Delhi High Court provides relief to Blackstone Group in income tax case

Delhi High Court provides relief to Blackstone Group in income tax case

Directs the revenue department to verify the capital amount transaction matter

The Delhi High Court has set aside the reassessment proceedings against a Blackstone Group entity for allegedly escaping income tax payments.

In its order, the court directed the investigating officers of the Income Tax (IT) department to re-examine the issue and check whether the activity was a capital account transaction.

Singapore-based Blackstone Capital Partner VI FDI had allegedly purchased shares of an Indian company, Agile Electric Sub-Assembly, which led to the escapement of income chargeable to tax. In July last, the IT department issued a notice to the company, informing about re-opening the case.

However, the high court told the revenue department that the assessing officer (AO) should have applied his/her mind to whether the investment in shares of Agile by the petitioner was a capital account transaction. This was because no allegation of round-tripping existed.

The court asked the AO to carry out a "de novo" exercise and see whether the Singapore entity contending no income whatsoever chargeable to tax accrues or arises in India, held any merit.

Meanwhile, Rajesh Gandhi, a partner at Deloitte explained, "A non-resident purchasing shares of an Indian company could have an Indian tax liability only in a situation where it either withholds tax on payment to the non-resident seller or if it pays less than the tax book value of the shares to the seller."

The court said, "The order passed under Section 148A(d) of the IT Act adopts a broad-brush approach. It does not deal with the central issue and other issues raised in the objections preferred by the petitioner."

On the other hand, Amit Maheshwari, the managing partner at AKM Global said, "The judgment could have implications on tax benefit under India-Singapore DTAA (Double Taxation Avoidance Agreement) with respect to investment in India and sufficiency of Tax Residency Certificate (TRC)."

The assessee contended that no income was accrued or arose in India. The transaction was a capital account transaction and the remittance was made to the seller after adjusting the withholding tax, as ascertained by the IT department.

But the revenue department argued that the petitioner chose not to file a return. Therefore, in terms of Explanation 2 to Section 147 of the IT Act, the factum of non-filing of return would result in deeming escapement of income.

The IT department also pointed out that the requirement for filing a return of income, set forth in Section 139 of the IT Act, was to be read in the case of the petitioner along with Section 115A of the IT Act being a non-resident company.