The main legal point established in the judgment is that the Assessing Officer must have tangible material to form a reason to believe that income has escaped assessment in order to justify the reopening of an assessment under Section 148 of the Income Tax Act, 1961.

DR. D.Y. CHANDRACHUD, J.

1. Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal.

2. By a notice dated 16 March 2011, the Assessing Officer has sought to reopen an assessment under Section 148 of the Income Tax Act, 1961 for Assessment Year 2006-07. The objections which were submitted by the assessee to the reopening of the assessment have been rejected by an order dated 20 December 2011. Both the notice reopening the assessment and the order disposing of the objections of the assessee have been challenged in these proceedings under Article 226 of the Constitution.

3. The Petitioner is a company incorporated under the laws of Singapore and is wholly owned by the Government of Singapore. The Petitioner claims to be a tax resident of Singapore and a nonresident for the purposes of the Income Tax Act, 1961. The Petitioner was incorporated on 20 October 1995 and carries on the business of investment in different jurisdictions across the world, including in India. For the financial year 2005-06 the Petitioner had a profit of Rs.131.70 Crores from the business of investment in Indian securities. The Petitioner filed a return of income on 31 October 2006 for Assessment Year 2006-07 returning a nil income taxable in India on the basis of the provisions of the Double Taxation Avoidance Agreement, between India and Singapore. The returns initially filed by the Petitioner on 20 October 2006 before the Assessing Officer were in the electronic form. The Petitioner filed a conventional copy of the return on 31 October 2006. On 28 March 2008 the Petitioner received an intimation under Section 143(1). On 16 March 2011 a notice was issued to the Petitioner under Section 148 proposing to reopen the assessment. This was followed by a communication of the reasons on the basis of which the assessment was sought to be reopened. The reasons on the basis of which the assessment for Assessment Year 2006-07 is sought to be reopened are as follows :

“Return of income for A.Y. 200607 was filed by the assessee on 31.10.2006 declaring total income of Rs. Nil/. Assessment u/s. 143(1) of the I.T. Act was completed on 28.03.2008 determining the total income at Rs. Nil/. As per Section 90(2) of the Income Tax Act, that where the Central Government has entered into an agreement with the Government of any country outside India granting relief of tax or for avoidance of double taxation, then in relation to assessees to whom such agreement applies, the provisions of the Act shall apply only to the extent they are beneficial to such assessees. The assessee company filed its return of income for AY 2006-07 on 31.10.2005 declaring Nil income. The assessee is a private limited company incorporated in the Republic of Singapore on 20.10.1995. The principal business of the company is to, inter alia, invest in Indian securities. The assessee company earned income of Rs.1317020173/during the previous year relevant to assessment year 2006-07. The assessee claimed that the profits earned from the transactions in Indian securities are not liable to tax in India in view of article 7 of India – Singapore tax treaty. As per article 7 of the India – Singapore treaty business income is taxable only in Singapore, unless resident carries on business in India through a permanent establishment situated in India. In simple terms that the assessee company treated the income earned on investment activities as business income and accordingly not taxable in India as the assessee company did not have any permanent establishment in India. In this connection following remarks are offered:

(1) No foreign companies are allowed to invest through stock exchange in India unless it is approved as FII by the regulatory authorities viz. RBI, SEBI etc.

(2) In case, the assessee company is a registered FII or sub account of any registered FII, which is not permitted to buy and sell securities without tak