VBC 1/9 wp376.12-1.2.13 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. WRIT PETITION NO.376 OF 2012 NTUC Income Insurance Co-operative Ltd. Petitioner. Vs. The [ENTITY] & Anr. Respondents. Mr.[ENTITY], Senior Advocate with Mr.[ENTITY] for the Petitioner. Mr.[ENTITY] for the Respondents. CORAM : [ENTITY] AND A.A.SAYED, JJ. February 1, 2013. ORAL JUDGMENT (PER [ENTITY], J.) :
By these proceedings under [SECTION] of the [ACT], the Petitioner has challenged a notice that was issued by the First Respondent on 7 September 2007, seeking to reopen an assessment for A.Y. 2005-06 under [SECTION] of the [ACT].
2. The Petitioner filed a return of income on 28 October 2005 for A.Y. 2005-06, claiming that its net business income of Rs.10.44 crores was not taxable in India, in view of [SECTION] of the [ACT]. An intimation was issued to the Petitioner under [SECTION]. On 23 August 2007, the Senior Audit Officer in a communication to the First Respondent stated that the computation of income showed that the Petitioner had short term capital gain of Rs.10.21 crores which was treated as business income and held not to be taxable, under [SECTION] of the [ACT]. The audit VBC 2/9 wp376.12-1.2.13 objection noted that the Petitioner is a Foreign Institutional Investor and under [SECTION], the capital gain was liable to be brought to tax. But, the acceptance of the return has resulted in a short levy of tax. In reply, the Assistant Director of Income Tax (IT) 3(2), Mumbai, stated that the Assessing Officer had no power to make an addition or adjustment in the return of income in which assessment was completed under [SECTION].
3. On 7 September 2007, a notice was issued to the Petitioner under [SECTION]. By a letter dated 12 October 2007, the Petitioner requested the Assessing Officer to provide the reasons recorded for reopening the assessment in terms of the judgment of the Supreme Court in [PRECEDENT] On 15 October 2007, the ADIT (International Taxation)-3(2), Mumbai, furnished a copy of the reasons. The reasons which have been recorded advert to the provisions of [SECTION] and state as follows:
"6. The assessee is registered with SEBI as Foreign Institutional Investor for the purpose of investment and not for carrying any business in India. The assessee has purchased and sold the shares which fall under the definition of securities and also the assessee is foreign institutional investor. Therefore, the income earned by the assessee on sale of shares is to be assessed under the head capital gains instead of business income as claimed by the assessee. As per [SECTION] of [ACT] between India and Singapore, "the gains from the alienation of shares other than those mentioned in paragraph 4 in a company which is a resident of a Contracting State may be taxed in that State."
-7. Therefore, the capital gains earned by the assesee is to be taxed in India as per the provisions of [SECTION] of the [ACT] read with [SECTION] of the [ACT] between India and Singapore. Further, it is also necessary to mention here that all the Foreign Institutional 1 (2003) 259 ITR 19 VBC 3/9 wp376.12-1.2.13 Investors earning the income on sale of shares in India are filing the return of income declaring the income under the head 'capital gains' and paying taxes thereon. Thus, the income earned by the assessee is to be assessed under the head capital gains instead of business income as claimed by the assessee.
-8. In this case intimation u/[SECTION] of the [ACT] was issued on 08.12.2006. However, since all the ingredients of [SECTION] are fulfilled, the assessment is being reopened u/[SECTION] of the [ACT]. Further reliance is placed on the judgment of Hon'ble Supreme Court in the case of [PRECEDENT].
-9. In view of the above stated facts, I have reason to believe that the income of Rs.10,44,30,416/- chargeable to tax under the head 'Capital Gains' has escaped assessment for the assessment year 2005-06. Accordingly, the assessment for A.Y. 2005-06 is reopened and notice u/[SECTION] of the [ACT], is issued."
4. A notice was issued to the Petitioner on 7 January 2008 under [SECTION] to appear before the Assessing Officer to explain certain issues in connection with the return of income submitted on 12 October 2008 for A.Y. 2005-06. On 7 January 2008, the DDIT (International Taxation) -4(2) responded to the earlier communication of the Petitioner dated 12 October 2007 and furnished a copy of the reasons recorded for reopening the assessment. The communication stated that no approval was required for the reopening of the assessment and that all the requisitions of the Petitioner in terms of the decision of the Supreme Court in GKN Driveshafts have been met.
5. Following the reopening of the assessment, there was an exchange of correspondence between the Senior Audit Officer and the DDIT (IT)-4 (2) on 22 July 2008 and 8 July 2008, the latter pointing out that even if VBC 4/9 wp376.12-1.2.13 the profit arising from the purchase and sale of shares was taken as a capital gain, the resultant capital gain was exempt under [SECTION] of the [ACT].
6. On 5 February 2008, the Petitioner while responding to the communication dated 7 January 2008, objected to the initiation of the proceedings under [SECTION] inter alia on the ground that the return of income was accepted by furnishing an intimation under [SECTION] and that there was merely a change of opinion on the part of the Assessing Officer. By a letter dated 11 August 2008, the Petitioner requested the Assessing Officer to address the objections raised to the reopening of the assessment by a speaking order.
7. The Assessing Officer passed an order of assessment under [SECTION] on 29 December 2008. The Assessing Officer held that the total income of Rs.10.44 crores was liable to be brought to tax under the head of "capital gains". The Assessing Officer held that under [SECTION] of the [ACT] between India and Singapore, gain from the alienation of the shares of the capital stock of a Company, the property of which principally consists of immovable property situated in a contracting State may be taxed in that State. Yet despite having noted this, the Assessing Officer came to the conclusion that the taxable income of the Petitioner was nil and accordingly made an order of assessment.
8. On 25 January 2011, a notice was served on the Petitioner under [SECTION] principally on the basis that while completing the assessment [CASE NUMBER] under [SECTION] on 29 December 2008, the Assessing Officer had erred in allowing to the Petitioner the benefit of [SECTION] of the [ACT]. By an order dated 18 March 2011, the Director of Income Tax (International Taxation)-II, Mumbai, held that there was an error in the order of assessment passed under [SECTION] and the reasons recorded were contrary to the findings given in the assessment order. The case was consequently restored back to the Assessing Officer to re-frame the assessment de novo. On 4 November 2011, after the order under [SECTION], the Petitioner addressed a letter to the Deputy Director of Income Tax (International Taxation)-4(2) stating that in view of the judgment of the Supreme Court in GKN Driveshafts, the objections of the Petitioner to the reopening of the assessment should be disposed of.
9. The submission which is urged on behalf of the Petitioner is that under the judgment of the Supreme Court in GKN Driveshafts, the Assessing Officer is required to record reasons for reopening the assessment which have to be furnished to the assessee; and on receipt of the reasons, the assessee is entitled to file objections which have to be disposed of by the Assessing Officer by a speaking order before he proceeds to make an assessment. In the present case, it was urged, no order was passed by the Assessing Officer disposing of the objections. Counsel urged that since the Assessing Officer had by his order dated 29 December 2008 arrived at the finding that the taxable income was nil, there was no occasion for the Petitioner to challenge the action of the Assessing Officer in not disposing of VBC 6/9 wp376.12-1.2.13 the objections before proceeding to make an assessment. Since in exercise of the power conferred by [SECTION], the case has been restored to the Assessing Officer for a fresh assessment, the Petitioner, it is urged, is restored to the same position as it existed before the order of the assessment was passed and hence, the Assessing Officer is duty bound to dispose of the objections of the Petitioner to the reopening of the assessment before proceeding to make an assessment.
10. Affidavits in reply and rejoinder have been filed in these proceedings. The record before the Court would indicate that the reasons for reopening the assessment were disclosed to the Petitioner initially by a letter dated 15 October 2007 of the DDIT (International Taxation)-3(2), Mumbai and once again on 7 January 2008 by a communication of the DDIT (International Taxation)-4(2), Mumbai. The latter communication specifically intimated to the Petitioner that "requisitions in terms of the decision of the Supreme Court in the case of GKN Driveshafts" as referred "have, therefore, been met with".
At that stage, the Petitioner did not file any proceeding before this Court under [SECTION] of the [ACT] for espousing the grievance that the Assessing Officer had not passed a formal order on the objections of the Petitioner against the reopening of the assessment. As the record would indicate, the Assessing Officer had issued a notice under [SECTION] to the Petitioner in connection with the assessment proceedings. The order of assessment dated 29 December 2008 records that in pursuance of the notice that was issued under [SECTION] and [SECTION], the representative of the Petitioner attended the proceedings before the Assessing Officer, filed [CASE NUMBER] details which were on record and that the case was heard and discussed.
Even during the pendency of the assessment proceedings, the Petitioner did not move this Court with the grievance that a speaking order disposing of its objections to the reopening of the assessment had not been passed.
Following the disclosure of reasons on 15 October 2007 and again on 7 January 2008 for reopening the assessment, nearly a year elapsed before an order of assessment was made on 29 December 2008. No steps were taken to move this Court, if the Petitioner had any subsisting grievance that its objections to the reasons for reopening were not dealt with by a speaking order. The Petitioner chose to stand by and wait until an order of assessment was passed on 29 December 2008. When proceedings were initiated under [SECTION], the order of the Director of Income Tax (International Taxation)-II dated 18 March 2011 would indicate that it was the contention of the Petitioner that sufficient time had not been provided to furnish details before the Assessing Officer during the proceedings. Now, it is in this background, that the Director of Income Tax, while restoring the proceedings back to the Assessing Officer observed as follows:
"On 03.03.2011, the assessee's representatives Shri [ENTITY] and Ms.[ENTITY] from M/s.BSR & Co. attended the proceedings During the proceedings they have stated that they did not get enough time to provide the details during the proceedings. As per the discussions, the case is restored back to file of the A.O. to reframe the assessment de novo, after giving fresh opportunity to the assessee."
11. The Petitioner participated in the proceedings before the Assessing Officer which resulted in the order of assessment dated 29 December 2008. In the proceedings, pursuant to the notice under [SECTION] wp376.12-1.2.13 263, the Petitioner urged that it had not been provided enough time to furnish details during the proceedings and it was on this basis that the proceedings were remitted back to the Assessing Officer for fresh consideration. In that view of the matter, following the order under [SECTION], the proceedings have been restored to the Assessing Officer to frame a fresh assessment order de novo after affording the Petitioner an opportunity of being heard.
There is no merit in the contention of the Petitioner that the Assessing Officer must now first dispose of its objections to the reopening of the assessment before proceeding to frame an assessment. The proceedings have been restored before the Assessing Officer for passing a fresh order of assessment. It is now too late in the day for the Petitioner to assert that its objections to the reasons on the basis of which the assessment is sought to be reopened must be addressed at this stage. The Petitioner was aware as far back as on 7 January 2008 that the Assessing Officer had taken the view that the requirements set out in GKN Driveshafts have been fulfilled. If the Petitioner had any grievance, it was necessary for it to move the Court at that stage. The Petitioner participated in the assessment proceedings and cannot now set the clock back.
12. At the same time, we clarify that we have not expressed, in these proceedings, a finding on the merits of the rival contentions on whether any addition to the taxable income is liable to be made in the assessment proceedings. Having perused the reasons on the basis of which the assessment is sought to be reopened, we hold that the Assessing Officer has not acted outside his jurisdiction while issuing a notice under [SECTION] of [SECTION] wp376.12-1.2.13 the [ACT]. At this stage, the issue is not whether it can conclusively be held that income has escaped assessment, but only whether there is reason to believe on the part of the Assessing Officer that income has escaped assessment. This would not, therefore, be an appropriate stage for the Court under [SECTION] of the [ACT] to launch upon an evaluation of the merits of the contentions of the Petitioner in regard to the assessment proceedings.
13. For these reasons, no case for interference has been made out.
The petition shall accordingly stand dismissed. There shall be no order as to costs.
( Dr.[ENTITY], J.) ( [ENTITY], J. )