT), 2019 SCC OnLine Del 9630 and opined that investment in shares in an Indian subsidiary could not be treated as ‘income’ as the same was in the nature of “capital account transaction” not giving rise to any income.
The Court held that the action of respondents was in contravention of the CBDT Instruction No. 2 of 2015 dated 29-01-2015 reiterating the decision of the Bombay High Court in Vodafone India Services (P) Ltd. v. Union of India, 2014 SCC OnLine Bom 1496 that “no income arises on investment in shares since it is a capital account transaction”. The Court further relied on Divya Capital One (P) Ltd. v. Asst. CIT, 2022 SCC OnLine Del 1461 and held that “whether it is “information to suggest” under amended law or “reason to believe” under erstwhile law the benchmark of “escapement of income chargeable of tax” still remains the primary condition to be satisfied before invoking powers under Section 147 of the Act”.
The Court thus set aside the impugned orders and notices passed under Section 148-A(d) and Section 148 of the Act, respectively.
[Angelantoni Test Technologies Srl v. CIT, 2023 SCC OnLine Del 8486, Order dated 19-12-2023]
Advocates who appeared in this case:
For the Petitioner: Tarun Gulati, Senior Advocate; Ved Jain, Nischay Kantoor, Soniya Dodeja, Salil Kapoor, Ananya Kapoor, Sumit Lalchandani, Vibhu Jain, Kamal Sawhney, Nikhil Agarwal, Nishank Vashishtha, Puru Medhira, Ishita Farsaiya, Apoorv Shukla, Pursoth Kannan, Ruchesh Sinha, Monalisa Maity, Kumar Visalaksh, Udit Jain, Arihant Tater, Ajitesh Dayal Singh, Kumar Visalaksh, Udit Jain, Arihant Tater, Ajitesh Dayal Singh, Nishant Thakkar, Nikhil Ranjan, Hiten Thakkar, Jasmin Amalsadwala, Kamal Arya, Advocates
For the Respondents: Ruchir Bhatia, Aseem Chawla, Sunil Agarwal, Senior Standing Counsels; Santosh Kumar Pandey, Senior Panel Counsel; Pratishtha Choudhary, Nivedita, Aditya Gupta, Shivansh B. Pandya, Utkarsh Tiwari, Sanjay Kumar, Heemlata Rawat, Advocates