7 CIT vs. Reliance Telecom Limited and Ors. (2021) 133 taxmann.com 41 (SC)
Rectification of mistake – Section 254(2) – In exercise of powers under Section 254(2), the Appellate Tribunal may amend any order passed by it under Sub-section (1) of Section 254 with a view to rectifying any mistake apparent from the record – The powers under Section 254(2) are akin to Order XLVII Rule 1 Code of Civil Procedure – While considering the application under Section 254(2), the Appellate Tribunal is not required to re-visit its earlier order and to go into detail on merits – The powers under Section 254(2) of the Act are only to rectify/correct any mistake apparent from the record.
The Assessee entered into a Supply Contract dated 15th June, 2004 with Ericsson A.B. Assessee filed an application under Section 195(2) of the Act before the Assessing Officer, to make payment to the non-resident company for purchase of software without TDS. It was contended by the Assessee that it was for the purchase of software and Ericsson A.B. had no Permanent Establishment in India and in terms of the DTAA between India and Sweden & USA, the amount paid is not taxable in India.
The Assessing Officer passed an order dated 12th March, 2007 rejecting the Assessee’s application holding that the consideration for software licensing constituted under Section 9(1)(vi) of the Act and under Article 12(3) of the DTAA is liable to be taxed in India and accordingly directed the assessee to deduct tax at the rate of 10% as royalty.
The Assessee after deducting the tax appealed before the Commissioner of Income Tax (Appeals). CIT vide order dated 27th May, 2008 held in favour of the Assessee. Revenue appealed before the ITAT and by a detailed judgment and order dated 6th September, 2013, the ITAT allowed the Revenue’s appeal by relying upon the judgments/decisions of the Karnataka High Court and held that payments made for purchase of software are in the nature of royalty. Against the detailed judgment and order dated 6th September, 2013 passed by the ITAT, the Assessee filed miscellaneous application for rectification under Section 254(2) of the Act. Simultaneously, the Assessee also filed the appeal before the High Court against the ITAT order dated 6th September, 2013.
By an order dated 18th November, 2016, the ITAT allowed the Assessee’s miscellaneous application filed under Section 254(2) of the Act and recalled its original order dated 6th September, 2013. Immediately, on passing the order dated 18th November, 2016 by the ITAT recalling its earlier order dated 6th September, 2013, the Assessee withdrew the appeal preferred before the High court, which was against the original order dated 6th September, 2013.
Feeling aggrieved and dissatisfied with the order passed by the ITAT allowing the miscellaneous application under Section 254(2) of the Act and recalling its earlier order dated 6th September, 2013, the Revenue preferred writ petition before the High Court. By the impugned judgment and order, the High Court dismissed the said writ petition/s. Hence, the Revenue approached the Supreme Court.
The Supreme Court considered the order dated 18th November, 2016 passed by the ITAT allowing the miscellaneous application in exercise of powers under Section 254(2) of the Act and recalling its earlier order dated 6th September, 2013 as well as the original order passed by the ITAT dated 6th September, 2013.
Having gone through both the orders passed by the ITAT, the Supreme Court was the opinion that the order passed by the ITAT dated 18th November, 2016 recalling its earlier order dated 6th September, 2013 was beyond the scope and ambit of the powers under Section 254 of the Act. According to the Supreme Court, while allowing the application under Section 254(2) of the Act and recalling its earlier order dated 6th September, 2013, it appeared that the ITAT had re-heard the entire appeal on merits as if the ITAT was deciding the appeal against the order passed by the C.I.T. The Supreme Court observed that in exercise of powers under Section 254(2) of the Act, the Appellate Tribunal may amend any order passed by it under Sub-section (1) of Section 254 of the Act with a view to rectifying any mistake apparent from the record only. Therefore, the powers under Section 254(2) of the Act are akin to Order XLVII Rule 1 Code of Civil Procedure. According to the Supreme Court, while considering the application under Section 254(2) of the Act, the Appellate Tribunal is not required to re-visit its earlier order and to go into detail on merits. The powers under Section 254(2) of the Act are only to rectify/correct any mistake apparent from the record.
The Supreme Court noted that in the present case, a detailed order was passed by the ITAT when it passed an order on 6th September, 2013, by which the ITAT held in favour of the Revenue. According to the Supreme Court, the said order, therefore, could not have been recalled by the Appellate Tribunal in exercise of powers under Section 254(2) of the Act. If the Assessee was of the opinion that the order passed by the ITAT was erroneous, either on facts or in law, in that case, the only remedy available to the Assessee was to prefer the appeal before the High Court, which as such was already filed by the Assessee before the High Court, which the Assessee withdrew after the order passed by the ITAT dated 18th November, 2016 recalling its earlier order dated 6th September, 2013. Therefore, as such, the order passed by the ITAT recalling its earlier order dated 6th September, 2013 which has been passed in exercise of powers under Section 254(2) of the Act was beyond the scope and ambit of the powers of the Appellate Tribunal conferred under Section 254(2) of the Act. The order passed by the ITAT dated 18th November, 2016 recalling its earlier order dated 6th September, 2013, therefore, was unsustainable, which ought to have been set aside by the High Court.
The Supreme Court observed that from the impugned judgment and order passed by the High Court, it appeared that the High Court had dismissed the writ petitions by observing that (i) the Revenue itself had in detail gone into merits of the case before the ITAT and the parties filed detailed submissions based on which the ITAT passed its order recalling its earlier order; (ii) the Revenue had not contended that the ITAT had become functus officio after delivering its original order and that if it had to relook/revisit the order, it must be for limited purpose as permitted by Section 254(2); and (iii) that the merits might have been decided erroneously but ITAT had the jurisdiction and within its powers it may pass an erroneous order and that such objections had not been raised before ITAT.
According to the Supreme Court, none of the aforesaid grounds were tenable in law. Merely because the Revenue might have in detail gone into the merits of the case before the ITAT and merely because the parties might have filed detailed submissions, it did not confer jurisdiction upon the ITAT to pass the order de hors Section 254(2) of the Act. The powers under Section 254(2) of the Act are only to correct and/or rectify the mistake apparent from the record and not
beyond that.
According to the Supreme Court, even the observations that the merits might have been decided erroneously and the ITAT had jurisdiction and within its powers it may pass an order recalling its earlier order which is an erroneous order, could not be accepted. If the order passed by the ITAT was erroneous on merits, in that case, the remedy available to the Assessee was to prefer an appeal before the High Court, which in fact was filed by the Assessee before the High Court, but later on the Assessee withdrew the same in the instant case.
The Supreme Court, therefore, quashed the impugned judgment and order passed by the High Court as well as the order passed by the ITAT dated 18th November, 2016 recalling its earlier order dated 6th September, 2013 and the original orders passed by the ITAT dated 6th September, 2013 passed in the respective appeals preferred by the Revenue were restored.
However, considering the fact that the Assessee had earlier preferred appeal/s before the High Court challenging the original order passed by the ITAT dated 6th September, 2013, which the Assessee withdrew in view of the subsequent order passed by the ITAT dated 18th November, 2016 recalling its earlier order dated 6th September, 2013, the Supreme Court observed that if the Assessee/s prefers/prefer appeal/s before the High Court against the original order dated 6th September, 2013 within a period of six weeks from today, the same would be decided and disposed of in accordance with law and on its/their own merits and without raising any objection with respect to limitation.
