Legrand Netherlands B.V. Vs ACIT (ITAT Mumbai)
Facts and Background
Legrand Netherlands B.V., a company incorporated in and tax resident of the Netherlands, is engaged in manufacturing cable-management systems and providing associated engineering and installation services. It does not carry on business operations in India, holds a valid Tax Residency Certificate and claims benefits under the India-Netherlands DTAA.
For Assessment Year 2017-18, the assessee filed its return on 30.11.2017 declaring total income of Rs.3,52,91,25,531/-, including long-term capital gains of Rs.2,75,20,00,000/- arising from reduction of share capital of Novateur Electrical and Digital Systems Private Limited.
During assessment proceedings under section 143(3) r.w.s. 144C, the Assessing Officer examined the capital reduction transaction, the Indian company’s financials and accumulated profits. Applying section 2(22)(d) of the Income-tax Act, 1961, the AO treated Rs.138,47,19,180/- out of the amount reported as capital gains as deemed dividend taxable under the head “Income from Other Sources”.
The Dispute Resolution Panel upheld the AO’s conclusion in principle. The final assessment order dated 29.07.2022 determined total income at the same Rs.3,52,91,25,531/- declared in the return, although the composition of income changed because part of the capital gains was re-characterised as dividend income.
The Mumbai ITAT, by order dated 13.10.2023 in ITA No. 2487/Mum/2022, substantially confirmed the re-characterisation but directed that tax on the dividend be restricted to 10% under the India-Netherlands DTAA, inclusive of surcharge and cess.
Penalty Proceedings
Following the ITAT order, the AO issued notice under section 274 r.w.s. 270A on 29.02.2024. The AO concluded that failure to offer the impugned amount as dividend income constituted under-reporting under section 270A(2) and imposed a penalty of Rs.6,97,89,850/-, being 50% of the tax computed on the under-reported income.
