In the Article earlier displayed @ Income Tax- Machinery Provision vs. Substantive Provision- Analytical Study an attempt has been made to clinically examine and closely understand the recently reported Order of the itat (Ahm.) in the case of Doshi Accounting Services Pvt. Ltd. Vs DCIT (Ahm.) (the Order) This Supplement is intended to add to, also dilate, the observations and viewpoints / comment shared therein.


1. The assessee’s counsel in the instant case has, in addressing his arguments to the itat (Ahm), proceeded on the assumption, not rightly so, that the language used in framing the provisions of sec 92C, in general, and the sub-section (4) rtw with the proviso thereto, in particular, are amenable to / lend scope for two mutually contradicting views. The itat, however, has, disagreeing with the assessee, held to the following effect:

a) There is no scope for any two views; the only possible view goes to support the Revenue’s stance.

b) The ‘legislative intent’ is clear and unambiguous. For deciding the point of dispute, therefore, there is no need to resort to and place reliance on any of the principles/ rules of interpretation.

1.1. In paragraph 6.11 of the Order the ‘further’ contentions of the assessee’s counsel have been recorded. That makes for a confusing/incoherent reading. Be that as it may, it is observed that reliance placed on certain other HC and SC Judgments- that is, other than that of the HC in Vodafone case, – especially of the SC in Bajaj Tempo Ltd.’s case. That is a case on the proposition that sec 10- A being a provision having the objective of promoting economic growth should be construed liberally. However, the SC Judgment in Bajaj case does not seem to have been considered, given due weight and specifically gone into. Albeit that is of every relevance for construing in proper light the implications of sub-section (4) of sec 92 C and the Proviso thereto.

Further, it is noted from the above referred paragraph (6.11)the assessee’s counsel is stated to have drawn the itat’s attention to sec. 92 C (4) but not to the Proviso thereto.

On the other hand, the Revenue has strongly relied on, and the itat has proceeded on the premise that, the Proviso to sec 92C (4) itself vividly reflects the intent of law makers that the provisions of CHAPTER X shall prevail in all the cases of international transactions falling under the umbrella of section 92 of the Act including the income-qualified for exemption under section 10A of the Act.   

1.2. The SC Judgment in the case of Rishab Agro Ltd., has been regarded by the itat to strengthen its findings and provide support and guidance. In that case the SC held:

“While interpreting, this Court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse of process of law, it is for the Legislature to amend modify or repeal it by having recourse to appropriate procedure, if deemed necessary.” (Para. 9.7)

However, it is unclear, – rather one is left puzzled,- why and how that could be of any assistance in a case such as herein. More so,  should the HC Judgment in Vodafone case, also in Philips case, be taken to be of ample support and guidance  as brought out in the earlier Article. To be precise, as held in those two cases, on a proper construction of sec 92 C, the point of dispute not being different has been conclusively decided against the Revenue. For that matter, in Philips case the Kar. HC has categorically held that the point of dispute involved no ‘substantial question of law’; and as such, does not require to being/ could not be pursued beyond the ITAT stage.

It needs to be added that, according to information from reliable sources, there are a large number of other cases in which a similar opinion courts has been taken with a view to control and put a break on proliferation/perpetuation of litigation.        


2. The Revenue’s stance upheld by the itat in the instant case, founded mainly on the above referred two aspects, call for a critical review and serious reconsideration for the reasons set out herein below:

2.1. ‘TWO VIEWS’- Scope For

That there is no such scope at all is, to say the least, prima facie too rigid a view to be only taken a note of but deserves to be rejected straight away for more than one common sense reason:

A) (i) The stance respectively taken by the Revenue (AO / DRP) and the asseessee is patently at variance and mutually in conflict with each other.

ii) It has been stated in the itat’s Order itself, –

> “The Bench found contradictory orders of the ITAT on the above plea and therefore, recommended the question for determination by the Special Bench. Thus this special bench has been constituted to decide the above-mentioned question.” (Para.5)

(iii) It is known that the very same point (s) of dispute as in the instant case has(ve) been taken on and pursued vigorously in proceedings up to the level of High Court .

(iv) The itat has chosen not to follow, besides others, the two HC Judgments cited and vehemently relied upon by the assessee’s counsel; and done so for its own reasons.

B) For a proper understanding of the implications and apt application, in a given case, of anyone or more of the so- styled principles and/or rules of interpretation, it has to be necessarily borne in mind that those are intended to simply serve the purpose of courts as ‘aids’- but not to be mistaken for ‘rules of law’ or as ‘masters to follow’. As such, prudence,- rather the utmost caution- is expected of court in choosing and applying the most appropriate principle or rule of interpretation to be applied in a given case. Further, depending on the nature of the question of law court is required to give its opinion on, the need for applying the overwhelming/ all- embracive rule of ‘Updating- Construction’, if so warranted, ought to be kept in focus.

For knowing MORE on such aspects, suggest to wade through mindfully, sparing no pains, the leading Kanga & Palkhivala’s TEXT BOOK commentary and cited supporting case law.

> Aside: Of contextual relevance herein is inter alia the theory (Rule) of ‘Reading Down’. This aspect may have to be examined in the context of/ having regard to what the itat is noted to have failed to do.

2.2. Legislative Intent

This is an aspect dealt with by the itat and found covered in all earnestness, in paragraphs 9.10 to 9.13 of the Order:


> There is no express provision under the Act restricting the application of section 92C of the Act for determining the income at arm’s length where such income is eligible for deduction u/s 10A of the Act. On the contrary, there is a Proviso to section 92C(4)of the Act which prohibits the deduction u/s 10A of the act on the income to the extent enhanced as an effect of a determination of ALP.(Para 9.10)

> The proviso itself vividly reflects the intent of lawmakers that the provisions of CHAPTER X shall prevail in all the cases of international transactions falling under the umbrella of section 92, including the income qualified for exemption under section 10A. In other words, it can be said that the intention of the statute was very much lucid that section 92 should be invoked even when the assessee is entitled to deduction u/s 10A.

> If the purpose or object of CHAPTER X and/or section 10A is being defeated, then it is up to the legislature, if they think so, to reconstruct the law as per the required object. (Para.9.12)

It is thus noted that the itat has proceeded to form and hand down its view on the premise that the transfer pricing provisions (CHAPTER X), in general and sec 92C, in particular, are clear and unambiguous enough, in order to support the view taken.

2.3. The said view is, – it calls for a special noting, – prima facie in direct conflict with the two HC Judgments cited and relied upon by the assessee’s counsel. For, the HC, in both those cases has, accepting the stand taken by the assessee, held to the effect that in the case of an assessee the transfer pricing provisions could not be invoked and no ‘upward adjustment’ be made in respect of a transaction, income from which is not includible/ included in total income on which tax is chargeable. In other words, in the courts’ opinion, the transfer pricing provisions (CHAPTER X) could not be invoked in relation to any transaction income from which is not includible in total income by virtue of the overriding provisions of CHAPTER III (sec 10A, etc.)  being applicable / to be applied.

On the above aspect, the points of own view as shared in the earlier Article call for a dilation /an elaboration.

To Dilate / elaborate: 

3.1. It has been pinpointed in the earlier Article that the ‘question of law’ as framed by the Division Bench for opinion of the Special Bench in the instant case had been left incomplete; and, in the result, the principal  grievance of the assessee had been omitted to be focussed on  and an answer not been given by the itat.

(Refer Para 5, COMMENT B)

3.2 Now, for a comparison to serve the intended purpose in mind, it is worthwhile to have a relook at the question of contextual relevance herein, as differently framed in three of the above referred cases.

In the instant itat case:

“Whether or not the provisions of Section 92 can be invoked in a situation in which income of the assessee is eligible for tax exemption or tax holiday and thus not actually chargeable to tax in India, or in a situation in which there cannot be any motive in manipulating the prices at which international transactions have been entered into?” (Para.2 of the itat Order)

In Vodafone case (see Para.12 of the itat Order in the instant case):

“3. ….(1) Whether the existence of a potentially taxable income or an expenditure (capital or revenue) that impacts computation of taxable income is a sine qua non for the invocation of jurisdiction under Chapter X ?”

In Aztec case (See Order of ITAT Spl. Bench of 12 July 2007- [email protected]

 “1. Whether, it is a legal requirement under the provisions of Chapter-X of the Income-tax Act, 1961 that the Assessing officer should prima facie demonstrate that there is tax avoidance before invoking the relevant provisions and if so, what is the degree of proof required to be brought on record by him?”

> NOTE: The itat (Ahm.)Order in the instant case stands out as a sore thumb for the reason that the question- though framed differently in Form but is the same in Substance- has been decided by the Bom. HC Judgment in Vodafone case, against the Revenue.

4. In the course of assessment as well as the further proceedings, in none of the above referred or other reported cases, so far as gathered, the constitutional validity of sub-section (4) of sec 92 C has been doubted and disputed; hence not been subjected to judicial scrutiny and adjudication.

At this juncture, attention may be drawn to the Bom. HC Judgment in Vodafone case, extract from which is furnished below:




18 Besides the above, at the hearing, following further submissions in support of the conclusion arrived by the impugned order were also advanced:-

ASN 27/53 WP-871-14

(a) THE PETITIONER DOES NOT CHALLENGE THE CONSTITUTIONAL VALIDITY OF CHAPTER X OF THE ACT OR ANY OF THE SECTIONS THEREIN. THE PETITIONER RAISES ONLY AN ISSUE OF INTERPRETATION. Moreover, the fact that the Petitioner-Company and its holding company are AEs within the meaning of Chapter X of the Act is also not disputed. Therefore, the provisions of Chapter X of the Act are fully satisfied and applicable to the facts of the present case;



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5. In framing and enacting the Proviso to sub-section (4) of sec 92C of the Act the legislature seems to have acted in excess of its powers.

The well established/long accepted principle is that “the normal function of a ‘proviso’ is to carve out or except something out of ‘the enactment’ or to qualify something enacted therein which but for the proviso would be within the purview of ‘the enactment’- herein, it is only the above referred sub-section (4).

However, the way the proviso has been sought to be construed,- rather been misconstrued- by the itat in the instant  case, unwittingly/ impudently or otherwise, is that has, in essence, been held  to have an overriding effect on inter alia sec 10A ( now grouped under CHAPTER III) governing income not includible in total income and accordingly not chargeable to tax.

Premised so, the legal validity of the Proviso could, in one’s firm conviction, be forcefully challenged to be ultra- vires the Constitution, with possible success.

No knowing whether that has been so done already by now.

Other Related Aspects 

5. Some of the areas of contextual relevance require to being covered as of equal concern under the following heads:

Tax Regime

Tax Treaty Override

Dispute Resolution

5.1. Tax Regime

In the income-tax regime, it is administration of the Act, which is at the most critical stage. In the hierarchy, the Assessing Officer is the fulcrum on which the entire edifice/machinery for administration of the law is founded / rested. For, he is the one who is entrusted with powers to carry out the basic function of making an assessment of the taxable income of an assessee and raise a demand for tax due thereon.

According to the underlying scheme of the Act, he is duty bound to discharge the said responsibility, strictly and diligently in accordance with what is provided in the Act. There are not-so-obvious fetters on his vested powers; and anything done by him has to, therefore, be necessarily within the four corners of the Act. To put it succinctly, an assessment made by him under the Act is required to be rigidly in conformity with its applicable provisions, both in letter and spirit. For this purpose, he should abide by what is clearly said in any provision. He is not supposed to, much less empowered to, travel outside of the Act or concern self about either the ‘intention’ or ‘purpose’ of any of its provisions. Further, on any point of law on which he is not clear or has any doubt, he must normally be guided by case law, if any, covering it on all fours, which is binding on him; unless there are compelling reasons for him to do otherwise.

Practical experience/ personal exposure of anyone in active field practice may  help to realise that issues often arise, and are taken in appeals and eventually to courts, mainly because the Assessing Officers(AOs) , for reasons known only to them, do not invariably bother about or follow any of the rudimentary norms/principles, which they are duty bound to scrupulously follow. That explains the deplorable chaos and confusion obtaining in the field of administration of the Act. Consequently that is the root cause for the ever-increasing disputes and litigation.

The Act does not provide/specify the requisites, such as educational and other qualifications (e.g. the track record of proven integrity, intellect and legal acumen of the individual) for appointment of the authorities, depending on which the assignment of functional jurisdiction to each individual should be decided. It is anybody’s guess as to what extent these are, even at this late hour, taken care suitably and effectively by updating any internal rules or regulations of the department.

A periodical intensive training and counselling, as also appraisal of the individual competence of the authorities, to begin with – of the AOs might help to improve upon their performance. That could go a long way in monitoring and keeping under control the generally observed perpetration and perpetuation of frivolous or patently incorrect views being taken, right from the stage of assessment.

The painful field reality, particularly in our present times, – which calls for a pointed mention,- is that every case taken to and fought in the Tribunal or Court, even if it were at the instance of the Revenue, is, in the ultimate analysis, after all at the exorbitant cost of only the taxpayers.

The authorities functioning under the Act, just as under any other law, have the special privilege of immunity from action, for anything done or omitted to be done by them in the course of performance of their duties.

The connected points which call for an in-depth inquiry and due consideration are these: –

a) Whether it is, or why it should be taken to be, an absolute privilege, which cannot be impeached, even if in a given case the authority has prima facie acted in a grossly negligent manner or failed in due performance of his duties as expected of him?

b) Why an authority’s act or omission, be it because of his ignorance or otherwise, which has the result of his not abiding by or not giving proper effect to what is clearly spelt out by the law or any executive circulars / directives , should not be regarded a sufficient ground for his being hauled up ?

In today’s scenario, this, perhaps, is an area, which the Government is obliged to address itself to, on a war footing, in all earnestness, from the point of view of public interest and social justice; and, strive to  and bring about appropriate effective remedial measures, at least now -sooner than later or never.

To illustrate some of the angles posed above, recommend looking up and considering how any proactive initiative or hyper- active steps taken by an AO could lead to an unjustifiable but reprehensive consequence. Reference, for a sample, may be made to the legislative amendment of sec. 43 (6), made by the Finance Act 2003 that came to be resorted to solely by reason of the view taken by the AO in venturing to and tinkering with an expression that has been used in the Act, for decades then.

Further, there is another moot but intricate point, which calls for a clinical analysis, is outlined below:

The revenue’s explanation that the proposed amendment is to clarify the ‘intent’ or ‘purpose’ of the provision is, by its very nature, based on a purely subjective view. In that, it has basically something to do with the perception of the individuals originally involved and responsible for the framing and legislating the provisions. The validity of the point made will be better appreciated if one takes an insightful look at the reality by lifting, for this limited purpose, the veils of the Government and the Legislature.

The Act embodying the law on income-tax is, being no different from any other law, a man- made law; which is unquestionably far distinct in its characteristics from the Law of Nature in its profound sense. The Government, as such, has neither a body to be kicked nor a soul to be condemned. In a democracy like ours, it is formed by the elected representatives of a political party (in today’s context, of more than one) constituting the majority at a given point of time. The Legislature is again a body constituted by such elected representatives of several political parties, including the one or more of them forming the Government. Technically, in the eyes of law, the Government as well as the Legislature are treated as bodies distinct from their constituent individuals. However, as mentioned hereinabove, for the limited purpose of examining the highlighted point, especially because what has been questioned or brought under scrutiny is ‘intention’, a state of mind, it is not but only fair, rather sensible, to relate it to the individuals constituting the Government or the Legislature.

For MORE, if so inspired, read through the published Article in –

(2008) 169 TAXMAN pg. 14 (Mag.)


In a reported case the point of dispute was taken up in reference to the High Court by the Revenue. The question as framed by the Revenue was comprehensive enough to make it clear as to what aspects called for focus, for eliciting the court’s opinion as expected of.

However, the Tribunal re-framed the question and referred it to the High Court in too brief a manner to serve the intended purpose. The referred question was, in comparison, so brief that it had omitted to bring to focus all such relevant points as required for the Court to give a well-considered and proper opinion, to be of guidance as a PRECEDENT. Consequently, the opinion of the court as delivered turned out to be no less brief than the referred question.

For MORE- Read through the Published Article in [2006]156 TAXMAN pg.121 (Mag.)

Anyone on the same wavelength and having thoughts to spare in a like vein can fail to realise the relevance of the aforementioned viewpoints to the subject matter of the discussion herein.

(To Finish)

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January 2021