Https://Hcservices.ecourts.gov.in/Hcservices v. The Assistant Commissioner Of Income Tax, International Taxation – Ii(2), Room

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE S.M. SUBRAMANIAMW.P.Nos.8100 & 26641 of 2015, 20254 & 20255 of 2016, 32866 & 32867 of 2017 & 33706 of 2018 M.P.Nos.1, 2 of 2015, W.M.P.Nos.17420 & 17421 of 2016, 880 & 881 of 2016, 36224 to 36227 & 39113, 39115 of 2018 & 24527 & 24529 of 2020 W.P.No.8100 of 2015 :- Watanmal Boolchand & Co., Ltd.,(a body corporate established under thelaws of Hong Kong, having its office at15-17, Wyndham Street, Man Cheung Building10/Floor, Hong Kong),Rep., by its Authorised Representative,M/s.C.Ramaswamy & B.Srinivasan,Chartered Accountants,Mr.N.S.Sriram,No.37, Alagiri Nagar, 2[nd] Street,Vadapalani, Chennai-600 026. .. Petitioner 1.The Assistant Director of Income Tax, International Taxation-II, 121, Nungambakkam, High Road, Chennai. 2.The Deputy Commissioner of Income Tax, International Taxation – 2(2), 121, Nungambakkam High Road, Chennai. .. Respondents Petition filed under Article 226 of the Constitution ofIndia praying for issuance of Writ of Certiorari to call for therecords of the first respondent in PAN No. in impugnednotice under Section 148 of the Act dated 28.03.2013 and theconsequent proceedings issued by the second respondent dated05.03.2015 and quash the same. W.P.No.26641 of 2015 :-Watanmal Boolchand & Co., Ltd.,(a body corporate established under thelaws of Hong Kong, having its office at15-17, Wyndham Street, Man Cheung Building10/Floor, Hong Kong),Rep., by its Authorised Representative,M/s.C.Ramaswamy & B.Srinivasan,Chartered Accountants,Mr.N.Vijay KumarNo.37, Alagiri Nagar, 2[nd] Street,Vadapalani, Chennai-600 026... Petitioner-vs- 1.The Deputy Director of Income Tax, International Taxation-II(1), 121, Nungambakkam, High Road, Chennai-600 034.2.The Deputy Commissioner of Income Tax, International Taxation – II(2), 121, Nungambakkam High Road, Chennai-600 034. .. Respondents Petition filed under Article 226 of the Constitution ofIndia praying for issuance of Writ of Certiorari to call for therecords of the first respondent in PAN No. and quashthe impugned notice under Section 148 of the Act dated28.03.2014 passed by the first respondent and the consequentproceedings dated 16.12.2014.W.P.Nos.20254 & 20255 of 2016 :-Watanmal Boolchand & Co., Ltd.,(a body corporate established under thelaws of Hong Kong, having its office at15-17, Wyndham Street, Man Cheung Building10/Floor, Hong Kong),Rep., by its Authorised Representative,M/s.C.Ramaswamy & B.Srinivasan,Chartered Accountants,Mr.N.Vijay KumarNo.37, Alagiri Nagar, 2[nd] Street,Vadapalani, Chennai-600 026. .. Petitioner -vs-The Deputy Commissioner of Income Tax,International Taxation – II(2),121, Nungambakkam High Road,Chennai-600 034... Respondent Petitions filed under Article 226 of the Constitution ofIndia praying for issuance of Writ of Certiorari to call for therecords of the respondent in PAN No. and quash theimpugned notices under Section 148 of the Act dated 03.03.2016and 30.03.2015 respectively passed by the respondent and theconsequent proceedings dated 24.05.2016 issued by the respondent. W.P.Nos.32866 & 32867 of 2017 :- Watanmal Boolchand & Co., Ltd.,(a body corporate established under thelaws of Hong Kong, having its office at15-17, Wyndham Street, Man Cheung Building10/Floor, Hong Kong),Rep., by its Authorised Signatory,Mr.Gulab M.Assomal.. Petitioner -vs-The Deputy Commissioner of Income Tax,International Taxation – II(2),Room No.409, 4[th] Floor, 16, BSNL Building,Tower-I, Greams Road, Chennai-600 006... RespondentPetition filed under Article 226 of the Constitution ofIndia praying for issuance of Writ of Certiorari to call for therecords of the respondent in PAN No. and quash theimpugned notices under Section 148 of the Act dated 22.03.2017passed by the respondent and the consequential speaking orderdated 05.12.2017 passed by the respondent. W.P.No.33706 of 2018 :- Watanmal Boolchand & Co., Ltd.,(a body corporate established under thelaws of Hong Kong, having its office at15-17, Wyndham Street, Man Cheung Building10/Floor, Hong Kong),Rep., by its Authorised Signatory,Mr.Gulab M.Assomal.. Petitioner -vs-The Deputy Commissioner of Income Tax,International Taxation – II(2),Room No.409, 4[th] Floor, 16, BSNL Building,Tower-I, Greams Road, Chennai-600 006... RespondentPetition filed under Article 226 of the Constitution ofIndia praying for issuance of Writ of Certiorari to call for therecords of the respondent in PAN No. and quash theimpugned notices under Section 148 of the Act dated 22.03.2017passed by the respondent and the consequential speaking orderdated 05.12.2017 passed by the respondent. W.P.No.33706 of 2018 :- Watanmal Boolchand & Co., Ltd.,(a body corporate established under thelaws of Hong Kong, having its office at15-17, Wyndham Street, Man Cheung Building10/Floor, Hong Kong),Rep., by its Authorised Signatory,M/s.C.Ramaswamy & B.Srinivasan,Chartered Accountants,Mr.N.Vijay Kumar, Partner,No.37, Alagiri Nagar, 2[nd] Street,Vadapalani, Chennai-600 026... Petitioner -vs- 1.The Assistant Commissioner of Income Tax, International Taxation – II(2), Room No.410, 4[th] Floor, BSNL Building (Tower-1), No.16, Greams Road, Chennai-600 006. 2.The Deputy Commissioner of Income Tax, International Taxation – II(2), Room No.410, 4[th] Floor, BSNL Building (Tower-1), No.16, Greams Road, Chennai-600 006... Respondents Petition filed under Article 226 of the Constitution ofIndia praying for issuance of Writ of Certiorari to call for therecordsofthefirstrespondentinnoticeNo.ITBA/AST/S/148/2017-18/1009542513(1), the impugned notice underSection 148 of the act dated 29.03.2018 passed by the firstrespondent and the consequential speaking order dated 10.12.2018passed by the second respondent and quash the same. The lis on hand is instituted for quashing of the noticesissued under Section 148 of the Income Tax Act, 1961(hereinafter referred to as “the Act”) for assessment. Theconsequential proceedings issued in continuation of Section 148notices are also under challenge. 2.Since the facts are identical in all the writ petitions,W.P.No.8100 of 2015 is taken as the lead case and the facts ofthe case are as follows:- 2.1.The petitioner-company, Watanmal Boolchand & Co. Ltd.,is a body incorporated in Hong Kong under the CompaniesOrdinance 1932, that is, relevant Laws of Hong Kong. Thepetitioner-company was incorporated in the year 1948. Thepetitioner-company is engaged in the trading business andbranded and unbranded products and general merchandise. Thebrands are owned by the petitioner-company either by way ofBrand Registration or Assignments. It has no manufacturing https://hcservices.ecourts.gov.in/hcservices/ facility of its own. The petitioner-company sources the goodsmainly from China and shifts the goods directly to its customerat Africa and South America. The petitioner-company iscontinuing its business in Hong Kong since 1948. 2.1.The petitioner-company, Watanmal Boolchand & Co. Ltd.,is a body incorporated in Hong Kong under the CompaniesOrdinance 1932, that is, relevant Laws of Hong Kong. Thepetitioner-company was incorporated in the year 1948. Thepetitioner-company is engaged in the trading business andbranded and unbranded products and general merchandise. Thebrands are owned by the petitioner-company either by way ofBrand Registration or Assignments. It has no manufacturing https://hcservices.ecourts.gov.in/hcservices/ facility of its own. The petitioner-company sources the goodsmainly from China and shifts the goods directly to its customerat Africa and South America. The petitioner-company iscontinuing its business in Hong Kong since 1948. 2.2.One of the group companies of the writ petitioner-company, viz., Watanmal (India) Private Limited (hereinafterreferred to as “Watanmal India”) , is engaged in the business ofproviding trade, management and logistic support services to thepetitioner-company in terms of the agreement between theparties. Watanmal India was incorporated in the year 2003. Thepetitioner-company entered into an Administration Agreementdated 01.04.2005 with Watanmal India for providing non-exclusiveback office services such as correspondence with the customers,maintenance of documents for exports, liaising with theinspection agency for obtaining import license, liaising withthe shipping companies and reporting back to the petitioner-company. Under this Agreement, Watanmal India provided servicesto the petitioner-company in sourcing and supplying goods to itscustomers in Africa and South America. Under the Agreement,Watanmal India is paid on cost plus basis. It is relevant tonote that the goods are neither purchased, sources, supplied,nor dealt with in India by the parties. The Transfer PricingOfficer (TP) of Watanmal India has passed an order dated07.05.2014 and determined arm's length price of transactionbetween the two entities. 2.3.On 14.03.2013, the International Taxation Unit of theIncome Tax Department carried out survey proceedings underSection 133A of the Act at the premises of Watanmal India andcollected various documents and records including the Agreementfor the relevant period. Relying on the documents found duringthe survey, the Assistant Director of Income Tax, InternationalTaxation-II, Chennai, the first respondent herein, issued anotice under Section 148 of the Act dated 28.03.2013, the orderimpugned, initiating assessment proceedings under Section 147 ofthe Act for the assessment year 2006-07. 2.4.In reply to the said impugned notice, the petitioner-company filed a response dated 05.04.2014 stating that thepetitioner has neither any business operations, nor any sourceof income taxable in India. Therefore, the impugned noticeissued is beyond the jurisdiction under the Act and withoutauthority of law. 2.5.The first respondent again issued a letter dated27.05.2013 stating that the petitioner-company has a “businessconnection” in terms of Section 9 of the Act and Watanmal Indiais a permanent establishment in India which carried on thecore/primary business activities and function for the https://hcservices.ecourts.gov.in/hcservices/ 2.4.In reply to the said impugned notice, the petitioner-company filed a response dated 05.04.2014 stating that thepetitioner has neither any business operations, nor any sourceof income taxable in India. Therefore, the impugned noticeissued is beyond the jurisdiction under the Act and withoutauthority of law. 2.5.The first respondent again issued a letter dated27.05.2013 stating that the petitioner-company has a “businessconnection” in terms of Section 9 of the Act and Watanmal Indiais a permanent establishment in India which carried on thecore/primary business activities and function for the https://hcservices.ecourts.gov.in/hcservices/ petitioner-company. Therefore, the business connection throughWatanmal India constitutes the “Agency Permanent Establishment”for the petitioner-company in India and again asked thepetitioner company to file a return of income for the assessmentyear 2006-07 under Section 148 of the Act. The jurisdictionalTPO based on the reference made by the Assessing Officer, byorder dated 07.05.2014 while making assessment for WatanmalIndia for the assessment year 2006-07, determined the arm'slength price between the petitioner-company and Watanmal India,both being “associated enterprises” in terms of Section 92C ofthe Act. Based on the information provided by Watanmal Indiaand comparable price determined, the TPO adopted profit marginof 21.94% in place of claim of 7.63% by Watanmal India. As aconsequence, an upward adjustment to the tune of Rs.30,59,033/-was made to the sales/revenues of Watanmal India. In otherwords, arm's length price of the transaction between thepetitioner-company and Watanmal India was determined and incomein the hands of Watanmal India was increased. The order of theTPO as per the provisions of Section 92CA(3) of the Act isbinding on the first respondent. 2.6.The Deputy Commissioner of Income Tax, InternationalTaxation-2(2), Chennai, the second respondent herein, had issuedshow cause notice dated 05.03.2015 asking the petitioner-companyto show cause as to why not the petitioner-company be declaredto have business connection in India based on the reasonsenumerated therein. In the reasons given in the notice, thesecond respondent has changed the reasons to assess thepetitioner-company after four years, i.e., the petitioner-company having “Agency Permanent Establishment” (as taken in thenotice issued under Section 147 of the Act) “BusinessConnection” in India under Section 9 of the Act. Thepetitioner-company has no other remedy other than to file a writpetition before this Court, as the second respondent will passtheir re-assessment order any day and leading to heavy pecuniarydemand on the petitioner-company. The actions initiated by therespondents under Section 148 of the IT Act provided cause forthe petitioner to file the present writ petition. 3.COUNTER AFFIDAVIT FILED BY THE SECOND RESPONDENT:- 3.1.The second respondent filed a counter affidavit statingthat the proceedings under Section 148 of the Act cannot betermed as a “reassessment”, but only an assessment, inasmuch asthe petitioner has not filed any return of income under the Actfor the assessment year 2010-11 and the activities being carriedon by the petitioner-company came to light pursuant to thesurvey conducted in the premises of Watanmal India under Section133A of the Act on 14.03.2013. This is the first assessmentbeing undertaken against the petitioner for the assessment year2010-11 and therefore, the basic parameters for testing the 3.COUNTER AFFIDAVIT FILED BY THE SECOND RESPONDENT:- 3.1.The second respondent filed a counter affidavit statingthat the proceedings under Section 148 of the Act cannot betermed as a “reassessment”, but only an assessment, inasmuch asthe petitioner has not filed any return of income under the Actfor the assessment year 2010-11 and the activities being carriedon by the petitioner-company came to light pursuant to thesurvey conducted in the premises of Watanmal India under Section133A of the Act on 14.03.2013. This is the first assessmentbeing undertaken against the petitioner for the assessment year2010-11 and therefore, the basic parameters for testing the proceedings under Section 148 of the IT Act, viz., whether theproceedings under Section 148 amount to change of opinion,whether there has been a failure on the part of the assessee tomake a true and full disclosure of all material facts etc., donot apply to the present case. The issues in proceedingsagainst the petitioner involve a deep analysis of the facts asemanating from various agreements entered between the petitionerand Watanmal India, the statements put forth by the petitionerin its application for Advance Ruling before Inland RevenueDepartment, Hong Kong, the decision given by the said authorityand bearing the same has in the context of Indian Laws and theIncome Tax Act, 1961 in particular etc. These factual aspectsand analysis ought not to be undertaken in a writ proceedingsand hence, this Court may record the petitioner to statutoryremedies available to them under the Act by dismissing the writpetition. 3.2.The counter affidavit further proceeds without prejudiceto the above contentions stating that the Watanmal Group wasestablished in 1908 by late Shri.Lalchand Watanmal with thescope to have its business activity as a general merchandisetrading company. In 1948, a company named Watanmal Boolchand &Company Ltd. (hereinafter referred to as “WBC”), the petitionerwas incorporated in Hong Kong. Till the year 2004, theprincipal activity of the company remained import and export ofgeneral merchandise. Subsequently, WBC forayed into the brandedfood market segment, a move that has been profitable for thegroup. A lion's share of the company's revenue today comes fromthis category. The group owns the brand names Gino, Jago, Pomo,Palmo and Forte. The company's turnover has ranged from USD239Mn to USD 450Mn since the foray into the branded segment. Itwas at this juncture in 2003, the Watanmal Group started acompany in India incorporated as Watanmal India. Vide anAdministration Agreement dated 01.04.2004, which is reproducedby the petitioner in its affidavit, Watanmal India was mandatedto carry out certain operations as follows, which provided forcertain restrictions as well:- “To correspond with the customers of theFirst Party (WBC) with regard to the prices,terms and conditions, delivery schedules, followup for payment with the customers of the FirstParty (WBC) in respect of the products dealt bythe First Party;To maintain documents for export by the FirstParty (WBC) to their customers (includinginvoices, Bill of Lading, Packing List,CertificateofOriginandinspectioncertificates); To liaise with the inspection agencies forobtaining import licence and shipping lines fortransport of the products;To furnish necessary feedback to the FirstParty(WBC)regardingpurchases,sales,collection, goods returned by customers, expensesincurred in relation to purchase and sale of theproducts, movement/off-take of the products ofthe First Party (WBC) in different territories ona fortnightly basis; It is expressly understood between theparties that the Second Party, i.e., WIPL (or itsemployees) shall not represent itself as anagent/representative of the First Party; and To liaise with the inspection agencies forobtaining import licence and shipping lines fortransport of the products;To furnish necessary feedback to the FirstParty(WBC)regardingpurchases,sales,collection, goods returned by customers, expensesincurred in relation to purchase and sale of theproducts, movement/off-take of the products ofthe First Party (WBC) in different territories ona fortnightly basis; It is expressly understood between theparties that the Second Party, i.e., WIPL (or itsemployees) shall not represent itself as anagent/representative of the First Party; and It is also expressly understood between theparties that the Second Party (or its employees)shall not on behalf of the First Party have anyauthority to conclude/alter any terms of anycontract, receive payments, give guarantee orwarranties, or by any act or deed pledge thecredit or impose or attempt to impose anycontractual or other obligations of the FirstParty.” 3.3.The said initial Administration Agreement wassubsequently revised/altered vide a Trade Services Agreementdated 01.04.2005 to include the following functions that wererestricted in the Administration Agreement, viz.,(i) Negotiate on behalf of the First Party (WBC) with thecustomers on their orders for the products and conclude and signthe contracts and agreements as authorized agent for the FirstParty; (ii) Source the products on most favourable terms from theworld markets in accordance with the requirements and directionsof the First Party and negotiate and conclude the agreements andcontracts for the supply of the products for sale to thecustomers; (iii) The other salient features of the revised TradeService Agreement are as follows:- (a) The Second Party, i.e., WIPL undertakes to theFirst Party that during the duration of thisAgreement and a further one year after expiration ortermination of this Agreement, the Second Party shallnot whether directly or indirectly throughassociation or partnership or cooperation in any formwith any third party including taking shareholding ina company provide similar service to any other persons or companies trading in or selling productsin corporation with the products to or in the AfricanMarket; and (b) This Agreement constitutes the whole and completeagreement between the Parties and supersedes allprior discussions and agreements if any between theParties with respect to the subject matter of thisagreement. 3.4.These functions were omitted to be mentioned by thepetitioner in their affidavit. It is also to be noted thatbased on the above agreement, the petitioner-company preferredan application for Advance Ruling before Inland RevenueDepartment, Hong Kong pleading as under:- persons or companies trading in or selling productsin corporation with the products to or in the AfricanMarket; and (b) This Agreement constitutes the whole and completeagreement between the Parties and supersedes allprior discussions and agreements if any between theParties with respect to the subject matter of thisagreement. 3.4.These functions were omitted to be mentioned by thepetitioner in their affidavit. It is also to be noted thatbased on the above agreement, the petitioner-company preferredan application for Advance Ruling before Inland RevenueDepartment, Hong Kong pleading as under:- “WIP did in fact have the general authority tonegotiate and conclude all sales and purchasescontracts (and habitually did exercise thatauthority) of the branded food products on behalfof WBC. Kindly note that clause 2 of theAdministrative Agreement (which states that WIPhas no general authority to negotiate andconclude contracts on behalf of WBC) has beenvaried by conduct of the relevant parties.(i) A ll the terms of the purchase and salescontractsre-brandedfoodproductswerenegotiated and concluded by WBC's relatedcompany, WIP, in India on behalf of WBC by emailor fax;(ii) WBC was not involved in any of the purchaseand sales activities re-branded food products.The work done in Hong Kong was limited toproviding banking facilities and maintaining bankaccounts in Hong Kong;(iii) The relevant products were shipped directlyfrom the suppliers in France, USA, Italy,Malaysia, Ghana, Peru, China and Singaporedirectly to customers in West Africa, CentralAfrica and other parts of the world outside HongKong. No shipment of goods passed through HongKong; and(iv) As all the sales and purchases were effectedoutside Hong Kong, we therefore opine that therelevant sales should be treated as offshore andthe profits so derived should not be chargeableto Hong Kong profits tax. 3.5.WBC did not send its own staff overseas to negotiate andconclude sales and purchases. However, it is to be noted thatthere were two Directors of WBC viz., Mr.Sakraney, K.L. and https://hcservices.ecourts.gov.in/hcservices/ Mr.Ganapathy Viswanathan stationed in the India Office ofWatanmal India. Staff of Watanmal India in India were involvedin the negotiation and conclusion of sales and purchases onbehalf of WBC, i.e., the petitioner with the overseas customersand suppliers. They acted under the authority of clause 3.1.3.and clause 3.1.8 of the Trade Services Agreement between WBC andWatanmal India under which Watanmal India was appointed as thefully accredited agent of WBC, the petitioner in the negotiationand conclusion of sales and purchase for WBC. 3.6.The petitioner's own submissions before the InlandRevenue Authority, Hong Kong state as under:- “Please note that all except one of thedirectors of the company are stationed overseas.Kindly note that Mr.Sakraney N.L. (based in HongKong). This include Mr.K.L.Sarkraney (based inIndia), Mr.Sakraney P.K (based in USA),Mr.Sarkraney H.L (based in Singapore) andMr.Ganapathy Viswanathan (based in India). Thereare no staff in Hong Kong responsible fornegotiation and conclusion of sales or purchasesof branded food products (See para 4 below) thereare no staff in Hong Kong.Kingly note that Mr.Sakraney N.L (based inHong Kong) is only responsible for thenegotiation and conclusion of sales or purchasesof non-branded food products in Hong Kong, theprofits of which are classified as on shore andoffered to Hong Kong profits tax.” 3.7.On analysis of the above, the following inferences arebrought to the notice of this Court:- 3.7.On analysis of the above, the following inferences arebrought to the notice of this Court:- (a) Shri N.L.Sakraney based in Hong Kong wasresponsible for unbranded products;(b) Shri K.L.Sakraney and Ganapathy Viswanathan,i.e., significant component of management,sitting in India were responsible for the brandedproducts division; and(c) Inland Revenue Authority, Hong Kong whilearriving at the conclusion as mentioned by thepetitioner in Point No.6 of the affidavit, “asthe trading profits arising from the sale ofbranded food products to customers overseas areoffshore in nature and are not chargeable to HongKong profits tax”, has been cognizance offollowing facts and based its ruling on thefollowing assumption: “In making this ruling, the Commissioner assumesthat effective from 1 April 2005, all contractsfor sales and purchases of branded food productsof WBC were and would be placed with or placedby, negotiated by and concluded by WIP, or theemployees of WIPL, in India on behalf of WBCpursuant to the Trade Services Agreement dated 1April 2005 in the manner as described in theAgreement”. 3.8.During the course of survey operations, variousevidences were collected which went on to prove that the sitesof management and control of the petitioner is in India at Unit-4, 7[th] Floor, Crest Building, Ascendas IT Park, CSIR Road,Taramani, Chennai-600 113, i.e., the premise of Watanmal India,in association with all the functions related to the businessactivity of the petitioner, which are being carried out thereand there exists a business connection as per Explanation 2(a)of Section 9(1) of the IT Act. 3.9.The petitioner vide objections filed in letter dated24.11.2017, questioned the reopening of the assessment underSection 147 of the Act both legally and factually. Based onmaterial evidences collected during the survey and swornstatement recorded, it is established that the sites of themanagement and control of the petitioner is in India, i.e., atthe office of WIPL located at WIPL Unit-4, 7[th] Floor, CrestBuilding, Ascendas IT Park, CSIR Road, Taramani, Chennai-600 113and all the functions relating to the business activity of thepetitioner being carried out in India, in association withWatanmal India. Thus, there exists a business connection of thepetitioner in India, as per Explanation 2 of Section 9(1) of theAct. Based on these aspects, reasons were formed and recordedand after obtaining approval of the Commissioner of Income Tax(International Taxation), notice under Section 148 was issued tothe petitioner on 22.03.2017. The officer, who recorded reasonsforming opinion of income escaping assessment, had issued thenotice under Section 148 of the Act, after getting due approvalfrom the appropriate authority. In response to the said notice,the petitioner filed its return of income. Subsequently, due tochange of incumbency, notice under Section 143(2) read withSection 129 was issued on 01.09.2017. As the objections raisedare contrary to the evidences as stated above, they areoverruled and rejected and the same are elaborately discussedand communicated to the petitioner vide office letter dated05.12.2017. 3.10.The notice under Section 148 of the IT Act was issuedto treat the petitioner as a taxable entity in India as perExplanation 2 of Section 9(1) of the Act, i.e., by virtue of the business connection in the form of Watanmal India, a dependentagent. The same had been the stand taken in the order dated05.12.2017 and in the show cause notice dated 22.03.2017. Therespondent has the jurisdiction by virtue of Section 9(1) of theIT Act, since the petitioner, a foreign company, has incomeaccruing or arising in India as explained above. 3.10.The notice under Section 148 of the IT Act was issuedto treat the petitioner as a taxable entity in India as perExplanation 2 of Section 9(1) of the Act, i.e., by virtue of the business connection in the form of Watanmal India, a dependentagent. The same had been the stand taken in the order dated05.12.2017 and in the show cause notice dated 22.03.2017. Therespondent has the jurisdiction by virtue of Section 9(1) of theIT Act, since the petitioner, a foreign company, has incomeaccruing or arising in India as explained above. 4.THE ARGUMENTS ON BEHALF OF THE PETITIONER:-4.1.The learned Senior Counsel appearing on behalf of thewrit petitioner contended that it is a classic case where therespondents exercised their power without jurisdiction. Thebasic principles to be adhered to under the provisions of the ITAct had been violated. Admittedly, the petitioner-company is anon-resident and was not assessed any income under the territoryof India. When there is no income derived within the territoryof India, there is no question of filing any return of income,nor payment of tax would arise. The mixed questions of factsand law, necessarily to be considered by the respondents, arenot considered in its right perspective and by adopting anerroneous interpretation of the provisions of the Act, impugnedproceedings are initiated under Section 148 of the IT Act. 4.2.The learned Senior Counsel referred to Section 5 sub-Clause (2) of the Act and submitted that there is no incomederived in India by the petitioner-company and therefore, thequestion of applicability of the Act would not arise at all. Asfar as Section 6(3)(ii) is concerned, the learned Senior Counselcontended that the said clause was incorporated by the FinanceAct, 2016 with effect from 01.04.2017 and therefore, the saidclause, that is, “it is place of effective management, in thatyear, is in India” would not be applicable for the purpose ofinstituting assessment proceedings under Section 148 of the ITAct. Retrospective application of the said clause would be badin law and therefore, the impugned proceedings are liable to beset aside. Reiterating the same, it is contended that whenthere is no income accrued or derived in India, the question ofassessment would not arise at all. Thus, the petitioner cannotbe construed as a person liable to pay tax under the Act andthus, the initiation of proceedings are misconceived and basedon the erroneous interpretation of the provisions of the Act. 4.3.The learned Senior Counsel further referring to Section9 of the Act contended that when it is established that thepetitioner has not accrued any income within the territory ofIndia, then the “income deemed to accrue or arise in India”cannot be applied as far as the petitioner-company is concerned. 4.4.The learned Senior Counsel solicited the attention ofthis Court with reference to the ingredients under Section 147of the Act by contending that the Assessing Officer must have 'reason to believe' that any income chargeable to tax hasescaped assessment. In the present case, when there is noincome, there is no escapement; and when there is no return,there is no assessment. Thus, the basis on which theproceedings are initiated under Section 147 of the Act by therespondents are absolutely untenable and beyond the scope of theprovisions of the Act. No assessment order was issued underSection 143(3), nor under Section 147 of the IT Act. In theabsence of any such assessment order, opening of assessment orreassessment is impermissible under Section 147 of the Act.Thus, the notice issued under Section 148 of the IT Act is inviolation of the ingredients stipulated under Section 147 of theIT Act. 'reason to believe' that any income chargeable to tax hasescaped assessment. In the present case, when there is noincome, there is no escapement; and when there is no return,there is no assessment. Thus, the basis on which theproceedings are initiated under Section 147 of the Act by therespondents are absolutely untenable and beyond the scope of theprovisions of the Act. No assessment order was issued underSection 143(3), nor under Section 147 of the IT Act. In theabsence of any such assessment order, opening of assessment orreassessment is impermissible under Section 147 of the Act.Thus, the notice issued under Section 148 of the IT Act is inviolation of the ingredients stipulated under Section 147 of theIT Act. 4.5.It is further contended that absolutely there is nobusiness activity in India, there is no manufacturing unit, noteven a single product is sold within the territory of India bythe petitioner-company. Thus, the company is only providinglogistic support to the company at Hong Kong and goods aresupplied in African Countries and South America and in othercountries. Therefore, the question of invoking the provisionsof the Act as applicable in India does not arise at all. Thoughthe company is functioning from the year 1948, there is nobusiness activity in India even now. Thus, the respondentscannot act based on some fictions which all are erroneous factsand circumstances and thus, the very initiation itself is inviolation of the provisions of the Act and the provision wouldnot be applicable as far as the petitioner-company is concerned. 4.6.It is contended that under Section 151 of the IT Act,sanction for issue of notice is to be obtained and therespondents have not produced any document to establish that thesanction was obtained from the competent authorities ascontemplated under Section 151 of the Act. Reiterating thegrounds raised, the learned Senior Counsel relied on thecircular issued by the Central Board of Direct Taxes (CBDT) inits Circular No.1/2004 dated 02.01.2004. Relying on the saidcircular, it is contended that "in some cases the entire ormajor portion of the Revenue generating activities of the non-resident enterprise is performed by the BPO (Business ProcessOutstanding) unit in India. The extent to which global profitsof a non-resident enterprise is to be attributed to theactivities of the BPO unit in India in these variouscircumstances, has been under consideration in the Board. Themanner and extent of such attribution of profits will evidentlydepend on the facts of each case and the nature of servicesrendered by the BPO unit and the same has to be determined inaccordance with the provisions of the treaty applicable and thedomestic law. The Board is, however, of the view that in a casewhere the non-resident, carrying on manufacture and sale of goods or merchandise or provision of services outside India,outsources some of its incidental activities, viz., conclusionof contracts and procurement of orders (which enable the coreactivities to be carried on aboard) to an I.T-enabled entity inIndia, which constitutes a permanent establishment of the non-resident, then the insignificant profit which is difficult todetermine and attributable to the conclusion of such contractsor procurement of such orders can be considered to be embeddedin the income of the permanent establishment taxable in India,if the price charged in respect of the above services by thepermanent establishment is an arm's length/fair market price.In such a situation, therefore, no income shall separatelyaccrue or arise or be deemed to accrue or arise to the non-resident principal in India. 4.7.Relying on the above circular issued by the CBDT, thelearned Senior Counsel contended that the said circular by theBoard is binding all the authorities and the circular is to befollowed by all the authorities under Section 119 of the IT Act.Thus, it is mandatory on the part of the respondents to lookinto the instructions given in the circular and accordingly, actwith reference to the facts. 4.8.The learned Senior Counsel for the petitioner relied onthe judgment of the four Judges Bench of the Hon'ble SupremeCourt in the case of Raza Textiles Ltd. vs. Income Tax Officer,Rampur reported in (1973) 1 SCC 633. The relevant paragraph 3is extracted hereunder:- “3. Aggrieved by that order the appellantwent up in appeal to the Appellate AssistantCommissioner.TheAppellateAssistantCommissioner rejected the appeal on the groundthat the same was not maintainable. He took theview that an appeal lay only under Section 30(1A). But before such an appeal can beentertained the appellant must satisfy twoconditions, namely, (1) he had deducted the taxdue from the non-resident in accordance with theprovisions of Sub-section 3(B) and (2) that hehad paid the sum deducted to the Government. Theappellant having not complied with those twoconditions, the Appellate Assistant Commissionerheld that the appeal was incompetent. The orderof the Appellate Assistant Commissioner wasconfirmed by- the Tribunal. Thereafter theappellant moved the High Court under Article 226of the Constitution. That application came upbefore a single Judge. The single Judge aftergoing into the matter in detail came to the conclusion that M/s. Nathirmal and Sons is not anon-resident firm and that being so the appellantwas not required to act under Section 18(3B). Heaccordingly, set aside the order impugned. Therevenue went up in appeal against the order ofthe learned single Judge to the Appellate Bench.That Bench allowed the appeal with theobservations, "In the present case the questionbefore the Income-tax Officer, Rampur, waswhether the firm Nathirmal and Sons was non-resident or not. There was material before him onthis question. He had jurisdiction to decide thequestion either way. It cannot be said that theofficer assumed jurisdiction by wrong decision onthis question of residence". The Appellate Benchappears to have been under the impression thatthe Income-tax Officer was the sole judge of thefact whether the firm in question was resident ornon-resident. This conclusion, in our opinion, iswholly wrong. No authority, much less a quasi-judicial authority, can confer jurisdiction onitself by deciding a jurisdictional fact wronglyThe question whether the jurisdictional fact hasbeen rightly decided or not is a question that isopen for examination by the High Court in anapplication for a writ of certiorari. If the HighCourt comes to the conclusion, as the learnedsingle Judge has done in this case, that theIncome-tax Officer had clutched at thejurisdiction by deciding a jurisdictional facterroneously, then the assesses was entitled forthe writ of certiorari prayed for by him. It isincomprehensible to think that a quasi-judicialauthority like the Income-tax Officer canerroneously decide a jurisdictional fact andthereafter proceed to impose a levy on a citizen.In our opinion the Appellate Bench is whollywrong in opining that the Income-tax Officer can"decide either way".” 4.9. Further, the learned Senior Counsel is of an opinionthat in the event of not considering these factors, it wouldaffect the NRI companies working in India and the repercussionwould be wider. Thus, the writ petition is to be allowed. 5. THE ARGUMENTS ADVANCED ON BEHALF OF THE RESPONDENTS:- 4.9. Further, the learned Senior Counsel is of an opinionthat in the event of not considering these factors, it wouldaffect the NRI companies working in India and the repercussionwould be wider. Thus, the writ petition is to be allowed. 5. THE ARGUMENTS ADVANCED ON BEHALF OF THE RESPONDENTS:- 5.1.The learned Senior Standing Counsel strenuously objectedthe contentions raised on behalf of the petitioner by statingthat the writ petitions are not maintainable. It is not as ifthe respondents have initiated proceedings without any basis https://hcservices.ecourts.gov.in/hcservices/ under Section 147 of the Act and issued notice under Section 148of the Act. There are abundant materials to establish that theentire business activities of the petitioner-company arehappening in India and therefore, they are amenable to theprovisions of the I.T. Act and thus, the initiation ofassessment proceedings under Section 148 is in order and thereis no infirmity as such. 5.2.Relying on Explanation 2(a) to Section 147, it iscontended that, where no return of income has been filed by theassessee although his total income or the total income of anyother person in respect of which he is assessable under the Actduring the previous year exceeded the maximum amount, which isnot chargeable to income tax is a ground for initiation ofproceedings under Section 147. 5.3.In the present case, admittedly, the petitioner has notfiled any return of income and there was no assessment order.The petitioner has not subjected for assessment. Thus, the casewould fall under the above provision and on confiscation ofmaterial evidences, the authorities competent instituted actionfor assessment under Section 147 of the IT Act. 5.4.With reference to the contentions raised on behalf ofthe petitioner that in the absence of any assessment order,there is no question of reopening of assessment would ariseunder Section 147, the learned Senior Standing Counsel answeredby stating that Section 147 unambiguously stipulates that“assess or reassess in respect of any income chargeable to taxhas escaped assessment for any assessment year”. Thus, a freshassessment in the absence of the assessee submitting return ofincome is possible. Thus, the powers conferred is exercised inthe present case for assessment in view of the fact that thereis a reason to believe that the income chargeable to tax hasescaped assessment on collection of materials from thepetitioner-company. 5.5.With reference to the arguments advanced by thepetitioner regarding Section 5(2), Section 6(3)(ii) and Section9, the learned Senior Standing Counsel replied by stating thatSection 9 would be the answer for all such arguments. Section 9(1)(i) enumerates that “all income accruing or arising, whetherdirectly or indirectly, through or from any business connectionin India, or through or from any property India, or through orfrom any asset or source of income in India or through thetransfer of a capital asset situate in India”. The petitioner-company squarely falls under the categories stipulated inSection 9(1)(i) and thus, there is no impediment for the IncomeTax Authorities for initiating action under Section 147 andissuing notice under Section 148. When Section 9 provides income deemed to accrue or arise in India directly or indirectlyand when the respondents have obtained materials from thepetitioner-company, which constitute a reason to believe thatthe income chargeable to tax has escaped assessment, then theauthorities competent had rightly invoked the provisions ofSection 147 and issued notice under Section 148 enabling thepetitioner to submit their returns and further objections, ifany, for proceeding with the matter. income deemed to accrue or arise in India directly or indirectlyand when the respondents have obtained materials from thepetitioner-company, which constitute a reason to believe thatthe income chargeable to tax has escaped assessment, then theauthorities competent had rightly invoked the provisions ofSection 147 and issued notice under Section 148 enabling thepetitioner to submit their returns and further objections, ifany, for proceeding with the matter. 5.6.The learned Senior Standing Counsel raised the questionof maintainability of the writ petition on the ground that theemployees and the management officials of the writ petitioner-company have given statements, and material evidences werecollected by the Income Tax Authorities and when the authoritiesformed an opinion that there is a reason to believe that theincome chargeable to tax has escaped assessment, then thepetitioner has to submit their documents, evidences andobjections including the reliance placed on by them withreference to the circular issued by the CBDT to the AssessingOfficer, who in turn, should proceed with the enquiry byaffording opportunity to the petitioner. Thus, the initiationof 147 proceedings is not conclusive and it is only pending andthus, the writ petition is premature and liable to be dismissed. 5.7.With reference to the grounds raised by the learnedSenior Counsel on behalf of the petitioner that the sanction asrequired under Section 151 of the IT Act has not been obtained,the learned Senior Standing Counsel produced copy of thesanctioning letter issued by the competent authorities. It iscon