Ingram Micro India Ltd vs Deputy Commissioner Of ...
2011 Latest Caselaw 142 Bom

                                   1                         WP 285.11.sxw

    JPP




                                                                      
          IN THE HIGH COURT OF JUDICATURE AT BOMBAY
             ORDINARY ORIGINAL CIVIL JURISDICTION




                                              
                 WRIT PETITION NO. 285 OF 2011

    Ingram Micro India Ltd.
    (Formerly known as Tech Pacific India Ltd.),




                                             
    Mumbai.                                        ... Petitioner.

          V/s.




                                      
    Deputy Commissioner of Income-tax,
    Central Range & Anr.                           ... Respondents.
                       
    Mr. Jahangir Mistry, Senior Advocate with Mr. N.J. Thakkar and
    Mr. Atul Jasani for the Petitioner.
    Mr. B.M. Chatterjee for the Respondents.
                      
                        CORAM : DR. D.Y. CHANDRACHUD &
                                    A.A. SAYED, JJ.

30 NOVEMBER 2011.

ORAL JUDGMENT (Per Dr. D.Y. Chandrachud,J.) :-

Rule, by consent returnable forthwith. With the consent

of Counsel and at their request the Petition is taken up for

hearing and final disposal.

2. This Petition under Article 226 of the Constitution has

been instituted in order to challenge an order passed by the

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Deputy Commissioner of Income Tax (OSD-II), Mumbai under

Section 163 (2) of the Income Tax Act, 1961. By the impugned

order, the assessee has been treated as an agent of a

Company based in Bermuda by the name of Techpac Holdings

Ltd. Consequently, capital gains in the hands of the Foreign

Company in the amount of Rs.575.39 crores are proposed to

be assessed in the hands of the Petitioner as an agent under

Section 163 of the Income Tax Act, 1961 for Assessment Year

2005-06.

3. The shares of Techpac Holdings Ltd. - a Bermudian

Company, were held by non-resident shareholders being

private equity funds and by a few resident shareholders. The

Bermudian Company held under its fold several operating

companies in Australia, New Zealand and Thailand and a

holding company named Tech Pacific Asia Ltd. (a Company

registered in the British Virgin Islands). Tech Pacific Asia Ltd.

held holding and/or operating companies in Mauritius, Hong

Kong, Malaysia and Singapore. A Mauritian subsidiary of Tech

Pacific Asia Ltd. had a subsidiary in India by the name of Tech

Pacific (India) Ltd. The Indian Company had a fully owned

subsidiary based in Singapore. Thus, in this manner by a

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pattern of interconnected holdings the Techpac Group

consisted of over 20 companies in 13 different countries.

4. The Techpac group was a technology distributor in the

Asia Pacific Region with an extensive presence inter-alia in

India. Ingram Micro Inc., a company incorporated in the U.S.

was a technology distributor with a presence in the worldwide

information technology industry. Ingram Micro Asia Holdings

(a U.S. based company) held a subsidiary in India by the name

of "Ingram Micro India Private Limited". In 2004, Ingram Micro

Asia Holdings Inc. acquired shares of the Bermudian Company

under a Share Purchase Agreement, Those shares were

transferred on 10 November 2004. Pursuant to the acquisition,

the Indian entity of the Ingram Group merged into the Indian

entity of the Tech Pacific Group. The name of the Indian

subsidiary was changed to its present name, namely, the

Petitioner to these proceedings.

5. Search and seizure proceedings were carried out at the

premises of the Petitioner on 17 September 2007. During the

course of the search, an Annual Report of Ingram Micro Inc.

for 2005 was recovered. The report referred to the acquisition

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of shares of Techpac Holdings Ltd. The First Respondent

issued a notice dated 22 November 2010 to the Petitioner

stating that the Petitioner was an agent of the Bermudian

Company in respect of the capital gains arising to Techpac

Holdings Ltd. on the transfer of its own shares in the previous

year relevant to Assessment Year 2005-06. The notice recites

that Ingram Micro Inc. had acquired shares of the Bermudian

Company for a consideration of Australian Dollars 730 million

on 10 November 2004. ig The take over of the Bermudian

Company would, according to the notice, involve a take over

of the Indian Company. This, according to the notice, resulted

in capital gains arising in India on the transfer of assets of the

Indian Company. In these circumstances, the Petitioner was

treated as an agent under Section 163 of the Bermudian

Company.

6. The Petitioner challenged the notice initially in Writ

proceedings under Article 226 of the Constitution. By an

order dated 7 December 2010, a Division Bench disposed of

the Petition on a statement by Counsel for the Revenue that

the proceedings in the notice would be disposed of after

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furnishing a personal hearing to the Petitioner and that if an

order adverse was passed it would not be given effect to for a

period of four weeks. The First Respondent has passed an

order dated 14 January 2011 which is impugned in these

proceedings. By the impugned order the First Respondent has

held that there is a business connection between the

Petitioner and the Bermudian Company. The Overseas

Company has been held to have a 23% business interest in

the India operations. The accrual of capital gains in the hands

of the Bermudian Company is proposed to be assessed in the

hands of the Petitioner under Section 163 in the amount of Rs.

575.39 crores for Assessment Year 2005-06.

7. Counsel appearing on behalf of the Petitioner has

assailed the order that was passed under Section 163 on two

grounds; (1) Firstly, it has been urged that under Section

160(1)(i), a representative assessee is defined to mean, in

respect of the income of a non-resident specified in sub-

Section (1) of Section 9, the agent of the non-resident,

including a person who is treated as an agent under Section

163. In other words, a person can be treated as a

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representative assessee in respect of the income of a non-

resident specified under Section 9(1). In the present case,

what is sought to be brought to tax is a capital gain arising

upon a transfer of shares of the Bermudian Company from the

existing shareholders to the transferee shareholders. The

submission is that no part of the consideration for the transfer

of shares has flowed to the Bermudian Company and as a

matter of first principle, income representing capital gains

arising out of the transfer of shares can accrue or arise only to

the transferor and not to the company whose shares are

transferred. There was no accrual of income to the Bermudian

Company nor did any consideration flow to it. Hence, the

Petitioner cannot be treated as a representative assessee

under Section 160(1)(i); (2) The notice which has been issued

under Section 163 is ex-facie barred by limitation. Under

Section 149(3) a notice for assessment was required to be

served upon the Petitioner within two years of the expiry of

the relevant Assessment Year. The relevant Assessment Year

being 2005-06, such a notice ought to have been issued on or

before 31 March 2008. The First Respondent has relied upon

the provisions of Section 153(b). Reliance on those provisions of

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Section 153(b) cannot be said to obviate the bar of limitation

in this case because the search was of the Indian Company

and not of the person who is sought to be assessed. The

assessment of the Indian Company is a separate assessment

altogether and in the present case, the assessment is of the

income of the non-resident. The Petitioner being treated as

an agent of the non-resident Bermudian Company, the

limitation for initiating proceedings would expire on 31 March

Assessment Year.

2008 which was two years of the end of the relevant

The notice which was issued on 22

November 2010 was barred by limitation. Learned Counsel

submitted that Section 149 of the Income Tax Act, 1961

provides for a period of limitation on the initiation of

assessment proceedings following the order under Section

163. The assessment proceedings would ex-facie be barred

upon the expiry of two years by virtue of Section 149(3).

8. Having heard Counsel appearing on behalf of the

Petitioner, we were prima facie of the view that the objection

on the ground of limitation would have to be sustained.

Consequently, we have called upon Counsel appearing on

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behalf of the Revenue to address submissions on that aspect

of the matter. If the proceedings are barred by limitation,

then, it would not be necessary for the Court to determine

issues wider than those that are strictly necessary for disposal

of the proceedings. Counsel appearing on behalf of the

Revenue has relied upon the observations contained in

paragraphs 15.1 and 15.2 of the impugned order in support of

the submissions that the proceedings are not barred by

limitation. No further submissions have been urged.

9. Clause (i) of sub-Section (1) of Section 160 provides that

for the purposes of the Act, "representative assessee" means -

in respect of the income of a non-resident specified in sub-

Section (1) of Section 9, the agent of the non-resident

including a person who is treated as an agent under Section

163. Section 163 of the Income Tax Act, 1961 stipulates that

for the purposes of this Act, "agent", in relation to a non-

resident includes any person in India - (a) Who is employed by

or on behalf of the non-resident; or (b) Who has any business

connection with the non-resident; or (c) From or through

whom the non-resident is in receipt of any income, whether

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directly or indirectly; or (d) Who is the trustee of the non-

resident and includes also any other person who, whether a

resident or non-resident, has acquired by means of a transfer,

a capital asset in India. Sub-section (2) of Section 163

provides that no person shall be treated as the agent of a non-

resident unless he has had an opportunity of being heard by

the Assessing Officer as to his liability to be treated as such.

What needs emphasis is that under Clause (i) of Section

160(1) a person is treated as a representative assessee in

respect of the income of a non-resident where he is either an

agent or a person who is treated as an agent under Section

163. Therefore, it is in respect of the income of the non-

resident that a person is treated as a representative assessee.

The income which is sought to be brought to tax is the income

of the non-resident, in the hands of the representative

assessee. By the impugned order, the First Respondent has

held the Petitioner to be an agent of the non-resident under

Section 163. Following an order under Section 163(2), a

notice is liable to be issued under the provisions of Section

148. Under sub-Section (3) of Section 149 if the person on

whom a notice is issued under Section 148 is a person treated

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as the agent of a non-resident under Section 163 and the

assessment, re-assessment or re-computation to be made in

pursuance of the notice is to be made on him as the agent of

such non-resident, the notice shall not be issued after the

expiry of a period of two years from the end of the relevant

Assessment Year. The relevant Assessment Year to which the

proceedings relate is 2005-06. Clearly, the plain consequence

of the provisions of Section 149(3) is that no assessment, re-

assessment or re-computation can take place after 31 March

2008. The notice under Section 163 is in aid of the action of

the Revenue in bringing to tax the capital gains arising out of

the transfer of shares of the Bermudian Company because

according to the Revenue, this involved the transfer of a

capital asset in India. The First Respondent, in our view, was

clearly in error in relying upon the provisions of Section

153(b). The search and seizure operation took place in

respect of the Indian company but it is an admitted position

that what is sought to be brought to tax as capital gains are

capital gains alleging to accrue to the Bermudian company.

The Petitioner is treated as a representative assessee on the

finding that it is an agent within the meaning of Section 163.

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In other words, what is brought to tax in the hands of the

Petitioner is the capital gains which are stated to accrue to the

Bermudian company. The provisions of Section 153(b) would

therefore clearly not have any application. The judgment of

the Supreme Court in Claggett Brachi Co. Ltd., London

V/s. Commissioner of Income-Tax1 dealt directly with

Section 149(3). Chief Justice R.S. Pathak observed that "The

issue of notice under Section 148 of the Act to the agent after

the expiry of two years from the end of the relevant

assessment year is prohibited by the statute."2 In that case,

the Income Tax Officer had issued notice to the agents of the

assessee whereupon the agent took the defence of Section

149(3). The Income Tax Officer upheld their objection and

dropped the proceedings since it was time barred. The

Supreme Court held that the Officer had acted correctly in

quashing the reassessment of the agent, since the provisions

of Section 149(3) must be strictly construed. Thereafter, the

Court went on to hold that this would not preclude the

revenue from reassessing the assessee - merely because the

revenue had taken out assessment proceedings against the

1 (1989) 2 SCR 731 at 736.

2 Id., at 736.

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agent of the assessee, which were dropped due to limitation

restrictions, the revenue would not be precluded from taking

out assessment proceedings against the assessee. Thus, the

Supreme Court affirmed the duty of the Income Tax Officer to

drop the proceedings against the agent of the assessee in that

case, due to the strict wording of Section 149(3). In our view,

the proceedings which were initiated by the First Respondent

were clearly beyond limitation.

10.

In the view which we have taken, it is not necessary for

the Court for the purposes of these proceedings to express

any opinion on the first submission which has been addressed

before the Court on behalf of the Petitioner. We accordingly

allow the Petition by quashing and setting aside the impugned

order under Section 163. Rule is made absolute in these

terms. No order as to costs.

(Dr. D.Y. Chandrachud, J.)

(A.A. Sayed, J.)