Facts of the Case

The petitioner, a non-resident entity, purchased shares of an Indian company, namely Agile Electric Sub-Assembly Pvt. Ltd. The transaction involved payment to various sellers, including a resident seller, after deduction of tax at source as determined by the revenue authorities under a certificate issued under Section 197.

Subsequently, the Assessing Officer (AO) passed an order under Section 148A(d) and issued a notice under Section 148 alleging escapement of income on account of the said transaction.

Issues Involved

  1. Whether the share acquisition transaction constituted a capital account transaction not chargeable to tax in India.
  2. Whether reassessment proceedings under Sections 148 and 148A(d) were validly initiated.
  3. Whether non-filing of return by a non-resident automatically leads to deemed escapement of income under Explanation 2 to Section 147.
  4. Whether provisions of Sections 139 and 115A are applicable to the petitioner.

Petitioner’s Arguments

  • The transaction in question was a capital account transaction, and no income accrued or arose in India.
  • Payment to the seller was made after deduction of withholding tax, which had already been determined by the revenue under Section 197.
  • There was no allegation of round-tripping, eliminating any basis for reassessment.
  • Initiation of reassessment proceedings was without jurisdiction.
  • Reliance was placed on Nestle SA vs ACIT (Delhi High Court) to support the contention.

Respondent’s Arguments

  • The petitioner had not filed a return of income, which, under Explanation 2 to Section 147, leads to deemed escapement of income.
  • Filing requirements under Section 139 must be read along with Section 115A in the case of a non-resident entity.
  • However, it was fairly conceded that the impugned order under Section 148A(d) did not adequately address the objections raised by the petitioner.

Court Findings / Judgment

  • The Assessing Officer failed to examine the core issue—whether the transaction was a capital account transaction.
  • There was no allegation of round-tripping, which is significant in determining taxability.
  • The impugned order adopted a broad-brush approach and did not deal with key objections raised by the petitioner.
  • There was no reference to Section 115A in the show-cause notice or the impugned order.

Final Order

  • The order under Section 148A(d) and notice under Section 148 were set aside.
  • The matter was remanded for fresh adjudication (de novo).
  • AO was directed to:
    • Consider petitioner’s submissions on capital transaction nature
    • Provide personal hearing
    • Pass a reasoned (speaking) order

Important Clarifications

  • Mere non-filing of return by a non-resident does not automatically justify reassessment without examining taxability.
  • AO must apply mind to nature of transaction (capital vs revenue) before invoking reassessment provisions.
  • Orders under Section 148A(d) must be reasoned and deal with objections specifically.
  • Applicability of Section 115A to non-residents requires independent examination.

Sections Involved

  • Section 147 – Income Escaping Assessment
  • Section 148 – Issue of Notice for Reassessment
  • Section 148A(d) – Order for Initiation of Reassessment
  • Section 139 – Filing of Return of Income
  • Section 115A – Tax on Non-Residents
  • Section 197 – Certificate for Lower/Nil TDS 

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS18012023CW5722023_164526.pdf

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