High Court Of Gujarat
Designmate India P. Ltd. vs. CIT
Section 263
Asst. Year 2011-12
Akil Kureshi & Biren Vaishnav, JJ.
Special Civil Application No. 2686 of 2016
21st August, 2017
Counsel Appeared:
Tushar P Hemani & Vaibhavi K Parikh, Adv., for the Petitioner. : Mauna M Bhatt, Adv., for the Respondent.
AKIL KURESHI, J:
1. The petitioner has challenged a notice dated 21.01.2016 issued by the respondent-Commissioner of Income Tax seeking to take petitioner’s assessment for the assessment year 2011-12 in revision in exercise of powers under section 263 of the Income Tax Act, 1960 [‘the Act’ for short].
2. Brief facts are as under: Petitioner is a company registered under the Companies Act and is engaged in the business of dealing in computer based training and software development. According to the petitioner, in the process of such business, the petitioner would prepare computer based training programmes and software. Such material often times would have to be translated in local languages other than English. This would incur substantial translation charges. Such charges are borne by the petitioner as part of the agreement with the customer and would be paid directly to the agency in a foreign country.
3. For the assessment year 2011-12, the petitioner has filed the return of income on 28.09.2011 declaring total income of Rs. 2,53,25,080/-. Such return was taken in scrutiny by the Assessing Officer. One of the issues examined by the Assessing Officer was compliance with the provisions pertaining to tax deductible at source (‘TDS’ for short) contained in the Act. During the course of scrutiny assessment, the Assessing Officer called for various details. Under a notice dated 11.09.2013, he called for the details inter alia on the petitioner’s expenses requiring deduction of tax at source. The petitioner supplied such details under letter dated 24.09.2013. The petitioner pointed out that during the year under consideration, the petitioner had paid a total of Rs. 75,55,477/- by way of translation charges which included foreign remittances aggregating to Rs. 66,10,416/-. On this component of translation charges payment, the petitioner had not deducted tax at source. According to the petitioner, this was done under the advice of the auditor who had specifically certified that on such foreign remittances, no TDS would have to be deducted since the service is provided outside India by a non-resident and the payment is also made outside the country. Thus, no part of the income arises in India.
4. According to the petitioner, after such detailed inquiries, the Assessing Officer passed the order of assessment on 24.03.2014 in which, he made no disallowance on the petitioner failing to deduct tax at source. This order the Commissioner seeks to take in revision for which, impugned notice came to be issued. In the notice, the Commissioner indicated the grounds on which, he proposes to revise the order and why he thought that the order of assessment was erroneous and prejudicial to the interest of Revenue. In the notice, he recorded as under:
“In this case, the assessee company had not deducted TDS on amount paid to nonresident in respect of translation charges amounting to Rs. 66,10,416/-. As per section 195(1), any person responsible for payment to a non-resident, not being a company, any interest or any other sum chargeable under the provisions of this Act shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force. As per Explanation 2 inserted below the section ibid vide Finance Act, 2012 with retrospective effect from 1-4-1962, it was explained that for the removal of doubts, it is hereby clarified that the obligation to comply with sub section (1) and to make deduction there under applies and shall be deemed to have always extended to all person, resident or non-resident whether or not the non resident person has a residence or place of business or business connection in India or any other presence in any manner whatsoever in India. So the translation charges paid to non resident should be treated as technical fees which is liable to TDS u/s. 195(1) of the Act. This being not done resulted into under assessment of income to the extent of Rs. 66,10,416/-and consequent short levy of tax of Rs. 29,86,308/-.â€
The Commissioner further noted that the Assessing Officer failed to correctly apply the provisions of law and the order of assessment, therefore, was not only erroneous but also prejudicial to the interest of the Revenue. This notice the petitioner has challenged in the present petition.
Appearing for the petitioner, learned counsel Mr. Hemani vehemently contended that the Assessing Officer had made detailed inquiries about the applicability of the TDS provisions to the foreign remittances made by the petitioner. The petitioner had avoided deducting tax at source under the certificate of the auditor who had opined that the income did not occur in India since the recipient was not a resident. The service was rendered outside India and the payment is also made outside the country. The Assessing Officer was satisfied about such explanation and therefore, made no addition in the order of assessment. The view of the Assessing Officer, after detailed inquiry, is otherwise also a plausible view. When two views are possible, the Commissioner would not be justified in taking the order of Assessing Officer in revision. In this context, counsel pointed out that in the later year, the Commissioner (Appeals) had accepted the stand of the assessee and deleted the additions made by the Assessing Officer on this count. Counsel further submitted that the Commissioner in the notice had relied on a retrospective amendment in section 195 of the Act under which, an explanation was added below sub-section (1). This amendment was not in the statute book when the occasion for payment of the charges to the non-resident arose. The assessee could not be expected to make deduction on the basis of provisions which were made later on may be with retrospective effect. For all such reasons, the Commissioner could not have taken the order of assessment in revision.
In support of his contention, counsel relied on the decision of Supreme Court in case of Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax reported in 243ITR 83 in which, it was observed that a bare reading of section 263 makes it clear that pre-requisite for the exercise of jurisdiction by the Commissioner is that the order of Income Tax Officer is erroneous insofar as it is prejudicial to the interest of the Revenue. The Commissioner, therefore, has to be satisfied all these two conditions. Reliance is also placed on the decision in case of Commissioner of Income Tax vs. Max India Ltd reported in 295 ITR 282 where the Supreme Court in the context of the provisions contained in section 80HHC of the Act observed that, the said provision was amended as many as eleven times. Different views existed when the Commissioner passed the revisional order. It was therefore obvious that two views were inherently possible. Counsel also relied on the decision of Division Bench of Punjab and Haryana High Court in case of Commissioner of Income Tax vs. Saluja Exim Ltd. reported in 329 ITR 603 reiterating the legal position that when two views are possible and whereas Assessing Officer had adopted one view, the Commissioner would not be justified in revising such order.
On the other hand, learned counsel Mr. Bhatt for the department opposed the petition contending that the Commissioner has merely issued a notice. At this stage, there is no final formation of opinion of his part. Intervention of the Court at this stage therefore, would not be justified. Even otherwise, the Commissioner is well within his rights to take the order of the Assessing Officer in revision since the Assessing Officer did not apply the explanation below sub section (1) of section 195 brought into effect by the Finance Act 2012 but with retrospective effect. What would be the effect of such retrospective explanation on the petitioner’s liability to deduct tax at source when the payments were made, is yet to be decided by the Commissioner.
It is undoubtedly true that the Commissioner’s suo motu power of revision flowing from section 263 of the Act are hedged by the satisfaction of twin conditions of the order of the Assessing Officer being erroneous and prejudicial to the interest of the Revenue and in that scene, the same cannot be equated with the appellate jurisdiction. It is true that the judicial trends suggest that when the Assessing Officer has conducted proper inquiries and come to conclusion which is a plausible one, the Commissioner would not be justified in substituting such a view of the Assessing Officer by his view as if he were acting as an appellate authority.
10. In case of Rayon Silk Mills vs. Commissioner of Income Tax reported in 221ITR 155 the Division Bench of this Court, while reversing the order of the Commissioner taking an order of assessment in revision, finding that proper inquiries were conducted by the Assessing Officer, added a rider as under:
“We make is clear that the aforesaid observations we have not made to lay down that whenever any enquiry into any aspect of the assessment has been made that cannot be the subject matter of the proceedings under section 263. Even in such cases, if the Commissioner of Income Tax finds the conclusion of the Income Tax Officer to be erroneous and prejudicial to the interest of the Revenue, he can certainly have recourse to powers under section 263 subject to a limitation appended thereto. However, the powers under section 263 are not conferred on the Commissioner of Income Tax to direct for making an enquiry on mere suspicion to disturb a completed assessment.â€
Thus, the mere fact that the Assessing Officer carried out inquiries with respect to a certain claim of the assessee by itself would not mean that his order cannot be taken in revision by the Commissioner if it is found that the order passed was erroneous and prejudicial to the interest of revenue.
In the present case, the controversy is with respect to the requirement of deducting tax at source while the petitioner made remittances of translation charges to the recipient who were non-residents. The Revenue heavily relied on the Explanation 2 added below sub-section (1) of section 195 by Finance Act, 2012 but with retrospective effect from the inception. Such explanation reads as under:
“Explanation 2.-For the removal of doubts, it is hereby clarified that the obligation to comply with sub section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has
(i) a residence or place of business or business connection in India; or
(ii) any other presence in any manner whatsoever in India.
The language used in Explanation 2 is “for the removal of doubt†and the same was introduced as a clarificatory provision. It seeks to clarify that the obligation to comply with the requirement of deducting tax at source under sub-section (1) deemed to have always applied and extended to all persons, residents or non-residents whether or not non-resident person has a residence or place of business or business connection in India or any other presence in any manner whatsoever in India. This explanation was already in statute book when the Assessing Officer passed the order of assessment. It is true that when the payments were actually made, this explanation was not in existence but as being brought into the statute later on with the retrospective effect. What would be the effect of such statutory amendment on an assessee who is making payment to a non-resident would be a question of law. Whether in facts of the case the concept of income deemed to have occurred or arose in India as provided under section 9 of the Act would apply or not would be a relevant question. The Explanation 2 noted above seeks to throw some light on such controversy. Vires of such provision is not challenged before us.
In facts of the case, where the Commissioner of Income Tax has merely issued a notice for taking the order of assessment in revision, we are not inclined to thrash out all these issues leaving it open for both sides to raise all contentions before the Commissioner and thereafter, take the matter further as may be found necessary. At a stage, where we are dealing only with the notice of the Commissioner taking the order of assessment in revision, we would be well advised not to enter into such legal arena and lay down any proposition of law. This is not to suggest that in a given case, the Commissioner’s notice would not be amenable to scrutiny by the High Court in a writ jurisdiction if it can be demonstrated ex facie that the Commissioner lacks jurisdiction and it would therefore, not be proper to subject the assessee to the entire gamut of submitting to the jurisdiction of the Commissioner in exercise of his revisional powers.
We may refer to the decision of Supreme Court in case of Commissioner of Income Tax and ors vs. Chhabil Dass Agarwal reported in 357 ITR 357 in which the Court observed that barring some exceptions, the rule would be that the jurisdiction under Article 226 of the Constitution should not be invoked where there is availability of an equally efficacious alternative remedy under the statute. It was emphasized that this would be more so in taxation statute where the statute statute provides complete machinery for assessment, re-assessment of tax, imposition of penalty and appeals.
In the result, keeping all contentions of the petitioner open against the notice for revision this petition is dismissed.
[Citation : 406 ITR 443]
