M/s. Outotec (Canada) Ltd. vs Director of Income Tax (International Taxation) and Others

In these three appeals, the common question arises as such being decided by the common judgment. The question posed for consideration is, whether the appellants are entitled to invoke the provisions contained in section 245A(b) of the Income Tax Act, 1961, hereinafter referred to as the Act to approach income tax Settlement Commission by taking benefit of the period of limitation prescribed for the purpose of proceedings u/s 147 of the said Act, that is to say, period of six years limitation available in case of income escaping assessment u/s 149 of the Act for initiating the proceedings. The appellants Outotec Group of companies filed settlement applications dated 29th June, 2010 u/s 245C(1) of the Act before the income tax Settlement Commission in respect of assessment years 2004-2005 to 2009-2010. The said Commission vide Order dated 2nd July 2010 allowed the applications to be proceeded with and forwarded the applications to the Director of Income Tax (International Taxation) and called for report u/s 245D(2B) of the Act. The objections filed by the Revenue to the said applications having been rejected by the Orders dated 2-7-2010, 11-8-2010 and 21-1-2011, Revenue came up before the single Judge by way of filing writ applications.

The single Judge interpreting the provisions contained in section 245A of the Act, has held that the benefit of the period of limitation prescribed for initiating proceedings and for issuing notices u/s 148 of the Act cannot be granted to the appellants/petitioners interpreting the provisions contained in section 245A of the Act.

However, the other part of the order/finding as to whether the Returns were filed or not, a case would be deemed to be pending but only for 21 months from the end of the assessing year in question, has not been questioned by either of the parties and, as such, as prayed we are not examining the correctness of the aforesaid finding of the learned single Judge.

Shri Agarwal, Senior counsel and Shri J.P. Khaitan, Senior Counsel appearing for the appellants have submitted that the single Judge has failed to appreciate correctly the provisions contained in section 245A(b) of the Act. They have relied upon the Explanation attached to the proviso to section 245A(b) of the Act. Precise submission is that under Proviso (i) only such proceedings of assessment/re-assessment is excluded which has commenced from the date on which notice u/s 148 was issued. He has also relied upon Explanation of the aforesaid section which contains a provision to the effect that proceedings for assessment in the assessment year shall be deemed to have commenced from the first day of the assessment year and concluded on the date on which the assessment is made. In case, proceedings is not pending u/s 147 and notice u/s 148A has not been issued, for a period of six years such assessment proceedings shall be deemed to be pending for the purpose of section 245A(b) of the Act. They have also referred to the provisions contained in section 245C of the Act and the provisions of section 245HA(4) of the Act.

Md. Nizamuddin, learned counsel appearing for the respondents has contended that benefit of the limitation to initiate proceedings u/s 147 cannot be granted and that cannot be taken as period of limitation. The benefit of period provided for income escape assessment is not available. It cannot be said that proceedings is pending and in a case when as even if notice has been issued u/s 148 of the Act, such proceedings are excluded u/s 245A of the Act. Approach cannot be made to the Settlement Commission. In case any other interpretation is adopted, that would be contrary to the intendment of the proviso (i) to section 245A(b) of the Act.

In order to appreciate the rival submissions, it is necessary to consider the provisions contained in section 245A(b), 245C(1) and 245HA(4) of the Act. The provisions are quoted below:

Definitions.

245A. In this Chapter, unless the contest otherwise requires,--

....

(b) "case" means any proceeding for assessment under this Act. of any person in respect of any assessment year or assessment years which may be pending before an Assessing Officer on the date on which an application under sub-section (1) of section 245C is made:

Provided that:--

(i) a proceeding for assessment or reassessment or recomputation u/s 147;

(ii) [ ]

(iii) [ ]

(iv) a proceeding for making fresh assessment in pursuance of an order u/s 254 or section 263 or section

setting aside or cancelling an assessment shall not be a proceeding for assessment for the purpose of this clause.

Explanation.--For the purposes of this clause--

(i) a proceeding for assessment or reassessment or recomputation referred to in clause (i) of the proviso shall be deemed to have commenced from the date on which a notice u/s 148 is issued;

(ii) [ ]

(iii) a proceeding for making fresh assessment referred to in clause (iv) of the proviso shall be deemed to have commenced from the date on which the order u/s 254 or section 263 or section 264, setting aside or cancelling an assessment was passed:

(iiia) a proceeding for assessment or reassessment for any of the assessment years, referred to in clause (b) of sub-section (1) of section 153A in case of a person referred to in section 153A or section 153C, shall be deemed to have commenced on the date of issue of notice initiating such proceedings and concluded on the date on which the assessment is made.

(iv) a proceeding for assessment for any assessment year, other than the proceedings of assessment or reassessment referred to in clause (i) or clause (iv) of the proviso or clause (iiia) of the Explanation, shall be deemed to have commenced from the 1st day of the assessment year and concluded on the date on which the assessment is made.

....

Application for settlement of cases.

245C. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided:

Provided that no such application shall be made unless,--

(i) in a case where proceedings for assessment or reassessment for any of the assessment years referred to in clause (b) of sub-section (1) of section 153A or clause (b) of sub-section (1) of section 153B in case of a person referred to in section 153A or section 153C have been initiated, the additional amount of income tax payable on the. income disclosed in the application exceeds fifty lakh rupees,

(ii) in any other case, the additional amount of income tax payable on the income disclosed in the application exceeds ten lakh rupees, and such tax and the interest thereon, which would have been paid under the provisions of this Act had the income disclosed in the application been declared in the return of income before the Assessment Officer on the date of application has been paid on or before the date of making the application and the proof of such payment is attached with the application.

Abatement of proceeding before Settlement Commission.

245HA

....

(4) For the purpose of time-limit under sections 149, 153, 153B, 154, 155, 158BE and 231 and for the purposes of payment of interest u/s 243 or 244 or, as the case may be, section 244A, for making the assessment or reassessment under sub-section (2), the period commencing on and from the date of the application to the Settlement Commission u/s 245C and ending with "specific date" referred in sub-section (1) shall be excluded: and where the assessee is a firm, for the purposes of time-limit for cancellation of registration of the firm under sub-section (1) of section 186, the period aforesaid shall, likewise, be excluded.

It is apparent from bare reading of section 245A(b) of the Act that ''case'' has been defined to mean proceedings for assessment under the Act of any person in respect of any assessment year. Emphasis is given on "which may be pending" before an Assessing Officer on the date on which an application under sub-section (1) of section 245C before Settlement Commission is made.

In the instant case, we are considering the question of availability of period of limitation of income escaping assessment only as such we confine our discussion to the aforesaid proposition. As apparent from proviso (i) of section 245A(b) of the Act, proceedings for assessment or reassessment or recomputation u/s 147 shall not be a proceedings for assessment for the purpose of the provisions as defined in section 245A(b). Explanation makes it clear that the proceedings for assessment or reassessment or recomputation referred to in clause (i) of the proviso to section 245A(b) of the Act shall be deemed to have commenced from the date on which notice u/s 148 is issued. It cannot be interpreted so as to mean that in case notice u/s 148 of the Act is issued for any of the assessment years, such proceedings shall be deemed to be pending and excluded only after notice u/s 148 is issued. The benefit of the proceedings even if pending cannot be given, it would be repugnant to the very spirit of proviso (i) of section 245A(b) of the Act to interpret it in the manner suggested on behalf of the appellants. Similarly, Explanation (iv) which has been relied upon is also of no utility which simply says that proceedings for assessment for any assessment year other than the one referred in proviso (i) or clause (i) of the Explanation shall be deemed to have commenced from first day of assessment year and concluded on the date on which assessment is made. Thus, proceedings initiated on the basis of notice u/s 148 stands excluded even as per clause (iv) of the Explanation to section 245A(b) of the Act.

Further, it was submitted by the appellants that assessment proceedings include reassessment proceedings as provided u/s 2(8) of the Act. There is no dispute to the aforesaid proposition. However, the provisions contained in section 245A(b) provides a special concession to approach the Settlement Commission in case proceedings of assessment may be pending before the Assessing Officer on the date on which application u/s 245C is made before Settlement Commission as no such proceedings can be deemed to be pending for the purpose of reassessment by creating a legal fiction which would be contrary to proviso (i) as it is expressly provided that even if such proceedings are pending for assessment/reassessment/recomputation u/s 147 of the Act and are excluded for the purpose of availing the benefit of section 245A(b) of the case.

Consequently, we are of the considered opinion that submission based upon the definition of the assessment cannot be accepted as that would be repugnant to the very objective of the first proviso of section 245A(b) of the Act which excludes proceedings u/s 147 thus benefit of limitation to initiate proceedings cannot be given to appellant.

Section 245C has also been relied upon. That also speaks at any stage of the case which means when proceedings u/s 147 of the Act have specifically been excluded from the purview of section 245A(b) the benefit of limitation provided in section 149 of the Act to initiate such proceedings cannot be granted so as to file application u/s 245C. We cannot interpret section 245C so as to mean that the benefit of period of limitation available u/s 147 would enure for the benefit of enlarging the period during which an application can be filed before the Settlement Commission as that would be contrary to proviso (i) of section 245A(b). The requirements are clearly culled out u/s 245A(b) with respect to kind of pending proceedings before the Assessing Officer on the date on which application to be made u/s 245C of the Act.

Reliance has also been placed on the provisions contained in section 245HA(4) of the Act wherein it is provided that in case any proceedings have been commenced before the Settlement Commission u/s 245C of the Act, the same shall be excluded for the purpose of time limit under sections 149, 153, 153B, 154, 155, 158BE and 231 of the Act. It is not a case where applicants can be said to be entitled to invoke the benefit of section 245C and 245A(b). It is not a case where the period spent before Settlement Commission is sought to be excluded. The provisions u/s 245HA(4) is of no avail to the appellants.

Reliance has also been placed on the Circular issued by C.B.D.T. We are of the considered opinion that such Circular is not binding on the Court for the purpose of interpretation. Even otherwise when we look to para 61.2 of the Circular, it simply says that the assessee may make an application before the Commission at any stage pending before the income tax authorities. It does not deal with the deemed fiction to be created regarding pendency of the proceedings. It is further mentioned in the said Circular that an assessee can make an application before the Commission only during the pendency of the proceedings before the Assessing Officer. It is further mentioned that there will be no bar in filing an application for settlement subsequent to the receipt of an intimation u/s 143(1) of the Act. It is not material whether time limit for issue of a notice u/s 143(2) has expired or not. The assessment shall be deemed to be completed only on the date of service of assessment order to the applicant. The para 61.2 of C.B.D.T. Circular is quoted below:

FINANCE ACT, 2007

Finance Act, 2007--Explanatory Notes on provisions relating to Direct Taxes

CIRCULAR NO. 03/2008, DATED 12th March, 2008

....

....

61.2 Under the existing provisions, an assessee may make an application to the Commission at any stage of the proceedings in his case pending before any income tax Authorities. After 31st May, 2007, an assessee can make an application to the Commission only during the pendency of the proceedings before the Assessing Officer. It is further clarified that (a) since intimation u/s 143(1) is not an assessment order, there will be no bar in filing an application for settlement subsequent to receipt of an intimation u/s 143(1). It is not material whether time-limit for issue of notice u/s 143(2) has expired or not; (b) the assessment shall be deemed to have been completed only on the date of service of assessment order to the applicant.

(emphasis supplied by us)

We do not find any room to entertain the submission that the aforesaid Circular of C.B.D.T. may come to the aid of the appellants as espoused by the appellants in the appeals. Rather it negates the aforesaid submission based upon section 148 of the Act as emphasis in Circular is on pendency of proceedings. Even otherwise, Circulars cannot be binding on Court is not disputed at the Bar.

Reliance has also been placed on a decision of the Hon''ble Supreme Court in Modi Industries Limited, Modinagar and Others Vs. Commissioner of Income Tax, Delhi and Another, wherein a question cropped up for consideration as to what is the meaning of the regular assessment occurring in section 214 of the income tax Act, 1961. The Apex Court has referred to the findings of the Bombay High Court rendered in Sarangpur Cotton Manufacturing Co. Ltd. Vs. Commissioner of Income Tax, Bombay North, according to the provision which was prevailing at the relevant time, interest was payable on the whole of the amount paid by way of advance tax from the date of payment till the date of assessment. The date of assessment also came up for consideration. It was observed as under:

It seems to us that what the Legislature contemplated in using the expression ''the date of the assessment'' was the factual date of the assessment and it was not considering the legality or the validity of the assessment made. It wanted to fix two terminus for the calculation of interest. With regard to one terminus there was no difficulty; that was the date of payment of advance tax by the assessee. The other terminus had to be fixed and the other terminus was the date when the regular assessment was made. That terminus having been fixed, it could not be altered by any subsequent event or by the vicissitudes through which the assessment order might pass.

The emphasis is on the factual date of the assessment; the provision was not akin to the one in question. Thus, it is no help to the submissions made by the appellants.

No other submission is raised.

We find the appeals to be meritless and they deserve dismissal. Resultantly, the appeals being devoid of merits are hereby dismissed. No costs.

Photostat certified copy of this order be made available to the parties upon compliance of usual formalities.