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2022 Supreme(Del) 1899

IN THE HIGH COURT OF DELHI AT NEW DELHI
Anu Malhotra, J.
Deputy Director Of Income Tax (Inv) Unit - 4(3) - Appellant
Versus
Xiongwei LI - Respondent
Crl. M.C. 4492 of 2022 & Crl. M.A. 18282 of 2022
Decided On : 20-09-2022

Advocates appeared:
Mr. Zoheb Hossain, Sr. Standing Counsel with Mr. Vipul Agrawal, Mr. Parth Semwal, Jr. Standing Counsels., for the Petitioner; Mr. Vijay Aggarwal, Mr. Nagesh Behl, Mr. Hardik Sharma, Mr. Abhiraj Ray & Mr. Mukul Malik, Advocates., for the Respondent

Headnote:(A) Income Tax Act, 1961 - Section 132 - Look Out Circular (LOC) - Quashing of LOC against respondent who was CEO of a company subject to investigation for tax evasion - The learned Trial Court quashed the LOC, citing insufficient grounds for issuing it, given that the alleged offence was non-cognizable and bailable, and that there was no evidence of flight risk. It highlighted that LOC could only be issued for cognizable offences where the accused was avoiding arrest or had a probability of absconding. It established compliance procedures for LOC issuance and noted the need for a balanced assessment of the economic interests involved. (Paras 88-90, 19, 74)

Table of Content
1. setting aside of impugned order and issues around look out circular. (Para 1)
2. background facts and company ownership structure. (Para 2 , 4 , 6)
3. legal framework surrounding look out circular issuance. (Para 10 , 19)
4. discussion of procedural compliance and ongoing investigations. (Para 12 , 15 , 36)
5. judicial review of look out circular and implications for economic interests. (Para 38 , 78 , 80)
6. concluding order on the issuance and conditions associated with the look out circular. (Para 90)

JUDGMENT

1. The petitioner, i.e., the Deputy Director of Income Tax (Inv) Unit-4(3), New Delhi, vide the petition Crl. M.C. No. 4492/2022 seeks the setting aside of the impugned order dated 29.8.2022 of the Court of the learned ACMM, Special Acts, Tis Hazari Courts, and vide Crl. M.A. No. 18282/2022 seeks the stay of the operation of the impugned order dated 29.08.2022 whereby the application filed by the respondent herein seeking a quashing of the Look Out Circular (LOC) issued against him at the request of the Income Tax Officer (ITO) represented now by the present petitioner was allowed with conditions imposed thereby to the effect that in case of resignation, retirement or cessation of employment etc. of the respondent herein from the company M/s Huawei Telecommunications (India) Company Private Limited (HTICPL) (hereinafter referred to as the Company, of which the respondent herein was stated to have been the CEO), was directed to withhold the Severance Pay/Severance Package and other incentives/emoluments payable to respondent herein, which were directed not to be released without prior permission of the learned Trial Court, and an undertaking to this effect was directed to be submitted by the respondent from the said company to be filed with the Court under intimation to the Deputy Director of Income Tax (Inv) Unit-4(3), Delhi, i.e., the petitioner herein, with it having been directed that on filing of the said undertaking, the DDIT (Inv) Unit-4(3), Delhi was directed to take appropriate steps for withdrawing the lookout circular against the applicant and the same was directed to be withdrawn/recalled within 7 days of filing of the undertaking by the applicant. The respondent, in terms of the impugned order dated 29.08.2022 of the Court of the learned ACMM, Special Act, Central District, Tis Hazari, is stated to have submitted the undertaking. The aspect of the undertaking being in the form of compliance of directions dated 29.08.2022, is a matter to be ascertained by the learned Trial Court itself.

2. The petitioner i.e., the Deputy Director of Income Tax (Inv), has submitted through its petition that the respondent was the CEO of the said company, and that the said company was incorporated on 23.07.2002 and 90.11 % of its shares are held by the Netherland based Huawei Technologies Cooperatief U.A. (100% owned by Huawei Investment and Holding Co. Ltd.) and the remaining 9.89% by another Huawei Tech Investment Co. Ltd. The shareholding pattern of the said company has been put forth by the petitioner as being to the effect:-

Sl. No.

Name of the Shareholder

Country

No. of Equity Shares Held

%

1.

Huawei Technologies Cooperatief U.A.

Netherlands

54,06,605

90.11

2.

Huawei Tech. Investment Company Limited

Hong-Kong

5,93,395

9.89

Total

60,00,000

100

3. The petitioner has further submitted that the Bangalore entity is also held by the group companies as per the shareholding pattern given below:

No.

Name of the Shareholder

Country

No. of Equity Shares Held

%

1.

Huawei Tech. Investment

Company Limited

China

34119600

99.999955

2.

Huawei Technologies Netherlands BV

Netherlands

16

0.00005

Total

34119616

100

4. The petitioner submits that the HTICPL is stated to be engaged in the business of assembly and trading of telecom network equipment and providing installation, commissioning and other support services to the various customers in India, with international transactions with its associated enterprises summarized by

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