{"id":311158,"date":"2024-01-10T18:00:14","date_gmt":"2024-01-10T12:30:14","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=311158"},"modified":"2024-02-21T15:50:53","modified_gmt":"2024-02-21T10:20:53","slug":"no-income-arises-on-investment-in-shares-as-it-is-a-capital-account-transaction-dhc-legal-news","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2024\/01\/10\/no-income-arises-on-investment-in-shares-as-it-is-a-capital-account-transaction-dhc-legal-news\/","title":{"rendered":"No income arises on investment in shares in an Indian subsidiary as it is a capital account transaction: Delhi High Court reiterates"},"content":{"rendered":"
\n

Delhi High Court:<\/span> 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<\/a> (‘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.<\/span>, and Mini Pushkarna, J.<\/span>, 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.<\/p>\n

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.<\/p>\n

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.<\/p>\n

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)<\/span>, 2019 SCC OnLine Del 9630<\/a> 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.<\/p>\n

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<\/span>, 2014 SCC OnLine Bom 1496<\/a> 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<\/span>, 2022 SCC OnLine Del 1461<\/a> 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”<\/span>.<\/p>\n

The Court thus set aside the impugned orders and notices passed under Section 148-A(d) and Section 148 of the Act, respectively.<\/p>\n

[Angelantoni Test Technologies Srl v. CIT, 2023 SCC OnLine Del 8486<\/a>, Order dated 19-12-2023<\/span>]<\/p>\n\n

Advocates who appeared in this case:<\/p>\n

For the Petitioner:<\/span> 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<\/p>\n

For the Respondents:<\/span> 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<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

“Angelantoni Test Technologies submitted that transactions are capital account transactions which are incapable of generating any income and orders and notices are passed merely to verify transactions without any tangible material in possession of Commissioner of Income tax to indicate escapement of income.”<\/p>\n","protected":false},"author":1,"featured_media":303940,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,10],"tags":[64269,2543,5301,3353,32601],"class_list":["post-311158","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-highcourts","tag-capital-account-transaction","tag-Delhi_High_Court","tag-income","tag-Investment","tag-shares"],"yoast_head":"\nNo income arises on investment in shares in an Indian subsidiary as it is a capital account transaction: Delhi HC reiterates| SCC 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The notice issued under Section 148 of the Income Tax Act, 1961 must comply with the requirement of the Scheme whether or not the taxpayer is NRI\/Indian Citizen.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Telangana High Court","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Telangana-High-Court.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Telangana-High-Court.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Telangana-High-Court.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Telangana-High-Court.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":323556,"url":"https:\/\/www.scconline.com\/blog\/post\/2024\/06\/04\/delhi-high-court-quashes-reassessment-proceedings-against-progress-rail-locomotives\/","url_meta":{"origin":311158,"position":2},"title":"Delhi High Court quashes reassessment proceedings against Progress Rail Locomotives","author":"Editor","date":"June 4, 2024","format":false,"excerpt":"The Court evaluated Art. 5 of India-USA Double Tax Avoidance Agreement to determine whether Progress Rail has Permanent Establishment in Noida and Varanasi and whether reassessment proceeding can be initiated upon them or not.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Delhi High Court","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":342987,"url":"https:\/\/www.scconline.com\/blog\/post\/2025\/03\/05\/proceedings-under-section-148a-b-income-tax-act-finance-act-2024-allahabad-hc\/","url_meta":{"origin":311158,"position":3},"title":"Maintainability of proceedings under S. 148A(b) of Income Tax Act post-enforcement of Finance (No. 2) Act, 2024: Read Allahabad HC’s ruling","author":"Apoorva","date":"March 5, 2025","format":false,"excerpt":"The Finance Act No. 02 of 2024, which came into effect on 01-09-2024, brought about significant amendments to the Income Tax Act. Among the key changes are revisions to Sections 148 and 148A, which pertain to the provisions for assessment and reassessment of income. In addition, Section 152 has been\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Allahabad High Court","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Allahabad-High-Court.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Allahabad-High-Court.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Allahabad-High-Court.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Allahabad-High-Court.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":330607,"url":"https:\/\/www.scconline.com\/blog\/post\/2024\/09\/11\/delhi-hc-quashes-notice-against-genpact-india-says-ashish-kumar-decision-does-not-depriive-assessee-right-to-question-initiation-of-reassessment\/","url_meta":{"origin":311158,"position":4},"title":"\u2018SC\u2019s 2023 decision in Ashish Agarwal does not deprive assessee of the right to question initiation of reassessment based on S.149(1)\u2019; Delhi HC quashes notice against Genpact India","author":"Editor","date":"September 11, 2024","format":false,"excerpt":"\u2018Although Genpact had alluded to the amended statutory regime that had come into existence and had informed the AO of the obligation to follow the procedure under Section 148A, no legal challenge was instituted to impugn the action commenced by notice dated 30-06-2021.\u2019","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Delhi High Court","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":324182,"url":"https:\/\/www.scconline.com\/blog\/post\/2024\/06\/12\/del-hc-quashes-reassessment-notice-for-assessment-year-2013-14-due-to-exceeding-statutory-time-limit-under-income-tax-act\/","url_meta":{"origin":311158,"position":5},"title":"Delhi High Court quashes reassessment notice for AY 2013-14 due to exceeding statutory time limit under Income Tax Act","author":"Editor","date":"June 12, 2024","format":false,"excerpt":"The Court quashed the notice of reassessment issued on 31-3-2023 as it surpassed the ten-year block as prescribed u\/S first provision to Section of 148(1) of the Income Tax Act, 1961.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Delhi High Court","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=700%2C400&ssl=1 2x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/311158","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=311158"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/311158\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media\/303940"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=311158"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=311158"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=311158"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}