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