Facts of the Case

  • The petitioners 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 DTAA, which was accepted by the Assessing Officer.
  • Subsequently, Monet Limited was dissolved around 2018.
  • The Revenue issued notice under Section 263 alleging the transaction to be a tax avoidance arrangement.
  • The petitioners were treated as “representative assessees” under Section 163 and held jointly and severally liable.
  • The Income Tax Appellate Tribunal (ITAT) quashed the order under Section 163.

Issues Involved

  1. Whether the petitioners could be treated as representative assessees under Section 163 of the Income Tax Act.
  2. Whether proceedings under Section 263 could be sustained when the foundational order under Section 163 was quashed.
  3. Whether writ petitions are maintainable when the impugned order has already been set aside by the Tribunal.

Petitioner’s Arguments

  • The petitioners challenged the validity of the notice dated 26.03.2021 and order dated 27.03.2021 under Section 163.
  • It was contended that once the ITAT quashed the Section 163 order, the foundation of subsequent proceedings ceased to exist.
  • The petitioners argued that treating them as representative assessees was unjustified in law.

Respondent’s Arguments

  • The Revenue contended that the share transfer transaction was a tax avoidance arrangement.
  • It relied on Section 263 to revise the assessment order as erroneous and prejudicial to the interest of revenue.
  • The petitioners were held jointly and severally liable as representative assessees of Monet Limited.

Court’s Findings / Order

  • The Court noted that the ITAT had already quashed the order passed under Section 163 of the Act.
  • Since the foundational order was set aside, the superstructure (proceedings under Section 263) could not survive.
  • The Court held that writ petitions would not lie in such circumstances as the relief sought had already been granted by the Tribunal.
  • The writ petitions were disposed of with liberty to the petitioners to take appropriate steps if Revenue files an appeal.

Important Clarification

  • The principle “Sublato fundamento cadit opus” (when foundation is removed, structure falls) was effectively applied.
  • Once the Section 163 order was quashed, proceedings under Section 263 automatically lost validity.
  • The High Court clarified that it cannot quash an order that already stands quashed by the Tribunal.

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

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