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2014 Supreme(Bom) 1296
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
S.C. DHARMADHIKARI & B.P. COLABAWALLA, JJ.
Director of Income Tax (International Taxation), 107, First Floor, Scindia House, Ballard Pier, Mumbai 400038. - Appellant
Versus
M/s Mahindra & Mahindra Limited, Mahindra Towers, Ground Floor, Corporate Taxation, Worli Road No.13, Worli, Mumbai-400018. - Respondent
INCOME TAX APPEAL NO.3489 OF 2009
Decided on : 03rd July, 2014
Mr. Suresh Kumar, for the Appellant/ Revenue.
Mr. J.D. Mistry, Senior Advocate a/w Mr. Nishant Thakkar i/by Mint & Conferes, for the Respondent/ Revenue.
The exercise of jurisdiction under Section 201(1) and 201(1A) of the Income Tax Act, 1961 must be within a reasonable time, and the absence of a specific time limit does not mean that the authority can exercise its powers at any time.
Headnote:
Income Tax - Euro Issues - Section 260A of the Income Tax Act, 1961 - 195, 201, 201(1A), 149, 153(2) - The court discussed the applicability of Section 9(1)(vii) of the Income Tax Act, 1961 to the technical, managerial, or consultancy services rendered by lead managers in Euro issues. The court also examined the issue of limitation for initiating and completing proceedings under Section 201(1) and 201(1A) and held that the proceedings must be initiated and completed within a reasonable time. The court referred to various judgments and concluded that the absence of a specific time limit does not mean that the authority can exercise its powers at any time, and that the exercise of jurisdiction must be within a reasonable period. The court dismissed the appeal as it did not raise any substantial question of law.
Fact of the Case:
The case involved four Appeals challenging the order passed by the Income Tax Appellate Tribunal dated 09.04.2009. The Appeals arose from the order passed by the Commissioner of Income Tax (Appeals) dated 01.03.2000, pertaining to Euro issues in the Financial Year 1993 and 1996. The Assessing Officer observed that the Assessee wanted to mop up foreign currency resources from the international market for the up-gradation of its Indian operations, and issued a show cause notice under Section 201(1) and 201(1A) requiring the Assessee to explain why it should not be treated as in default for non-deduction of tax at source from the payments made to non-resident persons connected with bringing out the Euro issues.
Finding of the Court:
The court held that the proceedings under Section 201(1) and 201(1A) must be initiated and completed within a reasonable time, and that the absence of a specific time limit does not mean that the authority can exercise its powers at any time. The court referred to various judgments and concluded that the exercise of jurisdiction must be within a reasonable period. The court dismissed the appeal as it did not raise any substantial question of law.
Issues: The issues involved in the case included the applicability of Section 9(1)(vii) of the Income Tax Act, 1961 to the technical, managerial, or consultancy services rendered by lead managers in Euro issues, and the issue of limitation for initiating and completing proceedings under Section 201(1) and 201(1A).
Ratio Decidendi: The court held that the proceedings under Section 201(1) and 201(1A) must be initiated and completed within a reasonable time, and that the absence of a specific time limit does not mean that the authority can exercise its powers at any time. The court referred to various judgments and concluded that the exercise of jurisdiction must be within a reasonable period.
Final Decision: The court dismissed the appeal as it did not raise any substantial question of law.
(Per S.C. Dharmadhikari, J.) :
1. This Appeal under Section 260A of the Income Tax Act, 1961 challenges the order passed by the Income Tax Appellate Tribunal dated 09.04.2009. The Tribunal by the order under Appeal dealt with four Appeals of the Respondent/Assessee. They arose from the order passed by the Commissioner of Income Tax (Appeals) dated 01.03.2000. The Assessment Year in question is 19981999. The Income Tax Appellate Tribunal held that out of four Appeals, the Income Tax Appeal Nos.2606/M/2000 and 2614/M/2000 are repetitive. They were filed as and by way of abundant caution. They need not be separately adjudicated. Therefore, these Appeals were dismissed as infructuous.
2. The other two Appeals, namely, Income Tax Appeal Nos.2607/M/2000 and 2613/M/2000 were filed separately because they pertain to two Euro issues, namely, one in the Financial Year 1993 and other in 1996. It was gathered by the Revenue authorities that the Assessee came out with two Euro issues of the size of US $ 74.75 million and US $ 100 million in November, 1993 and July, 1996 respectively. The Assessee was called upon to furnish the details in connection with the payments made to various nonresident persons who were connected with bringing out these Euro issues. From such details the Assessing Officer, namely, Deputy Commissioner of Income Tax, TDS Circle, Mumbai1, observed that M/s Banque Paribas was paid a sum of Rs.8,21,00,838/as marketing, underwriting commission and selling commission. A further sum of Rs.88,74,971/was paid as outofpocket expenses like travelling expenses, fee and disbursement of legal advisors, managers, telex, telephone etc.. The details of these two Euro issues have been more elaborately recorded in the order passed by the Assessing Officer under Section 195 of the Income Tax Act, 1961. As regards the first Euro issue, the Company came out with an Offering Circular dated 30.11.1993 offering 87,36,559 Global Depository Receipts (GDRs) representing 87,36,559 ordinary shares at an issue price of US $ 7.44 per GDR. It was further stipulated in the terms of the Offering Circular that each GDR would be issued in respect of one ordinary share with a par value of Rs.10 per share. The closing date in terms of the Offering Circular was fixed as 14.03.1993 by which time the delivery of GDR was stipulated to be made. M/s Banque Paribas were appointed as lead managers. Clause 5 of the Subscription Agreement with the lead managers deals with the commission payable to the lead managers. It provides that management and underwriting commission was to be paid at 1.5% of the issue price and selling commission at 2% of the issue price. Such commission was to be retained by the lead managers from the issue price of GDRs. Besides that the Assessee also agreed to bear and pay all expenses incidental to the performance of its obligations including the fees and expenses of its legal advisers and accountants, expenses in connection with the issue of the Deposited Shares, the cost of listing the GDRs and the Deposited Shares and the cost of any advertising agreed to by the Assessee in connection with the offer of GDRs. The Assessee further agreed to reimburse to the lead manager for its out of pocket expenses and disbursement incurred by it subject to the limit of US $ 1,75,000.
3. The second issue of US $ 100,000,000 was of 5% Convertible Notes due on July 9, 2001 convertible into GDRs. For this issue, the Subscription Agreement was entered into by the Assessee with Goldman Sachs (Asia) L.L.C.. These Notes were to be in the denomination of US $ 1000 each convertible, at the option of the holder thereof, into GDRs each representing one ordinary share of the company on or after 18.08.1996 until and including 09.06.2001. The closing date for this issue was fixed on 09.07.1996. Clause 4 of this Agreement deals with the Commission and Concession. It provides that in consideration of the agreement by the Managers to manage the issue of, and t
