28. WABCO India Ltd. vs. Dy. CIT
(International Taxation); 407 ITR 317 (Mad): Date of order: 1st August,
2018 A. Y. 2014-15
Sections 160, 161, 162 and 163 –
Representative assessee – Non-resident – Agent – Conditions precedent for
treating person as agent of non-resident – Transfer of shares in foreign
country by non-resident company – No evidence that assessee was party to
transfer – Notice seeking to treat assessee as agent of non-resident – Not
valid
The appellant assessee was
incorporated under the Companies Act, 1956, in the year 1962, and was engaged
in the business of designing, manufacturing and marketing conventional braking
products, advance braking systems and other related air assisted products and
systems. The company was duly listed in the stock exchange and its shares were
transferable. In 2012-13, 75% of the shares of the Appellant were held by CD
and the balance 25% were held by public. In 2013-14, there was a share transfer
agreement between CD and WABCO, Singapore, in terms whereof CD transferred its
shareholding to WABCO, Singapore. The sale consideration of 1,42,25,684 shares
amounted to Rs. 29,84,97,852 Euros equivalent to Rs. 2347,23,78,600/-, for
which capital gains in the hands of CD was Rs. 2156,98,34,163/-. CD was
assessed and a draft assessment order was served on CD on 31/12/2017 in respect
of tax liability of Rs. 4,29,39,66,823/-, subject to CD availing of the option
to challenge the draft assessment order before the Dispute Resolution panel.
The Draft assessment order was finalised and a final assessment order issued
u/s. 143(3) read with section 144C of the Act. On 09/01/2018 the Department
issued a show-cause notice u/s. 163(1)(c) of the Act, to the Appellant assesee
whereby it was alleged that the capital gains had arisen directly as a result
of consideration received by CD from the Appellant and the Appellant was
proposed to be held as agent u/s. 163(1)(c) of the Act, in the event of any
demand against CD in the assessment proceedings for the A. Y. 2014-15. A writ
petition against the notice was dismissed by the Single Judge.
The Division Bench of the
Madras High Court allowed the appeal filed by the Appellant assessee and held
as under:
“i) Harmonious reading of section 160 to 163 of the Income-tax Act,
1961 would show that: (i) in order to become liable as a representative
assessee, a person must be situated such as to fall within the definition of a
representative assessee;
(ii) the income must be such as is taxable u/s. 9;
(iii) the income must be such in respect of which such a person can be treated
as a representative assesee;
(iv) the representative assessee has a statutory
right to withhold sums towards a potential tax liability;
(v) since the
liability of a representative assessee is limited to the profit, there can be
multiple representative assessees in respect of a single non-resident
assessee-each being taxed on the profits and gains relatable to such representative
assessee..
ii) The question was whether the show-cause notice was at all without
jurisdiction, whether the respondent wrongly assumed jurisdiction by
erroneously deciding jurisdictional facts, whether in the facts and
circumstances of the case, the appellant at all had any liability in respect of
the capital gains in question, and whether the appellant could be said to be an
agent u/s. 163(1)(c). The High Court had jurisdiction to consider the question
in writ proceedings.
iii) No case was made out by the Department that in respect of
transfer of shares to a third party, that too outside India, the Indian company
could be taxed when the Indian company had no role in the transfer. Merely
because those shares related to the Indian company, that would not make the
Indian company an agent qua deemed capital gains purportedly earned by the
foreign company.
v) The notice was not valid. The judgment and order under appeal is
set aside and consequently, the impugned show-cause notice is also set aside.”
