Wp/974/2014 Of Ingram Micro Inc v. The Income-Tax Officer And Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.974 OF 2014 Ingram Micro Inc.)1600 E. St. Andrew Place,)P.O. Box 25125, )Santa Ana CA 92799-5125, USA)….Petitioner V/s.1. The Income Tax Officer, )(International Taxation) – TDS – 3)R.No.137, 1[st] Floor, Scindia House, )Ballard Pier, N.M. Marg, )Mumbai – 400 038)2. The Union of India)Through the Secretary, Department of)Revenue, Ministry of Finance, North Block,)New Delhi – 110 001)….Respondents ---- Mr. J.D. Mistri, Senior Advocate a/w. Mr. Madhur Agrawal i/b. Mr. Atul K.Jasani for petitioner. Mr. Suresh Kumar for respondents. ---- CORAM : K.R. SHRIRAM & N.J. JAMADAR, JJ. DATED : 26[th] FEBRUARY 2022 ORAL JUDGMENT : (PER K.R. SHRIRAM, J.) 1By this petition, that came to be admitted on 28[th] July 2014,petitioner is challenging the jurisdiction of respondent no.1 to issue noticeunder Section 201 of the Income Tax Act, 1961 (the Act) purporting to treat petitioner as an assessee in default and the order dated 10[th] December 2013 passed by respondent no.1 (the impugned order) holding that respondentno.1 has valid jurisdiction to issue notice under Section 201 and Section Gauri Gaekwad 201(1A) of the Act for the alleged non deduction of tax at source on allegedpurchase of shares of a company incorporated in Bermuda. 2Though the notice dated 25[th] March 2010 and order dated10[th] December 2013 impugned in this petition have been challenged on variousgrounds, the primary ground (even for a moment other grounds are not pressed)is that petitioner was not liable to deduct any tax because petitioner did notmake any payment to anybody and, therefore, petitioner cannot be considered tobe in breach of the obligation under Section 195 of the Act and consequently, thenotice under Section 201 and Section 201(1A) of the Act is not maintainable. 3Section 195 of the Act says Other sums. 195. (1) Any person responsible for paying to a non-resident, notbeing a company, or to a foreign company, any interest (not beinginterest referred to in section 194LB or section 194LC) 92[orsection 194LD] or any other sum chargeable under the provisionsof this Act (not being income chargeable under the head"Salaries") shall, at the time of credit of such income to theaccount of the payee or at the time of payment thereof in cash orby the issue of a cheque or draft or by any other mode, whicheveris earlier, deduct income-tax thereon at the rates in force : ******** Therefore, Section 195 mandates “any person responsible for payingto a non-resident” any sum chargeable under the provisions of this Act shall, atthe time of credit of such income to the account of the payee or at the time ofpayment thereof, whichever is earlier, to deduct income tax thereon at the ratesin force. It is petitioner’s case that it has not paid any amount to anyparty under this transaction and therefore, there was no occasion to deductany income tax. Was petitioner liable to deduct tax is the moot question.For this we need to consider the facts of the case. n 4The facts in brief are as under : Petitioner is a company incorporated in the United States ofAmerica and is engaged in the business of distribution of technologyproducts. Petitioner had worldwide operations. Petitioner, which is referredto as Ingram Group, consists of several companies throughout NorthAmerica, Europe, Middle East, Africa, Latin America and Asia Pacificregions, which supported global operations through an extensive sales anddistribution network. Ingram Micro Asia Holdings Inc. (IMAHI), a companyincorporated in the United States of America, and a subsidiary of petitioner,held indirectly a fully owned subsidiary in India by the name Ingram MicroIndia Private Ltd. (IMIPL). n 4The facts in brief are as under : Petitioner is a company incorporated in the United States ofAmerica and is engaged in the business of distribution of technologyproducts. Petitioner had worldwide operations. Petitioner, which is referredto as Ingram Group, consists of several companies throughout NorthAmerica, Europe, Middle East, Africa, Latin America and Asia Pacificregions, which supported global operations through an extensive sales anddistribution network. Ingram Micro Asia Holdings Inc. (IMAHI), a companyincorporated in the United States of America, and a subsidiary of petitioner,held indirectly a fully owned subsidiary in India by the name Ingram MicroIndia Private Ltd. (IMIPL). 5The Techpac Group was a technology distributor and a leadingtechnology sales, marketing and logistics group in the Asia Pacific regionand had an extensive spread over countries such as Australia, New Zealand,Singapore, Malaysia, Thailand, India and Hong Kong. Various non resident shareholders that included private equityfunds, viz., CVC Capital Partners Asia Pacific LP, Asia Investors LLC,Gauri Gaekwad Hagemeyer Caribbean Holding NV, held shares in a company TechpacHoldings Ltd. (THL), registered in Bermudas. There were a few residentshareholders as well. THL, under its fold, held several operating and nonoperating companies in Australia, New Zealand and Thailand and a holdingcompany named Tech Pacific Asia Ltd. (TPAL), a company incorporated inthe British Virgin Islands. TPAL, in turn, held operating and non operatingcompanies in Mauritius, Hong Kong, Malaysia and Singapore. The holdingsubsidiary of TPAL in Mauritius was called Techpac Mauritius Ltd. (TML).TML had a fully owned operating subsidiary in India by the name TechPacific (India) Ltd. (TPIL). TPIL had a fully owned subsidiary in Singaporecalled Tech Pacific India Exports Pte. Ltd. (TPIEPL). All these companies,which were about 20, spread over 13 countries, are collectively referred toas Techpac Group. 6Circa 2004, IMAHI acquired the shares of THL, the companyincorporated in Bermudas, from its existing shareholders. Petitioner’s role inthis transaction was that it guaranteed the payment of the saleconsideration by IMAHI under the Share Purchase Agreement (SPA) to thesellers, i.e., the existing shareholders of THL. The guarantee never came tobe invoked because IMAHI discharged its obligation under the SPA to thesellers and accordingly, petitioner stood discharged of its obligations as aguarantor under the said SPA. 7Pursuant to the acquisition, the Indian entity of Ingram Group,i.e., IMIPL, was merged into the Indian entity of the Techpac Group, viz.,TPIL. Subsequent to merger, the name of TPIL was changed to its presentname, viz., Ingram Micro India Ltd. (IMIL). 8Before we proceed further, it will be useful to scan andreproduce a diagrammatic representation of the transaction to understandthe matter easily : Gauri Gaekwad 9On or about 17[th] September 2007, during the course of searchand seizure proceedings at the premises of IMIL, the annual report ofpetitioner for the year 2005, among other things, was found. The annualreport referred to the acquisition of shares of THL. Seized with thisinformation, respondent no.1 issued a notice dated 25[th] March 2010 underSection 201 of the Act to petitioner calling upon petitioner to show causewhy it should not be treated as an assessee in default of its obligation todeduct tax from the payments made for the purchase of shares during thefinancial year 2004-2005. The notice was followed by a letter dated 28[th]June 2010 by which respondent no.1 clarified that the transaction beinglooked into was the foreign remittance to petitioner. Gauri Gaekwad 9On or about 17[th] September 2007, during the course of searchand seizure proceedings at the premises of IMIL, the annual report ofpetitioner for the year 2005, among other things, was found. The annualreport referred to the acquisition of shares of THL. Seized with thisinformation, respondent no.1 issued a notice dated 25[th] March 2010 underSection 201 of the Act to petitioner calling upon petitioner to show causewhy it should not be treated as an assessee in default of its obligation todeduct tax from the payments made for the purchase of shares during thefinancial year 2004-2005. The notice was followed by a letter dated 28[th]June 2010 by which respondent no.1 clarified that the transaction beinglooked into was the foreign remittance to petitioner. 10In response, by its letter dated 8[th] July 2010, petitionerexplained the transaction of purchase of shares of THL by IMAHI and therole of petitioner being only a guarantor in the transaction. Therefore,petitioner requested respondent no.1 to discharge the impugned notice.Subsequently, based on discussions with respondent no.1 in his office, whererespondent no.1 raised certain further queries, petitioner submitted afurther letter dated 29[th] July 2010 answering those queries. Thereafter, asthere was not much heard from respondent no.1, petitioner fearing anadverse order from respondent no.1, filed a Writ Petition No.411 of 2011 inthis Court challenging the impugned notice and the jurisdiction of respondent no.1 to initiate proceedings under Section 201(1) and 201(1A)of the Act. This Court by an order dated 30[th] November 2011 in WritPetition No.411 of 2011, relying on the decision dated 23[rd] January 2009 ofthe Apex Court in the case of Vodafone International Holdings B.V. V/s.Union of India [petition for Special Leave to Appeal (Civil) 464 of 2009],directed respondent no.1 to determine the jurisdictional issue as apreliminary issue keeping all rights and contentions of parties open anddisposed the petition. 11Thereafter, petitioner received notices from respondent no.1asking petitioner to show cause as to why an order should not be passedholding that respondent no.1 has jurisdiction to initiate proceedings underSection 201 of the Act against petitioner. Respondent no.1 also asked forfurther information and details during the course of the proceedings todetermine whether respondent no.1 had jurisdiction to initiate proceedingsunder Section 201 of the Act. Various submissions were made beforerespondent no.1 giving details called for by respondent no.1 and explainingwhy provision of Section 201 is not attracted in the case of petitioner andwhy respondent no.1 had no jurisdiction to pass any order under Section201 of the Act. Respondent no.1, by an order dated 10[th] December 2013,rejected the contention of petitioner and held that he had jurisdiction toinitiate proceedings under Section 201 of the Act to treat petitioner as an assessee in default for alleged non-deduction of tax on the purchase ofshares of THL. It is against this order that petitioner has approached thisCourt by way of this petition. assessee in default for alleged non-deduction of tax on the purchase ofshares of THL. It is against this order that petitioner has approached thisCourt by way of this petition. 12From the facts narrated above, there is nothing to indicate thatpetitioner made any payment to anyone. The entire approach in theimpugned order is that petitioner made the payment through IMAHI. Thereis no evidence to that effect. The Assessing Officer is relying on the annualreports of petitioner group where there is a mention that the group hasacquired Techpac Group. The Assessing Officer’s reliance on the IngramGroup’s annual report of 2005 to conclude that it was petitioner whoacquired THL is misplaced. A copy of the annual report for 2005 has beenplaced before us during the hearing. It only indicates what the group hasachieved during the relevant period and it cannot, by any stretch ofimagination, be held that it was petitioner who had purchased and paid forthe shares of THL. If Assessing Officer’s logic has to be applied, then theultimate beneficiary are the shareholders of petitioner and not petitionerand hence, no liability can be fastened on petitioner. Respondent no.1 hastotally failed to appreciate that the comments on the annual accounts arewith respect to the Ingram Group and not restricted to the activity ofpetitioner and we say this having perused a copy of the annual report ofIngram Group for the relevant year. 13The undisputed fact is that petitioner is not the purchaser ofshares of THL. Respondent no.1 has failed to appreciate that the shares havebeen purchased by IMAHI, a wholly owned subsidiary of petitioner and notby petitioner and, therefore, the question of Section 195 of the Act beingapplicable to petitioner would not arise. Respondent no.1 has proceeded onan erroneous basis that petitioner had acquired the shares of THL throughits subsidiary IMAHI without even giving any reason for such a finding.Respondent no.1 has not appreciated or understood that a subsidiarycompany is an independent entity different from the parent company andactions and transactions of the subsidiary are not transactions of the holdingcompany through the subsidiary. The fact is the shares have been acquired by IMAHI and not bypetitioner through its subsidiary. The SPA has been entered into by IMAHI asthe purchaser and not on behalf of petitioner. A copy of the SPA has beenprovided to respondent no.1 and also annexed to the petition. SPA showspetitioner is the guarantor of the payment to be made by IMAHI and not thepurchaser. Respondent no.1 has failed to appreciate that purchaser himselfcannot be a guarantor also and that itself indicates that petitioner is not thepurchaser of the shares of THL. Respondent no.1 has also not produced anyevidence or referred to any document to even indicate that petitioner haspaid any amount or can be even regarded as person responsible for paying any sum to a non resident (or a foreign company) chargeable under theprovisions of the Act. Respondent no.1 has failed to appreciate that tax isrequired to be deducted by the person paying any sum or a personresponsible for paying any sum to a non resident which is chargeable to taxunder the Act and, therefore, there is no question of applicability of Section195 of the Act to petitioner. any sum to a non resident (or a foreign company) chargeable under theprovisions of the Act. Respondent no.1 has failed to appreciate that tax isrequired to be deducted by the person paying any sum or a personresponsible for paying any sum to a non resident which is chargeable to taxunder the Act and, therefore, there is no question of applicability of Section195 of the Act to petitioner. 14Respondent no.1 has gone on an erroneous presumption thatpetitioner was required to deduct tax at source while making paymentunder Section 195 of the Act and since petitioner has filed to deduct tax, itis deemed to be assessee in default as per Section 201(1) of the Act andliable to pay tax it had defaulted to deduct while making payment. The factis petitioner has not made any payment. The obligation under Section 195of the Act is on a person responsible for paying to a non-resident any sumchargeable under the provisions of this Act and the said person, at the timeof credit of such income to the account of the payee or at the time ofpayment thereof in cash or by the issue of a cheque or draft or by any othermode, whichever is earlier, shall deduct income tax thereon at the rates inforce. When petitioner has not made any payment and it is not respondent’scase that petitioner had directly made any payment, petitioner cannot bethe person responsible for deduction of tax. Respondent’s assumption thatpetitioner being the ultimate beneficiary of the acquisition of the shares ought to have deducted the tax at source on the payments made for theacquisition of shares of THL is not correct. If we apply the logic ofrespondent no.1, as stated earlier also, then the ultimate beneficiary are theshareholders of petitioner and not petitioner and hence, the liability cannever be fastened on petitioner. This is dehors the fact that even ifpetitioner is ultimate beneficiary of the transaction, then also it does notfollow that petitioner was required to deduct tax at the time of acquisitionof shares of THL by IMAHI. 15At the cost of repetition, as Section 195 is applicable only to aperson who is responsible for paying to deduct tax at the time of credit tothe account of the payee or at the time of payment and petitioner did notmake any payment to THL, there is no obligation on petitioner to deduct taxat source. Respondent’s arguments that petitioner had made paymentthrough IMAHI is also not acceptable because there is no evidence thatpetitioner made any payment through IMAHI. The Section is applicable to aperson who is responsible for paying. 16In these facts and circumstances, show cause notice dated25[th] March 2010 as well as order dated 10[th] December 2013 have to bequashed and set aside. 17In view of this conclusion on the non-applicability of Section195 of the Act to petitioner, we do not see any reason why we should deal with the other grounds. 18Petition is allowed and accordingly disposed in terms of prayer clause – (a), which reads as under: (a) that this Hon’ble Court be pleased to issue a Writ ofCertiorari or a writ in the nature of Certiorari or any otherappropriate writ, order or direction under Article 226 of theConstitution of India calling for the records of petitioner’scase and after examining the legality and validity thereof toquash and set aside the Impugned Notice dated 25[th] March2010 being Exhibit “C” hereto and the Impugned Orderdated 10[th] December 2013 being Exhibit “L” hereto. (N.J. JAMADAR, J.) (K.R. SHRIRAM, J.)