Facts of the Case

The Revenue filed an appeal under Section 260A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal which had set aside a revisionary order passed by the Commissioner of Income Tax under Section 263 for Assessment Year 2017-18. The assessee, a company incorporated in Singapore and a tax resident thereof, had claimed benefits under the India–Singapore Double Taxation Avoidance Agreement (DTAA) and asserted that it had no Permanent Establishment (PE) in India.

 

Issues Involved

  1. Whether the Commissioner of Income Tax was justified in invoking revisionary jurisdiction under Section 263 of the Act.
  2. Whether the Assessing Officer’s order was erroneous and prejudicial to the interest of the Revenue due to lack of enquiry.
  3. Whether allegations of treaty shopping and conduit arrangement could be sustained without granting the assessee an opportunity of rebuttal.
  4. Whether any substantial question of law arose from the ITAT’s order.

 

Petitioner’s (Revenue’s) Arguments

  • The Assessing Officer failed to conduct proper enquiries regarding the existence of a Permanent Establishment in India.
  • The AO did not examine whether the income was taxable as Fees for Technical Services under Section 9(1)(vii) of the Act.
  • The assessee was allegedly structured as a conduit company for treaty shopping to avail benefits of the India–Singapore DTAA.
  • The ITAT erred in allowing the assessee’s appeal without appreciating that treaty benefits must be examined year-to-year.

 

Respondent’s (Assessee’s) Arguments

  • The revisionary order was passed without granting the assessee an opportunity to rebut serious allegations of being a conduit entity.
  • The Show Cause Notice under Section 263 merely alleged lack of enquiry by the AO and did not put the detailed findings of treaty shopping to the assessee.
  • The Assessing Officer had conducted enquiries and accepted the returned income after due consideration.
  • The ITAT correctly held that the revisionary proceedings were vitiated due to breach of principles of natural justice.

 

Court Order / Findings

  • The Court observed that although the Show Cause Notice alleged lack of enquiry, the final order under Section 263 proceeded on detailed findings of treaty shopping and tax avoidance.
  • The assessee was not afforded an opportunity to rebut the Commissioner’s conclusions regarding being a conduit company without commercial substance.
  • The ITAT was correct in holding that the revisionary order was vitiated due to violation of natural justice.
  • The Court found no infirmity in the ITAT’s decision.

 

Important Clarification

The High Court clarified that while the Commissioner may initiate revisionary proceedings for lack of enquiry, substantive findings such as treaty shopping and tax avoidance cannot be recorded without first putting such allegations to the assessee and granting a proper opportunity of rebuttal.

 

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court held that no substantial question of law arose and upheld the ITAT’s order setting aside the revisionary order passed under Section 263 of the Income Tax Act, 1961.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770114604_THECOMMISSIONEROFINCOMETAXINTERNATIONALTAXATION3VsZEBRATECHNBOLOGIESASIAPACIFICPET.LTD..pdf 

 

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