India and Japan: Indian decision on treaty – reassessment proceedings based on information received under article 26 validJanuary 18, 2013
The Indian High Court issued its decision on 26 September 2012 in the case of Mitsui & Company India (P.) Ltd. vs. ITO (26 taxmann.com 1) that information received by the Government of India from the competent authority of the Government of Japan under the mutual exchange of information covered by article 26 of the India–Japan Income Tax Treaty (Tax Treaty) is sufficient to initiate reassessment proceedings.
The taxpayer (i.e., Mitsui & Company India (P) Ltd), an Indian company, filed its income tax return for the tax year 2006–07 that was accepted by the tax authorities. However, in 2011, the tax authorities reopened the assessment on the grounds of non-declaration of income based on information received by the Government of India from the competent authority of the Government of Japan in the form of mutual exchange of information under article 26 of the Tax Treaty.
The tax authorities contended that the information was authentic as it emanated from the Government of Japan and that the taxpayer had not shown the receipt of the amount in its books of accounts. As the tax authorities prima facie (at first appearance) believes that the income was chargeable to tax but was not declared, the notice for reopening assessment was validly issued.
The taxpayer contended that, in the absence of a link between the information received and the belief that the income chargeable to tax had escaped assessment, the proceedings for reassessment was invalid in nature – in other words, the taxpayer stated that the information under article 26 is not, by itself, sufficient to initiate reassessment proceedings and the tax authorities will have to prove that the stated income was indeed undeclared and hence unassessed.
Whether the initiation of reassessment proceedings, which is based on the information received from the competent authority of the Government of Japan under article 26 of the Tax Treaty, is valid in nature?
The High Court upheld the act of the tax authorities as valid. To initiate reassessment proceedings, the “relevancy of information” but not “sufficiency of the information,” is necessary. The information was received from the government agency and is prima facie (at first appearance) relevant to the formation of the requisite belief that the income to that extent was undeclared and hence unassessed.
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