Commissioner Of Income Tax-I,Chennai v. M/S.barry-Wehmiller Internationalresources (P) Ltd.,Mpl Silicon Towers, 10[Th] Floor

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 03.08.2021 CORAM : THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMANDTHE HONOURABLE MR.JUSTICE SATHI KUMAR SUKUMARA KURUP Tax Case Appeal No.1132 of 2010 Commissioner of Income Tax-I,Chennai....Appellant Vs M/s.Barry-Wehmiller InternationalResources (P) Ltd.,MPL Silicon Towers, 10[th] Floor,No.23-1/83, Velachery-Tambaram Main Road, PallikaranaiChennai – 600 100....Respondent APPEAL under Section 260A of the Income Tax Act, 1961 againstthe order dated 04.06.2010 made in ITA.No.554/mds/2009 on thefile of the Income Tax Appellate Tribunal, 'B' Bench, Chennaifor the assessment year 2001-02. Preferred against the orderpassed by the commissioner of Income Tax, Chennai dated30.03.2009 made in C.No.218/CIT-I/70/263/2008-2009 against theorder passed by the Income Tax Officer, Company WardI(1),Chennai, dated 17.03.2003 for the Assessment year 2001-2002. For Respondent : Mr.R.Vijayaraghavan JUDGMENT (Delivered by T.S.Sivagnanam,J) This appeal by the revenue filed under Section 260A of theIncome Tax Act, 1961 (“the Act” for brevity), is directedagainst the order dated 04.06.2010 in ITA No.554/mds/2009 on thefile of the Income Tax Appellate Tribunal Chennai 'B' Bench forthe assessment year 2001-02. 2.The appeal was admitted on 21.12.2010 to decide thefollowing substantial questions of law: “1.Whether on the facts and in thecircumstances of the case, the Income Tax https://hcservices.ecourts.gov.in/hcservices/ Appellate Tribunal was right in quashing the orderof the Commissioner of Income Tax u/s.263 on theground that the noting in the order sheet made bythe Assessing Officer dropping the proceedingsinitiated u/s.147 did not amount an “order” whichcould be subjected to revision u/s.263 of the Act? 2.Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in holding that thetransfer of shares was only to comply with thelegal requirements, the beneficial ownership wasnot transferred and therefore there was no errorin the order of the Assessing Officer, withoutconsidering the detailed reasons given by theCommissioner of Income Tax in the order u/s.263?” 3.The respondent/assessee had filed the appeal before theTribunal challenging the order passed by the Commissioner ofIncome Tax , Chennai-1 dated 30.03.2009 under Section 263of the Income Tax Act, 1961. The assessee for the year 2001-02was completed under section 143(3) of the Act on 17.03.2003 ontotal income of Rs.74,370/-. The assessment was reopened underSection 147 of the Act on 08.08.2005 and after receiving theresponse from the assessee, the Assessing Officer dropped theproceedings on 29.12.2006. The CIT after examining the recordsrelating to the assessment proceedings was of the opiniondropping the proceedings under section 147 of the Act waserroneous and prejudicial to the interest of revenue and noticeunder section 263 of the Act was issued proposing to revise thedropping of the reopening proceedings which in the opinion ofthe CIT was an order. In the show cause notice, it was statedthat the Assessing Officer dropped the proceedings under section147 of the Act holding that there was no change in thebeneficial shareholding of the Company in terms of section 10A(9) of the Act. The CIT opined that the Assessing Officerfailed to appreciate that the beneficial shareholding of theCompany has changed with the acquisition of shares of MarquipInternational Inc. in USA [hereinafter referred to as “USCompany”] which owned 100% shares of Marquip Asia Pacific,Mauritius [hereinafter referred to as “Mauritius Company”] whichwas the holding company of the assessee. The CIT further opinedthat the Assessing Officer failed to consider the amendmentsought by the assessee with Foreign Investment Promotion Boardconsequent to this change which was given effect on 19.01.2002. 4.The assessee objected to the notice issued under section263 of the Act stating that there is no written order passed bythe Assessing Officer dropping the proceedings under section 143of the Act and therefore, the same cannot be subject matter ofan action under Section 263 of the Act. Supplementing such stand, the assessee submitted that they have not received anproceedings from the Assessing Officer on the proceedingsinitiated under section 148 of the Act. The assessee placedreliance on the decision of the Hon'ble Supreme Court in thecase of B.J.Shelat vs. State of Gujarat . TheCIT held that the Assessing Officer has passed an order on29.12.2006 dropping the proceedings and this can be subjectmatter of consideration under section 263 of the Act as the saidpower can be invoked not only in case of an assessment order butto any order passed in the course of any proceedings under theAct by the Assessing Officer. Further, the CIT held that theassessee was well aware of the decision which was in theirfavour and therefore, it is incorrect on their part to statethat there was no communication from the Assessing Officer tothe said effect. Further, the assessee contended that thedecision of the Assessing Officer cannot be held to be erroneousas he had dropped the proceedings after considering the entiresubmissions of the assessee and the documents placed before him. 5.Further, by referring to Explanation 1 to Section 10A ofthe Act, it was submitted that there should not be either changeof ownership or change in beneficial interest as Explanation 1clarifies that for the purpose of determining whether there ischange in ownership or beneficial interest, the test to beapplied is whether there is transfer of beneficial interestbeyond 49%. Further the assessee contended that the assessee'sshares were held by the Mauritius Company and the MauritiusCompany in turn was owned by the US Company and the US Companywas taken over and consequent to this, the assessee applied tothe Company Law Board for change of its name and the AssessingOfficer enquired about the share holding pattern of the USCompany which has been taken over by another US Company andafter full verification and after having been satisfied thatthere is no change in the beneficial shareholding of the Companydropped the proceedings. 6.The CIT did not agree with the said submission by takingnote of the Company register, change in beneficial interest heldthat the same has been recorded and consequently, the AssessingOfficer without considering the material fact of the beneficialinterest and without verifying the Company's registers haspassed the order dropping the proceedings and the same iserroneous and prejudicial to the interest of revenue andaccordingly set aside the assessment order to issue a freshorder after considering all relevant material and determineafresh whether or not there is change in beneficial interest interms of Section 10A(9) of the Act and decide the assessee'sliability for deduction under Section 10A of the Actaccordingly. Aggrieved by such order, the assessee preferredappeal before the Tribunal. The Tribunal allowed the appeal by the impugned order which has been challenged in this appealbefore us by the revenue raising the aforementioned substantialquestions of law. 7.We have elaborately heard Mr.T.Ravikumar, learned seniorstandingcounselappearingfortheappellantandMr.R.Vijayaraghavan, learned counsel appearing for therespondent. the impugned order which has been challenged in this appealbefore us by the revenue raising the aforementioned substantialquestions of law. 7.We have elaborately heard Mr.T.Ravikumar, learned seniorstandingcounselappearingfortheappellantandMr.R.Vijayaraghavan, learned counsel appearing for therespondent. 8.Three major issues arise for consideration. Firstly,whether the CIT could exercise jurisdiction under section 263 ofthe Act against a decision of the Assessing Officer dropping thereopening proceedings after issuing notice under Section 148 ofthe Act and after receiving the reply/objections of theassessee. The second aspect is whether or not there was changein beneficial interest in terms of Section 10A(9) of the Act.Thirdly, whether the twin ingredients which are required to besatisfied cumulatively for the exercise of power under Section263 of the Act stood satisfied. 10.The aforementioned decisions have been pressed intoservice by Mr.T.Ravikumar, learned senior standing counsel tobuttress his submission that the proceedings of the AssessingOfficer dropping the reopening proceedings is an order and thecorrectness of which can be considered by the Commissioner inexercise of his powers under Section 263 of the Act. 11.In the case of Indo Marine Agencies of Kerala (P)Limited, the Assessing Officer had closed the assessment as 'NA'in view of the fact that the assessee did not have any taxableincome for the assessment year under consideration. This factwas taken note of and it was held that the endorsement 'NA' madeby the Assessing Officer on the ground that the assessee did nothave a taxable income from the assessment year underconsideration onwards was held to be an order under Section 144 https://hcservices.ecourts.gov.in/hcservices/ of the Act and merely because it is not communicated, it wouldnot make such an assessment recorded in the order sheet illegaland therefore, there would not be no bar to initiate proceedingsunder section 147 of the Act. 12.The facts of the present case are slightly differentbecause the case before us is not an exercise of power underSection 263 of the Act to consider the correctness of thedecision taken by the Assessing Officer on an originalassessment whether the assessment was erroneous and prejudicialto the interest of revenue. Therefore, the decision in IndoMarine Agencies of Kerala (P) Limited would be distinguishableon facts. Equally so are the other decisions as well. 13.However, the underlying legal principle laid down in allthe decisions is that section 263 of the Act empowers theCommissioner to take up consideration any order passed in anyproceedings under the Act and it is not possible to read theprovision as being limited to exercising revisional powers quathe order of assessment only. 14.Similarly in the case of V.V.A.Shanmugam also, the issuewas whether the CIT has got no jurisdiction under section 263 ofthe Act to interfere with the order passed by the Income TaxOfficer as per the direction given by the IAC underSection 144A of the Act. 13.However, the underlying legal principle laid down in allthe decisions is that section 263 of the Act empowers theCommissioner to take up consideration any order passed in anyproceedings under the Act and it is not possible to read theprovision as being limited to exercising revisional powers quathe order of assessment only. 14.Similarly in the case of V.V.A.Shanmugam also, the issuewas whether the CIT has got no jurisdiction under section 263 ofthe Act to interfere with the order passed by the Income TaxOfficer as per the direction given by the IAC underSection 144A of the Act. 15.The earliest of the decision which has been referred inall the above decisions is that of the Hon'ble Supreme Court inthe case of CIT vs. Bidhu Bhusan Sarkar [(1967) 63 ITR 278(SC)], wherein it was held that pursuant to the filing of areturn the ITO enters in the order sheet the remarks “Noproceedings” or “filed”, it has to be construed as an orderdisposing of the proceedings of assessment. As pointed outearlier, in the case on hand, it is not a case of an assessment.Assessment had been completed and thereafter, the AssessingOfficer was of the opinion that assessment requires to bereopened, he has recorded reasons and pursuant to which, noticeunder section 148 of the Act was issued and after receiving thereply from the assessee, the Assessing Officer was satisfiedthat there was no case for reopening and the proceedings weredropped. Therefore, the decision cited by the revenue would notrender assistance to their case. 16.The revenue had relied upon the decision in the case ofCarborandum Universal Ltd. On a quick reading of the decision,one may get an impression that the decision can be applied tothe facts of the present case, but on a careful reading of thequestions framed for consideration, more particularly, questionNo.3 which has been answered in paragraph No.4 of the judgment in the following terms would clearly show that the decisionwould support the case of the assessee:“4.So far as the third question is concerned,the Tribunal, in our view, has rightly held thatthe order dropping the proceeding is not an orderof reassessment and, therefore, notwithstanding thefact of dropping of those proceedings, the CIT hasjurisdiction to revise the original assessmentorder made under s.263(2)(a) of the Act. Ouranswer to this question is against the assessee andin faovur of the Revenue. As the Tribunal has notexamined the merits of the case, we direct theTribunal to do so now.” in the following terms would clearly show that the decisionwould support the case of the assessee:“4.So far as the third question is concerned,the Tribunal, in our view, has rightly held thatthe order dropping the proceeding is not an orderof reassessment and, therefore, notwithstanding thefact of dropping of those proceedings, the CIT hasjurisdiction to revise the original assessmentorder made under s.263(2)(a) of the Act. Ouranswer to this question is against the assessee andin faovur of the Revenue. As the Tribunal has notexamined the merits of the case, we direct theTribunal to do so now.” 17.Therefore, we are of the view that the CIT had nojurisdiction to invoke his power under section 263 of the Act toexamine the correctness of the decision taken by the AssessingOfficer dropping the reopening proceedings after issuance ofnotice under section 148 of the Act and after considering theobjections filed by the assessee. In fact to the said extent,the Tribunal was right in its opinion. However, we do not agreewith the finding of the Tribunal in paragraph No.6 of theimpugned order, wherein the Tribunal has made an observationthat issuance of notice under section 148 of the Act was anadministrative decision and dropping of the proceedings afterverifying the details was also an administrative decision. Thisobservation is incorrect because the decision to be taken beforeissuance of notice for reopening should be based upon the cogentreasons and the Assessing Officer who issues notice shouldrecord his satisfaction and this cannot be termed as purely anadministrative decision but there is a quasi-judicialapplication of mind required before issuance of notice underSection 148 of the Act. Likewise after receiving the objectionsfrom the assessee if the Assessing Officer seeks to sustain hisprima facie view and reject the objections submitted by theassessee, then also he is required to apply his mind and pass anorder, the correctness of which can be questioned in aproceedings under Article 226 of the Constitution of India.Therefore, to that extent, we do not agree with the finds of theTribunal. 18.The second issue is whether the Tribunal was right inholding that the transfer of shares was only to comply with thelegal requirements, the beneficial ownership was not transferredand therefore, there was no error in the order of the AssessingOfficer. In this regard, the documents submitted before theAssessing Officer was placed before us, from which, we find thatthe US Company had addressed the Registrar of Companies inChennai conveying their no objection for change of name. Theregister of members and share ledger accounts would show that the shares which were transferred to MIPL was without beneficialinterest with effect from 11.03.2002. Further, the assessee intheir letter dated 24.03.2006 had stated with regard to theshareholding pattern as follows:“Shareholding 100% of the equity capital of Marquip WorldwideSystems was held by Marquip Asia-Pacific Limited, acompany incorporated in Mauritius. There is nochange in the shareholding pattern or the beneficialownership of the share holding in the IndianCompany. Even after the name change, theshareholding pattern in the Indian Company continuedto be same. It is evident from the statutory shareholdersregister that all the shares of the Indian Companyare held by Marquip Asia-Pacific Limited, Mauritiusand we add that during 2000-01, no share transfersoccurred. It may please be noted here tat only 2shares were transferred to Barry-WehmilllerCompanies Inc., USA only in the year March 2002 andthat too without beneficial interest in the saidshares. Marquip Asia-Pacific continued to hold thebeneficial interest in the shares. It is evident from the statutory shareholdersregister that all the shares of the Indian Companyare held by Marquip Asia-Pacific Limited, Mauritiusand we add that during 2000-01, no share transfersoccurred. It may please be noted here tat only 2shares were transferred to Barry-WehmilllerCompanies Inc., USA only in the year March 2002 andthat too without beneficial interest in the saidshares. Marquip Asia-Pacific continued to hold thebeneficial interest in the shares. We also attach a copy of the abstract of theshareholder register duly attested by the CompanySecretary. This has been further confirmed by thecopy of the certified letter received from MarquipAsia-Pacific Limited, Mauritius which is enclosedherewith. Right from 1997, Marquip Aisa-Pacific Limited wasowned by Marquip International Inc., USA. 100% ofthe shares of Marquip Asia-Pacific Limited wereowned by Marquip International Inc., USA. There isno change in the shareholding pattern or theownership or the beneficial interest in the shares. This has been supported by the certified copy of theduly notarized letter received from Marquip Asia-Pacific Limited, which is attached herewith. This clearly proves that there is no change inownership or beneficial interest in the IndianCompany even after the name change.” 19.Further, Marquip Asia-Pacific Limited, Mauritius bytheir letter dated 16.03.2006 informed the petitioner byconfirming that shareholding of Barry-Wehmiller InternationalResources Private Limited is as follows: “(1) 31,156 equity shares of Rs.100 each held byMarquip Asia-Pacific Limited, Mauritius (MAPL), (2) 2 equity shares of lRs.100 each heald by Barry-Wehmiller Companies Inc., USA as nomineeshareholder on behalf of MAPL, Mauritius.” 20.Further, it was stated that since Barry-Wehmiller Companyincorporated in USA does not have any beneficial interest in theshares held on behalf of the MAPL, 100% of the shares in Barry-Wehmiller International Resources Private Limited are thereforeowned by MAPL, Mauritius. This submission was duly support bynecessary records. Further, the assessee had submitted anexplanatory note clearly explaining the organization structureand established before the Assessing Officer that during 2000-01, Barry-Wehmiller Company Inc. acquired 100% shares in MarquipInternational Inc. and this does not change the shareholdingpattern of the assessee Company and the parent Company continuedto be the Mauritius Company with 100% equity. 21.These facts were taken note of and the Assessing Officerhad dropped the reopening proceedings. Thus, it is on anopinion formed by the Assessing Officer and after beingsatisfied that there is no case made out for reopening and afterrecording that the ownership or beneficial interest of theCompany has not changed and continued to be with MauritiusCompany and therefore, Section 10A(9) of the Act is notattracted and accordingly, proceedings under Section 147 of theAct was dropped. Therefore, unless and until the twin testswhich are required to be satisfied that the assessment should benot only erroneous but prejudicial to interest, the power undersection 263 of the Act should not have been invoked apart fromthe fact that this was not a case where such a power wasexercised to revise the original assessment. Therefore, theTribunal was right in coming to the conclusion that the shareswere transferred only to comply with the legal requirements andthe beneficial ownership was never transferred. Hence, we findthat the order passed by the Tribunal does not call for anyinterference. 22.In the result, the tax case appeal is dismissed and theSubstantial Questions of law are answered against the revenueand in favour of the assessee. No costs. Sd/- Assistant Registrar(CS-III) //True Copy// cse Sub Assistant Registrar To 1. The Income Tax Appellate Tribunal, 'B' Bench, Chennai. 22.In the result, the tax case appeal is dismissed and theSubstantial Questions of law are answered against the revenueand in favour of the assessee. No costs. Sd/- Assistant Registrar(CS-III) //True Copy// cse Sub Assistant Registrar To 1. The Income Tax Appellate Tribunal, 'B' Bench, Chennai. 2. The Commissioner of Income Tax-I, Chennai. 3. The Income Tax Officer, Company Ward-I(1), Chennai. +1cc to Mr.T.Ravikumar, SSC, Advocate, S.R.No.37910 +1cc to Mr.Subbaraya Aiyar, Padmanabhan, Advocate, S.R.No.37920 TCA.No.1132 of 2010 PM(CO)RGA(23/08/2021)