Angelantoni Test Technologies SRL Vs ACIT (Delhi High Court)
Introduction: The present series of writ petitions collectively seek to quash notices issued under Section 148A(b) and orders passed under Section 148A(d) of the Income Tax Act, 1961 (Act). Additionally, the petitioners challenge notices issued under Section 148 of the Act, along with all consequential actions. A pivotal aspect of the challenge revolves around the legality and constitutional validity of Explanation 1 to Section 148 of the Act.
Factual Overview: While a common legal question is at the core of these petitions, each case presents nuanced factual variations. One case, exemplified by M/s Angelantoni Test Technologies SRL Versus Assistant Commissioner of Income Tax, Circle Int Tax 1(1)(1) & Ors., involves a foreign company, resident in Italy, subscribing to shares in its wholly owned Indian subsidiary during the fiscal year 2018-19.
Legal Arguments and Counterarguments:
Nature of Transactions: Petitioners assert that the transactions in question are capital account transactions incapable of generating income. Respondents argue that notices under Section 148A(b) were issued as per the Risk Management Strategy formulated by the Central Board of Direct Taxes (“CBDT”).
Capital Account Transactions: Petitioners emphasize that transactions involving investment in shares of Indian subsidiaries fall under the purview of capital account transactions. Referring to Nestle SA Versus Assistant Commissioner of Income Tax, the court supports the argument that such investments do not constitute income.
Contravention of CBDT Instruction: Petitioners contend that the action of the Respondents is in violation of CBDT Instruction No. 2 of 2015, which reinforces the view that no income arises from the investment in shares. The Respondents issued notices under Section 148A(b) based on the Risk Management Strategy.
Accepted Legal Precedent: The court cites a judgment related to Vodafone India Services Pvt. Ltd., where it was held that investment in shares is a capital account transaction. The Union Cabinet accepted this judgment, emphasizing that it brings clarity and predictability to taxpayers.
Absence of Evidence for Allegations: Petitioners argue that no tangible material exists with the Respondents to indicate the escapement of income. Respondents assert that notices were issued as part of the Risk Management Strategy, without specific evidence mentioned in the notices.
Conclusion and Disposition:
Based on the legal arguments presented and considering established legal precedents, the court sets aside the impugned orders under Section 148A(d) of the Act and the notices issued under Section 148. The court emphasizes that if the Revenue obtains material subsequently, it can initiate proceedings in accordance with the law. The challenge to the vires of Explanation 1 to Section 148 of the Act remains open. With these directions, the court disposes of the writ petitions..
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Present writ petitions have been filed seeking quashing of the impugned notices issued under Section 148A (b) of the Income Tax Act, 1961 (the “Act”), impugned orders passed under Section 148A(d) of the Act, and notices issued under Section 148 of the Act, and all consequential actions thereto. Petitioners also challenge the legality and constitutional validity of Explanation 1 to Section 148 of the Act.
2. Though a common question of law arises in the present batch of matters, yet facts of each case differ slightly. Just to give a glimpse of the factual scenario, the background facts of M/s Angelantoni Test Technologies SRL Versus Assistant Commissioner of Income Tax, Circle Int Tax 1(1)(1) & Ors. being P.(C) 15928/2023 are mentioned, namely, that the petitioner is a foreign company and is a resident of Italy. Learned counsel for petitioner states that during FY 2018-19, the petitioner had subscribed to 15,00,000 shares at face value of Rs. 10 each by making foreign inward remittance of Rs. 1,50,00,000 in its wholly owned Indian subsidiary namely, Angelantoni Test Technologies India Pvt. Ltd. in accordance with applicable regulations. He further states that since the Petitioner had not earned any income from any source in India, the Petitioner did not file return of income in India.
