2 CIT vs. Mohammed Meeran Shahul Hameed Civil Appeal No. 6204 of 2021; Date of order: 7th October, 2021
Limitation for passing order in revision u/s 263(2) – As per sub-section (2) of section 263 no order u/s 263 of the Act shall be ‘made’ after the expiry of two years from the end of the financial year in which the order sought to be revised was passed – The word used is ‘made’ and not order ‘received’ by the assessee – Once it is established that the order u/s 263 was made / passed within the period of two years from the end of the financial year in which the order sought to be revised was passed, such order cannot be said to be beyond the period of limitation prescribed u/s 263(2)
The A.O. passed an assessment order u/s 143(3) for A.Y. 2008-09 vide assessment order dated 30th December, 2010.
The Commissioner of Income Tax initiated revision proceedings u/s 263 to revise the assessment order passed by the A.O. and issued a notice to the assessee on 1st February, 2012. The assessee filed written submissions on 7th and 12th March, 2012. The Commissioner then passed an order u/s 263 on 26th March, 2012 holding that the A.O. had failed to make relevant and necessary inquiries and to make correct assessment of income after due application of mind and thus the assessment order made u/s 143(3) was held to be erroneous and prejudicial to the interest of the Revenue. The Commissioner set aside the assessment order with a direction to the A.O. to make necessary inquiries on the aspects mentioned in the order u/s 263.
The order passed by the Commissioner in exercise of powers u/s 263 was challenged by the assessee before the ITAT on 29th November, 2012, submitting that it had come to know about the revision order only when it received notice dated 6th August, 2012 u/s 143(2) r/w/s 263 from the office of the A.O. Thereafter, the assessee had requested the A.O. to furnish a copy of the order passed by the Commissioner which was supplied to him on 29th November, 2012. Before the ITAT, it was the case on behalf of the assessee that the order passed by the Commissioner was beyond the period of limitation prescribed / mentioned u/s 263(2). Vide order dated 4th April, 2013, the ITAT accepted the contention on behalf of the assessee and allowed the appeal, holding that the revision order was passed by the Commissioner beyond the period of limitation.
Aggrieved and dissatisfied with the order passed by the ITAT quashing and setting aside the revisional order passed by the Commissioner u/s 263, the Revenue preferred an appeal before the High Court.
The High Court dismissed the appeal and confirmed the order passed by ITAT holding that the order passed by the Commissioner u/s 263 was barred by limitation. The High Court held that the date on which the order was received by the assessee was the relevant date for the purpose of determining the period of limitation u/s 263(2).
Feeling aggrieved and dissatisfied with the judgment and order passed by the High Court, Revenue preferred an appeal before the Supreme Court.
According to the Supreme Court, the short question of law for consideration before it was whether the High Court was right in holding that the relevant date for the purpose of considering the period of limitation u/s 263(2) would be the date on which the order passed by the Commissioner u/s 263 was received by the assessee.
On a reading of sub-section (2) of section 263, the Supreme Court observed that as mandated by this sub-section, no order u/s 263 shall be ‘made’ after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. According to the Court, the word used is ‘made’ and not ‘received’ by the assessee. The word ‘dispatch’ is not even mentioned in section 263(2). The Supreme Court, therefore, held that once it is established that the order u/s 263 was made / passed within the period of two years from the end of the financial year in which the order sought to be revised was passed, such an order cannot be said to be beyond the period of limitation prescribed u/s 263(2). Receipt of such order by the assessee has no relevance for the purpose of counting the period of limitation provided u/s 263. In the present case, the order was made / passed by the Commissioner on 26th March, 2012 and according to the Department it was dispatched on 28th March, 2012. The relevant last date for the purpose of passing the order u/s 263, considering the fact that the assessment was for the financial year 2008-09, would be 31st March, 2012 and the order might have been received as per the assessee on 29th November, 2012. However, the date on which the order was received by the assessee was not relevant for the purpose of calculating / considering the period of limitation provided u/s 263(2).
The Supreme Court therefore concluded that the High Court had misconstrued and had misinterpreted the provision of sub-section (2) of section 263. If the interpretation made by the High Court and the ITAT was accepted, in that case it would be violating the provision of section 263(2) and adding something which is not there in the section. As observed hereinabove, the word used is ‘made’ and not the ‘receipt of the order’. Therefore, the High Court had erred in holding that the order u/s 263 passed by the Commissioner was barred by the period of limitation as provided under sub-section (2) of section 263.
NOTES
(i) In the above case, from the dates available in the judgment of the Supreme Court, it would appear that assessment order u/s 143(3) [which was revised u/s 263] was passed on 30th December, 2010 and the order u/s 263(3) was passed on 26th March, 2012 about which the assessee came to know on 6th August, 2012 and the copy of the same was supplied to him by the A.O. [while making the fresh assessment] on 29th November, 2012. All these dates are falling within a period of two years from the end of the financial year [i.e., 2010-11] in which the assessment order u/s 143(3) dated 30th December, 2010 was passed. As such, the limitation period in any case was 31st March, 2013. However, the limitation period ending date is, somehow, taken as 31st March, 2012. On verification of the ITAT order dated 4th April, 2013 also, it is noticed that these dates are the same and the ITAT had, somehow, taken the time-barring ending date as 31st March, 2012. It seems that on this basis it was held by the ITAT that the order u/s 263 is time-barred as the same was not communicated to the assessee by 31st March, 2012. It is difficult to understand this computation of limitation of time-barring period u/s 263(2) on these facts. Therefore, this judgment should be read ignoring these dates. However, the principle read down by the Supreme Court is very clear that for the purpose of computing period of limitation u/s 263(2), the relevant date is the date of passing the order u/s 263 and not the date of receipt of that order by the assessee. Therefore, this judgment makes this point very clear. The confusion about the dates referred to earlier may be ignored.
(ii) It may be noted that the Punjab & Haryana High Court in the case of A.A. Precision Machines Private Limited [(2016) 388 ITR 440] has also taken a view that for the purpose of computing such limitation period u/s 263(2), the date of passing the order u/s 263 is relevant and not the date of dispatch of that order by the Department.
3 Director of Income Tax, New Delhi vs. Mitsubishi Corporation Civil Appeal No. 1262 of 2016; Date of order: 17th September, 2021
Interest – Interest u/s 234B – Prior to financial year 2012-13, the amount of income-tax which is deductible or collectible at source can be reduced by the assessee while calculating advance tax, the assessee cannot be held to have defaulted in payment of its advance tax liability
The assessee, a non-resident company incorporated in Japan with operations in India, was engaged in carrying out trading activities in carbon, crude oil, LPG, ferrous products, industrial machinery, mineral, non-ferrous metal and products, textiles, automobiles, etc., through its liaison offices in India.
The A.O. rejected the contention of the respondent that it had no income which was taxable in India and passed assessment orders dated 24th March, 2006 for the A.Ys. 1998-99 to 2004-05, determining the income attributable to Indian operations and charging interest as per the provisions of the Act.
The assessment orders were challenged before the CIT(A), restricted to the imposition of interest u/s 234B.
The appeals were dismissed by the CIT(A) as being not maintainable.
The appeals filed by the assessee against the order of the CIT were disposed of by the ITAT on 16th November, 2007 by remanding the appeals for the A.Ys. 1998-99 to 2004-05 to the CIT(A) to be decided on merits.
On remand of the appeals for the aforesaid assessment years, the CIT(A) took note of the order passed by the ITAT on 8th August, 2008 in respect of the A.Y. 2005-06 in case of the assessee. In the said order, the ITAT had followed an earlier order passed in Motorola Inc. vs. Deputy CIT [2005] 95 ITD 269, in which the assessee was found to be not liable for payment of advance tax and for consequent interest u/s 234B as the entire income received by the assessee was such from which tax was deductible at source. However, while deciding the appeals filed by the assessee for the A.Ys. 1998-99 to 2004-05 on the merits of the issue, the CIT(A) came to the conclusion, independent of the ITAT’s order dated 8th August, 2008, that the assessee was liable to pay advance tax in terms of section 191 in case of no deduction by the payer where tax is deductible at source. Consequently, the assessee was held to be liable to pay interest u/s 234B for default in payment of advance tax. The CIT(A), therefore, dismissed the assessee’s appeals for A.Ys. 1998-99 to 2004-05.
In the appeals filed by the respondent against the order dated 10th February, 2009 of the CIT(A), the ITAT held that the issue was covered by its earlier decision dated 8th August, 2008 in the case of the assessee for the A.Y. 2005-06; the decision of the special bench of the ITAT in the case of Motorola Inc. (Supra); as well as decisions of the Uttarakhand High Court and the Bombay High Court. Reliance was placed by the ITAT on a judgment of the Uttarakhand High Court in Commissioner of Income Tax vs. Tide Water Marine International Inc. [2009] 309 ITR 85, whereby it was held that an individual assessee cannot be held liable to pay interest u/s 234B for default of the company, who had engaged or employed the assessee, to deduct tax at source while making payments to the assessee. In Director of Income Tax (International Taxation) vs. NGC Network Asia LLC [2009] 313 ITR 187, the Bombay High Court held that on failure of the payer to deduct tax at source, no interest can be imposed on the payee-assessee u/s 234B. The ITAT observed that in all the seven years under consideration, tax was liable to be deducted at source from payments made to the assessee and it had not been demonstrated that the assessee had a liability to pay advance tax, even after deduction of taxes at source. Therefore, the ITAT concluded that the assessee was not liable for payment of interest as the conditions of section 234B were not attracted. The assessee’s appeals were allowed.
The question of law framed by the High Court was whether the levy of interest u/s 234B for short deduction of tax at source is mandatory and is leviable automatically. The High Court referred to a judgment of the Uttarakhand High Court in the case of Commissioner of Income Tax and Anr. vs. Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320, a judgment of the Bombay High Court in the NGC Network Asia LLC case (Supra) and a judgment of the Madras High Court in Commissioner of Income Tax, Tamil Nadu-I, Madras vs. Madras Fertilizers Ltd. [1984] 149 ITR 703, to uphold the submission of the assessee that the tax deductible at source should be excluded from consideration while the estimate of income for the payment of advance tax is submitted. On a scrutiny of the relevant provisions of the Act, the High Court observed that interest u/s 234B cannot be imposed on an assessee for failure on the part of the payer in deducting tax at source, when section 201 provides for consequences of failure to deduct tax at source or failure to pay the tax after making deduction.
The Supreme Court on perusal of the provisions of sections 209 and 234B observed that an analysis of Clauses (a) and (d) of section 209(1) would make it clear that the assessee shall estimate his current income and income tax for payment of advance tax on the basis of rates in force in the financial year. The calculation of the advance tax is to be reduced by the amount of income tax which would be deductible or collectible at source during the said financial year. In case of failure to pay advance tax u/s 208, or where the advance tax paid by the assessee as per the provision of section 210 is less than 90% of the assessed tax, the assessee shall be liable to pay interest on the amount of shortfall from the assessed tax, according to section 234B.
The main point argued on behalf of the Revenue related to the interpretation of section 209(1)(d), with stress on the words ‘deductible or collectible at source’. The contention of the Revenue was based on the fact that an assessee, who has received any payment without the payer deducting tax on such payment, cannot be permitted to escape liability in payment of advance tax and consequent interest for such non-payment under sections 191 and 234B. It was contended that as all the assessees were fully aware of the receipt of amounts without deduction of taxes at source, they should not be allowed to then rely on section 201 to reduce their advance tax liability. In this connection, it was submitted by the Revenue that the expression ‘would be deductible or collectible’ would not include amounts which had not been deducted at the time of payment and, in fact, were paid to the assessee by the payer.
The Supreme Court stated that the primary issue before it pertained to the interpretation of section 209(1)(d) and noted that a proviso was inserted to section 209(1)(d) by the Finance Act, 2012. The Court referred to the Notes to the Memorandum explaining the provisions in the Finance Bill, 2012 in this context. It observed that the proviso is in the nature of an exception to section 209(1)(d) as an assessee, who has received any income without deduction or collection of tax, is made liable to pay advance tax in respect of such income. The amendment was brought into effect from 1st April, 2012 and was made applicable to cases of advance tax payable in the F.Y. 2012-13 and thereafter. All the appeals before the Supreme Court, however, pertained to the period prior to A.Y. 2013-14.
After noting the judicial precedents holding that subsequent legislation may be looked into to fix the proper interpretation to be put on the statutory provisions as they stood earlier, the Court observed that the dispute relating to the interpretation of the words ‘would be deductible or collectible’ in section 209(1)(d) can be resolved by referring to the proviso to section 209(1)(d) which was inserted by the Finance Act, 2012. The proviso makes it clear that the assessee cannot reduce the amounts of income paid to it by the payer without tax deduction, while computing liability for advance tax. The Memorandum explaining the provisions of the Finance Bill, 2012 provides necessary context that the amendment was warranted due to the judgments of courts, interpreting section 209(1)(d) to permit computation of advance tax by the assessee by reducing the amount of income tax which is deductible or collectible during the financial year. If the construction of the words ‘would be deductible or collectible’ as placed by the Revenue is accepted, the amendment made to section 209(1)(d) by insertion of the proviso would be meaningless and an exercise in futility. The Supreme Court, therefore, held that to give the intended effect to the proviso, section 209(1)(d) has to be understood to entitle the assessee, for all assessments prior to the financial year 2012-13, to reduce the amount of income tax which would be deductible or collectible, in computation of its advance tax liability, notwithstanding the fact that the assessee has received the full amount without deduction.
The Court further held that there was no force in the contention of the Revenue that section 234B should be read in isolation without reference to the other provisions of Chapter XVII. The liability for payment of interest as provided in section 234B is for default in payment of advance tax. While the definition of ‘assessed tax’ u/s 234B pertains to tax deducted or collected at source, the pre-conditions of section 234B, viz. liability to pay advance tax and non-payment or short payment of such tax, have to be satisfied after which interest can be levied taking into account the assessed tax. Therefore, section 209 which relates to the computation of advance tax payable by the assessee cannot be ignored while construing the contents of section 234B. As already held that prior to the F.Y. 2012-13 the amount of income tax which is deductible or collectible at source can be reduced by the assessee while calculating advance tax, the assessee cannot be held to have defaulted in payment of its advance tax liability.
The Supreme Court upheld the view adopted in the impugned judgment of the Delhi High Court in Civil Appeal No. 1262 of 2016 as well as by the Madras High Court in the Madras Fertilizers case (Supra), that the Revenue is not remediless and there are provisions in the Act enabling the Revenue to proceed against the payer who has defaulted in deducting tax at source. The Court, however, clarified that there is no doubt that the position has changed since F.Y. 2012-13 in view of the proviso to section 209(1)(d), pursuant to which if the assessee receives any amount, including the tax deductible at source on such amount, the assessee cannot reduce such tax while computing its advance tax liability.
Accordingly, the Supreme Court dismissed the appeals filed by the Revenue.
