PCIT Vs Mangalore Refinery And Petrochemicals Ltd. (Karnataka High Court)
Karnataka High Court has dismissed an intra-court appeal filed by the Principal Commissioner of Income Tax (PCIT) against Mangalore Refinery And Petrochemicals Ltd. (MRPL). The appeal challenged a learned Single Judge’s order dated November 18, 2022, which had allowed MRPL’s writ petition (W.P.No.10523/2022) and granted relief to the assessee under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSV Act). The High Court broadly agreed with the findings and reasoning of the Single Judge.
The core issue in the dispute revolved around the interpretation of “disputed tax” under the DTVSV Act, specifically in relation to a disallowance of ₹80,19,59,658 made under Section 40(a)(ia) of the Income Tax Act, 1961, for the Assessment Year 2009-10. The Revenue contended that the entire disallowance amount should have been treated as the disputed tax. In contrast, MRPL argued that the disputed tax should be the amount that would be payable if the Revenue’s appeal against the Income Tax Appellate Tribunal’s (ITAT) order were to be decided in the Revenue’s favor.
The foundational facts revealed that the Assessing Officer (AO) had made several additions/disallowances in the assessment order for AY 2009-10, including the ₹80.19 crore disallowance of freight charges under Section 40(a)(i). MRPL appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who partly allowed the appeal in September 2014. Both MRPL and the Revenue appealed this order to the ITAT. The ITAT, in its order dated September 7, 2018, favored MRPL’s appeal and dismissed the Revenue’s appeal. Subsequently, the AO passed an order giving effect to the ITAT’s decision on January 4, 2019.
The Revenue then filed an appeal against the ITAT order before the Bombay High Court. During the pendency of this appeal, the DTVSV Act came into force, and MRPL filed a declaration in Form 1 on April 2, 2020, before the prescribed authority. The Principal Commissioner issued a certificate in Form 3 on January 6, 2021, accepting the declaration in part. MRPL filed a rectification application, which was rejected on April 1, 2022, leading to the writ petition that was subsequently allowed by the Single Judge.
The High Court, in its division bench order, focused on the definition of “disputed tax” under Section 2(j) of the DTVSV Act, 2020. The relevant part of the definition states that in a case where an appeal is pending before the appellate forum as on the specified date, the disputed tax means the amount of tax that is payable by the appellant if such appeal were to be decided against him.
The High Court noted that the ITAT had favored MRPL’s contention that the freight charges payable to non-residents outside India were not chargeable to tax in India, and consequently, MRPL was not liable to deduct tax at source. Importantly, the Revenue had not challenged the CIT(A)’s finding on an alternative argument raised by MRPL, which had gone in MRPL’s favor. The AO’s order giving effect to the ITAT’s order pertained to a disallowance of ₹42,92,10,516 for AY 2009-10. The Revenue’s appeal before the Bombay High Court was against this order.
The High Court reasoned that if the Revenue’s appeal in the Bombay High Court were to be allowed, the disputed tax payable by MRPL would be calculated on the disputed income of ₹42,92,10,516. Applying the tax rate of 33.99%, the disputed tax would amount to ₹14,58,88,654. Under the DTVSV Act, with an appeal pending, the assessee was liable to pay 50% of the tax arrears, which in this case would be 50% of ₹14,58,88,654, amounting to ₹7,29,44,327.
The learned Single Judge had rightly observed that the orders passed by the AO giving effect to the ITAT’s orders confirmed these figures. Therefore, the demands raised by the Revenue for much higher sums were deemed illegal, arbitrary, and contrary to the material on record, the law, and the provisions of the DTVSV Act.
Consequently, the division bench of the Karnataka High Court found the Revenue’s appeal to be devoid of merit and dismissed it. The court directed the appellants (Revenue) to forthwith give effect to the mandate of the learned Single Judge’s order, which had quashed the Principal Commissioner’s certificate in Form-3 and the subsequent orders demanding higher sums, and directed the issuance of a fresh Form-3 in favor of MRPL based on their original declaration, after necessary rectifications.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
