Blackstone group entity gets Delhi High Court relief in income tax case

Delhi HC sets aside reassessment proceedings, asks revenue dept to re-examine the issue

In a setback for the revenue department, the Delhi High Court has set aside reassessment proceedings against a Blackstone group entity for allegedly escaping income tax payment.

The court in its order directed sleuths to re-examine the issue and check whether the transaction in question was a capital account transaction.

Singapore-based Blackstone Capital Partner VI FDI allegedly purchased shares of an Indian company, Agile Electric Sub-Assembly, which led to the escapement of income chargeable to tax.

The I-T department issued a notice in July last year to the Singapore entity, informing it about the re-opening of the case.

Setting aside the revenue department notice, the HC said the assessing officer (AO) should have applied his/her mind, as to whether the investment in shares of Agile by the petitioner was a capital account transaction, given the fact that there is no allegation of round-tripping.

The court also asked the AO to carry out “de novo” exercise and see whether the petitioner (Singapore entity) contending no income whatsoever chargeable to tax accrues or arises in India holds merit.

“A non-resident purchasing shares of an Indian company could have an Indian tax liability only in a situation where it either withholds tax on payment to the non-resident seller or where it pays less than the tax book value of the shares to the seller,” explained Rajesh Gandhi, partner, Deloitte.

“… the order passed under Section 148A(d) of the Act adopts a broad-brush approach, and does not deal with the central issue and other issues raised in the objections preferred by the petitioner,” the court order said.

“The judgment could have implications on tax benefit under India-Singapore DTAA (Double Taxation Avoidance Agreement) with respect to investment in India and sufficiency of Tax Residency Certificate (TRC), said Amit Maheshwari , managing partner, AKM Global.

The assessee contended that no income was accrued or arisen in India, the subject transaction is a capital account transaction, and that the remittance was made to the seller after adjusting the withholding tax, as ascertained by the respondent (revenue dept).

On the other hand, the revenue department argued that this is a case where the petitioner chose not to file a return, and therefore in terms of Explanation 2 to Section 147 of the Act, the factum of non-filing of return would by force of law result in deeming escapement of income.

The department also pointed out that the requirement for filing a return of income, which is set forth in Section 139 of the Act, has to be read in the case of the petitioner along with Section 115A of the Act being a non-resident company.