Bombay High Court
Techpac Holdings Limited vs The Deputy Commissioner Of Income ... on 18 March, 2016
Bench: M.S. Sanklecha
WP241.14.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.241 OF 2014
Techpac Holdings Ltd.,
Hamilton HM11, Bermuda ... Petitioner
v/s
The Dy. Commissioner of Income
Tax (OSD-II), Mumbai 400 020
and another ... Respondents
Mr J.D. Mistry, Sr. Counsel with Mr Madhur Agarwal i/b Mr
Atul K. Jasani for Petitioner.
Mr A.R. Malhotra with Mr N.A. Kazi for Respondents.
CORAM: M.S. SANKLECHA AND
B.P. COLABAWALLA JJ.
Reserved On : 3rd March, 2016
Pronounced On: 18th March, 2016
JUDGMENT [ Per B. P. Colabawalla, J ]:-
1. This Petition under Article 226 of the Constitution of
India challenges the Assessment Order dated 25th March, 2013
passed by Respondent No.1 [Dy. Commissioner of Income Tax
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(OSD-II), Mumbai] in relation to A.Y. 2005-06. This Assessment
Order was passed under section 144 read with section 147 of
the Income Tax Act, 1961 (for short, "the Act"). By this
Assessment Order, Respondent No.1 has inter alia held that a
sum of Rs.575.39 crores is the capital gains in the hands of the
Petitioner arising out of a transfer of a capital asset in India.
Accordingly, a demand of Rs.697.94 crores has been raised on
the Petitioner as and by way of captial gains tax which is
inclusive of interest etc under different provisions of the Act.
2. In this Petition, rule was issued on 23rd June, 2014
and interim relief in terms of prayer clause (d) was granted.
Thereafter, a request was made on behalf of the Revenue that
the Writ Petition be taken up out of turn as the total tax impact
in the present proceedings was a very large sum. In this view of
the matter, this Writ Petition is taken up for hearing and final
disposal.
3. The two principal grounds of challenge to the
impugned Assessment Order are that:-
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(i) none of the notices [viz. under sections 148,
142(1) or 143(2) of the Act] were ever served
on the Petitioner which is a company
incorporated under the laws in Bermuda.
Since service of these notices was mandatory
before any Assessment Order could be passed
under section 144 of the Act, the impugned
Assessment Order is wholly without
jurisdiction; and
(ii) that in any event, the notice issued under
section 148 of the Act and which finally led to
the Assessment Order being passed under
section 144 of the Act, was wholly without
jurisdiction as Respondent No.1 could not have
any reason to believe that income chargeable
to tax had escaped assessment. This argument
is canvassed on the basis that admittedly the
Petitioner is not a transferor of any capital
asset in India and hence there was no question
of levying any capital gains tax on the
Petitioner.
4. It is therefore the case of the Petitioner that the
impugned Assessment Order is wholly without jurisdiction and
it is in these circumstances that the Petitioner has sought to
justify invocation of our writ jurisdiction under Article 226 of
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the Constitution of India without first exhausting the statutory
remedies available to it under the Act for challenging the
impugned Assessment Order.
5. To understand the present controversy, it would be
necessary to refer to some relevant facts which are as under:-
(a) The Petitioner is a company incorporated under the
laws of Bermuda and is the holding company of the
entire Techpac Group. Respondent No.1 is the
Deputy Commissioner of Income Tax (OSD-II) who
has passed the impugned Assessment Order dated
25th March, 2013 under section 144 of the Act for
A.Y. 2005-06 inter alia holding that the Petitioner is
liable to pay capital gains tax on a sum of Rs.575.39
crores. Respondent No.2 is the Union of India and is
the employer of Respondent No.1.
(b) It is an undisputed position that the shares of the
Petitioner company (equity as well as preferential)
were held by certain non-resident as well as resident
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shareholders. The bulk of the shareholding was held
by three private equity funds viz. CVC Capital
Partners Asia Pacific LP, Asia Investors LLC, and
Hagemeyer Caribbean Holding NV. The Petitioner is
a holding company and has under its fold several
operating companies in Australia, New Zealand and
Thailand including a company called Tech Pacific
Asia Ltd., a company registered in the British Virgin
Islands.
In turn, Tech Pacific Asia Ltd. was the
holding company of Techpac Mauritius Ltd. as well
as other operating companies in Hong Kong,
Malaysia and Singapore. Techpac Mauritius Ltd.
was in turn the holding company of an Indian
subsidiary by the name of Tech Pacific (India) Ltd.
(hereinafter referred to as "Tech Pacific India").
This Indian subsidiary in turn was the holding
company of Tech Pacific India (Exports) Pte. Ltd.,
which was a company incorporated in Singapore.
All the aforesaid companies (over 20 Companies in
13 different countries) are hereinafter referred to as
the Techpac Group. Hence the Petitioner was the
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ultimate holding company of the Techpac Group.
(c) The Techpac Group was a technology distributor and
a leading technology sales, marketing and logistics
group in the Asia Pacific region. One Ingram Micro
Inc., USA, a company registered in the United States
of America is also one such company who has its
presence worldwide. The Ingram Micro Group also
consists of several companies throughout North
America, Europe, Middle East, Africa, Latin America
and Asia Pacific regions which support global
operations through an extensive sales and
distribution network (hereinafter referred to as the
"Ingram Group"). We must mention here that
Ingram Micro Inc., USA was the holding Company of
inter alia a company called Ingram Micro Asia
Holdings Inc., USA (hereinafter referred to as
"Ingram Micro Asia") which was also a company
incorporated in USA. Ingram Micro Asia had a fully
owned subsidiary in India by the name Ingram
Micro India Pvt. Ltd.
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(d) The Ingram Group felt that it required to strengthen
its presence in the Asia Pacific region and
accordingly offered to take over the Techpac Group.
Accordingly, in November 2004, Ingram Micro Asia
acquired the shares of the Petitioner company under
a share purchase agreement in which Ingram Micro
Asia was the purchaser, the shareholders of the
Petitioner company (described in Schedule I to the
said agreement) were the sellers, and Ingram Micro
Inc., USA (the ultimate holding company of the
Ingram Group) was the guarantor. The
consideration under the said share purchase
agreement was set out in clause 2 thereof and inter
alia came to a sum of approximately AUD 730
million (Australian dollars). After the aforesaid
acquisition, the Indian entity of the Ingram Group
[Ingram Micro India Pvt. Ltd.] was merged into the
Indian entity of the Techpac Group [Tech Pacific
India] and post the merger, the name of Tech Pacific
India was changed to Ingram Micro India Ltd
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(hereinafter referred to as "Ingram Micro India").
In other words, Tech Pacific India continued to exist
post the merger, but under a new name viz. Ingram
Micro India. In this fashion, the Ingram Micro Group
took over the Techpac Group.
(e) During the course of search and seizure proceedings
carried out at the premises of Ingram Micro India
[earlier known as Tech Pacific India] on 17th
September 2007, the annual report of Ingram Micro
Inc., USA for the year 2005 was inter alia found
alongwith the share purchase agreement. Looking
at the documents seized during the search,
Respondent No.1 was of the opinion that since the
shares of the Petitioner company had been
transferred to the Ingram Group, captial gains had
accrued to the Petitioner. Accordingly, Respondent
No.1 served a notice under section 163 of the Act
dated 22nd November, 2010 on Ingram Micro India
[previously known as Tech Pacific India] seeking to
treat them as an agent of the Petitioner in respect of
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the alleged capital gains which had arisen in the
previous year relevant to A. Y. 2005-06. In addition
thereto, Respondent No.1 by its letter dated 24th
November, 2010 also called upon Ingram Micro
India to furnish details of the sale of shares of the
Petitioner company alongwith the details of the
amounts received. Thereafter, on 3rd December
2010, Ingram Micro India received another letter
from Respondent No.1 calling upon it to furnish the
details as required failing which assessment would
be completed under section 144 of the Act.
(f) To challenge this action of Respondent No.1, Ingram
Micro India [previously known as Tech Pacific India]
filed a Writ Petition being Writ Petition (L) No.2710
of 2010. By an order dated 7th December, 2010, this
Court disposed of the said Writ Petition directing
Respondent No.1 to give a hearing to Ingram Micro
India before passing any order under section 163 of
the Act. The said order further recorded that in case
the order passed by Respondent No.1 was adverse to
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Ingram Micro India, no further action would be
taken thereupon for a period of four weeks from the
date of communication of the said order.
(g) Be that as it may, Respondent No.1, after hearing
Ingram Micro India passed an order dated 14th
January, 2011 under section 163 of the Act inter
alia holding it to be an agent of the Petitioner
company and also computing capital gains in the
hands of the Petitioner at Rs.575.39 crores.
(h) Being aggrieved by the aforesaid order, Ingram
Micro India approached this Court in its writ
jurisdiction by filing Writ Petition No.285 of 2011.
This Court by its order dated 30th November, 2011
quashed the order passed by Respondent No.1 under
section 163 of the Act on the ground that the same
was beyond the period of limitation prescribed
under the Act. In other words, this Court quashed
the order of Respondent No.1 treating Ingram Micro
India as an agent of the Petitioner company. This
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order has not been challenged by the Revenue and
has attained finality.
(i) In this Writ Petition, it is the specific stand of the
Petitioner that after passing of the aforesaid order
dated 30th November, 2011 (in Writ Petition No.285
of 2011), it was not aware of any proceedings being
taken by the Revenue authorities to make any
assessment in the hands of the Petitioner company
of the alleged capital gains arising from the transfer
of its shares. It is the specific case of the Petitioner
that no notice of whatsoever nature either inter alia
under section 148 or under section 142(1) or under
section 143(2) of the Act has been served on the
Petitioner and the Petitioner was not aware of any
other procedure / proceedings sought to be adopted
by the Revenue authorities in this regard.
(j) Be that as it may, on 29th October 2013, Ingram
Micro Inc., USA (having its address at 1600 E. St.
Andrew Place, Santa Ana, CA 92705, USA) received
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the impugned Assessment Order dated 25th March,
2013 passed under section 144 of the Act holding
that the total taxable income computed in relation to
the Petitioner company was Rs.575.39 crores. It is
the case of the Petitioner that this Assessment Order
was forwarded by Ingram Micro Inc., USA to the
Petitioner on 30th October, 2013. It is only at this
time that the Petitioner first came to know of the
impugned Assessment Order and has therefore
approached this Court in its writ jurisdiction seeking
to quash the same.
6. In this factual background, Mr Mistry, learned Sr.
Counsel appearing on behalf of the Petitioner, principally urged
two contentions before us. They are :
(A) despite the fact that the impugned
Assessment Order records that notices under
sections 148, 143(2) as well as 142(1) of the Act
were issued and served on the Petitioner, no such
notices were ever received by the Petitioner. Mr
Mistry contends that this has now become expressly
clear from the affidavit in reply filed in this Writ
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Petition wherein it has now been admitted that the
notices under sections 148, 142(1) and 143(2) were
sought to be served not on the Petitioner but on
Ingram Micro India [previously known as Tech
Pacific India]. This is despite the fact that the
Revenue authorities were in possession of the
address of the Petitioner in Bermuda and yet chose
not to serve any notice on the Petitioner on the said
address. He submitted that in the facts of the
present case before any Assessment Order could be
passed under section 144 of the Act, it was a sine-
qua-non that a notice under section 148 of the Act
ought to have been served on the Assessee. If this
was not done, the Assessment Order passed under
section 144 was wholly without jurisdiction
requiring our interference under Article 226 of the
Constitution of India. In support of the aforesaid
proposition, Mr Mistry relied upon a decision of the
Supreme Court in the case of Y. Narayana Chetty
and another v/s Income Tax Officer, Nellore and
others;1
(B) that in any event of the matter, in law, no
capital gains had accrued in the hands of the
Petitioner as the shares of the Petitioner company
were transferred by its shareholders to Ingram
Micro Asia and therefore Respondent No.1 could
1 [1959] 35 ITR 388
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never have any reason to believe that income
chargeable to tax had escaped assessment as
contemplated under section 147 of the Act. To
elaborate this point further, Mr Mistry contended
that in the facts of the present case, it was the
shares of the Petitioner company that were
transferred by its shareholders to Ingram Micro
Asia. If there was any capital gains that accrued to
any person in this transaction, if at all, the same
would be in the hands of the shareholders of the
Petitioner and not in the hands of the Petitioner
company viz. Techpac Holdings Ltd. To put it
simply, he gave an illustration that if "A"
transferred his shares in "Larsen & Toubro Ltd" to
"B", the capital gains if at all could be taxed in the
hands of "A" but certainly not in the hands of
"Larsen & Toubro Ltd". To attract capital gains, Mr
Mistry submitted that (i) the person who is sought
to be taxed has to have transferred a capital asset;
and (ii) some gain ought to have arisen by virtue of
such transfer in the hands of the transferor. In the
facts of the present case, Techpac Holdings Ltd. (the
Petitioner) has neither transferred any capital asset
and neither has it received any gain by virtue of any
such transfer. In this view of the matter, he
submitted that the Revenue Authorities have
proceeded on a total misconception in seeking to tax
capital gains, if any, in the hands of the Petitioner
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company.
7. For all the aforesaid reasons, Mr Mistry submitted
that the impugned Assessment Order is wholly without
jurisdiction and ought to be set aside by us in our writ
jurisdiction under Article 226 of the Constitution of India.
8. On the other hand, Mr Malhotra, learned counsel
appearing for the Revenue authorities, submitted as under :
(A) it is an admitted fact that Ingram Micro
India [earlier known as Tech Pacific India] is a
down-stream company of the Petitioner. The
Revenue was having the last known address of the
Petitioner as that of Ingram Micro India [earlier
known as Tech Pacific India] being Gate No.1A,
Godrej Industrial Estate, Phirozsha Nagar, Eastern
Express Highway, Vikhroli (East), Mumbai 400 079.
Since this was the last known address of the
Petitioner, the notice dated 29th March, 2012 under
section 148 of the Act was sent to this address on
30th March, 2012. This notice was duly received by
Ingram Micro India [earlier known as Tech Pacific
India] and was thereafter returned to the Revenue
Authorities. Mr Malhotra submitted that Ingram
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Micro India opened the postal envelope and after
seeing the contents thereof, closed it and sent it back
to the Revenue Authorities. He submitted that
therefore a request was made to the authorized
representative of Ingram Micro India [earlier known
as Tech Pacific India] for submitting the
correspondence address of the Petitioner, which was
not supplied to them. Since Ingram Micro India
[earlier known as Tech Pacific India] was having a
business understanding with the Petitioner, the
service of the notice issued under section 148 of the
Act on Ingram Micro India [earlier known as Tech
Pacific India] was good service on the Petitioner;
(B) With reference to the service of notices
dated 16th January, 2013 issued under sections
142(1) and 143(2) of the Act, Mr Malhotra gave an
identical explanation. Mr Malhotra submitted that
these notices were also served on the last known
address being that of Ingram Micro India [earlier
known as Tech Pacific India] and the same were
returned back to the Revenue authorities with the
remarks "Refused". He submitted that since these
notices were duly served and not responded to by
the Petitioner, and time to carry out the assessment
proceedings was getting over, the Revenue had no
option but to pass an ex-parte Assessment Order
under section 144 of the Act on 25th March, 2013.
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In these circumstances, Mr Malhotra submitted that
there was no merit in the contention of the
Petitioner that they were not served with the notices
under sections 148, 142(1) or 143(2) of the Act;
(C) The Assessing Officer clearly had reason to
believe that income chargeable to tax had escaped
assessment because by virtue of the aforesaid share
purchase agreement entered into in November,
2004 there was clearly a transfer of a capital asset
in India as contemplated under section 9(1)(i) of
the Act. Mr Malhotra submitted that as a
consequence of the said agreement, Ingram Micro
India [earlier known as Tech Pacific India]
alongwith all its assets and liabilities was
transferred to Ingram Micro Asia. Since Ingram
Micro India [earlier known as Tech Pacific India]
was a company situated in India, there was clearly a
transfer of a capital asset in India and therefore by
virtue of the provisions of section 9(1)(i) of the Act,
the income from such transfer was deemed to accrue
in India. Mr Malhotra submitted that as the income
was earned towards consideration of transfer of its
business / economic interest i.e. Ingram Micro India
[earlier known as Tech Pacific India] by reason of
the above transaction, the Petitioner had earned
income liable for capital gains tax in India. Mr
Malhotra submitted that the share purchase
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agreement entered into in November, 2004 would
clearly establish that the same was not really
between the shareholders of the Petitioner and
Ingram Micro Asia but was one between the
Petitioner and Ingram Micro Asia. He therefore
submitted that even on this count, the submissions
made on behalf of the Petitioner were of no
substance and ought to be rejected by us.
9. With the help of learned counsel, we have gone
through the papers and proceedings in the above Writ Petition
as well as the annexures thereto. As far as the issue of service
of notices under sections 148, 142(1) and 143(2) of the Act are
concerned, it is an admitted position that the said notices were
never served on the Petitioner. The Revenue seeks to justify
service of these notices on the Petitioner by contending that
they have served the said notices on the last known address of
the Petitioner which was the address of Ingram Micro India
[earlier known as Tech Pacific India], the downstream company
of the Petitioner. We fail to see how the notices being served on
Ingram Micro India [earlier known as Tech Pacific India] would
amount to service on the Petitioner. This is more so in the facts
of the present case considering that admittedly on the date
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when these notices were sought to be served on Ingram Micro
India [earlier known as Tech Pacific India], the Revenue was
aware of the address of the Petitioner. This is clearly borne out
by (i) the share purchase agreement that was in the possession
of the revenue authorities on the said dates in which (at Recital
"A" pg 34 of the paper-book) the registered office of the
Petitioner company is clearly mentioned; and (ii) the letter
dated 30th March, 2012 (Exh.R-2, page 203 of the paper-book)
addressed by Respondent No.1 to the Joint Secretary, (FT &
TR)-II, Central Board of Direct Taxes, North Block, New Delhi
110 001 in which Respondent No.1 clearly mentions that the
registered office of the Petitioner is Charladon House, 2-
Churchstreet, Hamilton, HM-11, Bermuda. Despite having this
address prior to issuance of the notices under section 148,
142(1) and 143(2) of the Act, we fail to understand why these
notices were not served on the Petitioner at this address. In
these circumstances, we cannot accede to the contention of Mr
Malhotra that service of the aforesaid notices on Ingram Micro
India [earlier known as Tech Pacific India] (which is a
subsidiary of the Petitioner) would be good service on the
Petitioner.
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10. We must also not lose sight of the fact that in the
present case Ingram Micro India [earlier known as Tech Pacific
India] was not the assessee or even a representative - assessee
of the Petitioner. In fact, the Revenue in the earlier round of
litigation, sought to treat Ingram Micro India [earlier known as
Tech Pacific India] as an agent of the Petitioner under the
provisions of section 163 of the Act. Being aggrieved by this
action of the Revenue, Ingram Micro India [earlier known as
Tech Pacific India] approached this Court in its writ jurisdiction
by filing Writ Petition No.285 of 2011. This Court by its order
dated 30th November, 2011 quashed the order of the Revenue
Authorities passed under section 163 of the Act treating Ingram
Micro India [earlier known as Tech Pacific India] as the agent of
the Petitioner. Once this Court struck down the action of the
Revenue treating Ingram Micro India [earlier known as Tech
Pacific India] as an agent of the Petitioner, all the more, service
of the notices under sections 148, 142(1) and/or 143(2) of the
Act on Ingram Micro India [earlier known as Tech Pacific India]
could never be considered as good service on the Petitioner.
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11. Section 148 of the Act clearly stipulates that before
making any assessment, re-assessment or re-computation
under section 147 of the Act, the Assessing Officer shall serve
on the assessee a notice requiring him to furnish within such
period as may be specified in the notice a return of income or
the income of any other person in respect of which he is
assessable in the prescribed form and verified in the prescribed
manner and setting forth such other particulars as may be
prescribed. The section further stipulates that once this is done,
the provisions of the Income Tax Act shall, so far as may be,
apply as if such return were a return required to be furnished
under section 139 of the Act. Therefore, clearly as stipulated in
the said section, the notice issued under section 148 of the Act
has to be served on the assessee. This is a sine-qua-non before
any further action can be taken. If this notice itself is not
served, all other proceedings that flow therefrom would have
no legs to stand on and would fall to the ground. This is no
longer res-integra as it stands concluded by the decision of the
Supreme Court in the case of Y. Narayana Chetty and
another.1 The Supreme Court, whilst considering similar
provisions under the Income Tax Act, 1922 held that service of
1 [1959] 35 ITR 388
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the requisite notice on the assessee is a condition precedent to
the validity of any re-assessment. If a valid notice is not issued
as required, proceedings taken by the Income Tax Officer in
pursuance of the invalid notice and the consequent orders on
assessment passed by him, would be void and inoperative. The
Supreme Court opined that the notice under section 34 of the
1922 Act (similar to section 148 of the 1961 Act) cannot be
regarded as a mere procedural requirement. It is only if the
said notice is served on the assessee as required, that the
Income Tax Officer would have jurisdiction to proceed further
against him. If no notice is issued or if the notice issued is
invalid, then the proceedings taken by the Income Tax Officer
without a notice, or in pursuance of the invalid notice, would be
illegal and void. The relevant portion of the Supreme Court
decision [at pg 392 of the ITR report] reads thus:-
"The first point raised by Mr Sastri is that the proceedings
taken by Respondent No.1 under Section 34 of the Act are
invalid because the notice required to be issued under the said
section has not been issued against the assessees contemplated
therein. In the present case the Income Tax Officer has
purported to act under Section 34(1)(a) against the three
firms. The said sub-section provides inter alia that "if the
Income Tax Officer has reason to believe that by reason of the
omission or failure on the part of the assessee to make a return
of his income under Section 22 for any year or to disclose fully
and truly all material facts necessary for his assessment for
that year, income, profits or gains chargeable to income tax
has been underassessed", he may, within the time prescribed,
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"serve on the assessee a notice containing all or any of the
requirements which may be included in the notice under sub-
section (2) of Section 22 and may proceed to reassess such
income, profits or gains". The argument is that the service of
the requisite notice on the assessee is a condition precedent to
the validity of any reassessment made under Section 34; and if
a valid notice is not issued as required, proceedings taken by
the Income Tax Officer in pursuance of an invalid notice and
consequent orders of reassessment passed by him would be
void and inoperative. In our opinion, this contention is well-
founded. The notice prescribed by Section 34 cannot be
regarded as a mere procedural requirement; it is only if the
said notice is served on the assessee as required that the
Income Tax Officer would be justified in taking proceedings
against him. If no notice is issued or if the notice issued is
shown to be invalid then the validity of the proceedings taken
by the Income Tax Officer without a notice or in pursuance of
an invalid notice would be illegal and void. That is the view
taken by the Bombay and Calcutta High Courts in
the CIT v.Ramsukh Motilal [ (1955) 27 ITR 54] and R.K. Das
& Co. v. CIT [ (1956) 30 ITR 439] and we think that that view
is right."
(emphasis supplied)
12. Looking to the facts of the present case and since the
notice issued under section 148 of the Act was admittedly not
served upon the Petitioner (who is the assessee in the present
case), the consequent Assessment Order passed under section
144 of the Act is clearly without jurisdiction and ought to be set
aside on this ground alone.
13. In view of our above finding that in the absence of
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service of notice issued under section 148 of the Act, the
Assessing Officer does not acquire jurisdiction to proceed
further, the notices issued under section 142(1) and 143(2)
both dated 16th January, 2013 (and which, in the facts of this
case, can only be issued post the service of notice issued under
section 148), also fall to the ground. Nevertheless, in the
present facts we find that both these notices under section
142(1) and 143(2) were not served on the Petitioner. More
importantly, we fail to understand how a notice under section
142(1) and under section 143(2) can be issued on the same
date. Section 142(1) of the Act stipulates that for the purpose
of making an assessment under the Act, the Assessing Officer
may serve on any person who has made a return under section
115WD or section 139 or in whose case, the time allowed under
sub-section (1) of section 139 for furnishing the return has
expired, a notice requiring him on a date therein specified (a)
where such person has not filed a return within the time
allowed under sub-section (1) of section 139 of the Act or before
the end of the relevant assessment year, inter alia to furnish a
return of income. Section 143(2) in turn applies where a
return has been furnished either under section 139 or in
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response to a notice under sub-section (1) of section 142 of the
Act. Therefore, clearly, sub-section (2) of section 143 would
come into play only when a return is furnished under section
139 or a return is furnished in response to a notice under sub-
section (1) of section 142. This would clearly establish that a
notice under section 142(1) and under section 143(2) can
never be issued on the same date. Furthermore in the facts of
the present case, section 143(2) could never apply because
admittedly no return had ever been filed by the Petitioner. We
find that the Assessment Order merely records that notices
under sections 148, 142(1) and 143(2) have been served on the
Petitioner. Apart from the fact that this is factually incorrect,
we find that there is a total non-application of mind on the part
of the Assessing Officer in issuing a notice under section 143(2)
of the Act. We therefore have no hesitation in holding that the
Assessment Order passed under section 144 of the Act is wholly
without jurisdiction as the notices under section 148 as well as
under section 142(1) were never served on the Petitioner.
14. Having held so, we must state that in the facts of the
present case, we find that even otherwise the Assessing Officer
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could never have reason to believe that income chargeable to
tax had escaped assessment warranting the issuance of a notice
under section 148 of the Act. Section 147 of the Act (to the
extent it is relevant for our purpose) reads as under :-
"147. Income escaping assessment.--If the Assessing Officer,
has reason to believe that any income chargeable to tax has
escaped assessment for any assessment year, he may, subject
to the provisions of Sections 148 to 153, assess or reassess
such income and also any other income chargeable to tax
which has escaped assessment and which comes to his notice
subsequently in the course of the proceedings under this
section, or recompute the loss or the depreciation allowance
or any other allowance, as the case may be, for the assessment
year concerned (hereafter in this section and in Sections 148
to 153 referred to as the relevant assessment year):
Provided that where an assessment under sub-section (3) of
Section 143 or this section has been made for the relevant
assessment year, no action shall be taken under this section
after the expiry of four years from the end of the relevant
assessment year, unless any income chargeable to tax has
escaped assessment for such assessment year by reason of the
failure on the part of the assessee to make a return under
Section 139 or in response to a notice issued under sub-section
(1) of Section 142 or Section 148 or to disclose fully and truly
all material facts necessary for his assessment, for that
assessment year:"
15. Section 147 of the Act stipulates that if the
Assessing Officer has reason to believe that any income
chargeable to tax has escaped assessment for any assessment
year, he may, subject to the provisions of sections 148 to 153,
assess or re-assess such income and also any other income
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chargeable to tax which has escaped assessment and which
comes to his notice subsequently in the course of the
proceedings under this section, or recompute the loss or the
depreciation allowance or any other allowance, as the case may
be, for the assessment year concerned. Therefore, before any
notice under section 148 of the Act can be issued for initiating
assessment / re-assessment proceedings, the Assessing Officer
ought to have reason to believe that any income chargeable to
tax has escaped assessment for that particular assessment
year. This "reason to believe" is a sine-qua-non for issuance of
the notice under section 148.
16. The facts of the present case and as more
elaborately set out earlier in the judgment, clearly show that the
shares of the Petitioner company were transferred by its
shareholders to Ingram Micro Asia. The Petitioner itself has not
transferred anything. In order to attract capital gains tax there
are two requirements that need to be fulfilled - (1) that there is
a transfer of a capital asset; and (2) there is a gain by virtue of
such transfer. If these conditions are satisfied, then capital
gains tax is to be computed as set out in section 48 of the Act.
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The facts of the present case would clearly show that the
Petitioner has not transferred any capital asset in India that
would give rise to any capital gains tax in their hands. This is
borne out from the share purchase agreement which itself
stipulates that the 100% shareholding of the Petitioner
company was transferred by its shareholders (described in
schedule I thereof) to Ingram Micro Asia for a total
consideration of AUD 730 million (Australian dollars)
equivalent to Rs.2,501.72 crores (conversion rate being 1
Australian dollar = Rs.34.l27). Even if we were to assume that
by virtue of Ingram Micro Asia purchasing the 100%
shareholding of the Petitioner, there was a transfer of a capital
asset in India, the same could never be taxed as capital gains in
the hands of the Petitioner company. This is for the simple
reason that the shares of the Petitioner company have been
transferred to Ingram Micro Asia by the Petitioner's
shareholders and therefore the transferor in the aforesaid
transaction is the shareholders of the Petitioner and not the
Petitioner company. In these circumstances, if there was any
liability towards capital gains tax, if at all (we are not called
upon to consider this aspect), it was that of the shareholders of
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the Petitioner and not the Petitioner itself. This being the
position in law, the Assessing Officer could never have reason to
believe that income of the Petitioner chargeable to tax in India
had escaped assessment. If the Assessing Officer could not have
had any reason to form the aforesaid belief, then naturally what
follows is that no notice under section 148 of the Act could be
issued in the facts of the present case. Consequently, the
Assessment Order passed under section 144 of the Act was
therefore wholly without jurisdiction. On this count also, we
find that the Assessment Order passed under section 144 of the
Act is unsustainable and has to be set aside.
17. Faced with this situation, Mr Malhotra very feebly
tried to contend that the share purchase agreement entered
into in November, 2004 was one which was actually between
the Petitioner company and Ingram Micro Asia and not between
the shareholders of the Petitioner and Ingram Micro Asia. We
are afraid we are unable to accept this argument for more than
one reason. Firstly, the impugned Assessment Order does not
proceed to compute the capital gains on the basis that the
aforesaid share purchase agreement was ostensibly entered into
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between the Petitioner company and Ingram Micro Asia. This
argument is being canvassed for the first time by the Revenue in
this Writ Petition. Secondly, we find this argument without any
substance as we fail to see how the Petitioner company can
enter into any agreement for sale of its own shares. The shares
of the Petitioner company are held by its shareholders who are
the owners of the shares and who alone can transfer the same to
a third party. Therefore, we are unable to understand the basis
of the argument of Mr Malhotra that the share purchase
agreement was ostensibly between the Petitioner company and
Ingram Micro Asia.
18. In view of our earlier findings the Petitioner must
succeed. However, it is clarified that we have not examined
whether any capital gains have accrued to the shareholders of
the Petitioner. If the Revenue Authorities are of the opinion that
in fact capital gains have accrued to the shareholders of the
Petitioner, they are free to take such action against the
shareholders of the Petitioner as are permitted in law. Equally,
if such proceedings are adopted by the Revenue against the
shareholders of the Petitioner, all contentions to contest the
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same are left open. Thus all contentions of all the parties
concerned are kept open in that regard. For all the aforesaid
reasons, rule is made absolute and the Petition is granted in
terms of prayer clause (a). No order as to costs.
(B.P.COLABAWALLA, J.) (M.S. SANKLECHA, J.)
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