General Electric Company & Anr v. Deputy Director Of Income-Tax. . . .Respondents Circle 1 (2), New Delhi & Others Through:mr. Mohan Parasaran, A.s.g. With Mr. Sanjeev Sabharwarl, Sr. Standing C

* + REPORTABLE IN THE HIGH COURT OF DELHI AT NEW DELHI W.P. (C) 9100 of 2007 % Reserved on: 12[th] July, 2011 Pronounced on: 12[th] August,2011 GENERAL ELECTRIC COMPANY & ANR. . . . PETITIONERS Through : Mr. Harish Salve, Sr. Advocate with Ms. Anuradha Dutt, Ms. Fereshte Sethna, Mr. Anish Kapur, Ms. Ekta Kapil, Mr. Kuber Dewan, Ms. Shweta and Mr. Pratyush Miglani, Advocates. VERSUS DEPUTY DIRECTOR OF INCOME-TAX. . . .RESPONDENTS CIRCLE 1 (2), NEW DELHI & OTHERS Through:Mr. Mohan Parasaran, A.S.G. with Mr. Sanjeev Sabharwarl, Sr. Standing Counsel, Mr. Soheb Horrain, Mr. Alok P. Kumar and Ms. Aarthi Rajan. CORAM :- HON’BLE MR. JUSTICE A.K. SIKRI HON’BLE MR. JUSTICE M.L. MEHTA 1. Whether Reporters of Local newspapers may be allowed to see the Judgment? to see the Judgment? 2. To be referred to the Reporter or not? 3. Whether the Judgment should be reported in the Digest? A.K. SIKRI, J. 1.By the present petition, the petitioners are challenging the legality and validity of the notices dated 10.04.2007 and 10.10.2007 issued under Section 163 of the Income Tax Act (hereinafter referred to as „the Act‟) vide which respondent No.1 proposes to treat respondent no.4 as an agent of the first petitioner and make an assessment on respondent No.4 as a representative assessee of the first petitioner. 2. Vide impugned notices served upon the respondent No.4 treating as a representative assessee of the petitioner No.1, the Department is seeking to bring within the tax net the purported income generated by the petitioner No.1 as capital gains arising from the transfer of shares of respondent No.4 which were held by the petitioner No.1. The contention of the petitioners is that such a transaction is not chargeable to tax in India when petitioner No.1, a non-resident company has transferred the share holding to another non-resident. However, that was not the issue canvassed before us. At present, the challenge to the validity of the aforesaid notice is confined on the ground 3. that the respondent No.4 cannot be treated as representative assessee of the petitioner No.1 and therefore, the impugned notice is without any jurisdiction. We would, thus, like to take stock of the relevant facts surrounding this issue. The first petitioner is a company incorporated in the State of New York in the United States of America its principal place of activity is the United States and it has business interests all over the world. It has been assessed to tax in India over the last several years in respect of its income taxable in India, as a non-resident, initially by the Deputy Commissioner of Income Tax 1(2) and currently by the Assistant Director of Income Tax, International Taxation, 3(1) at Mumbai. The second petitioner is a company incorporated in Mauritius that holds shares of group companies and investments and had a wholly owned subsidiary in India called GE Capital International Services (for brevity „GECIS‟), now known as Genpact India, which is registered under the Companies Act, 1956 and is respondent No.4 herein. Respondent No.1 is the Deputy Director of Income Tax, International Taxation, who has 4. issued a notice under Section 163 of the Act to the respondent No.4, i.e., impugned in the present petition. Respondent No.2 is the Assistant Director of Income Tax, who subordinate to respondent No.1 has taken further proceedings pursuant to the notice issued by the respondent No.1. Although the respondent No.4 is made a party to the petition, it has been added only as a proper/proforma party and no relief has been sought or claimed against it. 4. issued a notice under Section 163 of the Act to the respondent No.4, i.e., impugned in the present petition. Respondent No.2 is the Assistant Director of Income Tax, who subordinate to respondent No.1 has taken further proceedings pursuant to the notice issued by the respondent No.1. Although the respondent No.4 is made a party to the petition, it has been added only as a proper/proforma party and no relief has been sought or claimed against it. GECIS was incorporated in or about 1997 under the Companies Act, 1956 to carry on the business of computer software, i.e., data entry conversion, data processing, data analysis, business support billing, etc. The entire share capital of GECIS was acquired by the second petitioner along with certain individuals as nominee shareholders in 1998 with the approval of the Foreign Investment Promotion Board. The second petitioner is a wholly owned subsidiary, through various intermediate holdings, of the first petitioner. The remote business processing and offshore support operation that provided specified business process outsourcing services (BPO) to 5. the first petitioner and its affiliates were carried out from facilities located in India (through GECIS as explained aforesaid), as well as in China, Hungary, Mexico, the United Kingdom and the United States of America, through other, this BPO business grew, acquiring outside clients apart from the petitioner‟s group of companies and gathered value. With certain investors evidencing interest in acquiring 60% of the petitioner‟s BPO business and, with a view to divesting it worldwide ownership in companies through which such business was conducted, the petitioners‟ along with other affiliated companies embarked on a series of transactions in December, 2004. The series of transactions entered into in transferring the shares with the objective of acquiring of the BPO business of the petitioner is set out in Annexure-A to the writ petition. Though that may not be very relevant for deciding the controversy, for the sake of completing the narration of facts, we are reproducing the same as well: “Particulars of Series of Transactions Undertaken in December, 2004 1.The first step in the series of reorganization and restructuring transactions to consolidate petitioners‟ BPO business in a single Luxembourg holding company was the transfer by the second restructuring transactions to consolidate petitioners‟ BPO business in a single Luxembourg holding company was the transfer by the second petitioner of the shares it owned in GECIS to GECIS India Investments by way of a gift. Certain individuals who were nominee shareholders of shares of GECIS likewise made a gift of the shares held by them to GECIS India Holdings GE CIS India Investments is a Mauritius incorporated company and a wholly owned subsidiary of GECIS India Holding, which is also incorporated in Mauritius and which, in turn, was set up as a wholly owned subsidiary of the second petitioner. The Second Petitioner had intimated to the Reserve Bank of India the factum of the gifts of the GECIS shares held by the First Petitioner as well as the nominee shareholders. The Reserve Bank of India, by its letter dated 16[th] June, 2005, had taken the transactions of the gift on its record as general permission was available for the gifts and the GECIS shares had initially been acquired after obtaining Reserve Bank of India approval. The petitioners crave leave to refer to and rely upon the correspondence with Reserve Bank of India when produced. The Second Petitioner had intimated to the Reserve Bank of India the factum of the gifts of the GECIS shares held by the First Petitioner as well as the nominee shareholders. The Reserve Bank of India, by its letter dated 16[th] June, 2005, had taken the transactions of the gift on its record as general permission was available for the gifts and the GECIS shares had initially been acquired after obtaining Reserve Bank of India approval. The petitioners crave leave to refer to and rely upon the correspondence with Reserve Bank of India when produced. 2.The next step undertaken was that the Second Petitioner transferred the shares it held in GECIS India Investments to another subsidiary company incorporated in Mauritius viz., GECOS India Holdings at their fair value and in consideration of such transfer, it was issued shares in GECIS India Holdings. Petitioner transferred the shares it held in GECIS India Investments to another subsidiary company incorporated in Mauritius viz., GECOS India Holdings at their fair value and in consideration of such transfer, it was issued shares in GECIS India Holdings. 3.Thereafter the Second Petitioner transferred its shareholding in GECIS India Holdings to another subsidiary company incorporated in Mauritius viz., GECIS India International and in consideration of such transfer, it was issued shares by GECIS India International. shareholding in GECIS India Holdings to another subsidiary company incorporated in Mauritius viz., GECIS India International and in consideration of such transfer, it was issued shares by GECIS India International. 4.Thereafter the Second Petitioner transferred the shares it held in GECIS India International to another subsidiary, GECIS Gibraltar (set up as a wholly owned subsidiary of the Second Petitioner) which was a company incorporated in Gibraltar and in consideration of such transfer, it was issued shares in GECIS Gibraltar. shares it held in GECIS India International to another subsidiary, GECIS Gibraltar (set up as a wholly owned subsidiary of the Second Petitioner) which was a company incorporated in Gibraltar and in consideration of such transfer, it was issued shares in GECIS Gibraltar. 5.Simultaneously a company incorporated in Luxembourg wholly owned by the Second Petitioner as the new holding company of the Petitioners‟ BPO business viz., GECIS Global Holdings directly and indirectly through its subsidiaries bought out the shares/assets of the other operating companies which carried on the petitioners‟ BPO business activity in the United States, the United Kingdom, Hungary Mexico and China. Luxembourg wholly owned by the Second Petitioner as the new holding company of the Petitioners‟ BPO business viz., GECIS Global Holdings directly and indirectly through its subsidiaries bought out the shares/assets of the other operating companies which carried on the petitioners‟ BPO business activity in the United States, the United Kingdom, Hungary Mexico and China. 6.The Second Petitioner thereafter transferred its shareholding in GECIS Gibraltar to GECIS Global Holdings for a consideration which was discharged by issue of common stock, preferred stock, as well as a payment of US $37 million in cash by GECIS Global Holdings to the Second Petitioner. Subsequently GECIS Gibraltar was liquidated and hence the shares of GECIS India International which hitherto belonged to GECIS Gibraltar were distributed to GECIS Global Holdings in liquidation. shareholding in GECIS Gibraltar to GECIS Global Holdings for a consideration which was discharged by issue of common stock, preferred stock, as well as a payment of US $37 million in cash by GECIS Global Holdings to the Second Petitioner. Subsequently GECIS Gibraltar was liquidated and hence the shares of GECIS India International which hitherto belonged to GECIS Gibraltar were distributed to GECIS Global Holdings in liquidation. 7.The Second Petitioner in turn transferred the preferred stock it received in GECIS Global Holdings to GE Luxembourg Investments S.a.r.l, a company incorporated in Luxembourg for a consideration which was secured by issue of promissory notes by GE Luxembourg Investment S.a.r.l. preferred stock it received in GECIS Global Holdings to GE Luxembourg Investments S.a.r.l, a company incorporated in Luxembourg for a consideration which was secured by issue of promissory notes by GE Luxembourg Investment S.a.r.l. 8.GE Luxembourg Investments S.a.r.l thereafter transferred the preferred stock it held in GECIS Global Holdings to another company incorporated in Luxembourg called GECIS Global (Lux), and in consideration of such transfer was issued preferred and nominal common stock of GECIS Global (Lux). transferred the preferred stock it held in GECIS Global Holdings to another company incorporated in Luxembourg called GECIS Global (Lux), and in consideration of such transfer was issued preferred and nominal common stock of GECIS Global (Lux). 9.These restructuring and reorganization transactions detailed in this Annexure A were taken by the various affiliates of the First and Second Petitioner pursuant to a Security Purchase Agreement dated November, 7, 2004 entered into between the First Petitioner, the Second Petitioner and certain of its affiliates and General Electric Capital Corporation of the one part, and Garuda Investments Company (which was subsequently substituted by GECIS Investments Co. (Lux), f the other part. detailed in this Annexure A were taken by the various affiliates of the First and Second Petitioner pursuant to a Security Purchase Agreement dated November, 7, 2004 entered into between the First Petitioner, the Second Petitioner and certain of its affiliates and General Electric Capital Corporation of the one part, and Garuda Investments Company (which was subsequently substituted by GECIS Investments Co. (Lux), f the other part. 10.Ultimately 99.1% of the preferred stock and 60.6% of the nominal common stock held by GE Luxembourg Investment S.a.r.l in GECIS Global (Lux) was transferred to GECIS Investments Co. (Lux) for a consideration equivalent to its cost of acquisition. 60.6% of the nominal common stock held by GE Luxembourg Investment S.a.r.l in GECIS Global (Lux) was transferred to GECIS Investments Co. (Lux) for a consideration equivalent to its cost of acquisition. 11.The name of GECIS was changed to Genpact India and the name of GECIS India Investments was changed to Genpact India Investments. GE Luxembourg Investment S.a.r.l was liquidated in December 2006.” India and the name of GECIS India Investments was changed to Genpact India Investments. GE Luxembourg Investment S.a.r.l was liquidated in December 2006.” 6.As per the petitioners, these operations in different jurisdictions were carried out through various entities and controlled through separate entities keeping in mind the business expediency of the petitioner. The investors who desired to take over these business entities, were desirous of acquiring shares of a single holding company entity – which required a reorganization of the structure. The net effect of these restructuring and reorganization transactions which were undertaken pursuant to a Securities Purchase Agreement dated 07.11.2004 entered into between the first petitioner, second petitioner and some of its affiliates and General Electric Capital Corporation, of the one part, and Garuda Investment Company (which was subsequently substituted by Gecis Investments Co. (Lux) (hereinafter referred to as the “Securities Purchase Agreement”) of the other part. An amendment as well as ancillary agreements was also executed between these sets of parties. 7.The consequence of these agreements was that: (a)The shares of the Indian company moved, by a gift, from GECIM a Mauritius company to GECIS India Investments – another Mauritius company. gift, from GECIM a Mauritius company to GECIS India Investments – another Mauritius company. Investments Co. (Lux) (hereinafter referred to as the “Securities Purchase Agreement”) of the other part. An amendment as well as ancillary agreements was also executed between these sets of parties. 7.The consequence of these agreements was that: (a)The shares of the Indian company moved, by a gift, from GECIM a Mauritius company to GECIS India Investments – another Mauritius company. gift, from GECIM a Mauritius company to GECIS India Investments – another Mauritius company. (b)The shares of the GECIS India Investments were transferred to a holding company. The shares with the holding company were then transferred and so on in a series of transactions, and finally the holding company was GECIS Global Holdings, in which other BPO were transferred to a holding company. The shares with the holding company were then transferred and so on in a series of transactions, and finally the holding company was GECIS Global Holdings, in which other BPO businesses from other countries were also consolidated. consolidated. (c)The shares of GECIS Global holdings were sold to a Luxembourg company, and through a series of transactions, the holding shares were acquired by Gecis Investments Co. (Lux). series of transactions, the holding shares were acquired by Gecis Investments Co. (Lux). 8. 9. (d) In the aforesaid manner, Gecis Investments Co. (Lux) acquired 99.1% of the preferred stock and 60.6% of the nominal common stock of GECIS Global (Lux) a newly organized Luxembourg company and which was a transfer of a capital asset situated outside India – i.e. shares in a company incorporated in Luxembourg. As per the petitioners, the only capital asset in India which was transferred in the course of the restructuring and reorganization transactions was the gift of the shares of CECIS by the second petitioner – a Mauritius company and certain nominee shareholders to GECIS India Investments and GECIS India Holdings, respectively (each a Mauritius incorporated company). Therefore, no income had accrued or arisen or can be deemed to accrue or arise in India. The Income Tax Department, on the other hand, maintains that it is a taxable event in India. However, as pointed out above, we are not concerned with this aspect in the present proceedings. We are at a stage anterior to that as the question before us is as to whether the respondent No.4 can be treated as representative assessee of the first petitioner. 10.The first petitioner had filed its return of income for the assessment year 2005-06 on 29[th] October, 2005 with the Assessing Officer, having jurisdiction over the first petitioner‟s case, viz., the Assistant Director of Income Tax (International Taxation 3(1), Mumbai. The first petitioner declared a total income of `2,64,07,840/- that accrued to it from rendering certain technical services to GECIS and had filed with its return of income a computation of its total income as well as the Transfer Pricing Report required to be furnished in From 3CEB. 11.Thus, the first petitioner though a non-resident is assessed in India in respect of income which it is earning from operations in India and which income can be deemed to accrue or arise out of transactions in India. Fact remains that the petitioner No.1 is assessable in India and comes within the jurisdiction of Assistant Director of Income Tax, Range 3(1), (International Taxation), Mumbai. As far as the petitioner No.2 is concerned , it had filed its Transfer Pricing Report (International Taxation) Mumbai stating that other than interest on which tax was deducted at source at the appropriate rates, no other income is exigible to tax in India. On the basis, it was informed that the petitioner No.2 was not filing in income tax return. 11.Thus, the first petitioner though a non-resident is assessed in India in respect of income which it is earning from operations in India and which income can be deemed to accrue or arise out of transactions in India. Fact remains that the petitioner No.1 is assessable in India and comes within the jurisdiction of Assistant Director of Income Tax, Range 3(1), (International Taxation), Mumbai. As far as the petitioner No.2 is concerned , it had filed its Transfer Pricing Report (International Taxation) Mumbai stating that other than interest on which tax was deducted at source at the appropriate rates, no other income is exigible to tax in India. On the basis, it was informed that the petitioner No.2 was not filing in income tax return. 12.Respondent No.1 who is the Deputy Director of the Income Tax (International Taxation) in New Delhi issued a show cause notice dated 11.04.2007 to the respondent No.4. In this notice, it was stated that from the records available with him, it appeared that General Atlantic Partners and Oak Hill Capital had purchased 60% shareholding in respondent No.4 from the first petitioner. The notice further recites that the said shareholding transferred which was valued at US Dollar $500 million and that no application was made under Section 197 of the Act by the payee “with regard to the transactions relating to the sale of the stake” in respondent No.4. It was further stated that the income arising to the first petitioner from the sale of its direct/indirect stake in respondent No.4 is liable to tax in India in view of the deeming provisions contained in Section 9(1)(i) of the Act. It was proposed in the notice to treat the respondent No.4 as an agent and consequently, the representative assessee of the first petitioner under the provisions of Section 136 read with Sections 160 and 161 of the Act and proposed to proceed to act in accordance with law. This show cause notice also referred to the earlier notice dated 02.11.2006 issued to the respondent No.4 stating that such information had not been furnished. Accordingly, the respondent No.4 was required to show cause as to why such action of treating the respondent No.4 as representative assessee be not taken and income accrued to the petitioner No.1 assessed in accordance with the law. 13.Respondent No.4 submitted its reply to the said show cause notice, inter alia, stating that it had no obligation to deduct the tax at source in respect of such transactions between the petitioners on the one hand and General Atlantic Partners and Oak Hill Capital on the other hand. According to it, merely because by the said transaction, shareholding of respondent No.4 was transferred by one party to other, both being non-resident, the respondent No.4 could not be treated as representative assessee. Since none of the conditions specified in Section 13 of the Act were fulfilled. It was also submitted that the petitioner No.1 is not and had never been a direct shareholder of respondent No.4 and therefore, question of any income accruing or arising to the petitioner, which is chargeable to tax in India would not arise. 14.Nothing happened for almost six months. However, a letter dated 10.10.2007 was addressed by the respondent No.2 to respondent No.4 asking for some more information. It is averred in the petition that this letter could not be served upon the respondent No.4 and, therefore, it was again sent and served upon the respondent No.4 along with letter dated 26.10.2007. From this letter, the petitioners were informed about the proposed move of the respondent No.1 to 3 to treat the respondent No.4 as an agent of the first petitioner. 15.After receiving this information, the petitioners filed the present petition in December, 2007 questioning the proprietary, validity and legality of the aforesaid show 14.Nothing happened for almost six months. However, a letter dated 10.10.2007 was addressed by the respondent No.2 to respondent No.4 asking for some more information. It is averred in the petition that this letter could not be served upon the respondent No.4 and, therefore, it was again sent and served upon the respondent No.4 along with letter dated 26.10.2007. From this letter, the petitioners were informed about the proposed move of the respondent No.1 to 3 to treat the respondent No.4 as an agent of the first petitioner. 15.After receiving this information, the petitioners filed the present petition in December, 2007 questioning the proprietary, validity and legality of the aforesaid show cause notice. Notice in this involved writ petition and stay application was issued on 06.12.2007, but no ex partestay was granted by this Court. Against non-grant of interim relief, the petitioners filed Special Leave Petition in which orders dated 14.12.2007 were passed restraining respondent Nos. 1 to 3 from passing final orders pursuant to show cause notices issued by the respondents. This stay was made applicable till 13.02.2008 when the matter was coming up before this Court. This Court has thereafter extended the said interim directions from time to time. Vide orders dated 23.03.2008, the interim orders passed by the Supreme Court on 14.02.2008 was continued till the disposal of the writ petition. 16.On 18.01.2008, in reply to show cause notice, an affidavit was filed on behalf of the respondent Nos. 1 and 2 to which rejoinder affidavit was also filed by the petitioners. However, thereafter a detailed counter affidavit dated 17.07.2008 was filed by the Department which is more comprehensive and incorporates the submissions made in earlier affidavit dated 18.1.2008 as well. We would like to point out at this stage that in the writ petition, the petitioners have also stated that from the transactions in question, no income has accrued or arisen to the petitioner No.1 which is taxable in India. This position is contested by the Official Respondents explaining their stand in much detailed in the counter affidavit. However, as pointed out above, since we are not concerned with that issue in the present petitioner, which was not pressed or argued by the petitioners, we are avoiding to take note of such averments for this reason. 17.The respondents have challenged the maintainability of the writ petition by raising certain preliminary objections. The main emphasis of the respondents in the counter affidavit and in particular the argument that was pressed at the time of hearing was that the matter is still at the show cause notice as to why the respondent No.4 be not treated as agent of petitioner No.1 and writ petition challenging show cause notice is not maintainable and the statute provides for efficacious remedy of appeal under the Act. It is also contended that writ petition is pre-mature as well. Maintainability is also challenged on the ground that disputed questions of fact arise and the High Court in exercise of its extraordinary jurisdiction under Article 226 of the Constitution of India would not exercise its discretionary powers in such a scenario. Court in exercise of its extraordinary jurisdiction under Article 226 of the Constitution of India would not exercise its discretionary powers in such a scenario. 18.The official respondents have also narrated the facts which led to the issuance of the show cause notice proposing to treat the respondent No.4 as the representative assessee. It is stated in this behalf that the respondent No.4, i.e., Genpact India was earlier known as GE Capital International Services (GECIS)/BPO company. The BPO company was created for providing BPO/IT-enabled services to petitioner No.1 and its affiliates with a paid up capital of `3,60,00,000/-, comprising of 36,00,000 equity shares of `10 each. It was the captive BPO unit of the GE Group. That out of 36,00,000 shares, GE Capital International Mauritius (GECIM) (hereinafter referred to as „the Mauritius company”) was holding 35,99,980 shares till 31.12.2004. The said Mauritius company was in turn held by another Indian company, i.e., M/s GE Indian Services Holding Pvt. Ltd., which through the maze of various intermediate companies was ultimately held by General Electric Company, a corporation of United States of America, the petitioner herein. The income of BPO company during Financial Year ended 31.03.2004 and 31.03.2005 was of `2,630 Crores. BPO company has been claiming deduction under Section 10A of Act for various years in respect of its income earned from BPO services. The company had not distributed/paid any dividends since its inception. The name of GECIS/BPO company was changed to Genpact India with effect from 06.06.2006, after the so-called reorganization of December, 2004. Genpact India/BPO company, through its authorized representative RSM & Co., filed an application under Section 195 of the Act on 25.07.2006 to the Income Tax Officer, (TDS), Ward (1), International Taxation, New Delhi, seeking a „NIL‟ withholding certificate with regard to payment of `4800 lacs to another Mauritius company Genpact India Investments, Mauritius for the proposed buy-back of shares by the BPO company. Genpact India brought back 32,000 equity shares at a price of `15,000/- per share. This transaction is different from the transactions during the year 2004 for which the petitioners have filed the present writ. During the proceedings under Section 195(2) of the Act, BPO company submitted that on 30.12.2004, GECIM (Mauritius company) contributed shares of BPO company to GECIS India Investments, Mauritius (GII) – another Mauritius company, which is wholly owned subsidiary of Mauritius company. This wholly owned subsidiary was incorporated in Mauritius on 07.12.2004 (i.e., after the Securities Purchase Agreement of 17.11.2004) and its name was subsequently changed to Genpact India Investment on 04.10.2005. These facts, which became available, indicated that the shares of BPO company, which were valued at `15,000/- per share in 2006 were transferred by Mauritius company to GII at „Nil‟ value in December, 2004. In fact, the General Atlantic Partners, General Electric and Oakhill Capital Partners issued a joint press release on November 08, 2004. Upon perusal of press release, it is noticed that the transaction values GECIS/BPO company at $800 million. Upon closing GE rain a 40% stake in GECIS and receive cash proceeds approximately $500 million. It also states that the parties aim to complete the transaction sometime in the next six months. Further, BPO company was carrying on a successful business and had potential to grow further. Its operations centres were not confined to Gurgaon only, but were started at other places also. It had hung reserves and surpluses. The petitioner No.1 through its various subsidiaries/affiliated companies sold 60% of its stake in GECIS/BPO company for approximately US$ 500 million. That on the basis of information collected during TDS proceedings and also information available in public domain, a prima facie belief was form that as per the provisions of Section 9(1)(i) of the Act, the income arising from these transactions, which otherwise was taxable in India but had not been offered to tax. The official respondents have maintained in the counter affidavit that conditions stipulated in Section 163 of the Act are satisfied and therefore, impugned show cause notice being perfectly valid, has rightly been issued. 19.Respondent No.4 has also filed the counter affidavit supporting the aforesaid legal stand taken by the petitioners questioning the validity of the impugned show cause notice. 20.Mr. Harish Salve, learned Senior Counsel appeared for the petitioners, has advanced detailed arguments in support of the plea that the respondent No.4 could not be treated as representative assessee qua the purported incomes of the first petitioner as the ingredients of Sections 161 and 163 have not been satisfied in the present case. 21. Frontal attack to the impugned show cause notice by Mr.Salve was predicated on the admitted position prevailing on the record of this case, which according to him, was as follows: The transaction in relation to which the present proceedings have been initiated relates to the transfer of shares of a holding company (which through downstream companies) controlled indirectly shares in a company was GE Capital International Services – respondent No.4). According to him, it is not in dispute that prior to the transfer (December, 2004), the shares in Genpact India were held by a Mauritius based entity – GE Capital International Mauritius (GECIM) – petitioner No.2. Above GECI, there were other holding companies and the ultimate controlling interest was with General Electric Company US – petitioner No.1. It is also not in dispute that as a result of the transfer of the shares of the upstream holding company, ownership (direct/indirect) to the extent of 60% approx of the shares of Genpact India stood transferred, and consequently the control also stood transferred. The question whether this transfer of shares of an upstream company resulted in a capital gain in the hands of the transferor – or petitioner No.1 – is a matter that would require consideration. The issue of the validity of the show cause notice has, in the first instance, to be decided on the applicability of Section 163 on the facts as alleged in the show cause notice on a demurrer assuming them to be correct. Respondent No.4 is the „target company‟, i.e., the company, the control of which has shifted on account of sale of shares (of the Luxembourg Company) – prior to the transaction, it was known as GE Capital International Services (GECIS India). GECIS India is the Indian company whose control passed pursuant to the transaction. 22.Mr. Salve‟s argument was that the aforesaid facts clearly demonstrate that conditions stipulated in Section 163 of the Act for the purpose of treating respondent No.4 as an agent of the petitioner No.1 had not been fulfilled. His submission was that Section 163 of the Act has to be read in conjunction with Section 161, which provides that the specified person can be treated as assessee “…as regards the income in respect of which he is a representative-assessee…” Therefore, an agent can only be a representative-assessee as regards the income in respect of which the alleged agent has business connection and/or from or through directly and/or indirectly the income was received. 23.In support of the aforesaid propositions, Mr. Salve relied upon the following case laws: upon the following case laws: 22.Mr. Salve‟s argument was that the aforesaid facts clearly demonstrate that conditions stipulated in Section 163 of the Act for the purpose of treating respondent No.4 as an agent of the petitioner No.1 had not been fulfilled. His submission was that Section 163 of the Act has to be read in conjunction with Section 161, which provides that the specified person can be treated as assessee “…as regards the income in respect of which he is a representative-assessee…” Therefore, an agent can only be a representative-assessee as regards the income in respect of which the alleged agent has business connection and/or from or through directly and/or indirectly the income was received. 23.In support of the aforesaid propositions, Mr. Salve relied upon the following case laws: upon the following case laws: (1)The Commissioner of Income Tax Vs. Currimbhoy Ebrahim and Sons [AIR 1936 Currimbhoy Ebrahim and Sons [AIR 1936 P.C. 1]. (2)Ramnarayan Rajmal Vs. Commissioner of Income Tax [(1953) 24 ITR 442. Income Tax [(1953) 24 ITR 442. (3)P. Subramania Chetty Vs. Commissioner of Income Tax [(1962) 46 ITR 724 Mad.] (4)C.R. Nagappa Vs. Commissioner of Income Tax [(1969) 73 ITR 626 (SC)]. (5)CIT Vs. Toshoku Ltd. [(1980) 125 ITR 525] (6)CIT Vs.Fertilizers & Chemicals (Travancore) Ltd. [(1987) 166 ITR 823. 24.Mr. Mohan Parasaran, learned A.S.G. pressed for dismissal of the writ petition as pre-mature and not maintainable at the show cause notice stage, forcefully contending that the matter was still at the stage of investigation and was being investigated. According to him, it was in the realm of disputed questions of fact and further facts could be gathered during investigation and therefore, this Court should not interfere at this stage, particularly, when the petitioners were not remediless, as the statute, viz., Income Tax Act provides for the remedies of appeal, writ petition, etc. In the wake of such alternative remedies available, the writ petition should be thrown at the threshold, was the vehement submission of Mr. Parasaran. He further submitted that in any case the main notice vide which the respondent No.4 was sought to be assessed as the representative assessee of the petitioner No.1 was perfectly in accordance with the law as all the conditions for treating it as an agent of petitioner No.1 were satisfied. Referring to Section 163 of the Act, he submitted that any agent in relation to a non-resident includes any person in India, who has business connection with non-resident which fact was established on record in the present case. In this behalf, he submitted that the business connection between the petitioner No.1 and respondent No.4 were clearly established in view of the following factual position: The Secretariat for Industrial Approvals, Foreign Collaboration-II Section of the Government of India had allowed GE Capital Services India Ltd., New Delhi to have GE Capital Services, USA as the foreign collaborator for setting up the wholly owned subsidiary companies to undertake the business of hire purchase and lease financing and financial billing and services company. The Government of India, Ministry of Industry, Department of Industrial Policy and Promotion, Secretariat The Secretariat for Industrial Approvals, Foreign Collaboration-II Section of the Government of India had allowed GE Capital Services India Ltd., New Delhi to have GE Capital Services, USA as the foreign collaborator for setting up the wholly owned subsidiary companies to undertake the business of hire purchase and lease financing and financial billing and services company. The Government of India, Ministry of Industry, Department of Industrial Policy and Promotion, Secretariat for Industrial Assistance, EOU Section vide letter No.FC/98/EOP/46/97 had allowed M/s GE Capital International Services, AIFACS Building, 1 Rafi Marg, New Delhi had conveyed approval to their foreign collaboration proposal. The name of foreign collaborator and country was GE Capital International (Mauritius), Mauritius (a subsidiary of M/s General Electric Capital Corporation, USA). The approval was for the manufacture of computer software. This approval dated 09.01.1998 was amended on 02.03.1998 as per request letter dated 20.02.1998 of M/s GE Capital International Services. As per the amendment, the foreign collaborators were M/s GE Capital International (Mauritius), Mauritius and M/s GE Capital Indian Service, Netherlands. The approved items of manufacture were computer software (data entry, conversion, data processing, data analysis, business support, billing, etc.) GE Capital International Services (Genpact India) has rendered IT-enabled services to General Electric Corporation and its affiliated companies since its incorporation in India. During the year ended 31.03.2005, the income of respondent No.4 form IT- enabled services were of `13,518,433,002/-. Such income was `12,788,233,532/- for the year ended 31.03.2004. The accounts of the company show the following transactions with the related parties with regard to each income: Further, the respondent No.4 (Genpact India) was a wholly owned subsidiary of the first petitioner and the latter is carrying on its IT-enabled services business in India through this subsidiary. This is an admitted position in para No.8 & 9 of the writ petition. The term business connection is not exhaustively defined in the Income Tax Act, 1961. However, various authorities have time and again interpreted this term. 25.In support of his submissions, he relied upon the judgment of the Supreme Court in the case of Income Tax Vs. R.D. Aggarwal and Co. [1965 AIR 1526] wherein the Apex Court had enumerated the broad characteristics of the concept of business connection in the following words: “Business connection contemplated by section 42 involves a relation between a business carried on by a non-resident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly to the earning of those profits or gains. It predicates an element of continuity between the business of the non-resident and the activity in the taxable territories, a stray or isolated transaction not being normally regarded as a business connection. Business connection may take several forms: It may include carrying on a part of the main business or activity incidental to the main business of the non-resident through an agent, or it may merely be a relation between the business of the non-resident and the activity in the table territories, which facilitates or assists the carrying on of that business. In such cases the question whether there is business connection from or through which income, profits or gains arise or accrue to a non-resident must be determined upon the facts and circumstances of the case. The expression „business connection‟ postulates a real and intimate relation between he trading activity carried on outside the taxable territories and the trading activity within the territories, the relation between the two contributing to the earning of income by the non-resident in his trading activity.” 26.Mr. Parasaran submitted that the issue of jurisdiction for the issue of notice under Section 163 of the Act came up for consideration before the Kerala High Court. The Kerala High Court in the case of Commissioner of Income Tax the issue of notice under Section 163 of the Act came up for consideration before the Kerala High Court. The Kerala High Court in the case of Commissioner of Income Tax Vs. Fertilizers and Chemicals (Travancore) Ltd.[(1987) 166 ITR 0823] held that a non-resident may have [(1987) 166 ITR 0823] held that a non-resident may have several representative assessees in respect of several heads under which income is derived by him. There can, therefore, be more than one assessment in respect of income accrued or arisen to a non-resident provided that there is more than one representative assessee. Direct assessment on the non-resident in respect of other income would not affect the jurisdiction of the Income Tax Officer to assess the agent of the non-resident on income arising to the non-resident through him. Moreover, the respondent No.2 exercises jurisdiction in respect of persons being non-residents including foreign companies within the meaning of sub-section (23A) of Section 2 of the Act and having a permanent establishment “in terms of the applicable Double Taxation Avoidance Agreement in the areas lying within the territorial limits of National Capital Territory of Delhi or having a business connection” or having any source of income accruing or arising or deemed to be accruing or arising in the areas lying within the territorial limits of National Capital Territory of Delhi. Respondent No.4 (Genpact India) is a company incorporated under the Companies Act, 1956 and having its registered office at Delhi Information Technology Park, Shastri Park, Delhi – 110053. Therefore, the jurisdiction over the first petitioner, who is having business connection as well as the source of income within the territorial limits of National Capital Territory of Delhi lies with respondent No.2. 27.In order to appreciate their respective contentions and to find out as to whether the conditions stipulated in Section 163 read with Section 161 of the Act for the purposes of treating the respondent No.4 as representative of petitioner No.1 is satisfied or not, it would be apposite to first take note of the relevant provisions of the statute. These provisions fall in Chapter XV with caption “Liability in Special Cases”. Section 159 fastens the liability upon the “Legal Representatives” under certain circumstances when a person is liable to pay tax dies. Section 160 defines “Representative Assessee” and Section 161 gives the circumstances under which liability of representative assessee arises. When representative assessee has to pay tax on behalf a person, Section 162 of the Act confers right upon such representative assessee to recover the tax paid from person on whose behalf it is paid. Section 163 of the Act comes under Chapter XV-C titled “Representative Assessee – Special Cases” and stipulates as to who may be regarded as an agent. Since in the present case, we are concerned with Sections 160 to 163 of the Act, relevant portions of these provisions are extracted below: “B-Representative assessees – General provisions Representative assessee 160. (1) For the purposes of this Act, "representative assessee" means – (i) In respect of the income of a non-resident specified in sub-section (1) of section 9, the agent of the non-resident, including a person who is treated as an agent under section 163; xxx xxx xxx (2) Every representative assessee shall be deemed to be an assessee for the purposes of this Act. Liability of representative assessee. “B-Representative assessees – General provisions Representative assessee 160. (1) For the purposes of this Act, "representative assessee" means – (i) In respect of the income of a non-resident specified in sub-section (1) of section 9, the agent of the non-resident, including a person who is treated as an agent under section 163; xxx xxx xxx (2) Every representative assessee shall be deemed to be an assessee for the purposes of this Act. Liability of representative assessee. 161. 1) Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income; but any such assessment shall be deemed to be made upon him in his representative capacity only, and the tax shall, subject to the other provisions contained in this Chapter, be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. Right of representative assessee to recover tax paid. 162.(1) Every representative assessee who, as such, pays