IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment delivered on: 31.10.2014
W.P.(C) 1790/2014 & CM 3748/2014
STANDARD CHARTERED GRINDLAYS PVT. LTD. ..... Petitioner
DY. DIRECTOR OF INCOME TAX (INTERNATIONAL
TAXATION), CIRCLE 2(2), NEW DELHI & ORS. .... Respondents
Advocates who appeared in this case:
For the Petitioner : Ms Shashi M. Kapila
For the Respondents : Mr Rohit Madan, Sr. Standing Counsel for Income Tax Deptt. with
Mr. Ruchir Bhatia.
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL
BADAR DURREZ AHMED, J (ORAL)
1. This writ petition is directed against the notice under Section 148 of
the Income Tax Act, 1961 (hereinafter referred to as ,,the said Act) dated
28th March, 2013 in respect of the assessment year 2006-07. The writ
WP(C) 1790/2014 Page 1 of 8
petition is also directed against the proceedings pursuant to the issuance of
the impugned notice dated 28th March, 2013.
2. The learned counsel for the petitioner submitted that the notice under
Section 148 of the said Act was issued beyond four years from the end of the
relevant assessment year. As such, the conditions stipulated in the first
proviso to Section 147 of the said Act would be relevant. The said proviso
requires as of condition precedent that there should, inter alia, be a failure on
the part of the assessee to fully and truly disclose all material particulars
necessary for his assessment.
3. The learned counsel submitted that there has been a full and true
disclosure of all the material particulars. She drew our attention to the
purported reasons behind the issuance of Section 148 notice. The reasons
recorded were as under:-
"The income of assessment of M/S Standard Chartered
Grindlays ltd. for the assessment year 2006-07 was
completed after detailed scrutiny in December 2008 at an
income of Rs. 6,16,54,229/- .the above assessed income
included interest income from investment and interest on
interest tax refunds. During the course of perusal of records
,it is revealed that tax had been computed on the entire
income at the rate of 15 percent instead of 40% plus
surcharge .The mistake resulted in short levy of tax of Rs.
WP(C) 1790/2014 Page 2 of 8
2,00,08,155/- including interest 'under section 234B of the
IT Act, 1961.
In view of the above, I have reasons to believe that the income
chargeable to tax assessment within the meaning of Section
147/148 of the IT Act, 1961."
4. With regard to the above recorded reasons, the learned counsel for the
petitioner pointed out that the same does not even allege that the
petitioner/assessee has not made a full and true disclosure of the material
particulars. All that is referred to is that there is a mistake which resulted in
the short levy of tax of Rs. 2,00,08,155/- on account of the tax rate being
taken as 15% instead of 40% plus surcharge.
5. The learned counsel for the petitioner further submitted that in any
event, the entire issue was considered during the original assessment
proceedings which culminated in the assessment order under Section 143(3)
of the said Act dated 1st December, 2008. The learned counsel drew our
attention to the computation of income filed along with the return by the
assessee, copy of which is found at pages 47 to 49. On examining the said
computation of income, we note that the petitioner had categorically stated
that tax was payable under the India-Australia Double Tax Avoidance Treaty
WP(C) 1790/2014 Page 3 of 8
as per Article 11(2) at the rate of 15%. The Note appended to the
computation of income was as under:-
"The assessee is a tax resident of Australia. Accordingly, the
provisions of India-Australia Double Tax Avoidance Agreement
shall apply to the extent beneficial to the assessee."
6. The learned counsel for the petitioner further pointed out that in the
order sheet entry in the proceedings before the Assessing Officer on 28th
November, 2008 it is recorded as under:-
"Mrs. Shashi Kapila A/R attended. She is asked to furnish note
explaining why the branch office may not be treated as the PE of
the assessee in India and why the interest income may not be
taxed as per Art. 11(4) of the DTAT between India & Australia.
Case is adjd. 1.12.2008."
7. This was responded to by the assessee by a letter dated 1 st December,
2008 wherein inter alia the following explanation was given:-
"4. Accordingly, Standard Chartered Grindlays Ltd.
had no banking operations or any other business
operations in India with effect from 1 st September
2002. During the period under consideration, the
assessee company did not render any services nor
carry on any business. As the assessee company had
no business income, there can be no Permanent
Establishment in India as contemplated under Article
5 read with Article 7 of the Indo-Australian DTAT.
WP(C) 1790/2014 Page 4 of 8
The concept 'Permanent Establishment' contemplates
a fixed place of business. When there is no business
operations at all then there can be no fixed place of
business or PE in India. As no business is carried on
by the assessee company, hence Article 11(4) of the
Indo -Australian DTAT would not be applicable. This
is applicable only to income assessable under the
head of income "Business & Profession". Whereas
the income earned by us would be taxable under the
residuary head of income "Other Sources".
5. During the year under consideration, the only item
of income in respect of which the company was liable
to tax, was on the interest earned on investments
made in the past on Tax Savings Bonds. The interest
on bonds were due to investments made in earlier
years under sec.54EA /54EC to shelter capital gains
arising on sale of certain properties in earlier years.
6. In addition the assessee also received interest on tax
refunds as a consequence of certain favourable orders
received from the appellate authorities. These too were
duly offered to tax during this year.
7. As the assessee is a tax resident of Australia, the
provisions of the Indo-Australian DTAT would be
applicable to the extent they are more beneficial to the
assessee. Accordingly as per the provisions of Article
11(2) of the Indo-Australian DTAT a tax rate @ 15%
would be applicable to the interest income."
8. Consequent upon the above explanation, the assessment order was
framed by the Assessing Officer on 1st December, 2008. In the said
assessment order, it has been clearly recorded as under:-
"The return of income was filed on 26/10/2006 declaring
total income at Rs. 6,16,54,229/-. The return was processed
WP(C) 1790/2014 Page 5 of 8
u/s 143(1) of the IT Act, 1961. Subsequently the case was
selected for scrutiny and statutory notice u/s 143(2) was
issued on 26/10/2007. In response to the same Mrs. Shashi
Kapila, AR attended from time to time and filed the details as
called for and the case was discussed with her.
The assessee is a tax resident of Australia. During the year
under consideration till it has declared interest income of Rs.
6,16,54,229/- and offered the same for taxation @ 15% in
view of Article 1(2) of the DTAA between India and
Australia. The assessee has furnished evidences for in
support of its claiming income & taxability which are placed
After discussion the return income of the assessee of Rs.
6,16,54,229/- is accepted."
9. We have heard the counsel for the parties and are of the view that the
writ petition has to be allowed. First of all, the reasons recorded do not even
allege that there has been any failure on the part of the assessee to make a
full and true disclosure of the particulars necessary for making the
assessment. Secondly, there is, in fact, no non-disclosure inasmuch as the
petitioner had made it clear in the computation of income that the rate of tax
applicable was 15% in view of the Article 11(2) of the India-Australia
Double Tax Avoidance Treaty. As per the said Article, the rate of tax more
beneficial to the assessee would have to be applied. The said rate of 15%
WP(C) 1790/2014 Page 6 of 8
was accepted by the Assessing Officer, in view of the provisions of the
Double Tax Avoidance Treaty.
10. It is clear from this that the Assessing Officer has considered this
aspect of the matter and such consideration could not have been done unless
and until the petitioner/assessee had made the full and true disclosure of the
11. We may also point out that in respect of the assessment years 2005-06
and 2007-08. Similar notices under Section 148 were issued. The petitioner
had filed writ petitions being WP(C) Nos. 3785/2014 and 3788/2014 in
respect of them. However, during the pendency of the writ petitions, the
Revenue had withdrawn the notices under Section 148 in respect of those
assessment years and this was recorded in the order of this Court disposing
of those petitions on 23rd January, 2014.
12. The learned counsel for the respondents states that notice impugned in
this petition has not been withdrawn because the Revenues audit objections
are still alive. Be that as it may, the notice is without jurisdiction and
therefore, the same stands quashed.
WP(C) 1790/2014 Page 7 of 8
13. The proceedings pursuant to the said notice under Section 148 dated
28th March, 2013 also stand quashed.
14. The writ petition is allowed as above. There shall be no order as to
BADAR DURREZ AHMED, J
SIDDHARTH MRIDUL, J
OCTOBER 31, 2014
WP(C) 1790/2014 Page 8 of 8