Alpine Electronics Asia (P.) Ltd. v. Director General of Income Tax & Ors.

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The Tax Publishers2012 TaxPub(DT) 0891 (Del-HC) : (2012) 045 (I) ITCL 0167 : (2012) 341 ITR 0247 : (2012) 249 CTR 0059 : (2012) 205 TAXMAN 0190 : (2012) 068 DTR 0167 Reassessment --Reassessment--Non-issuance of notice under section 143(2)Validity of reassessment proceedings--The petitioner was a company incorporated in Singapore and was allowed to open a liaison office in India vide permission granted by the RBI dt. 15-7-1997. The petitioner thereafter obtained registration with the office of the Registrar of Companies vide registration order dt. 21-11-1997. The permission granted by the RBI on 15-7-1997 was extended from time to time up to 14-7-2009. On 23-10-2008, the petitioner had filed an application with the RBI for closing their liaison office. The RBI vide letter dt. 12-2-2009 asked the petitioner to obtain ITCC or No Objection CertificateÃ¢â‚¬ from the Income Tax Department in terms of their Master Circular No. 2/2008-09 dt. 1-7-2008. On 27-2-2009, the petitioner filed an application with the Deputy Director of International Tax for issue of no objection certificate/ITCC. The said application was transferred and assigned to Assistant Director, Directorate of International Taxation, the respondent No. 1 herein. In response to the said application, the respondent No. 1 issued letters/ questionnaire dt. 2-3-2009 asking for various details and information, including document and business activities overall and in India, specific financial details, i.e., receipt, income and expenses and year wise details of all purchases and details of services from India or of head office or any group company, etc. Details of purchases or sales by the head office or group company to any Indian party, commission income earned by the liaison office in India or the head office or group company in relation to the purchases/sales to Indian parties, copy of ledger account of liaison office in India and account of the head office in the books of the liaison office, details of salary, incentives, bonus, etc. paid to the employees, details of distributors, dealers of head office or other group companies in India, copy of self-appraisal of the top three employees and copy of e-mails of the top three employees of the liaison office for the month of October, 2008 to December, 2008 and a sample and details of all products sold in India during the financial year 2006-07 to the current financial year along with details of customers. The petitioner vide letter dt. 25-3-2009 stated that the petitioner was only maintaining a liaison office and was receiving money from abroad for meeting the administrative expenses and it was not authorised to carry on any business activity. The liaison office was doing coordination work and getting market information on behalf of its principal. It was further pointed out that the company in Singapore was a 100% subsidiary of the parent company A Electronics, Japan. The company in Singapore was being liquidated in terms of restructuring plan. The existing business of the Singapore company, i.e., the petitioner had been taken over by another company Alpine Electronics of Asia Pacific company Ltd., Bangkok, which is 100% subsidiary of A Electronics, Japan. The A Electronics Bangkok had opened a liaison office in India. Further, a new company A Asia Pacific India Limited had also been incorporated in India. It was stated that the A Electronics, Japan had an exclusive distributor agreement with Supreme Hi-Fidelity (P) Limited, who are conducting business activities, including sale etc of the products manufactured by A Electronics, Japan. The sales turnover of the distributor was disclosed and it was stated that none of the sales/purchases had been from India either by head office or by any group company. The sale in India have been made to the distributors Supreme Hi-Fidelity (P) Limited, who continued to be in operation till a recent date under a separate agreement between them and Alpine Electronics, Japan. Copy of the ledger accounts was enclosed and it was stated that the petitioner had officially ceased operation as on 31-3-2007 and all the staff had been retrenched. Copy of the e-mails of the three staff members were enclosed and it was stated that the car stereos were installed in the cars manufactured by Honda Siel Cars India Limited. Monthly returns were also furnished vide letter dt. 9-4-2009. Further, details were furnished on 30-4-2009. Salary paid to staff members (four in number, including one who had left in late 2006) in the liaison office who were retrenched, was furnished. Various other details, which were asked for were also furnished including a copy of the agreement between A Electronics Japan and A Electronics Asia Private Limited, Singapore. It is stated in the petition that during the course of hearing the respondent had warned and threatened that he shall initiate reassessment proceedings under section 147/148 . It may be noted here that the petitioner had been filing its returns of income under section 139(1). It is not disputed that the returns of income for the assessment years 2003-04, 2004-05, 2005-06 and 2006-07 along with audited balance sheets were duly filed. The petitioner on 12-6-2009 wrote a letter to the Director General of International Taxation protesting against the delay in issue of no due certificate as it was delaying and holding up the winding up proceedings in Singapore. It was stated that there was no existing demand and no proceedings were pending against the petitioner. It was further stated that the petitioner had filed a guarantee bond executed by a third person Ms. Kavita Aswal for meeting tax liability in future. Reference was made to section 230 of the Act and it was pointed out that under Rules 42 and 43 of the Income Tax Rules, 1962, the prescribed authority is required to issue no objection certificate immediately. It was stated that in the garb of no objection/no tax due certificate, the issuing authority had initiated detailed enquiry proceedings for which he has no authority or sanction under the law. (For record, it is stated that the stand of the respondent is that section 230 is not applicable. It applies to an individual and not to a company). It is alleged in the writ petition that on 8-7-2009 the petitioner's representative visited the office of the respondent and was asked to withdraw/modify the representation and was issued a veiled threat that action under section 147/148 of the Act shall be initiated. *Held :* It is now well-settled that service of notice under section 143(2) within the statutory time limit is mandatory and is not a procedural requirement, which is inconsequential. In view of the aforesaid position, there is no reason why reassessment proceedings should continue as no notice under section 143(2) was served on the assessee within the stipulated time. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0891 (Del-HC) : (2012) 045 (I) ITCL 0167 : (2012) 341 ITR 0247 : (2012) 249 CTR 0059 : (2012) 205 TAXMAN 0190 : (2012) 068 DTR 0167

Reassessment

--Reassessment--Non-issuance of notice under section 143(2)Validity of reassessment proceedings--The petitioner was a company incorporated in Singapore and was allowed to open a liaison office in India vide permission granted by the RBI dt. 15-7-1997. The petitioner thereafter obtained registration with the office of the Registrar of Companies vide registration order dt. 21-11-1997. The permission granted by the RBI on 15-7-1997 was extended from time to time up to 14-7-2009. On 23-10-2008, the petitioner had filed an application with the RBI for closing their liaison office. The RBI vide letter dt. 12-2-2009 asked the petitioner to obtain ITCC or No Objection CertificateÃ¢â‚¬ from the Income Tax Department in terms of their Master Circular No. 2/2008-09 dt. 1-7-2008. On 27-2-2009, the petitioner filed an application with the Deputy Director of International Tax for issue of no objection certificate/ITCC. The said application was transferred and assigned to Assistant Director, Directorate of International Taxation, the respondent No. 1 herein. In response to the said application, the respondent No. 1 issued letters/ questionnaire dt. 2-3-2009 asking for various details and information, including document and business activities overall and in India, specific financial details, i.e., receipt, income and expenses and year wise details of all purchases and details of services from India or of head office or any group company, etc. Details of purchases or sales by the head office or group company to any Indian party, commission income earned by the liaison office in India or the head office or group company in relation to the purchases/sales to Indian parties, copy of ledger account of liaison office in India and account of the head office in the books of the liaison office, details of salary, incentives, bonus, etc. paid to the employees, details of distributors, dealers of head office or other group companies in India, copy of self-appraisal of the top three employees and copy of e-mails of the top three employees of the liaison office for the month of October, 2008 to December, 2008 and a sample and details of all products sold in India during the financial year 2006-07 to the current financial year along with details of customers. The petitioner vide letter dt. 25-3-2009 stated that the petitioner was only maintaining a liaison office and was receiving money from abroad for meeting the administrative expenses and it was not authorised to carry on any business activity. The liaison office was doing coordination work and getting market information on behalf of its principal. It was further pointed out that the company in Singapore was a 100% subsidiary of the parent company A Electronics, Japan. The company in Singapore was being liquidated in terms of restructuring plan. The existing business of the Singapore company, i.e., the petitioner had been taken over by another company Alpine Electronics of Asia Pacific company Ltd., Bangkok, which is 100% subsidiary of A Electronics, Japan. The A Electronics Bangkok had opened a liaison office in India. Further, a new company A Asia Pacific India Limited had also been incorporated in India. It was stated that the A Electronics, Japan had an exclusive distributor agreement with Supreme Hi-Fidelity (P) Limited, who are conducting business activities, including sale etc of the products manufactured by A Electronics, Japan. The sales turnover of the distributor was disclosed and it was stated that none of the sales/purchases had been from India either by head office or by any group company. The sale in India have been made to the distributors Supreme Hi-Fidelity (P) Limited, who continued to be in operation till a recent date under a separate agreement between them and Alpine Electronics, Japan. Copy of the ledger accounts was enclosed and it was stated that the petitioner had officially ceased operation as on 31-3-2007 and all the staff had been retrenched. Copy of the e-mails of the three staff members were enclosed and it was stated that the car stereos were installed in the cars manufactured by Honda Siel Cars India Limited. Monthly returns were also furnished vide letter dt. 9-4-2009. Further, details were furnished on 30-4-2009. Salary paid to staff members (four in number, including one who had left in late 2006) in the liaison office who were retrenched, was furnished. Various other details, which were asked for were also furnished including a copy of the agreement between A Electronics Japan and A Electronics Asia Private Limited, Singapore. It is stated in the petition that during the course of hearing the respondent had warned and threatened that he shall initiate reassessment proceedings under section 147/148 . It may be noted here that the petitioner had been filing its returns of income under section 139(1). It is not disputed that the returns of income for the assessment years 2003-04, 2004-05, 2005-06 and 2006-07 along with audited balance sheets were duly filed. The petitioner on 12-6-2009 wrote a letter to the Director General of International Taxation protesting against the delay in issue of no due certificate as it was delaying and holding up the winding up proceedings in Singapore. It was stated that there was no existing demand and no proceedings were pending against the petitioner. It was further stated that the petitioner had filed a guarantee bond executed by a third person Ms. Kavita Aswal for meeting tax liability in future. Reference was made to section 230 of the Act and it was pointed out that under Rules 42 and 43 of the Income Tax Rules, 1962, the prescribed authority is required to issue no objection certificate immediately. It was stated that in the garb of no objection/no tax due certificate, the issuing authority had initiated detailed enquiry proceedings for which he has no authority or sanction under the law. (For record, it is stated that the stand of the respondent is that section 230 is not applicable. It applies to an individual and not to a company). It is alleged in the writ petition that on 8-7-2009 the petitioner's representative visited the office of the respondent and was asked to withdraw/modify the representation and was issued a veiled threat that action under section 147/148 of the Act shall be initiated. Held : It is now well-settled that service of notice under section 143(2) within the statutory time limit is mandatory and is not a procedural requirement, which is inconsequential. In view of the aforesaid position, there is no reason why reassessment proceedings should continue as no notice under section 143(2) was served on the assessee within the stipulated time.