Sandstone Investment Partners I, Mauritius V. ACIT, Circle Int.Tax. 3(1)(2), Delhi

ITA 1158/DEL/2022

AI Insights

The case involves Sandstone Investment Partners I, a non-resident company based in Mauritius, which appealed against the order of the Commissioner of Income Tax (International Tax) Delhi-3. The Commissioner had invoked section 263 of the Income Tax Act, 1961, to direct a revision of the assessment order for the Assessment Year 2017-18. The original assessment had accepted the company's nil income return without thorough investigation, despite substantial foreign remittances and capital gains from the sale of Indian securities. The Commissioner questioned the company's entitlement to DTAA benefits and its tax residency status, leading to the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302662 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 01-05-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 23-05-2022
• Other Referred Cases: Gee Vee Enterprises vs. Addl. CIT, Venkatakrishna Rice Co. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Revision of order; Double taxation relief; Permanent establishment; Cost of acquisition; Set aside; Capital Gains
• Section: 263; 143(3); 142(1); 143(2)

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI BEFORE SHRI G.S. PANNU, HON’BLE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No. 1158/Del/2022 Asstt. Year: 2017-18 O R D E R PER ASTHA CHANDRA, JM The appeal filed by the assessee is directed against the order of the Ld. Commissioner of Income Tax (International Tax) Delhi-3 (“CIT”) dated 24.03.2022 passed by him under section 263 of the Income Tax Act, 1961 (the “Act”) pertaining to the Assessment Year (“AY”) 2017-18. 2. The assessee has taken the following grounds of appeal:- “1. The impugned order dated 24.03.2022 u/s 263 of the Income Tax Act, 1961 (‘the Act’) passed by the Ld. Commissioner of Income Tax (International Tax) - 3, Delhi (‘the Ld. CIT’) is bad in law and Void ab Initio, being without any jurisdiction. Sandstone Investment Partners I Sanne House, Bank Street Twentyeight Cybercity Ebene 72201 Mauritius PAN AANCS4996H Vs. ACIT, Circle Int. Tax.3(1)(2) Delhi (Appellant) (Respondent) Assessee by: None Department by: Shri Vijay B.Vasanta, CIT-DR Date of Hearing: 02.05.2023 Date of pronouncement: 26.05.2023 ITA No. 1158/ Del/22 2 2. In the facts and circumstances of the case and in law, the Ld. CIT grossly erred in holding that the assessment order u/s 143(3) dated 02.12.2019 passed by the assessing officer is erroneous in so far as it is prejudicial to the interest of revenue. 3. In the facts and circumstances of the case and in law, the Ld. CIT grossly erred in holding that the appellant is not entitled to the benefit of India-Mauritius Double Taxation Avoidance Agreement (India- Mauritius DTAA). 4. In the facts and circumstances of the case and in law, the Ld. CIT grossly erred in holding that the long-term capital gains of INR 149,37,42,732 earned by the appellant on sale of listed securities (on which securities transaction tax has been paid) is taxable in India u/s 115JB of the Act.” 3. Briefly stated, the assessee is a non-resident company engaged mainly in the business of investment holding. For AY 2017-18, it filed its return declaring income at Rs. Nil. The case was selected for complete scrutiny through CASS to examine the issues of foreign remittance made to person(s) located in low tax jurisdiction countries; receipt of large value foreign remittance and low/nil business income; value of foreign remittance sent by the assessee being higher than the gross total income and large outward remittances to a non-resident being a company or to a foreign company. 4. During assessment proceedings, the Ld. Assessing Officer (“AO”) issued statutory notice under section 143(2) of the Act through electronic mode and notice under section 142(1) of the Act along with detailed questionnaire electronically. The assessee explained its business activities and stated that it was incorporated on 03.09.2007 and is domiciled in Mauritius and gave its office address of Mauritius. On being communicated the reasons for selection of its case for scrutiny, the assessee gave explanation which the Ld. AO examined and accepted the income returned at Rs. Nil in the order passed by him on 02.12.2019 under section 143(3) of the Act. 5. While carrying out review of scrutiny assessment in the case of the assessee, the Ld. CIT noticed that during the year the assessee, a tax ITA No. 1158/ Del/22 3 resident of Mauritius has disposed of shares of SKS Microfinance Ltd., an Indian company for a sum of Rs. 233,74,58,232/-. It computed long term capital gains of Rs. 149,37,42,732/- after considering the cost of acquisition at Rs. 84,37,15,500/-. The assessee contended that the capital gains are not chargeable to tax in India under Article 13(4) of India-Mauritius Double Taxation Avoidance Agreement (“India-Mauritius DTAA”). It also submitted a Tax Residency Certificate (“TRC”) to support its claim. The Ld. CIT was of the view that the Ld. AO did not carry out factual inquiry/verification to ascertain that the assessee is a genuine investor or not. He should have called for and verified the details of key personnel who manage the investment decisions of the fund. The Ld. AO did not do so. According to him, it is essential to ascertain whether the fund manager creates a Permanent Establishment (PE) for the assessee or in case fund is controlled and managed in India, then the assessee may be treated as a resident for tax purposes in India leading to different tax consequences in India. Moreover, the Ld. AO has also not carried out any enquiry to ascertain whether there was any attempt by the assessee to obtain tax benefits under the India-Mauritius DTAA. Therefore, the impugned order passed by the Ld. AO is erroneous and therefore prejudicial to the interests of the Revenue. Accordingly, the Ld. CIT issued notice under section 263 of the Act to show cause why the impugned order of the Ld. AO be not set aside. 6. The assessee responded and submitted that it is incorporated and registered outside India according to law of Mauritius. A copy of TRC was submitted to support the tax residency. It is constituted under Collective Investment Scheme (CIS) and authorised and regulated by the Financial Service Commission (FSC), Mauritius. The fund investors are resident of various third countries. It was contended that the impugned long term capital gains are not chargeable to tax in India under Article 13(4) of India- Mauritius DTAA. 7. The submissions of the assessee were not acceptable to the Ld. CIT. In the light of the provisions of section 263 and judicial precedent cited by him, the Ld. CIT was of the opinion that the proceedings initiated by him under ITA No. 1158/ Del/22 4 section 263 of the Act is in accordance with law. He discussed the basic facts in para 7, legal position of taxation of non-resident in India in para 8, issue of tax treaty entitlement, e.g. whether the assessee is a resident for tax purposes in para 9, whether assessee is a legitimate resident in para 10 of his order. He summarised the following facts which emerged from his discussion in the preceding paras: “10.10 Summary In a nutshell, following facts emerges: 1 The scheme of arrangement employed by the assessee is a tax avoidance through treaty shopping mechanism. 2 The assessee company is just a conduit and the real owner is the shareholders/investors who are tax residents of different countries. 3 The TRC is not sufficient to establish the tax residency if the substance establishes otherwise. 4 The assessee company is also not a beneficial owner of income as control and dominion of fund is not with the company, 5 There is no commercial rationale of establishment of assessee company in Mauritius as the commercial outcomes would be identical irrespective of location of funds. 10.11 In view of the aforesaid discussions, the assessee company is not entitled to the treaty benefits of India-Mauritius DTAA. Therefore, the taxability of income of the non-resident assessee company would be decided under the provisions of Income-tax Act only.” 8. It is against the direction of the Ld. CIT to the Ld. AO to revise the impugned assessment order in the light of aforesaid discussion that the assessee is in appeal before the Tribunal and all the grounds relate thereto. 9. Hearing was fixed for 20.10.2022, 20.12.2022, 23.02.2023 and 02.05.2023 but none appeared for and / or on behalf of the assessee on any of the above dates, though the Department was represented by the Ld. Sr. DR/CIT-DR on all the date(s) fixed for hearing of the case. We are, therefore, constrained to decide the appeal of the assessee ex-parte on merits after hearing the Ld. CIT-DR. ITA No. 1158/ Del/22 5 10. Ld. CIT-DR took us through the assessment order and pointed out that it has been passed without carrying out any enquiry/verification in relation to the issues for which the case of the assessee was selected for complete scrutiny through CASS. Therefore, the Ld. CIT was justified in exercising power vested in him to invoke the provisions of section 263 of the Act and direct the Ld. AO to revise the assessment order in the light of his observations and findings. 11. We have given careful thought to the submissions of the Ld. CIT-DR and perused the records. It is revealed from para 3 of the impugned assessment order that during the course of assessment proceedings, the Ld. AO communicated the reasons for selection of case and sought the explanation of the assessee. However, there is no inkling in the assessment order as to what explanation was given by the assessee. The assessment order only mentions that the assessee filed details. What details were filed is not forthcoming from the assessment order. However, the details examined by the Ld. AO are not known. No reasons have been recorded by him to arrive at the conclusion that income returned by the assessee at Rs. Nil is acceptable and conforms to the legal position. Nothing is discernable as to how the issues raised were examined and found acceptable by him. In such a scenario wherein the assessment is completed without any enquiry/verification of the issues involved, the Hon’ble Delhi High Court held in Gee Vee Enterprises vs. Addl. CIT 99 ITR 375 (Delhi) that the assessment order is erroneous as also prejudicial to the interests of revenue as it caused prejudice to revenue administration as emphasised by Hon’ble Madras High Court in Venkatakrishna Rice Co. vs. CIT 163 ITR 129 (Mad). Therefore, we are of the view that the Ld. CIT was justified in resorting to the provisions of section 263 of the Act. 12. Since the assessee did not turn up on the hearing fixed before the Tribunal, nor filed any written arguments, the findings recorded by the Ld. CIT remain uncontroverted. We find no substance in the grounds taken by the assessee which we hereby reject. ITA No. 1158/ Del/22 6 13. In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 26 th May, 2023. sd/- sd/- (G.S. PANNU) (ASTHA CHANDRA) PRESIDENT JUDICIAL MEMBER Dated: 26/05/2023 Veena Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr. PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order