Case Note & Summary
The petitioner, an Indian company formerly part of the Tech Pacific group, was acquired by Ingram Micro Inc. through a share purchase agreement involving the transfer of shares of Techpac Holdings Ltd., a Bermudian company that indirectly held the Indian entity. The revenue sought to tax capital gains on the transfer of those shares, alleging that it involved the transfer of a capital asset in India, and issued a notice under Section 163 of the Income Tax Act, 1961, treating the Indian company as an agent of the Bermudian non-resident. A search and seizure was conducted on 17 September 2007 at the petitioner's premises, during which an annual report of Ingram Micro Inc. for 2005 was recovered. The revenue issued a notice on 22 November 2010, proposing to assess capital gains of Rs. 575.39 crores in the hands of the petitioner as representative assessee for Assessment Year 2005-06. The petitioner challenged the notice in a writ petition, and on 7 December 2010, a Division Bench directed the revenue to decide the matter after a hearing and not to give effect to any adverse order for four weeks. The respondent passed the impugned order on 14 January 2011, holding that there was a business connection and treating the petitioner as an agent under Section 163. The petitioner filed the present writ petition challenging that order, primarily on two grounds: that no income accrued to the Bermudian company on the transfer of its shares, as the consideration went to shareholders, and that the proceedings were barred by limitation under Section 149(3) since the notice was issued more than two years after the end of the relevant assessment year. The court found that the limitation issue was dispositive. Section 149(3) mandates that a notice under Section 148 to an agent of a non-resident cannot be issued after two years from the end of the assessment year. For Assessment Year 2005-06, the deadline was 31 March 2008; the notice of 22 November 2010 was clearly beyond that period. The revenue’s reliance on Section 153(b) to extend limitation on account of search was misplaced because the search was of the Indian company, not of the non-resident whose income was sought to be assessed. Following the Supreme Court's decision in Claggett Brachi Co. Ltd., London v. Commissioner of Income-Tax, the court held that the time-barred proceedings were void. The impugned order was set aside, and the writ petition was allowed.
Headnote
A) Income Tax - Representative Assessee - Limitation for Assessment of Non-Resident's Income - Income Tax Act, 1961, Sections 149(3), 153(b), 163 - The revenue treated the petitioner as an agent under Section 163 of a Bermudian company for assessing capital gains allegedly arising to the non-resident on transfer of its shares. The notice under Section 148 was issued in November 2010 for Assessment Year 2005-06, beyond the two-year period from the end of the relevant assessment year. Held, Section 149(3) expressly prohibits issuance of notice to an agent after expiry of two years. The extended limitation under Section 153(b) for search cases does not apply as the search was of the Indian company, not the non-resident. Following Claggett Brachi Co. Ltd., London v. Commissioner of Income-Tax, the time-barred proceedings are invalid and the impugned order was quashed (Paras 9-10).
Issue of Consideration
Whether the proceedings under Section 163 of the Income Tax Act, 1961, treating the petitioner as an agent of a non-resident company for the purpose of assessing capital gains, were barred by limitation under Section 149(3).
Final Decision
The impugned order dated 14 January 2011 was set aside. The court held that the proceedings to treat the petitioner as an agent under Section 163 were barred by limitation under Section 149(3). The writ petition was allowed.
Law Points
- The limitation period under Section 149(3) of the Income Tax Act for issuing notice to a representative assessee is two years from the end of the relevant assessment year
- the extended time limit under Section 153(b) in search cases applies only to the person searched and not to an agent whose principal was not searched
- proceedings under Section 163 against an agent are time-barred if not initiated within the period specified in Section 149(3)
