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2024 (1) TMI 426 - HC - Income TaxValidity of reopening of assessment - investment in shares in an Indian subsidiary - as submitted notices u/s 148A(b) had been issued in the present batch of matters in accordance with the Risk Management Strategy formulated by the Central Board of Direct Taxes (“CBDT”) - HELD THAT:- The admitted facts in the present batch of matters are that the assessees are foreign companies who have made remittances/investment in shares of their Indian subsidiaries. It is an admitted position that the transactions in question are capital account transactions. Though there is a doubt expressed that the transactions in question may be a consequence of round tripping, yet no evidence or proof of the said allegations have been stated or annexed with the impugned orders and notices. It is settled law that investment in shares in an Indian subsidiary cannot be treated as ‘income’ as the same is in the nature of “capital account transaction” not giving rise to any income. In Nestle SA Versus Assistant Commissioner of Income Tax [2019 (8) TMI 934 - DELHI HIGH COURT] this Court held that the allegation of the Revenue that the investment in the shares of Indian subsidiary amounted to ‘income’ is flawed. The action of the Respondents is in contravention of the CBDT Instruction No. 2 of 2015 dated 29th January, 2015 reiterating the view expressed by the Bombay High Court in Vodafone India Services Pvt. Ltd. Versus Union of India [2014 (10) TMI 278 - BOMBAY HIGH COURT] that no income arises on investment in shares since it is a capital account transaction. Further, this Court in Divya Capital One Private Limited (Earlier Known as Divya Portfolio Private Limited) [2022 (5) TMI 1016 - DELHI HIGH COURT] held that ‘Whether it is “information to suggest” under amended law or “reason to believe” under erstwhile law the benchmark of “escapement of income chargeable of tax” still remains the primary condition to be satisfied before invoking powers under Section 147 of the Act’. Consequently, the impugned orders under Section 148A (d) of the Act and the notices passed under Section 148 of the Act and all consequential action taken thereto are set aside. It is clarified that if any material becomes subsequently available with the Revenue, it shall be open to it to take proceedings in accordance with law. The challenge to the vires to Explanation 1 to Section 148 of the Act is left open.
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