9. Cognizant Technology Solutions India Pvt. Limited vs. Deputy
Commissioner of Income Tax Civil Appeal No. 1992 of 2020 [Arising out of
Special Leave Petition (Civil) No. 23705 of 2019] Date of order: 4th
March, 2020
Dividend – Whether payments made to the
shareholders, under purchase of shares through the scheme of ‘arrangements and
compromise’, was a dividend within the meaning of section 2(22)(d)/2(22)(a) of
the Act, requiring to remit the taxes into the government account u/s 115O –
Communication merely a notice and not an order – Matter disposed of with
directions
The assessee, who was engaged in the business of
development of computer software and related services, approached the High
Court in the Financial Year 2016-17 with a Scheme of Arrangement and Compromise
under sections 391 to 393 of the Companies Act, 1956 to buy back its shares.
The High Court sanctioned the scheme on 18th April, 2016 in Company
Petition No. 102 of 2016, pursuant to which the assessee purchased 94,00,534
shares at a price of Rs. 20,297 per share from its four shareholders and made a
total remittance of Rs. 19,080 crores approximately. According to the
appellant, this buy-back of shares was effected in May, 2016.
Thereafter, the assessee made statutory filing
under Form 15 CA (under Rule 37BB of the Income Tax Rules, 1962) after
obtaining requisite certificate from a Chartered Accountant in Form 15CB
furnishing details of remittances made to non-residents.
The assessee received a letter from the Deputy
Commissioner of Income Tax, Large Taxpayer Unit-1, Chennai in connection with
non-payment of tax on the remittances made to the non-residents in F.Y.s
2015-16 and 2016-17.
According to the assessee, it was under the
impression that since its scheme of arrangement and compromise between the
shareholders and the company was in accordance with sections 391 to 393 of the
Companies Act and approved by the Court, the provisions of section 115-QA,
115-O or 2(22) of the Income-tax Act were not applicable to its case.
However, the Department took the view that the
payments made to the shareholders under purchase of shares through the scheme
of arrangements and compromise was a dividend within the meaning of section
2(22)(d)/2(22)(a) of the Act, requiring it to remit the taxes into the government
account u/s 115-O of the Act.
Since the assessee company had failed to remit the
taxes within the stipulated period, it was ‘deemed to be an assessee in
default’ u/s 115-Q of the Act. Therefore, it was required to remit the taxes
(calculated @ 15% of the total payments of Rs. 19,415,62,77,269 to the
shareholders and surcharge, etc. as per the Act) along with the interest
payable u/s 115-P.
The said communication dated 22nd March,
2018 was received by the assessee on or about the 26th of March,
2018 and soon thereafter its bank accounts were attached by the Department.
In the meantime, an application was preferred by
the assessee on 20th March, 2018 before the Authority for Advance
Ruling (AAR) u/s 245Q seeking a ruling on the issue whether the assessee was
liable to pay tax on the buy-back of its shares u/s 115QA or section 115-O or
any other provision of the Act.
The assessee challenged the communication dated 22nd
March, 2018 by filing a writ petition in the High Court, submitting inter
alia that while the issue was pending before the AAR u/s 245Q, in view of
the bar provided u/s 245RR of the Act, the matter could not have been
considered. It was also submitted that the assessee was never put to notice
whether it would be liable u/s 115-O. It was further submitted that all the
while the Department was only soliciting information which the appellant had
readily furnished and at no stage was the assessee put to notice that its
liability would be determined in any manner.
The writ petition came up before a Single Judge of
the High Court on 3rd April, 2018 when he granted an order of
interim stay of the impugned proceedings subject to the condition that the
petitioner pays 15% of the tax demanded and furnishes a bank guarantee or security
by way of fixed deposits for the remaining taxes (only) to be paid.
The Single Judge by his decision dated 25th
June, 2019 dismissed the writ petition as not being maintainable and relegated
the assessee to avail the remedy before the Appellate Authority under the Act.
However, during the course of his decision, the Single Judge concluded that
there was no need for issuance of any notice before making a demand u/s 115-O
of the Act and the notice issued on 21st November, 2017 calling for
details where after meetings were convened, was quite adequate. He rejected the
submission that there would be a bar in terms of section 245RR. The Single
Judge did not find any merit in the contention that the shares purchased
pursuant to the order of the Company Court could not be treated as dividend.
The assessee, being aggrieved, challenged the
aforesaid view by filing a Writ Appeal. While discussing the issues that came
up for consideration, the Division Bench observed that the Single Judge after
having found the writ petition to be not maintainable, ought not to have gone
into merits. As regards the nature of the communication dated 22nd
March, 2018 and the maintainability of an appeal challenging the same, the
Division Bench noted the contention of the assessee that it was not known as to
whether the impugned order dated 22nd March, 2018 was a show cause
notice or final order. The Division Bench held that though there appeared to be
some element of contradiction in the counter affidavit filed, the said order
appeared to be a final one. Besides, the further action taken indicated that
the order under challenge was a final one. If it was only a show cause notice,
then there was no need to challenge it and instead the consequential freezing
alone required to be questioned. The Division Bench also held that the further
question as to whether the order under challenge violated the principles of
natural justice or requisite procedure contemplated under the Act was a matter
for consideration before the Appellate Authority. According to the Division
Bench, the learned Single Judge had rightly observed that the appeal could be
entertained and decided on merit.
The view taken by the Division Bench of the High
Court was challenged before the Supreme Court.
On the issue whether the communication dated 22nd
March, 2018 was in the nature of determination of the liability, the Supreme
Court heard both the parties at considerable length, at the end of which it was
agreed by the learned advocate for the Department that the communication dated
22nd March, 2018 could be treated as a show cause notice and the
Department permitted to conclude the issue within a reasonable time, provided
the interim order passed by the Single Judge of the High Court on 3rd April,
2018 was continued. The course suggested by the counsel for the Department was
acceptable to the senior counsel for the assessee.
In the peculiar facts and circumstances of the
case, the Supreme Court while disposing of this Appeal, directed as under:
(a) The
communication dated 22nd March, 2018 shall be treated as a show
cause notice calling upon the assessee to respond with regard to the aspects
adverted to in it;
(b) The
assessee shall be entitled to put in its reply and place such material, on
which it seeks to place reliance, within ten days;
(c) The assessee shall thereafter be afforded oral
hearing in the matter;
(d) The
matter shall thereafter be decided on merits by the authority concerned within
two months;
(e) Pending
such consideration, as also till the period to prefer an appeal from the
decision on merits is not over, the interim order passed by the Single Judge of
the High Court on 3rd April, 2018 and as affirmed by the Supreme
Court vide its interim order dated 14th October, 2019, shall
continue to be in operation; and
(f) The
amount of Rs. 495,24,73,287 deposited towards payment of tax and the amount of
Rs. 2806,40,15,294 which stands deposited and invested in the form of Fixed
Deposit Receipts shall be subject to the decision to be taken by the authority
concerned on merits, or to such directions as may be issued by the Appellate
Authority.
However, the Supreme Court clarified that it had
stated the facts of the case only by way of narration of events and explaining
the chronology. It shall not be held to have dealt with the merits or demerits
of the rival contentions. The merits of the matter shall be gone into
independently by the authorities concerned without being influenced in any way
by any of the observations made by the High Court and the Supreme Court.
The Supreme Court disposed of the appeal in the
aforesaid terms.
10. Rajasthan State Electricity Board, Jaipur vs. The Dy. Commissioner
of Income Tax (Assessment) and Ors. Civil Appeal No. 8590 of 2010 Date of order: 19th March, 2020
Additional tax – Section 143(1-A) – For invoking the provisions of
section 143(1-A) of the Act, the Revenue must prove that the assessee has
attempted to evade tax by establishing facts and circumstances from which a reasonable
inference can be drawn that the assessee has, in fact, attempted to evade tax
lawfully payable by it
The assessee, a Government Company as defined u/s
617 of the Companies Act, 1956, filed its return on 30th December,
1991 for the A.Y. 1991-92 showing a loss amounting to Rs. (-)4,27,39,32,972.
Due to a bona fide mistake, the assessee claimed 100% depreciation of
Rs. 3,33,77,70,317 on the written down value of assets instead of 75%
depreciation. Under the un-amended section 32(2) of the Income tax Act, 1961
the assessee was entitled to claim 100% depreciation. However, after the
amendment the depreciation could only be 75%. The assessee supported the
returns with provisional revenue account, balance sheet as on 31st
March, 1991, details of gross fixed assets, computation chart and depreciation
chart. No tax was payable on the said return by the assessee.
An intimation u/s 143(1)(a)
dated 12th February, 1992 was issued by the A.O. disallowing 25% of
the depreciation, restricting it to 75%. Additional tax u/s 143(1-A) amounting
to Rs. 8,63,64,827 was demanded. The assessee filed an application u/s 154
dated 18th February, 1992 praying for rectification of the demand.
The assessee also filed a petition u/s 264 against the demand of additional
tax. In the petition it was stated that even after allowing only 75% of
depreciation, the income of the assessee remained in loss to the extent of Rs.
3,43,94,90,393. The assessee prayed for quashing the demand of additional tax.
The application filed u/s 154 was rejected by the
A.O. on 28th February, 1992. The revision petition u/s 264 came to
be dismissed by the Commissioner of Income Tax by his order dated 31st
March, 1992. Rejecting the revision petition, the Commissioner of Income Tax
held that whenever adjustment is made, additional tax has to be charged @ 20%
of the tax payable on such ‘excess amount’. The ‘excess amount’ refers to the
increase in the income and by implication the reduction in loss where even
after the addition there is negative income.
Aggrieved by the order of the Commissioner of
Income Tax, a writ petition challenging the demand of additional tax which was
reduced to an amount of Rs. 7,67,68,717 was filed by the assessee in the High
Court. The learned Single Judge vide judgment dated 19th
January, 1993 allowed the writ petition quashing the levy of additional tax u/s
143(1-A). The Revenue was aggrieved by this judgment of the Single Judge and
filed a Special Appeal which was allowed by the Division Bench of the High
Court vide its judgment dated 13th November, 2007 upholding
the demand of additional tax. The assessee then filed an appeal before the
Supreme Court.
After noting the relevant provisions and amendments
thereto, the Supreme Court observed that the amendments brought by the Finance
Act, 1993 with retrospective effect, i.e., from 1st April, 1989,
were fully attracted with regard to the assessment in question (for A.Y.
1991-92). As per the substituted sub-section (1-A), where the loss declared by
an assessee has been reduced by reason of adjustments made under sub-section
(1)(a), the provisions of sub-section (1-A) would apply. The Supreme Court
noted that the Commissioner of Income Tax while rejecting the revision petition
of the petitioner had taken the view that whenever adjustment is made,
additional tax would be charged @ 20% of the tax payable on such excess amount.
The excess amount refers to the increase in the income and by implication the
reduction in loss where even after the addition there is negative income.
According to the Court, whether there should be levy of additional tax in all
circumstances and in cases where the loss is reduced, was the question to be
answered in the present case.
The Court noted that by the Taxation Laws (Amendment)
Act, 1991, a third proviso was inserted in section 32. Prior to the
insertion of this proviso, the depreciation was not restricted to 75% of
the amount calculated at the percentage on the written down value of such
assets. The return was filed by the assessee on 31st December, 1991,
prior to which date the Taxation Laws (Amendment) Act, 1991 had come into
operation. It was due to a bona fide mistake and oversight that the
assessee claimed 100% depreciation instead of 75%. The 100% depreciation of Rs.
3,33,77,70,317 was claimed on the written down value of the assets; 25%
depreciation was, thus, disallowed, restricting it to 75% and after reducing
25% of the depreciation the loss remained to the extent of Rs.
(-)3,43,94,90,393. Even after reduction of 25% depreciation the return of loss
of the assessee remained in the negative. In claiming 100% depreciation the
assessee claimed that there was no intention to evade tax and the said claim
was only a bona fide mistake.
The Supreme Court noted that by the Finance Act,
1993 section 143(1-A) was substituted with retrospective effect from 1st April,
1989 seeking to cover cases of returned income as well as returned loss.
In Commissioner of Income Tax, Gauhati vs.
Sati Oil Udyog Limited and Anr. (2015) 7 SCC 304, the Supreme Court
noted that it had occasion to consider elaborately the provisions of section
143(1-A), its object and validity. There was a challenge to the retrospective
nature of the provisions of section 143(1-A) as introduced by the Finance Act,
1993. The Gauhati High Court had held that retrospective effect given to the
amendment would be arbitrary and unreasonable. An appeal was filed by the
Revenue in this Court in which the Supreme Court had occasion to examine the
Constitutional validity of the provisions. The Supreme Court in the above
judgment had held that the object of section 143(1-A) was the prevention of
evasion of tax. Relying on its earlier judgment in K.P. Varghese vs. ITO,
(1981) 4 SCC 173, the Court in the above case held that the provisions
of section 143(1-A) should be made to apply only to tax evaders.
The Supreme Court observed that in the above case
it upheld the Constitutional validity of section 143(1-A), subject to holding
that the section can only be invoked where it is found on facts that the lesser
amount stated in the return filed by the assessee is a result of an attempt to
evade tax lawfully by the assessee.
According to the Supreme Court, applying the ratio
of the above judgment in the present case, it needed to find out whether 100%
depreciation as mentioned in the return filed by the assessee was a result of
an attempt to evade tax lawfully payable.
The Supreme Court, from the facts, noted that even
after disallowing 25% of the depreciation, the assessee in the return remained
in loss and the 100% depreciation was claimed in the return due to a bona
fide mistake. By the Taxation Laws (Amendment) Act, 1991 the depreciation
in the case of a company was restricted to 75% which, due to oversight, was
missed by the assessee while filing the return. The Commissioner of Income Tax
by deciding the revision petition had also not made any observation to the
effect that the 100% depreciation claimed was with the intent to evade payment
of tax lawfully payable by the assessee; rather, the Commissioner in his order
dated 31st March, 1992 had observed that whenever adjustment is
made, additional tax has to be charged @ 20% of the tax payable on such excess amount.
The Court held that it is true that while
interpreting a tax legislation the consequences and hardship are not looked
into, but the purpose and object for which taxing statutes have been enacted
cannot be lost sight of. While considering the very same provision, section
143(1-A), its object and purpose and while upholding the provision, the Court
had held that the burden of proving that the assessee has attempted to evade
tax is on the Revenue which may be discharged by the Revenue by establishing
facts and circumstances from which a reasonable inference can be drawn that the
assessee has, in fact, attempted to evade tax lawfully payable by it. In the
present case, not even a whisper that the claim of 100% depreciation by the
assessee, 25% of which was disallowed, was with the intent to evade tax. The
provisions of section 143(1-A) in the facts of the present case cannot be
mechanically applied; it had made a categorical pronouncement in Commissioner
of Income Tax, Gauhati vs. Sati Oil Udyog Limited and Anr. (Supra),
that section 143(1-A) can only be invoked when the lesser amount stated in the
return filed by the assessee is a result of an attempt to evade tax lawfully
payable by the assessee.
In view of the above, the
Supreme Court held that mechanical application of section 143(1-A) in the facts
of the present case was uncalled for. It therefore allowed the appeal and set
aside the judgment of the Division Bench of the High Court as well as the
demand of additional tax dated 12th February, 1992 as amended on 28th
February, 1992.
11. New Delhi Television Ltd. vs. Deputy Commissioner of Income Tax Civil Appeal No. 1008 of 2020 Date of order: 3rd April, 2020
Re-assessment – Information which comes to the notice of the A.O. during
proceedings for subsequent assessment years can definitely form tangible
material to invoke powers vested with the A.O. u/s 147 of the Act
Re-assessment – The duty of the assessee is to disclose all primary
facts before the A.O. and it is not required to give any further assistance to
the A.O. by disclosure of other facts – It is for the A.O. at this stage to
decide what inference should be drawn from the facts of the case
Re-assessment – The assessee must be put to notice of all the provisions
on which the Revenue relies – The noticee or the assessee should not be
prejudiced or be taken by surprise
New Delhi Television Limited (hereinafter referred
to as the assessee), an Indian company engaged in running television channels
of various kinds, has several foreign subsidiaries one of which is based in the
United Kingdom named NDTV Network Plc, U.K. (hereinafter referred to as NNPLC).
The assessee submitted a return for F.Y. 2007-08,
i.e. A.Y. 2008-09, on 29th September, 2008 declaring a loss. This
return was processed u/s 143 of the Income-tax Act, 1961. The case was selected
for scrutiny and the final assessment order was passed on 3rd
August, 2012.
NNPLC had issued step-up coupon bonds of US $100
million which were arranged by Jeffries International and the funds were
received by NNPLC through Bank of New York. These bonds were issued in July,
2007 through the Bank of New York for a period of five years. The assessee had
agreed to furnish corporate guarantee for this transaction. These bonds were
subscribed to by various entities. They were to be redeemed at a premium of
7.5% after the expiry of the period of five years. However, these bonds were
redeemed in advance at a discounted price of US $74.2 million in November,
2009.
The A.O. held that NNPLC had virtually no financial
worth, it had no business worth the name and therefore it could not be believed
that it could have issued convertible bonds of US $100 million unless the
repayment along with interest was secured. This was secured only because of the
assessee agreeing to furnish a guarantee in this regard. Though the assessee
had never actually issued such guarantee, the A.O. was of the view that the
subsidiary of the assessee could not have raised such a huge amount without
having this assurance from the assessee. The transaction was of such a nature
that the assessee should be required to maintain an arm’s length from its
subsidiary, meaning that it should be treated like a guarantee issued by any
corporate guarantor in favour of some other corporate entity. The A.O. did not
doubt the validity of the transaction but imposed guarantee fee @ 4.68% by
treating it as a business transaction and added Rs. 18.72 crores to the income
of the assessee.
On 31st March, 2015, the Revenue sent a
notice to the assessee stating that the authority has reason to believe that
net income chargeable to tax for the A.Y. 2008-09 had escaped assessment within
the meaning of section 148 of the Act. This notice did not give any reasons.
The assessee then asked for reasons and thereafter on 4th August,
2015 the reasons were provided. The main reason given was that in the following
assessment year, i.e. A.Y. 2009-10, the A.O. had proposed a substantial
addition of Rs. 642 crores to the account of the assessee on account of monies
raised by it through its subsidiaries NDTV BV, The Netherlands, NDTV Networks
BV, The Netherlands (NNBV), NDTV Networks International Holdings BV, The
Netherlands (NNIH) and NNPLC.
The assessee had raised its
objection before the Dispute Resolution Panel (DRP) which came to the
conclusion that all these transactions with the subsidiary companies in the
Netherlands were sham and bogus transactions and that these transactions were
done with a view to get the undisclosed income, for which tax had not been
paid, back to India by this circuitous round-tripping. The A.O. relied upon the
order of the DRP holding that there is reason to believe that the funds
received by NNPLC were actually the funds of the assessee. It was specified
that NNPLC had a capital of only Rs. 40 lakhs. It did not have any business
activities in the United Kingdom except a postal address. Therefore, it
appeared to the A.O. that it was unnatural for anyone to make such a huge
investment of $100 million in a virtually non-functioning company and
thereafter get back only 72% of their original investment. According to the
A.O., ‘The natural inference could be that it was NDTV’s own funds introduced
in NNPLC in the garb of the impugned bonds.’ The details of the investors were
given in this communication giving reasons. Mention had also been made of
complaints received from a minority shareholder in which it is alleged that the
money introduced in NNPLC was shifted to another subsidiary of the assessee in
Mauritius from where it was taken to a subsidiary of the assessee in Mumbai and
finally to the assessee. NNPLC itself was placed under liquidation on 28th
March, 2011.
Therefore, the A.O. was of the opinion that there
were reasons to believe that the funds received by NNPLC were the funds of the
assessee under a sham transaction and that the amount of Rs. 405.09 crores
introduced into the books of NNPLC during F.Y. 2007-08 corresponding to A.Y.
2008-09 through the transaction involving the step-up coupon convertible bonds,
pertained to the assessee.
The assessee filed a reply to the notice and the
reasons given, and claimed that there had been no failure on its part to
disclose fully and truly all material facts necessary to make an assessment. The
assessee also claimed that the proceedings had been initiated on a mere change
of opinion and there was no reason to believe it. According to the assessee the
A.O. had accepted the genuineness of the transaction wherein NNPLC, the
subsidiary, had issued convertible bonds which had been subscribed by many
entities. It was urged that the A.O. had treated the transaction to be genuine
by levying guarantee fees and adding it back to the income of the assessee. In
the alternative, it was submitted that the notice had been issued beyond the
period of limitation of four years. According to the assessee it had not
withheld any material facts and, therefore, limitation of six years as
applicable to the first proviso to section 147 would not apply.
The A.O. did not accept these objections. The claim
of the assessee was disposed of by the A.O. vide order dated 23rd
November, 2015 wherein he held that there was non-disclosure of material facts
by the assessee and the notice would be within limitation since NNPLC was a
foreign entity and admittedly a subsidiary of the assessee and the income was
being derived through this foreign entity. Hence, the case of the assessee
would fall within the second proviso of section 147 of the Act and the
extended period of 16 years would be applicable. The objections were
accordingly rejected.
Aggrieved, the petitioner filed a writ petition in
the High Court challenging the notice. The writ petition was dismissed on 10th
August, 2017. Against this the assessee filed an appeal before the Supreme
Court.
According to the Supreme Court, the following
issues arose for its consideration:
(i) Whether
in the facts and circumstances of the case, it can be said that the Revenue had
a valid reason to believe that undisclosed income had escaped assessment?
(ii) Whether
the assessee did not disclose fully and truly all material facts during the
course of original assessment which led to the finalisation of the assessment
order and undisclosed income escaping detection?
(iii) Whether
the notice dated 31st March, 2015 along with reasons communicated on
4th August, 2015 could be termed to be a notice invoking the
provisions of the second proviso to section 147 of the Act?
Question No. 1
After consideration, the Supreme Court observed
that the main issue was whether there was sufficient material before the A.O.
to take a prima facie view that income of the assessee had escaped
assessment. It noted that the original order of assessment was passed on 3rd
August, 2012. It was thereafter, on 31st December, 2013, that the
DRP in the case of A.Y. 2009-10 raised doubts with regard to the corporate
structure of the assessee and its subsidiaries. It was noted in the order of
the DRP that certain shares of NNPLC had been acquired by Universal Studios
International B.V., Netherlands, indirectly by subscribing to the shares of
NNIH.
It was recorded in the reasons communicated on 4th
August, 2015 that NNPLC had no business activity in London. It had no
fixed assets and was not even paying rent. Other than the fact that NNPLC was
incorporated in the U.K., it had no other commercial business there. NNPLC had
declared a loss of Rs. 8.34 crores for the relevant year. It was also noticed
from the order of the A.O. that the assessee is the parent company of NNPLC and
it is the dictates of the assessee which were important for running NNPLC.
According to the Revenue, tax evasion petitions were filed by the minority
shareholders of the assessee company on various dates, i.e., 11th
March, 2014, 25th July, 2014, 13th October, 2014 and 11th
March, 2015, which complaints described in detail the communication between the
assessee and the subsidiaries and also allegedly showed evidence of
round-tripping of the assessee’s undisclosed income through a layer of
subsidiaries which led to the issuance of the notice in question.
According to the Supreme Court, the question as to
whether the facts which came to the knowledge of the A.O. after the assessment
proceedings for the relevant year were completed could be taken into
consideration for coming to the conclusion that there were reasons to believe
that income had escaped assessment, is the question that requires to be
answered. The Supreme Court, referring to its judgments in Claggett
Brachi Co. Ltd., London vs. Commissioner of Income Tax, Andhra Pradesh 1989
Supp (2) SCC 182; M/s Phool Chand Bajrang Lal and Anr. vs. Income Tax Officer
and Anr. (1993) 4 SCC 77; and Ess Kay Engineering Co. (P) Ltd.
vs. Commissioner of Income Tax, Amritsar (2001) 10 SCC 189, observed
that a perusal of the aforesaid judgments clearly showed that subsequent facts
which come to the knowledge of the A.O. can be taken into account to decide
whether the assessment proceedings should be re-opened or not.
Information which comes to the notice of the A.O.
during proceedings for subsequent assessment years can definitely form tangible
material to invoke powers vested with the A.O. u/s 147 of the Act. The material
disclosed in the assessment proceedings for the subsequent years as well as the
material placed on record by the minority shareholders form the basis for
taking action u/s 147. At the stage of issuance of notice, the A.O. is to only
form a prima facie view. In the opinion of the Supreme Court, the material
disclosed in the assessment proceedings for subsequent years was sufficient to
form such a view and it accordingly held that there were reasons to believe
that income had escaped assessment in this case. Question No. 1 was answered
accordingly.
Question No. 2
Coming to the second question, whether there was
failure on the part of the assessee to make a full and true disclosure of all
the relevant facts, the Supreme Court noted that the Revenue had placed
reliance on certain complaints made by the minority shareholders and it was
alleged that those complaints revealed that the assessee was indulging in
round-tripping of its funds. According to the Revenue the material disclosed in
these complaints clearly showed that the assessee was guilty of creating a
network of shell companies with a view to transfer its un-taxed income in India
to entities abroad and then bring it back to India, thereby avoiding taxation.
The Supreme Court did not go into this aspect of the matter because those
complaints were neither before the High Court nor before it and, therefore, it
would be unfair to the assessee if it relied upon such material which the
assessee was not confronted with.
According to the Supreme Court, the issue before it
was whether the Revenue could take the benefit of the extended period of
limitation of six years for initiating proceedings under the first proviso
of section 147. This could only be done if the Revenue could show that the
assessee had failed to disclose fully and truly all material facts necessary
for its assessment. In the opinion of the Supreme Court, the assessee had
disclosed all the facts it was bound to disclose. If the Revenue wanted to
investigate the matter further at that stage, it could have easily directed the
assessee to furnish more facts.
The Supreme Court held that the conclusion of the
High Court that there was no ‘true and fair disclosure’ was not correct. The
assessee had made a disclosure about having agreed to stand guarantee for the
transaction by NNPLC and it had also disclosed the factum of the
issuance of convertible bonds and their redemption. The Supreme Court noted
that the A.O. knew who were the entities who had subscribed to the convertible
bonds and in other proceedings relating to the subsidiaries the same A.O. had
knowledge of the addresses and the consideration paid by each of the
bondholders as was apparent from the assessment orders dated 3rd
August, 2012 passed in the cases of M/s NDTV Labs Ltd. and M/s NDTV Lifestyle
Ltd. Therefore, in the opinion of the Supreme Court, there was full and true
disclosure of all material facts necessary for its assessment by the assessee.
The Supreme Court noted that the fact that step-up
coupon bonds for US $100 million were issued by NNPLC was disclosed; who were
the entities which subscribed to the bonds was disclosed; and the fact that the
bonds were discounted at a lower rate was also disclosed before the assessment
was finalised. According to the Court, this transaction was accepted by the
A.O. and it was clearly held that the assessee was only liable to receive a
guarantee fees on the same which was added to its income. Without stating
anything further on the merits of the transaction, the Supreme Court was of the
view that it could not be said that the assessee had withheld any material
information from the Revenue.
As regards the contention
of the Revenue that the assessee, to avoid detection of the actual source of
funds of its subsidiaries, did not disclose the details of the subsidiaries in
its final accounts, balance sheets and profit and loss account for the relevant
period as was mandatory under the provisions of the Indian Companies Act, 1956,
the Supreme Court noted that the assessee had obtained an exemption from the
competent authority under the Companies Act, 1956 from providing such details
in its final accounts, balance sheets, etc. The assessee was therefore not
bound to disclose this to the A.O. The A.O., before finalising the assessment
of 3rd August, 2012, had never asked the assessee to furnish the
details.
Regarding the contention of the Revenue that the
assessee did not disclose who had subscribed what amount and what was its
relationship with the assessee, the Supreme Court observed that the first part
did not appear to be correct. It noted that there was material on record to
show that on 8th April, 2011 NNPLC had sent a communication to the
Deputy Director of Income Tax (Investigation), wherein it had not only
disclosed the names of all the bond holders but also their addresses and number
of bonds along with the total consideration received. This chart formed part of
the assessment orders dated 3rd August, 2012 in the case of M/s NDTV
Labs Ltd. and M/s NDTV Lifestyle Ltd. The said two assessment orders were
passed by the same officer who had passed the assessment order in the case of
the assessee on the same date itself. Therefore, the entire material was
available with the Revenue.
The Supreme Court was of the view that the assessee
had disclosed all the primary facts necessary for the assessment of its case to
the A.O. What the Revenue was urging before it was that the assessee did not
make a full and true disclosure of certain other facts. According to the Court,
the assessee had disclosed all primary facts before the A.O. and it was not
required to give him any further assistance by disclosure of other facts. It
was for the A.O. at this stage to decide what inference should be drawn from
the facts of the case. In the present case, the A.O., on the basis of the facts
disclosed to him, did not doubt the genuineness of the transaction set up by
the assessee. This the A.O. could have done even at that stage on the basis of
the facts which he already knew. The other facts relied upon by the Revenue
were the proceedings before the DRP and facts subsequent to the assessment
order, and which the Supreme Court had already dealt with while deciding
Question No. 1. However, according to the Supreme Court, that cannot lead to
the conclusion that there is non-disclosure of true and material facts by the
assessee.
The Court noted that whereas before it the Revenue
was strenuously urging that the assessee is guilty of non-disclosure of
material facts, but before the High Court the case of the Revenue was just the
opposite. The Revenue, in response to the writ petition filed by the assessee
before the High Court, had contended that the condition that the income should
have escaped assessment due to failure on the part of the assessee to disclose
fully and truly all material facts necessary for making assessment, was not
relevant to decide the issue before the Hon’ble Court. According to the Supreme
Court, the Revenue could not now turn around and urge that the assessee is
guilty of non-disclosure of facts.
The Supreme Court held that the assessee had fully
and truly disclosed all material facts necessary for its assessment and,
therefore, the Revenue could not take benefit of the extended period of
limitation of six years. Question No. 2 was answered accordingly.
Question No. 3
It was urged by the Revenue that in terms of the
second proviso to section 147 of the Act read with section 149(1)(c),
the limitation period would be 16 years since the assessee had derived income
from a foreign entity.
The Supreme Court noted that the notice dated 31st
March, 2015 was conspicuously silent with regard to the second proviso.
It did not rely upon the second proviso. Besides,, there was no case set
up in relation to the second proviso either in the notice or even in the
reasons supplied on 4th August, 2015 with regard to the notice. It
was only while rejecting the objections of the assessee that reference had been
made to the second proviso in the order of disposal of objections dated
23rd
November, 2015.
On behalf of the Revenue it was urged that mere
non-naming of the second proviso in the notice does not help the
assessee. It had been urged that even if the source of power to issue notice
has been wrongly mentioned but all relevant facts were mentioned, then the
notice could be said to be a notice under the provision which empowers the
Revenue to issue such notice.
The Supreme Court observed that there could be no
quarrel with this proposition of law. However, according to it, the noticee or
the assessee should not be prejudiced or be taken by surprise. The
uncontroverted fact was that in the notice dated 31st March, 2015
there was no mention of any foreign entity. Even after the assessee
specifically asked for reasons, the Revenue only relied upon facts to show that
there was reason to believe that income has escaped assessment and this
escapement was due to the non-disclosure of material facts. There was nothing
in the reasons to indicate that the Revenue was intending to apply the extended
period of 16 years. It was only after the assessee filed its reply to the
reasons given that in the order of rejection for the first time was reference
made to the second proviso by the Revenue.
According to the Supreme
Court this was not a fair or proper procedure. If not in the first notice, at
least at the time of furnishing the reasons the assessee should have been
informed that the Revenue relied upon the second proviso. The assessee
must be put to notice of all the provisions on which the Revenue relies. In
case the Revenue had issued a notice to the assessee stating that it relied
upon the second proviso, the assessee would have had a chance to show
that it was not deriving any income from any foreign asset or financial interest
in any foreign entity, or that the asset did not belong to it or any other
ground which may be available. The assessee could not be deprived of this
chance while replying to the notice.
The Court held that the Revenue cannot take a fresh
ground. The notice and reasons given thereafter do not conform to the
principles of natural justice and the assessee did not get a proper and
adequate opportunity to reply to the allegations which were now being relied
upon by the Revenue. The assessee could not be taken by surprise at the stage
of rejection of its objections or at the stage of proceedings before the High
Court that the notice is to be treated as a notice invoking provisions of the
second proviso of section 147 of the Act.
Accordingly, the Supreme Court answered the third
question by holding that the notice issued to the assessee and the supporting
reasons did not invoke provisions of the second proviso of section 147
and therefore the Revenue could not be permitted to take benefit of the second proviso.
The Supreme
Court allowed the appeal by holding that the notice issued to the assessee
showed sufficient reasons to believe on the part of the A.O. to reopen the
assessment but since the Revenue had failed to show non-disclosure of facts,
the notice having been issued after a period of four years was required to be
quashed. Having held so, it was made clear that it had not expressed any
opinion on whether on the facts of this case the Revenue could take benefit of
the second proviso or not. Therefore, the Revenue may issue fresh notice
taking benefit of the second proviso if otherwise permissible under law.
It was clarified that both the parties shall be at liberty to raise all
contentions with regard to the validity of such notice.
