Hapag Lloyd India Pvt. Ltd. (Bombay High Court)
Summary: The Bombay High Court considered whether the revisional jurisdiction under Section 264 of the Income-tax Act, 1961 could be invoked where the assessee had not claimed a tax benefit in its original or revised return, and whether the Principal Commissioner of Income Tax was justified in rejecting the revision application on the ground that there was no apparent error in the assessment order.
Hapag Lloyd India Pvt. Ltd., the petitioner, was the successor of United Arab Shipping Agency India Company Pvt. Limited (“UASAC”), which had amalgamated with the petitioner with effect from 1 April 2019 pursuant to an order of the National Company Law Tribunal. UASAC had distributed dividend of Rs.10,16,75,641/- to its holding company, United Arab Shipping Company Limited, incorporated in Kuwait. Dividend Distribution Tax (“DDT”) was paid at 16.91%, including surcharge and cess, amounting to Rs.2,06,99,127/-. UASAC filed its return of income for Assessment Year 2016-17 on 30 November 2016 and a revised return on 23 December 2016.
In both returns, the benefit available under Article 10 of the India-Kuwait DTAA was not claimed. According to the petitioner, the dividend distributed during Financial Year 2015-16 was taxable at 10% under the said Article, and the petitioner was consequently entitled to a refund of Rs.84,61,650/- representing excess tax paid. The petitioner therefore filed an application under Section 264 of the Income-tax Act before the Principal Commissioner.
The Principal Commissioner rejected the application by order dated 31 March 2021. The principal reason was that UASAC had not claimed the refund of excess DDT in either the original or revised return and had also failed to make the claim during assessment proceedings. Since the assessment order under Section 143(3) had been passed on 18 December 2018 accepting the returned income, the Principal Commissioner considered that there was no mistake apparent in that order warranting exercise of jurisdiction under Section 264.
The petitioner challenged the order under the writ jurisdiction of the Bombay High Court. It contended that the Principal Commissioner had misconstrued the scope of Section 264 by treating that provision as confined to correcting an apparent error in the assessment order. According to the petitioner, Section 264 empowers the Commissioner to call for the record of any proceeding, make an inquiry or cause an inquiry to be made, and pass an order which is not prejudicial to the assessee. The petitioner submitted that the revisional jurisdiction was therefore not restricted to correction of errors apparent on the face of the record.
The Revenue supported the impugned order. It contended that because the refund had not been claimed in either the original or revised return, the assessment order under Section 143(3) could not be regarded as prejudicial to the assessee and the Principal Commissioner was justified in declining to exercise revisional jurisdiction.
The High Court examined the reasons recorded by the Principal Commissioner and found that two considerations had weighed with him. First, the assessee had not claimed the refund in the original or revised return and therefore, according to the Principal Commissioner, there was no error in the assessment order. Second, the Principal Commissioner proceeded on the basis that Section 264 was intended to review an order which was erroneous on the admitted facts of the case.
The Court accepted that the assessee had not claimed the refund in its original and revised returns. However, it held that the Principal Commissioner had erred in constricting the scope of revisional jurisdiction under Section 264. The very foundation of the application was that the assessee had inadvertently failed to claim the benefit of Article 10 of the India-Kuwait DTAA, under which the dividend distribution was taxable at a lower rate.
The Court distinguished revisional jurisdiction from review jurisdiction. It observed that revisional jurisdiction is not as wide as appellate jurisdiction, but it cannot be confused with the power of review, which by its nature is limited. According to the Court, the Principal Commissioner had unjustifiably imported principles governing review into the exercise of power under Section 264 and had thereby imposed limitations which do not exist in that provision.
The Court relied upon the Division Bench judgment in Geekay Security Services (P) Ltd. vs. Deputy Commissioner of Income Tax, Circle-3(1)(2), 2018 SCC OnLine Bom 21391; (2019) 101 taxmann.com 192 (Bombay), which had considered the identical question whether a revision application could be rejected solely because the assessee had not claimed the relevant benefit in the original return. The Division Bench had held that Section 264 does not limit the power to correct errors committed by subordinate authorities and could also be exercised where errors were committed by the assessee. There was nothing in Section 264 restricting the Commissioner’s revisional power to grant relief where the assessee detected mistakes after completion of assessment.
The Bombay High Court held that the aforesaid pronouncement was on all fours with the facts before it. It therefore interfered with the Principal Commissioner’s order.
However, the Court did not itself decide the petitioner’s substantive entitlement to the refund. Since the Principal Commissioner had not considered the revision application on merits, the Court considered it appropriate to remit the application for de novo consideration on merits.
The Court accordingly allowed the petition, quashed and set aside the impugned order dated 31 March 2021, restored the revision application to the file of the Principal Commissioner and remitted it for de novo consideration. The Principal Commissioner was directed to provide the petitioner/assessee an effective opportunity of hearing with adequate advance notice and to decide the revision application in accordance with law as expeditiously as possible, preferably within 12 weeks from communication of the order.
The Court expressly clarified that it had not entered into the merits of the matter and that all questions were kept open for consideration by the Principal Commissioner, except the question concerning the tenability of the revision application. The Rule was made absolute and there was no order as to costs.
Cases Discussed
- Geekay Security Services (P) Ltd. vs. Deputy Commissioner of Income Tax, Circle-3(1)(2), 2018 SCC OnLine Bom 21391; (2019) 101 taxmann.com 192 (Bombay) — relied upon on the scope of Section 264 and the Commissioner’s power to grant relief where the assessee detects a mistake after completion of assessment, even though the relevant claim was not made in the original return.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. Rule. Rule made returnable forthwith, and with the consent of the Counsels for the parties, heard finally.
2. The challenge in this petition is to an order dated 31st March, 2021, passed by the Principal Commissioner, Income Tax, (“PCIT”), Mumbai, respondent no.1, in Revision Application No.PCIT, Mumbai-5/Revision-264/100000104019/2021, under Section 264 of the Income Tax Act, 1961 (“the Act, 1961”), whereby respondent no.1 was persuaded to reject the revision application on the ground that it was not maintainable under Section 264 of the Act, 1961.
3. The facts necessary for the determination of this petition are as under:
(a) The petitioner is a private limited company. It is successor of United Arab Shipping Agency India Company Pvt. Limited (“UASAC”), which amalgamated with the petitioner with effect from 1st April, 2019, pursuant an order by National Company Law Tribunal. The UASAC, the predecessor company, had distributed dividend of Rs.10,16,75,641/- to its holding company, United Arab Shipping Company Limited, a company incorporated under the laws of Kuwait. The UASAC paid Dividend Distributed Tax (“DDT”) at the rate of 16.91% (including surcharge and cess) aggregating to Rs.2,06,99,127/-. A return of income for Assessment Year 2016 – 2017 was filed by UASAC on 30th November, 2016. A revised return of income was filed on 23rd December, 2016.
(b) In the original as well as revised return, the benefit of Article 10 of India – Kuwait DTAA was, however, not claimed. Under the said article, the dividend distributed during the Financial Year 2015 – 2016, was taxable at the rate of 10%. The petitioner was, thus, entitled to refund of Rs.84,61,650/- being the excess tax paid. The petitioner thus preferred an application under Section 264 of the Act before respondent no.1.
(c) By the impugned order respondent no.1 was persuaded to reject the application as untenable primarily on the ground that the UASAC had not made a claim of return of excess DDT at the time of filing original return of income as well as the revised return of income. Consequently, the assessment order under Section 143(3) of the Act, 1961 was passed on 18th December, 2018. Thus, there was no apparent error on the record in the said Assessment Order which warranted exercise of jurisdiction under Section 264 of the Act, 1961.
4. The petitioner has invoked the writ jurisdiction on the ground that respondent no.1 has completely misconstrued the scope of jurisdiction under Section 264 of the Act, 1961. This incorrect approach of respondent no.1 has resulted in unjustified refusal to exercise the jurisdiction vested in him by Section 264 of the Act, 1961. Thus, the impugned order be set aside and the matter be remitted back to respondent no.1 for determination on merits.
5. An affidavit-in-reply is filed on behalf of respondent no.1, wherein an endeavour has been made to support the impugned order. It is, inter alia, contended that the Assessment Order passed by the Assessing Officer under Section 143(3) of the Act, 1961, cannot be said to be against the interest of the assessee and, therefore, respondent no.1 was justified in declining to exercise the jurisdiction under Section 264 of the Act, 1961.
6. In the backdrop of the limited nature of the controversy, which revolves around the scope of jurisdiction under Section 264 of the Act, 1961, as construed by respondent no.1, we have heard Mr. Thakkar, the learned Counsel for the petitioner and Mr. Walve, the learned Counsel for respondent no.1.
7. Mr. Thakkar, the learned Counsel for the petitioner submitted that respondent no.1 committed a grave error in law in holding that an application under Section 264 of the Act, 1961 was not maintainable when the assessee had not made a claim for refund of excess tax paid, in the original return. Mr. Thakkar would urge that the view of respondent no.1 that, for exercise of jurisdiction under Section 264 of the Act, 1961, the order impugned ought to be apparently erroneous, is completely misconceived. Under Section 264 of the Act, 1961, the Commssioner is empowered to call for the record of any proceeding and make inquiry or cause an inquiry to be made and thereafter pass such order, as he thinks fit, but not being the one prejudicial to assessee. The scope is thus not restricted to correction of error apparent on the face of record, urged Mr. Thakkar.
8. In opposition to this, Mr. Walve sought to justify the impugned order on the premise that the refund was not claimed in the original as well as revised return and thus the order passed under Section 143(3) by the Assessing Officer, which was sought to be revised cannot be said to be prejudicial to assessee and, therefore, respondent no.1 was well within his rights in refusing to exercise the revisional jurisdiction.
9. In order to properly appreciate the aforesaid submissions, it may be apposite to extract the relevant part of the reasons ascribed by respondent no.1 in the impugned order. Paragraph 6 reads as under:
“6. I have perused the relevant material available on record. I find that the assessee had not made the said claim of refund of excess DDT at the time of filing of return of income i.e. on 30.11.2016. If the assessee company had realized that the said claim of refund of excess DDT remained to be claimed, this claim should have been made while filing revised return of income on 23.12.2016. The assessee company has failed to claim the said claim of refund of excess DDT during the course of assessment proceedings also. Subsequently, the assessment order u/s 143(3) was passed on 18.12.2018 accepting the returned income of the assessee. As such there is no mistake in the order u/s 143(3) of the act. The section 264 has been devised to review the order which is erroneous on the admitted facts of the case. Therefore, as discussed in foregoing paragraphs, in my view the revision for the assessment year under consideration is not maintainable and I do not consider it a fit case for invoking the powers under section 264 of the Income-tax Act, 1961. Thus, in view of the facts of the case, the reasons mentioned above, on the application under section 264 of the Income-tax Act, 1961. Thus, in view of the facts of the case, the reasons mentioned above, on the application under section 264 of the Income-tax Act, 1961 filed by the assessee company, I DECLINE TO INVOKE THE PROVISIONS OF SECTION 264 of the Income-tax Act, 1961 for the A.Y. 2016-2017. Thus, the application filed by the assessee u/s 264 of the IT Act, 1961 is hereby rejected.”
(emphasis supplied)
10. From the perusal of the aforesaid reasons, it becomes evident that two factors weighed with respondent no.1. First, the assessee had not claimed refund in the original and revised return and, thus, there was no error in the assessment order passed under Section 143(3) on 18th December, 2018. Second, respondent no.1 was of the view that the jurisdiction under Section 264 was confined to correct the order which is found to be apparently erroneous.
11. Respondent no.1 was justified in recording that the assessee had not claimed refund of excess tax paid by it in the original and revised return. However, respondent no.1 committed an error in constricting the scope of revisional jurisdiction, in the backdrop of the said undisputed factual position. In fact, the very foundation of the application under Section 264 of the Act, 1961 was that the assessee had inadvertently failed to claim the benefit of Article 10 of the India – Kuwait DTAA, under which the dividend distribution was taxed at a lower rate. We are of the view that the approach of respondent no.1 in refusing to exercise the jurisdiction under Section 264 of the Act, 1961 on the premise that it can be lawfully exercised only where such a refund was claimed and considered by the Assessing Officer is neither borne out by the text of Section 264 of the Act, 1961 nor the construction put thereon by the precedents.
12. The aforesaid reasoning indicates that respondent no.1 failed to appreciate the distinction between revisional and review jurisdiction. The principles which govern the exercise of review were sought to be unjustifiably imported to the exercise of power under Section 264 of the Act, 1961 and thereby imposing limitations which do not exist on exercise of such power. Undoubtedly, revisional jurisdiction is not as wide as an appellate jurisdiction. At the same time, revisional jurisdiction cannot be confused with the power of review, which by its very nature is limited.
13. Mr. Thakkar was justified in placing reliance on a Division Bench Judgment of this Court in the case of Geekay Security Services (P) Ltd. vs. Deputy Commissioner of Income Tax, Circle-3(1)(2) wherein the Division Bench considered an identical question as to whether the revisional authority was justified in rejecting the revision application solely on the ground that the applicant had not claimed the benefit in the original return. The Division Bench concurred with the view that Section 264 does not limit the power to correct errors committed by the sub-ordinate authorities and could even be exercised where errors are committed by the assessee and there is nothing in Section 264 which places any restriction on the Commissioner’s revisional power to give relief to the assessee in a case where assessee detects mistakes after the assessment is completed.
14. The aforesaid pronouncement is on all four with the facts of the case at hand.
15. We are, therefore, inclined to interfere with the impugned order. Since respondent no.1 has not considered the revision application on merits, it would be in the fitness of things to remit the application back to respondent no.1 for de novo consideration on merits. Needless to add that respondent no.1 shall give an effective opportunity of hearing to the petitioner/assessee with adequate advance notice.
16. Hence the following order:
:Order:
(i) The petition stands allowed.
(ii) The impugned order dated 31st March, 2021 stands quashed and set aside.
(iii) The revision application stands restored to the file of respondent no.1 and remitted back for de novo consideration.
(iv) Respondent no.1 shall provide an effective opportunity of hearing to the petitioner/assessee with an adequate advance notice and decide the revision application in accordance with law as expeditiously as possible and, preferably, within a period of 12 weeks from the communication of this order.
(v) By way of abundant caution, we clarify that we have not entered into the merits of the matter and all questions are expressly kept open for consideration by respondent no.1, except the question of tenability of the revision application.
(vi) All concerned to act on an authenticated copy of this order.
Rule made absolute.
No costs.
1 [2019} 101 taxmann.com 192 (Bombay).
