TMI Blog2021 (3) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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. On 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 stage. We may however reproduce hereinbelow the relevant part of the order dated 15th July, 2020 as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 it must have at least two directors, resident in Mauritius to avail benefit of treaty network (Corporate Directors are disallowed); Effective tax rate for such a company in Mauritius is 3%; Interest royalty payments are tax exempt; there is no capital gains tax; annual license fee is payable to RoC FSC. It must be administered by a management company (MC). Management Companies (MCs) are service providers which act as intermediaries between their clients an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraphs 6, 7, 8, 9 and 10. I have myself reviewed the AFS of assessee company for period ending December 2017 and December 2018. 13. I am therefore convinced with the reasons given by the AO in her proposal dated 26/6/2020 that after completion of scrutiny assessment proceedings, income of the assesse i.e. ₹ 2036,49,93,621/- is likely to be chargeable to tax in India and the tax demand on this income would be approximately ₹ 226.72 crore. Granting of refund at this stage, when scrutiny assessment proceedings are yet to be completed, is likely to adversely affect the revenue. 14. In view of the foregoing, this proposal of the AO to with hold the refund uls 241A till completion of the assessment u/s143(3) for the said assessment year is, hereby, approved. 6. The claim of petitioner being for refund, the statutory scheme applicable thereto may be noticed at this stage. 7. The ITR for the assessment year 2018-19 filed on 31st October, 2018 by the petitioner claiming refund of TDS, was to be processed in the manner provided in Section 143(1) of the Act. Section 143(1A) of the Act empowers the Central Board of Direct Taxes (CBDT) to make a scheme for cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in writing and with the previous approval of the Principal Commissioner or Commissioner, as the case may be, withhold the refund up to the date on which the assessment is made. Thus, unless order under Section 241A is passed, if an ITR being processed under Section 141(1) of the Act is of refund, as in the present case, and the processing on the basis of figures in ITR determines the refund claimed to be correct, intimation of said refund will be generated and refund paid/granted notwithstanding notice under Section 143(2) of scrutiny assessment having been issued and said assessment being underway. 8. This Court, in Vodafone Mobile Services Ltd. Vs. Asst. Commissioner of Income Tax [2020] 421 ITR 193 (Delhi) held, that the exercise of refund must be undertaken promptly, keeping in mind the time limit under second proviso to Section 143(1) for sending intimation under Section 143(1)(d) i.e. before expiry of one year from the end of the financial year in which the ITR is made. 9. We now apply the aforesaid statutory scheme to the facts of present case. The ITR for assessment year 2018-19 was filed on 31st October, 2018. The time limit for sending intimation under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the date of determination of refunds and all ITRs in which refunds are payable to the assessees are required to be processed first; (ii) that the Citizens Charter, 2014 of the Income Tax Department itself provides that in case of electronically filed ITRs, refund is to be made within six months from the end of the month in which the ITR is received; thus with respect to the ITR submitted by the petitioner on 31 st October, 2018, the refund should have been made latest by 30th April, 2019; (iii) Supreme Court in Vodafone Idea Ltd. v. Assistant Commissioner of Income Tax 2020 SCC OnLine SC 418 has also highlighted the changes made in the Act to address the grievance of delay in issuance of refund and held that the exercise of power under Section 241A has to be prior to or simultaneous with the intimation under Section 143(1) and which in the present case is of 25th November, 2019; (iv) the Act of the respondents of withholding tax is violative of Article 265 of the Constitution of India; (v) the petitioner has a statutory right to refund; (vi) though there is no time prescribed for issuance of an order under Section 241A of the Act but it has to be within reasonable time and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e second proviso to Section 143(1) of the Act; (x) under the law, the refund can be withheld till 31st March, 2021; (xi) as per the balance sheet of the petitioner, the petitioner has no assets whatsoever and the TDS of which refund is sought is the only asset; thus in the event of refund being made by the department, the department, if on assessment finds tax to be due, would have no means to recover the same; (xii) Union of India v. Azadi Bachao Andolan (2004) 10 SCC 1 and Vodafone International Holdings BV v. Union of India (2012) 6 SCC 613 are subject to a caveat that, if it were to be found that the entity in the treaty country is just an agent of a parent company in another country, then the asset will be treated as that of the parent company and the treaty with the country in which the parent company is situated would have application and not the treaty with the country in which the agent company is located; (xiii) in the present case, the parent company of the petitioner is in U.K. and the ultimate holding company is in U.S.A.; (xiv) that neither does the DTAA of India with U.K. nor does the DTAA of India with U.S.A. provide for exemption from long-term capital gains accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be established and used as a vehicle for investments with shares parked with the said vehicle; (vi) the U.S. based companies have set up such overseas business corporations for investments in India and once the laws of Mauritius permit such overseas business corporations to be set up, they would be entitled to the benefits of the India-Mauritius DTAA; (vii) the Income Tax Department also has issued circulars to the effect that they will not go behind the Tax Residency Certificate; (viii) thus even if the real owner is not the Mauritian entity but an entity situated in some other country, it is not open to the respondents to say that the India-U.S. DTAA or the India-U.K. DTAA would apply; (ix) such circulars were challenged in Azadi Bachao Andolan supra and this Court allowed the petition and stuck down the circulars but Supreme Court set aside the judgment of this Court and upheld the circulars; (x) the Central Government also filed an affidavit in the said case supporting the India-Mauritius DTAA; (xi) the reasons given in the order under Section 241A of the Act are in the teeth of what has been held by the Supreme Court in Azadi Bachao Andolan supra and the order under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal; (xxviii) India entered into the DTAA on the aforesaid terms with Mauritius, with full knowledge and in view of the relations with Mauritius and acting on the said treaty, Mauritius has allowed overseas business corporations which have made investments in India and the respondents cannot be now permitted to object; (xxix) the Residency Certificate produced by the petitioner from Mauritius is enough for the petitioner to avail all the benefits of the India-Mauritius DTAA; (xxx) a subsidiary and parent company are different tax entities; (xxxi) it is not as if the petitioner was holding the shares since just prior to the sale; the petitioner was holding itself as due as the owner of the shares openly to the knowledge of all; and (xxxii) since the petitioner is unable to carry on any business in Mauritius as per the laws of Mauritius, it had no need of funds in Mauritius and accordingly transmitted the same to its parent company. D. the counsel for the respondents in his sur-rejoinder contending, that (i) the arguments of the petitioner go beyond the scope of the writ petition; (ii) the petitioner cannot take any benefit of Vodafone India Ltd. supra inasmuch as in that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst 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 wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
