Motorola Inc v. Deputy CIT
In the ITAT, Delhi 'A' Special Bench
Vimal Gandhi, P; R.V. Easwar, V.P. & Pradeep Parikh, A.M.
ITA No. 2455/DeI/2001 Asst. yr. 1997-98
Decided on 22 June 2005
Income Tax Act, 1961, section 142(1)(i)
In favour of: Assessee
Circular No. 23, dated 23-7-1969 Circular No, 333, dated 2-4-1982
Instruction No. 1829, dated 21-9-1989 Circular No. 549, dated 31-10-1989
Counsel : M.S. Syali with Faroukh Irani, Satyen Sethi, Manu K Kiri, Satish Khosla & Sanjay Chaudhary and Sohrab E. Dastur with P.J. Pardiwala, for the Assessees G.C. Sharma with Anoop Sharma, R.K. Raghavan, T.R. Talwar & Salil Gupta, for the Revenue
By The Bench
All these cross-appeals and cross-objections in respect of the three assessees are directed against the orders of the learned Commissioner (Appeals) in the respective cases. Since common issues are involved in all these appeals, they were heard together and are being disposed of by this consolidated order, for the sake of convenience.
1.1. These matters were fixed before the Division Benches but at the instance of the assessees and in the light of the importance of the issues involved, a request was made to the Hon'ble President to refer the matter to a Special Bench under section 255(4) of the Income Tax Act, 1961 (the Act). The President, Tribunal, after considering the facts and circumstances of the case, decided to constitute a Special Bench. The following question was referred to the Special Bench :
'Whether, on the facts and in the circumstances, the revenues earned by the appellant from supply of equipment and software to Indian telecom operators were taxable in India?'
2. It may be relevant to mention that the revenue had earlier opposed the constitution of a Special Bench. The revenue further opposed joining of Ericsson and Nokia as parties before the Special Bench. However, subsequently, the learned counsel appearing for the revenue Shri G.C. Sharma, senior advocate, agreed that a Special Bench may be constituted and the above mentioned two assessees may also join as parties.
3. Before the hearing started on 19-7-2004, Mr. M.S. Syali, the learned counsel for Motorola, referred to the assessee's application dated 'nil' (received in the office of the Tribunal on 26-5-2004) and requested the Bench that he be permitted to argue on the validity of the notice issued under section 142(1) of the Act as entire appeals were to be heard by the Bench as per directions dated 19-1-2004. Shri G.C. Sharma, learned counsel appearing for the revenue, opposed the above request. It was argued by Shri Sharma that only a specified question has been referred to and is to be considered by the Special Bench. After hearing all the concerned parties at length, the Bench, vide its order dated 20-7-2004, directed that the entire appeals in all the three cases will be heard by the Special Bench.
4. Two major issues which arise in the appeals are:
(a) The validity of the notice issued under section 142(1) of the Act, and
(b) The validity of the levy of interest under sections 234A and 234B of the Act.
The first issue arises only in the cases of Motorola and Ericsson, whereas the second issue arises in all the three cases namely, Motorola, Ericsson and Nokia. We propose to decide these two issues first and thereafter, decide the various grounds assessee-wise.
Validity of notice under section 142(1) (Motorola and Ericsson).
5. The first ground in the case of Motorola is against the validity of the notice issued under section 142(1) of the Act. The said notice was issued on 3-11-1999, and was served thereafter. The learned counsel for the assessee submitted that the said notice should have been issued and served within one year from the end of the previous year. The notice issued and served after the above date was barred by limitation and hence the assessment was vitiated.
5.1. Shri Syali referred to the provisions of sub-sections (2) and (4) of section 139. He contended that before 1-4-1989, sub-section (2) of section 139 prescribed that the notice thereunder should be served before the end of the assessment year. After 1-4-1989, section 142(1) was amended to provide for issue of notice calling for the return of income. According to Mr. Syali, this was a case of substitution of the earlier section 139(2) and though section 142(1) did not specify any time-limit within which the notice should be issued, his contention was that such a limitation was built in and should be inferred having regard to the scheme of the statute. Mr. Syali pointed out that section 142(1) provided for two situations namely, :
(a) Where a return was filed under section 139(1) in which case the notice under section 142(1) could call for further information and particulars, and
(b) Where time allowed under section 139(1) had expired and no return was filed by the assessee, the notice under section 142(1) could call for a return to be filed by the assessee.
6. Shri M.S. Syali then referred to the decision of the Hyderabad Bench of the Tribunal in the case of Dr. Vijaykumar Datla v. Asstt. CIT (1997) 58 ITD 339 (Hyd) and of. the Delhi Bench in the case of Sheraton International Inc, v. Dy. CIT (2004) 86 TTJ (Del) 126 : (2003) 85 ITD 110 (Del). Shri Syali pointed out that the Hyderabad Bench while deciding the matter had taken all the relevant provisions of the law into consideration. The decision of the Delhi Bench of the Tribunal, on the other hand, was per incuriam as the decision of the Hon'ble Supreme Court and the relevant statutory provisions were not discussed. Shri Syali at the same time added that both the Benches agree that some period of limitation has to be read in the statutory provision and it is not possible to hold that the notice under section 142(1) could be issued at any time, Shri Syali referred to the decision in the case of K. Iswara Bhat v. Commr, of Agrl. IT (1992) 104 CTR (Ker) 392 : (1993) 200 ITR 238(Ker) to contend that even in the absence of a time-limit prescribed by law, any proceedings have to be initiated and completed within a reasonable time. Where no time-limit is prescribed for the completion of the proceedings, the logic that the repository of the power shall initiate the proceedings within a reasonable time should apply and the final order should be passed within a reasonable time, even in the absence of a time-limit in the statute concerned. The Kerala High Court held that both initiation and completion of the proceedings stand on the same footing.
6.1. Mr. M.S. Syali referred to Expln. 2(a) to section 147 of the Act which deems certain cases to be cases of escaped assessment. Under this provision, a case where no return of income has been furnished by the assessee although the total income or the total income of any other person in respect of which he is assessable under the Act exceeded the maximum amount not chargeable to income-tax would also be deemed to be a case of escaped assessment. From this provision, the learned counsel sought to contend that there is a point at which the income escaping assessment is fixed, and any notice under section 142(1) could be given only before that point is reached. In the case of escaped assessment, the only remedy with the revenue is to issue notice under section 148 treating it as a case of escaped assessment. The present case, according to him can at best be considered as escaped assessment for which no notice under section 142(1) could be issued. In such a case, a notice under section 148 should have been issued which not having been issued, the assessment is without jurisdiction.
6.2. Shri Syali then pointed out with reference to the impugned order of the Commissioner (Appeals) and argued that four reasons were given not to accept the decision in the case of Dr. Vijaykumar Datla (supra) :
(1) The decision in the case of Dr. Vijaykumar Datla, (supra) ignores the provisions of s, 139(2).
(2) The judgment of the Hon'ble Supreme Court in the case of CIT v. Narsee Nagsee & Co. (1960) 40 ITR 307 (SC) was not rendered under the provisions of the Income Tax Act but was rendered under the Business Profits Tax Act, 1947, under which the provisions were materially different.
(3) The order of the Hyderabad Bench in the case of Dr. Vijaykumar Datla (supra) is not a decision of the jurisdictional Bench of the Tribunal and hence not binding; and
(4) The assessing officer has concurrent jurisdiction over the assessee in the sense that he can issue notice under section 142(1) or a notice under section 148 and if he exercises one of these two options, there is no illegality about the same.
7. Criticising the approach of the Commissioner (Appeals) as above, Mr. Syali submitted that in the case of Dr. Vijaykumar Datla (supra), the Hyderabad Bench did consider section 139(2) and that too in extenso and he drew our attention to the relevant parts of the order. Secondly, he submitted that the judgment of the Hon'ble Supreme Court in the case of Narsee Nagsee & Co. (supra) clearly notes that the provisions of the Business Profits Tax Act which were before them are in pari materia with the provisions of the Indian Income Tax Act, 1922. Thirdly, it was submitted that it was irrelevant that Dr. Vijaykumar Datla (supra) was an order by the Hyderabad Bench which was not the jurisdictional Bench insofar as the present case is concerned, because there is no judgment of any High Court taking a view contrary to the view taken by the Hyderabad Bench in Dr. Vijaykumar Datla's case. Lastly, Mr. Syali contended that the theory of concurrent jurisdiction was rejected by the Hon'ble Supreme Court in the case of Narsee Nagsee & Co. (supra) and further he added that the rule is that jurisdiction has to be expressly conferred and no inference of concurrent jurisdiction can be drawn.
8. Mr. Syali then referred to the order of the Delhi Bench in the case of Sheraton International Inc. (supra) and submitted for our consideration the following points. According to him, Sheraton International Inc. (supra) proceeded entirely on the basis of first principles without referring to the law laid down by the Courts including the judgment of the Hon'ble Supreme Court in the case of Narsee Nagsee & Co. (supra). Therefore, the order is per incuriam. He also invited our attention to para 16 of Sheraton's order and pointed out what according to him were certain incorrect observations made by the Delhi Bench vis-a-vis Dr. Vijaykumar Datla's case. On merits, Mr. Syali submitted that the interpretation of the expression 'for the purpose of making an assessment' appearing in section 142(1), on which strong reliance had been placed by the Delhi Bench in Sheraton International Inc. (supra)'s case, would equally apply to a case of reassessment since by definition in section 2(8), an assessment includes a reassessment. He further pointed out that section 142(1) refers to section 139 at two places. In the first place, where the section is referred, no sub-section is specified. In clause (i) of sub-section (1) where there is again a reference to section 139, the reference is specifically to sub-section (1) of section 139. This distinction, according to the learned counsel, is very important for this reason namely, that simply because the assessee has not filed return, the department is not powerless because notice under section 142(1) vis-a-vis production of accounts can be issued after issue of notice under section 148 also. It was in this context that he dissected the provisions of section 142(1) into two limbs as mentioned earlier.