Whether notices can be issued for TDS default u/s 205 & Sec. 40(a)(i) disallowance if no income arises to the recipient?

IN THE HIGH COURT OF DELHI AT NEW DELHI

+ W.P.(C) 3891/2013

SAMSUNG INDIA ELECTRONICS PVT. LTD

Petitioner

Through Mr.S.E.Dastur, Sr. Adv. WithMr.SatyenSethi,

Mr.MadhurAggarwal,Mr.A. Trana Panda,

Advocates.

versus

DY DIRECTOR OF INCOME TAX, CIRCLE-2(2)

INTERNATIONAL TAXATION

Respondent

Through Mr.SanjeevSabharwal, Sr.Standing Counsel

Mr.RoshanLalGoel, Adv. for R-2

+ W.P.(C) 999/2014

SAMSUNG INDIA ELECTRONICS PVT LTD

 Petitioner

Through Mr.S.E.Dastur, Sr. Adv.WithMr.SatyenSethi,

Mr.MadhurAggarwal,Mr.A. TranaPanda,Advocates.

versus

DY. COMMISSIONER OF INCOME

TAX & ORS. ..... Respondent

Through Ms.SuruchiAggarwal, Sr.

Standing Counsel for R-1

Mr.AdityaMalhotra,Adv. for R-4

Before

CORAM:

MR. JUSTICE S. RAVINDRA BHAT

MR. JUSTICE R.V. EASWAR

Reserved on: 19th March, 2014

Date of Decision: 25th April, 2014

Judgement and facts of the case

R.V. EASWAR, J. 

These are two writ petitions filed under Art. 226 of the Constitution of India, challenging the jurisdiction of the first respondent to (i) reopen the assessment by issue of a notice under section 148 of the Income Tax Act, 1961 (“the Act”) and (ii) to treat the petitioner as an “assessee in default” under section 201(1) for not deducting tax under section 195(2) and consequently recover interest under section 201(1A) of the Act.

FACTS:

2. The petitioner is a private limited company incorporated in India. It is a wholly-owned subsidiary of Samsung Electronics Ltd. (“SEC”) incorporated in South Korea. It is engaged in the manufacture and trading of electronic items in India under the brand name “Samsung”. The raw materials and spares were imported from the holding company. The sales were “high-seas sales”, completed outside the territory of India. The petitioner’s stand was that it was not liable to deduct tax from the payments made to the SEC for the goods, the contention being that since the property in the goods was transferred outside the territory of India no income accrued or arose to SEC in India; correspondingly, there was no liability on the petitioner’s part to deduct tax from the payments as required by section 195(2). It was also its stand in the return of income filed for the assessment year 2006-07 that since no tax was deductible from the payments, the payments could not be disallowed in the assessment by invoking section 40(a)(i) of the Act.

3. The return of income for the assessment year 2006-07, relevant for the financial year ended 31-3-2006, was filed on 29-11-2006 along with Form No. 3 CEB, declaring a total income of Rs. 36,26,44,434/-. The details of the transactions with the associated enterprises were furnished, including the transactions with SEC. A reference was made to the Transfer Pricing Officer (“TPO”) who made upward adjustments amounting to Rs. 1,27,58,65,045/- by order passed on 30-10-2009, which was later rectified by an order passed on 12-11-2009 under section 154 reducing the adjustment to Rs. 1,24,86,79,414/-. The respondent proposed a draft assessment order under section 144C of the Act on 22-12-2009 computing the total income at Rs. 1,62,44,65,280/-; no disallowance of the payments made to SEC was proposed under section 40(a)(i) in the draft order. The petitioner filed its objections to the draft order before the Disputes Resolution Panel (“DRP”). The DRP issued directions to the respondent vide order dated 30-9-2010 and the respondent completed the assessment of the petitioner under section 143(3) of the Act by order dated 19-10-2010, after making an adjustment of Rs. 1,24,86,79,414/- to the international transactions with the associated enterprises as originally proposed in the draft assessment order read with the rectification order dated 12-11-2009.

4. During the pendency of the objections before the DRP, a survey under section 133A was conducted in the premises of the petitioner on 24-6-2010, in the course of which statements from some of the employees, including expatriate-employees, were recorded.

To read the full judgement, please find the attached file.

Attached File: 

http://lobis.nic.in/dhc/RVE/judgement/27-04-2014/RVE25042014CW38912013.pdf