GE Capital Mauritius Overseas Investments Vs DCIT (Delhi High Court)
Issue: Whether order u/s 241A withholding refund pending completion of scrutiny assessment can be quashed by writ court under article 226 of the Constitution of India?
Held:
I. The time limit, as interpreted by us above, for passing Order under Section 241A of the Act; expiring on 31st March, 2020, was between 20th March, 2020 and 29th June, 2020 and stood extended vide the Taxation & Other Laws (Relaxation of Certain Provisions) Ordinance supra and notification issued thereunder and thus it cannot be said that owing the said order being not issued before 31st March, 2020, any right accrued to the petitioner for receiving refund.
II. The real question agitated and to be decided is, whether the order under Section 241A of the Act is liable to be quashed.
III. The challenge by the petitioner to the said order is not premised on the ground of, the order making authority not having jurisdiction/authority to issue such order or on the ground of any other jurisdictional infirmity in the said order or on the ground of grant of such refund not likely to adversely affect the revenue. It is not in dispute that the petitioner, a foreign entity, has no other asset whatsoever from which the tax liability, if any ultimately found due, can be recovered. The petitioner impugns the order on the ground, that the question of grant of refund likely to adversely affect the revenue does not arise because the petitioner has no tax liability and no tax is recoverable from the petitioner.
IV. We have wondered, whether in a challenge to an order under Section 241A of the Act, it is open to the writ court to go into the question whether there is likelihood of any tax being found due, inasmuch as the said determination is a matter of assessment proceedings under Section 143(2) of the The language of Section 241A also empowers AO to pass order thereunder, “having regard to the fact that a notice has been issued under sub-Section (2) of Section 143 in respect of such return”. To hold, that in a challenge to an order under Section 241A of the Act, the court, in exercise of writ jurisdiction, would determine the tax liability, would tantamount to this Court, in writ jurisdiction, entertaining a challenge to the assessment underway.
V. In our view, in the garb of a challenge to an order under Section 241A of the Act, a challenge to assessment underway cannot ordinarily be adjudicated. The scrutiny thereunder has to be confined to, whether grant of refund is likely to adversely effect the revenue i.e. whether there is no basis whatsoever for the opinion formed that if refund is granted today, tax if any found due on completion tomorrow of assessment underway of the ITR claiming refund, will not be recoverable. Of course, in a gross case, where it is found that though a notice under Section 143(2) has been issued but there is nothing to controvert the ITR, the Court would be entitled to quash the Section 241A order. However, in the facts of the present case, not only have detailed reasons, as set out above, been given in the Section 241A order but otherwise also lengthy arguments have been addressed and we are of the view that this case does not fall in the said category.
VI. We must however admit that the argument of the senior counsel for the petitioner that the reasons given by the AO and the Principal Commissioner in the order under Section 241A are in the teeth of Azadi Bachao Andolan supra and Vodafone India Ltd. supra, is attractive and temptS us, to examine further and if indeed find so, nip the proceedings in the bud, instead of going through the rigmarole of assessment, appeals etc. However, what is beyond our jurisdiction is beyond our jurisdiction and howsoever well intended the said thought may be, cannot be allowed to have a free run.
VII. For the writ Court to quash the order under Section 241A of the Act on the ground that no tax is due and thus question of refund likely to adversely affect the revenue does not arise, this Court has to conclusively hold that the petitioner has no tax liability in India. Once it is so held, there will be nothing left to be determined in the assessment underway pursuant to notice under Section 143(2) of the Act.
VIII. The AO and the Principal Commissioner, in exercise of powers under Section 241A, are required to take a prima facie view of the outcome of the assessment pursuant to notice under Section 143(2). They are also the authorities vested with the power of The authority vested with the power of final determination is the best authority to take a prima facie view. Moreover, the statute provides statutory remedies in the form of appeals, against the final determination by such authority. In such statutory scheme, under Section 260A, appeal lies to the High Court against orders of the Income Tax Appellate Tribunal. A determination of tax liability in a challenge to an order under Section 241A would set at naught the entire statutory scheme of assessment and appeals, ultimately to this Court, opening the doors to every assessee to whom a notice under Section 143(2) of the Act is issued, to approach this Court contending that the ITR filed and being processed under Section 143(1) of the Act admits / permits of no scrutiny and should be accepted. This Court would then be appropriating to itself the entire statutory mechanism of assessment, First Appeals and Appeals to Income Tax Appellate Tribunal and thereafter to this Court.
IX. Section 241A of the Act, though in the nature of attachment before judgment, but owing to the determination of tax liability being not in the domain of this Court, save under Section 260A, but in the domain of the statutory scheme under the Income Tax Act, this Court in writ jurisdiction, while entertaining a challenge to an order under Section 241A of the Act, will ordinarily not enter into the correctness of reasons given for holding that the assessee may be ultimately found liable for tax. The Courts, when in exercise of powers of attachment before judgment, go into the question of prima facie merits of the claim of the party seeking attachment before judgment, are empowered to do so because the ultimate decision in the said respect also rests in the Court. However the Court does not have jurisdiction qua the determination of tax and which jurisdiction is exercised by this Court only in exercise of powers under Section 260A of the Act, on a substantial question of law arising and not otherwise. When this Court has not been empowered to assess tax liability in the first instance, it would ordinarily not form a prima facie view even, of what it is not finally empowered to do.
x. Rather, the AO and Principal Commissioner also, in exercise of powers under Section 241A, are concerned largely with the question of grant of refund likely to adversely affect revenue i.e that the tax, if ultimately found due, being not recoverable; though the AO and Principal Commissioner have in the impugned order given detailed reasons, but in our view were not required to, as the same is likely to prejudice the assessment underway. We thus clarify that the same will have no bearing in the final assessment.
The petition is accordingly dismissed.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
This petition was originally filed, seeking a mandamus, directing the respondents to issue / grant refund due of 249.39 crores, for the assessment year 2018-19 along with interest under Section 244A of the Income Tax Act, 1961, to the petitioner. It was the case of the petitioner, that (i) the petitioner, on 31st October, 2018 filed its Income Tax Return (ITR) for the assessment year 2018-19, claiming refund of Rs.226.72 crores, being the amount of Tax Deducted at Source (TDS) by the payer, from the payments made to the petitioner on account of sale by the petitioner of shares of an Indian company and which payment was not chargeable to tax in India in terms of Article 13(4) of the Double Taxation Avoidance Agreement (DTAA) between India and Mauritius; (ii) the ITR of the petitioner was selected for scrutiny assessment and a notice dated 22nd September, 2019, under Section 143(2) of the Act, was received by the petitioner; (iii) on 25th November, 2019, an intimation under Section 143(1) of the Act was issued to the petitioner, determining a refund of approximately Rs.249.39 crores to be due to the petitioner along with applicable interest; and, (iv) however inspite of intimation dated 25th November, 2019 and several reminders of the petitioner, till the date of filing of the petition, refund had not been received by the petitioner.
2. The petition came up before this Court first on 19th June, 2020 and thereafter before this Bench on 23rd June, 2020, when it was the contention of the senior counsel for the petitioner that no order under Section 241A of the Act, for retention of the aforesaid amount, had been passed. Per contra, the counsel for the respondents, appearing on advance notice, stated that it was mentioned in the intimation dated 25th November, 2019 itself that
“The refund determined u/s 143(1) in this intimation, if any, along with interest u/s 244A and subject to adjustment of arrear demand, if any, u/s 245 will be released as per the provisions of Section 241A of the Income Tax Act, 1961 as determined by the Assessing Officer” and time was sought for filing counter affidavit.
3. In the next date of hearing i.e. 27th July, 2020, the senior counsel for the petitioner stated that the petitioner, on 15th July, 2020 had been served with an order under Section 241A of the Income Tax Act and he had advised for amendment of the writ petition. Per contra, the counsel for the respondents stated that though counter affidavit had already been filed but an additional counter affidavit would be required to be filed to the amended petition.
4. The pleadings were accordingly completed. The petitioner, in the amended petition, besides the relief of mandamus directing refund with interest, has also impugned the order dated 15th July, 2020 under Section 241A of the Act.
5. Considering the nature of the controversy, it is not deemed expedient to detail the pleadings at this We may however reproduce hereinbelow the relevant part of the order dated 15th July, 2020 as under:
“1. I have gone through the proposal of the DCIT Circle 1 (3)(1) regarding withholding of refund of M/s GE Capital Mauritius Overseas Investments (PAN- AADCG3823H) for AY 2018-19 vide her application dated 26.6.2020.
2. The assesse is a company registered in Mauritius since 2007. However it never filed its return of income in India before the present return which has resulted in refund of Rs 226,72,06,7201- u/s 143(1) of the I.T. Act 1961 subject to withholding of refund under section 241 A.
3. The assesse company has sold its share holding in SBI Cards and Payment Services Private Limited, a company incorporated in This resulted in Long Term Capital gains of Rs 2036.50 crore/-. The assesse has claimed benefit of Indo Mauritian DTAA and has asserted that the Capital gains arising out of sale of shares in Indian Companies were not taxable in India. The case of the assesse for the said assessment year was selected for scrutiny and notice u/s 143(2) was issued on 22/09/2019 i.e. before the order u/s 143(1) which was passed in Dec 2019.
4. The assesse company is a GBL1 company registered under the laws of Mauritius. It has no assets or Bank account in India. From the return of income and financial accounts submitted with the return of income it appears that investment in these companies i.e. SBI Cards and Payment Services Private Limited, were the only investment made by the assesse
5. Since the Company never filed return of income earlier, the A.O. did not have much information about the assesse company.
Before issuing the refund of Rs 226 Crore it was the duty of the AO to ascertain the genuineness of the assessee’s claim that capital gains was not taxable in India. In view of this the AO sent a mail to the assesse seeking certain information like source of investment in SBI Cards and Payment Services Private Limited, utilization of the sale proceeds and copies of the Copies of Balance sheet & P & L A/c for AY 2015-16,2016-17,2017-18 & 2018-19. From the AO’s proposal it appears that the asessee did not submit these details but filed a writ petition in Delhi High Court seeking direction for issuance of the refund which is pending. Subsequently, assessee has furnished AFS for the period ending December 2017 and December 2018. On crucial question of source of funds for acquiring the shares and the utilization of sale proceeds of shares, the assessee has questioned the purpose of AO in requiring this information, and has not responded to this query.
6. The AO has mentioned that the assesse is a company registered in Mauritius holding GBL1 license. A GBL1 company is regulated by Financial Services Commission (FSC) of Mauritius. It is allowed dealing with residents in a range of 10-15% with prior authorization of FSC for activities connected with business outside Mauritius. Thus it is actually meant for business outside Mauritius. It’s a travesty that a person claiming resident of Mauritius can’t do business in the resident jurisdiction!. Some prominent features of a GBL1 company are
