Facts of the Case

The petitioners, Cairnhill CGPE Limited and Cairnhill CIPEF Limited, had purchased shares of Mankind Pharmaceuticals Limited from Monet Limited, a Mauritius-based entity. The transaction was governed by a Share Purchase Agreement dated 31.03.2015.

Monet Limited claimed exemption from capital gains tax under Article 13(4) of the India–Mauritius Double Taxation Avoidance Agreement (DTAA). The Assessing Officer accepted this claim and completed assessment under Section 143(2) of the Income Tax Act 1961.

Subsequently:

  • Monet Limited was dissolved in 2018
  • The Commissioner initiated proceedings under Section 263, alleging tax avoidance
  • Petitioners were treated as “representative assessees” under Section 163
  • Notice dated 26.03.2021 and order dated 27.03.2021 were issued

The Income Tax Appellate Tribunal (ITAT) later quashed the Section 163 order on 19.12.2022.

Issues Involved

  1. Whether the petitioners could be treated as “representative assessees” under Section 163.
  2. Whether proceedings under Section 263 could survive after quashing of the Section 163 order.
  3. Whether writ petitions are maintainable when relief has already been granted by the Tribunal.

Petitioner’s Arguments

  • The Section 163 order was invalid and had already been quashed by the ITAT.
  • Once the foundational order (Section 163) is set aside, subsequent proceedings under Section 263 cannot survive.
  • The writ petitions challenge actions that are already rendered ineffective by the Tribunal’s decision.

 Respondent’s Arguments

  • The share transaction was a tax avoidance arrangement designed to evade Indian taxes.
  • The Assessing Officer’s acceptance of DTAA exemption was erroneous and prejudicial to revenue.
  • Petitioners were correctly held jointly and severally liable as representative assessees.

 Court Findings / Order

  • The ITAT had already quashed the Section 163 order.
  • Since Section 163 formed the foundation for invoking Section 263, its removal nullifies subsequent proceedings.
  • Applying the legal principle “Sublato fundamento cadit opus” (removal of foundation destroys the structure), the Court found no surviving cause of action.

Final Order

  • Writ petitions were disposed of
  • Liberty granted to petitioners to seek remedy if Revenue files further appeal

 Important Clarification

  • The Court clarified that it cannot quash an order which has already been quashed by the Tribunal.
  • Petitioners may pursue remedies only if further appellate proceedings arise.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/60825072023CW97102023_121136.pdf

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