TMI Blog2004 (10) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... ber of letters written to the Assessing Officer, which are complied as item numbers 11 to 15 of the Paper Book. These are letters written to the Commissioner of Income-tax as well as the Assessing Officer for early processing of the return and release of refund. There is some dispute as to whether the return was processed under section 143(1)( a ) or not. According to the Assessing Officer it was processed on 11-3-2002 but according to the assessee no such intimation was served within 31-3-2002, nor after that date. No notice under section 143(2) was also issued by the Assessing Officer and the time for issue of such notice expired on 31-7-2001. Be that as it may, a notice under section 148 of the Act was issued on 31-5-2002 reopening the assessment. Apparently the assessee wrote to the Assessing Officer that the return filed originally may be taken as a return filed in response to the notice. Thereafter notices of hearing were issued to the assessee and after hearing the assessee the Assessing Officer brought to tax long term capital gains of Rs. 78,37,46,380, by order dated 27-2-2003. The capital gains arose on sale of certain shares held by the assessee in HDFC Bank Limited, a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hology Laboratory v. P.N. Prasad, Joint CIT [2001] 252 ITR 673. It is also pointed out that no assessment under section 143(3) has been made on the return filed by the assessee and the Assessing Officer having noticed escapement of income has rightly issued the notice under section 148. 5. We have carefully considered the rival contentions. Though the Assessing Officer has stated that the return filed by the assessee was first processed under section 143(1) on 11-3-2002 the intimation was not produced before us. We further notice that in the statement of facts filed by the assessee before the CIT(A) as Annexure B to the appeal, the assessee has stated that neither any notice under section 143(2) was issued nor any intimation under section 143(1) was served on the assessee. The CIT(A) does not appear to have examined this question and has proceeded on the basis that the return of income had been processed under section 143(1), though no assessment under section 143(3) had been completed. We are of the view that when the assessee has specifically denied the service of any intimation under section 143(1) even before the CIT(A), it was his duty to have contradicted the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee has done all that it could within its means. The consequences of upholding such inaction on the part of the Assessing Officer are quite serious. An Assessing Officer cannot ( sic ) simply refuse to take up the assessment proceedings and allow them to become time-barred and thereafter issue notice under section 148 read with Explanation 2( b ) to section 147. This would be making a mockery of the provisions relating to reassessment in the Income-tax Act. A return is not to be taken lightly, especially when the assessee has bona fide pursued the claim of refund with the Assessing Officer. It is not merely that the spirit of the law stands violated, but it is also that the letter of the law stands violated. The Assessing Officer cannot be said to have noticed that income chargeable to tax has escaped assessment, because normally one notices something when he has no knowledge of the thing earlier. In the present case the Assessing Officer had full knowledge of the facts of the case, the claim made by the assessee in the return etc. It must be remembered that the Explanation below section 147 deems certain cases to be cases of escaped assessment and should receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they claimed that the Indo Netherlands treaty for Avoidance of Double Taxation was applicable. According to clause 13.5 of the treaty, the capital gains from the alienation of the shares shall be taxable only in the State of which the transferor or the seller was resident. Since the appellant companies were residents of Netherlands, it was claimed that the capital gains arising on the sale of shares of HDFC Bank Limited were not subject to Indian Income-tax. The claim was rejected by the Income-tax authorities on the ground that the entire transaction was a colourable device which attracted the rule laid down in McDowell Co. Ltd. v. CTO [1985] 154 ITR 148 1 (SC) and therefore the assessee s claim for exemption cannot be accepted. It was also emphasised that the parent company was incorporated in England and therefore the treaty between India and England, which did not have such an exemption clause, was applicable and therefore the capital gains were chargeable to Indian Income-tax. It is this conclusion of the Income-tax authorities that is challenged before us in appeal. 8. The contentions urged on behalf of the appellants are broadly as under : ( a )It is not a colo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emphasised, relying on Paragraph 5 of the order of the CIT(A) that the chain of transactions was so arranged as to avoid payment of capital gains tax in India and that those transactions had no commercial motive. It was submitted that even though no capital gains tax is taxable in Netherlands, the capital gains shall be taxed in India on the basis that the Indo UK treaty is attracted because the holding company is incorporated in UK. 10. On a careful consideration of the facts and the rival contentions, we are of the view that the assessee is entitled to succeed. The decision taken by the parent holding company in UK that all non-UK investments will be held in a single country and the country chosen would be Netherlands because of its stable political climate cannot be questioned nor has it been questioned. It is for the UK Company to arrange its affairs in such a manner as would best suit it, having regard to business considerations. The appellant companies are companies of substance as would be seen from their Balance Sheets filed in the Paper Book. They show that not only were the investments in Mauritius transferred to them, in accordance with the decision taken earlier, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty under which the capital gains is taxable only in Netherlands and that the appellants were not taxed in Netherlands in respect of the capital gains because of the Income-tax regulations there, the departmental authorities were not in our view justified in invoking the Indo UK treaty to tax the capital gains by ignoring the appellant companies totally. 11. In our opinion the judgment of the Supreme Court in the case of Azadi Bachao Andolan ( supra ) the ratio laid down therein fully applies to the facts of the present case. All the steps taken by the appellant companies are genuine steps. All of them are within the legal framework and our attention has not been drawn to any law, rule or regulation, which had been violated by the appellant companies. The sale of shares has been effected in a transparent manner. Merely because the appellants are subsidiaries of the holding company in UK it cannot be said that there was no effective transfer of ownership of the shares by the appellant companies to India Equity Pvt. Fund in Mauritius. 12. Our attention was drawn on behalf of the Department to the ruling of the AAR in XYZ, In re [1996] 220 ITR 377. In this ruling, which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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