The whole of the share capital of Genpact India, an Indian company, was held by a Mauritius company. The whole of the share capital of the Mauritius company was in turn held by General Electric Co, USA. The Mauritius company gifted the shares of Genpact India to another Mauritius company, whose shares were then ultimately sold to a Luxembourg company. The AO claimed that the transaction of transfer of shares of Genpact India had resulted in capital gains to General Electric, USA, and so he issued a notice u/s 163 proposing to treat Genpact India as an agent of General Electric and to assess it as a representative assessee. This was challenged by a Writ Petition. HELD upholding the challenge:
The mere fact that a person is an agent or is to be treated as an agent u/s 163 and is assessable as representative assessee does not automatically mean that he is liable to pay taxes on behalf of the non-resident. U/s 161, a representative assessee is liable only as regards the income in respect of which he is a representative assessee. This means that there must be some connection or concern between the representative assessee and the income. On facts, even assuming that Genpact India was the agent and so representative assessee of General Electric, there was no connection between Genpact India and the capital gains alleged to have arisen to General Electric (from the sale of shares of Genpact India). Consequently, the s. 163 proceedings seeking to assess Genpact India for the capital gains of General Electric were without jurisdiction.