Case Law Details
Global Publishing Solutions Limited Vs DCIT (Madras High Court)
The Madras High Court disposed of a writ petition challenging a draft assessment order and its corrigendum relating to the petitioner’s assessment for Assessment Year 2018-19. The petitioner, a subsidiary of an Indian company, had received payments from its parent company for services rendered. Tax had not been deducted at source under Section 195 of the Income-tax Act on those payments, resulting in separate proceedings against the Indian company, which were pending before the appellate authority. Meanwhile, the Income-tax Department initiated reassessment proceedings against the petitioner by issuing notices under Sections 148A and 148. After receiving the notice under Section 148, the petitioner filed its return of income. However, the Assessing Officer initially passed a draft assessment order on a best judgment basis, stating that no return had been filed. A corrigendum was issued the following day acknowledging the return of income but otherwise retaining the original conclusions.
The petitioner challenged the proceedings on two principal grounds. First, it argued that proceedings against the Indian company for failure to deduct tax at source under Section 195 were already pending and that, depending on their outcome, the Indian company would discharge the petitioner’s tax liability. Consequently, simultaneous proceedings against the petitioner could result in double taxation. Secondly, the petitioner contended that once its return of income had been filed, proceedings under Section 144, which applies where no return is filed, were no longer appropriate. It argued that the Department ought to have proceeded under Section 143(2) after taking the return into consideration.
The Revenue submitted that the proceedings against the Indian company related only to its obligation to deduct tax under Section 195 and did not relieve the petitioner from filing its own return of income or being assessed. It further contended that the applicable tax liability depended on the interpretation of the Double Taxation Avoidance Agreement (DTAA) between India and the United Kingdom. According to the Revenue, the matter did not involve double taxation because any tax paid by the Indian company would be given credit while determining the petitioner’s tax liability.
After examining the record, the High Court found that the Assessing Officer had incorrectly recorded in the draft assessment order that the petitioner had not filed any return of income. The Court noted that, in response to the notice issued under Section 142(1) on 27 March 2023, the petitioner had filed its return of income on 28 March 2023. Therefore, the assessment ought not to have proceeded on the basis that no return had been filed. Although the Department issued a corrigendum the next day acknowledging the return, it merely recorded that fact while retaining all the earlier conclusions without reconsidering the assessment in light of the return.
The Court held that these circumstances required reconsideration of the petitioner’s assessment. It also referred to Section 153(2) of the Income-tax Act, which prescribes the limitation period for completing reassessment. Since the petitioner had filed the writ petition and obtained interim protection, the Court observed that the time spent in prosecuting the writ petition would be excluded while computing the limitation period under Section 153(2).
Accordingly, the High Court set aside both the draft assessment order and the corrigendum. It granted liberty to the Income-tax Department to initiate fresh proceedings against the petitioner in accordance with law after taking into account the observations contained in the judgment. The writ petition was disposed of, and the connected miscellaneous petitions were closed without any order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
The petitioner is a subsidiary of a company, Newgen Digitalworks Private Limited (Newgen Digitalworks), registered and resident in India for purposes of the Income-Tax Act, 1961 (the I-T Act). In relation to services provided by the petitioner to the said company, payments were made to the petitioner. Tax was not deducted thereon under Section 195 of the I-T Act. Such non-deduction gave rise to proceedings against the Indian entity. Such proceedings are pending before the appellate authority. Meanwhile, proceedings were initiated against the petitioner by issuing notice under Section 148A. Eventually, notice under Section 148 was issued. Upon receipt thereof, the petitioner filed the return of income for the assessment year 2018-19. Initially, without taking notice of such return of income, a draft assessment order was issued on 30.03.2023 on best judgment basis. Subsequently, a corrigendum was issued on 31.03.2023 after taking note of the return of income. Apart from taking note of the return of income, the conclusion in the corrigendum remained the same. The present writ petition was instituted in the above facts and circumstances.
2. Learned counsel for the petitioner assails the orders impugned herein on two substantial grounds. The first ground of challenge is that proceedings were initiated against Newgen Digitalworks, which is an Indian entity. Depending on the outcome of such proceedings, the entire tax liability of the petitioner would be discharged by the Indian entity. Therefore, the proceedings against the petitioner would result in double taxation. Without prejudice, the second contention is that the show cause notice preceding the draft assessment order was issued under Section 144 of the I-T Act, which is applicable in cases where the return of income is not filed. Given that a return of income was filed by the petitioner and such return of income was not taken into consideration, learned counsel contends that the only legitimate course of action for the Income-tax Department was to initiate proceedings under Section 143 after issuing notice under subsection (2) thereof. Thereafter, the corrigendum is liable to be set aside.
3. In response, Mr.Ramana Kumar, learned SPC, submits that the proceedings against the holding company are confined to the failure to deduct tax at source in terms of Section 195 of the I-T Act. Irrespective of whether deduction is made or not, he submits that the petitioner should have filed a return of income so as to enable assessment. He also submits that the rate of tax applicable to the transaction would depend on the application and interpretation of the Double Taxation Avoidance Agreement (DTAA) between India and the UK. Consequently, he contends that it is not a case of double taxation and that any payment. made by the holding entity in India would be given credit to while determining the tax liability of the petitioner.
4. On examining the draft assessment order, it is clear that the assessing officer recorded that no return of income was filed by the assessee till date. This conclusion is contrary to the materials on record. Pursuant to notice dated 27.03.2023 under Section 142(1) of the I-T Act calling upon the petitioner to file the return of income for the assessment year 2018-19, the petitioner filed the said return on 28.03.2023. Therefore, the assessment should not have been carried out on the basis that no return was filed. Upon noticing this error, a corrigendum was issued on the very next day merely taking note of the return of income and retaining all other conclusions. These facts and circumstances warrant reconsideration of the petitioner’s assessment.
5. Under Section 153(2) of the I-T Act, an order of assessment or reassessment is required to be made within 12 months from the end of the financial year in which the notice under Section 148 was served. The notice under Section 148 is dated 02.05.2022 and the relevant financial year ended on 31.03.2023. If a 12 month period were to be computed therefrom, it would expire on 31.03.2024. The petitioner lodged the writ petition on or about 20.04.2023 and also obtained interim protection. Therefore, the time taken in prosecuting this writ petition is liable to be excluded while computing the period of limitation under Section 153(2).
6. For reasons set out above, this writ petition is disposed of as follows:
i. The impugned draft assessment order and the corrigendum thereto are set aside.
ii. It is open to the Income-tax Department to initiate proceedings against the petitioner in accordance with law after taking note of the observations set out in this order. Consequently, connected miscellaneous petitions are closed. No costs.
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