Tax Ruling: Income Tax Cannot be Imposed Twice on Same Income: Delhi High Court

In a landmark ruling, the Delhi High Court has affirmed the principle that income tax cannot be imposed twice on the same income. The judgment, delivered by a bench of Hon’ble Justice Rajiv Shakdher and Hon’ble Justice Girish Kathpalia, addresses the issue of double taxation and its applicability when undisclosed income is invested as share capital in multiple companies.

The case involved the flagship company, Surya Food & Agro Ltd., which had admitted to unaccounted income and disclosed it before the Settlement Commission. This undisclosed income was subsequently invested as share capital in respondent companies, including Surya Agrotech Infrastructure Limited and Surya Processed Food Pvt. Ltd.

The crux of the matter was whether this undisclosed income could be taxed again in the hands of the respondent companies. The court’s judgment relied on legal principles and several judicial precedents supporting the prohibition of double taxation.

The court observed, “It is a fundamental principle of taxation that income cannot be taxed twice unless expressly provided. Taxing the same income again, once it has been disclosed and taxed in the hands of one entity, would be contrary to this principle.”

The judgment cited various cases, including the Supreme Court’s ruling in Laxmipat Singhania vs Commissioner of Income Tax, which emphasized that income cannot be taxed twice on the basis of accrual and receipt.

Furthermore, the court referred to the settlement proceedings before the Settlement Commission, where the flagship company explicitly declared that the undisclosed income had been applied as share capital in the respondent companies. The settlement order, which was accepted by both parties and not challenged, had already subjected this income to tax.

The judgment concluded that since the undisclosed income had already been taxed in the hands of the flagship company, it could not be subjected to taxation again when applied as share capital in the respondent companies. Therefore, the court ruled in favor of the respondent/assessee companies, affirming that the principle of non-double taxation prevails.

Date of Decision: September 06, 2023

THE PR. COMMISSIONER OF INCOME TAX -CENTRAL-1 vs  SURYA AGROTECH INFRASTRUCTURE LIMITED