Russian Technology Centre (P) Ltd. Vs DCIT (Delhi High Court)
In a significant ruling, the Delhi High Court has clarified the taxability of foreign remittances received by Indian companies, particularly in the context of share capital. The court, in the case of Russian Technology Centre (P) Ltd. Vs. DCIT, held that once the identity and creditworthiness of non-resident shareholders and the genuineness of the transaction are established, such remittances, received through banking channels, should be treated as capital receipts and not as “deemed income” under Sections 68 or 69 of the Income-tax Act, 1961.
The case involved Russian Technology Centre (P) Ltd. (assessee), which faced scrutiny from the tax authorities regarding share application money received from its non-resident holding company. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) had sought to treat these foreign remittances as unexplained cash credits under Section 68, leading to additions to the assessee’s income.
Burden of Proof and Foreign Remittances
The core of the dispute revolved around the assessee’s onus to prove the identity and creditworthiness of its non-resident shareholders and the genuineness of the transactions, as mandated by Section 68. The High Court, referencing earlier Tribunal decisions and a CBDT Circular, underscored that the assessee had discharged its primary burden by providing comprehensive documentation. This included balance sheets, certificates of incorporation, confirmations, certificates of good standing of the non-resident entities, and Foreign Inward Remittance Certificates (FIRCs) detailing the purpose of remittance through banking channels. Furthermore, the company had obtained Foreign Investment Promotion Board (FIPB) approval, allowing it to collect share capital up to `600 crores, and had complied with Registrar of Companies (ROC) regulations.
The court emphasized that the availability of such a “plethora of evidence” established the independent and legal existence of the non-resident shareholders and the legitimate nature of the transactions.
