New Delhi Television Ltd. vs Deputy Commissioner of Income Tax

Income Tax Act, 1961: s.147, first proviso – Limitation – Invocation of extended period – Allegation of non-disclosure of E material facts – Allegation that the assessee was guilty of creating network of shell companies with a view to transfer its untaxed income in India to entities abroad and then bring it back to India thereby avoiding taxation – Revenue placed reliance on certain complaints made by the minority shareholders and it was alleged that those complaints revealed that assessee was indulging in round tripping of its funds – Held: These complaints did not see light of the day either before the High Court or before this Court and, therefore, it was unfair to the assessee if they were relied upon – Revenue can take the benefit of the extended period of limitation of 6 years for initiating proceedings under the first proviso s.147 of the Act, only G if revenue can show that the assessee had failed to disclose fully and truly all material facts necessary for its assessment – Assessee had disclosed all the facts it was bound to disclose – If the revenue wanted to investigate the matter further at that stage it could have easily directed the assessee to furnish more facts – Assessee made a disclosure about having agreed to stand guarantee for the transaction by NNPLC and it had also disclosed the factum of the issuance of convertible bonds and their redemption – The income, if any, arose because of the redemption at a discounted price – This was an event which took place subsequent to the assessment year in question though it may be income for the assessment year – All relevant facts were duly within the knowledge of the assessing officer – Assessing officer knew who were the entities who had subscribed to other convertible bonds and in other proceedings relating to the subsidiaries the same assessing officer had knowledge of addresses and the consideration paid by each of the bondholders – The fact that step-up coupon bonds for US$ 100 million were issued by NNPLC was disclosed; who were the entities which subscribed to the bonds was disclosed; and the fact that the bonds were discounted at a lower rate was also disclosed before the assessment was finalised – This transaction was accepted by the assessing officer and it was clearly held that the assessee was only liable to receive guarantee fees on the same which was added to its income – It cannot be said that the assessee had withheld any material information from the revenue.

Income Tax Act, 1961: s.147, second proviso – Plea of revenue that in terms of second proviso to s.147 r/w s.149(1)(c), limitation period would be 16 years since assessee has derived income from foreign entity – Held: The notice issued to assessee was silent with regard to second proviso – In the notice, there was no mention of any foreign entity – There was only mention of s.148 – There was nothing to indicate that revenue was intending to apply the extended period of 16 years – It was only after assessee filed its reply to the reasons given, that in the order of rejection for the first time, reference was made to the second proviso by the revenue – This is not fair or proper procedure – Assessee could not be taken by surprise at the stage of rejection of its objections or at the stage of proceedings before the High Court that the notice is to be treated as a notice invoking provisions of the second proviso of s.147 of the Act – Accordingly, the notice and the supporting reasons did not invoke provisions of the second proviso of s.147 of the Act and, therefore, at this stage the revenue cannot be permitted to take benefit of the second proviso.

Allowing the appeal, the Court

HELD: 1. The material disclosed in the assessment proceedings for the subsequent years as well as the material placed on record by the minority shareholders form the basis for taking action under Section 147 of the Act. At the stage of issuance of notice, the assessing officer is to only form a prima facie view. The material disclosed in assessment proceedings for subsequent years was sufficient to form such a view. Accordingly, there were reasons to believe that income had escaped assessment in this case. [Para 23][664-E-F]

Claggett Brachi Co. Ltd., London v. Commissioner of Income Tax, Andhra Pradesh (1989) 2 Suppl. SCC 182 : [1989] 2 SCR 731; M/s Phool Chand Bajrang Lal and Another v. Income Tax Officer and Another (1993)

4 SCC 77 : [1993] 1 Suppl SCR 28; Ess Kay

Engineering Co.(P) Ltd. v. Commissioner of Income Tax, Amritsar (2001) 10 SCC 189 – relied on.

Whether there was failure on the part of the assessee to make a full and true disclosure of all the relevant facts.

2.1 The assessee had disclosed all the facts it was bound to disclose. If the revenue wanted to investigate the matter further at that stage it could have easily directed the assessee to furnish more facts. The assessee made a disclosure about having agreed to stand guarantee for the transaction by NNPLC and it had also disclosed the factum of the issuance of convertible bonds and their redemption. The income, if any, arose because of the redemption at a discounted price. This was an event which took place subsequent to the assessment year in question though it may be income for the assessment year. All relevant facts were duly within the knowledge of the assessing officer. The assessing officer knew who were the entities who had subscribed to other convertible bonds and in other proceedings relating to the subsidiaries the same assessing officer had knowledge of addresses and the consideration paid by each of the bondholders as is apparent from assessment orders dated 03.08.2012 passed in the cases of M/s. NDTV Labs Ltd. and M/s. NDTV Lifestyle Ltd. Therefore, there was full and true disclosure of all material facts necessary for its assessment by the assessee. The fact that step-up coupon bonds for US$ 100 million were issued by NNPLC was disclosed; who were the entities which subscribed to the bonds was disclosed; and the fact that the bonds were discounted at a lower rate was also disclosed before the assessment was finalised. This transaction was accepted by the assessing officer and it was clearly held that the assessee was only liable to receive a guarantee fees on the same which was added to its income. It cannot be said that the assessee had withheld any material information from the revenue. [Paras 26, 28, 29][665-D-E, H; 666-A-E]

M/s Phool Chand Bajrang Lal and Another v. Income Tax Officer and Another (1993) 4 SCC 77 : [1993] 1 Suppl. SCR 28; Honda Siel Power Products Limited v. Deputy Commissioner Income-Tax and Another (2012)

340 ITR 53 (Delhi) – referred to.

2.2 According to the revenue, the assessee to avoid detection of the actual source of funds of its subsidiaries did not disclose the details of the subsidiaries in its final accounts, balance sheets, and profit and loss account for the relevant period as was mandatory under the provisions of the Indian Companies Act, 1956. It is not disputed that the assessee had obtained an exemption from the competent authority under the Companies Act, 1956 from providing such details in its final accounts, balance sheets, etc. As such, it cannot be said that the assessee was bound to disclose this to the Assessing Officer. The Assessing Officer before finalising the assessment of 03.08.2012 had never asked the assessee to furnish the details. It was for the assessing officer at this stage to decide what inference should be drawn from the facts of the case. In the instant case, the assessing officer on the basis of the facts disclosed to him did not doubt the genuiness of the transaction set up by the assessee. This the assessing officer could have done even at that stage on the basis of the facts which he already knew. [Paras 30, 33][666-F-G; 669-E-F]

Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calcutta and Another AIR 1961 SC 372 : [1961] 2 SCR 241 – followed.

3.1 The notice u/s. 148 is conspicuously silent with regard to the second proviso s. 147. It does not rely upon the second proviso and basically relies on the provision of Section 148 of the Act. The reasons communicated to the assessee on 04.08.2015 mention ‘reason to believe’ and non-disclosure of material facts by the assessee. There is no case set up in relation to the second proviso either in the notice or even in the reasons supplied on 04.08.2015 with regard to the notice. It is only while rejecting the objections of the assessee that reference has been made to the second proviso in the order of disposal of objections. [Para 38][671-D-E]

Mohinder Singh Gill & Anr. v. The Chief Election Commissioner, New Delhi & Ors. [1978] 2 SCR 272 – referred to.

3.2 If the revenue is to rely upon the second proviso and wanted to urge that the limitation of 16 years would apply, then in the notice or at least in the reasons in support of the notice, the assessee should have been put to notice that the revenue relies upon the second proviso. The assessee could not be taken by surprise at the stage of rejection of its objections or at the stage of proceedings before the High Court that the notice is to be treated as a notice invoking provisions of the second proviso of Section 147 of the Act. Therefore at this stage the revenue cannot be permitted to take benefit of the second proviso. [Para 43][672G-H; 673-A]