Case Law Details
Watanmal Boolchand & Co. Ltd. Vs Assistant Director of Income Tax (Madras High Court)
Conclusion: Reassessment against a Hongkong-based company, Watanmal Boolchand was justified as there was a prima facie the case of ‘Business Connection’ of assessee-company in India.
Held: Assessee-company was incorporated outside India under the laws of Hong Kong. One of the group companies of assessee-company, viz., W (India) Pvt. Ltd. was engaged in the business of providing trade, management and logistic support services to the assessee-company. W India provided services to assessee-company in sourcing and supplying goods to its customers in Africa and South America. Under the Agreement, W India was paid on cost plus basis. It was relevant to note that the goods were neither purchased, sources, supplied, nor dealt with in India by the parties. TPO of W India had passed an order and determined arm’s length price of transaction between the two entities. International Taxation Unit of the Income Tax Department carried out survey proceedings under Section 133A at the premises of W India and collected various documents and records including the Agreement for the relevant period. Relying on the documents found during the survey, Assistant Director of Income Tax issued a notice under Section 148 initiating assessment proceedings under Section 147 on reference to Section 9(1) of the IT Act holding that income deemed to accrue or arise in India was established in the case of assessee-company and W India constituted assessee’s permanent establishment in India. It was held that there were prima facie materials and evidences enough to proceed against assessee under the provisions of the IT Act. However, the contentions in the impugned show cause notice alone could not be a conclusive factor. The business transactions, which all were complex in nature and made by the traders, many times in a calculated manner were to be adjudicated with expertise in the field and such an exercise must be allowed to be done by the competent authorities of the Income Tax Department and in the event of interference at the earliest stage and in the absence of any ground regarding the jurisdiction, the Court must in all fairness allow the authorities to proceed with the adjudication and pass an order of assessment enabling assessee to prefer an appeal even thereafter if any grievance exists. In view of the fact that assessee-company could not able to establish any acceptable ground for the purpose of interference at the stage of issuance of a notice under Section 148 and the issuance of show cause notice and contrarily the respondents could able to establish that sufficient materials were available on record, which were considered and scrutinized and a finding on such analysis was also recorded in the impugned show cause notice, there was no reason whatsoever to interfere with the actions of the respondent. In view of the fact that the respondents had already completed the assessment process and passed an assessment order and kept the same in a sealed cover, the respondents were permitted to open the sealed cover and communicate the assessment orders to assessee without any further delay enabling the petitioner to proceed further, if any grievance exist.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
The lis on hand is instituted for quashing of the notices issued under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for assessment. The consequential proceedings issued in continuation of Section 148 notices are also under challenge.
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