SC delivers split verdict on income tax appeal involving foreign firm, CJI may refer to larger bench

The dispute centred on whether the time period provided under Section 144C for the issuance of draft assessment orders should be treated independently or subsumed within the overall limitation period prescribed under Section 153 for completing assessments

A Supreme Court bench of Justices BV Nagarathna and Satish Chandra Sharma gave a split verdict on an appeal of the assistant commissioner of Income Tax, dealing with international taxation, against a 2023 Bombay High Court judgment on Friday.

The bench delivered divergent opinions on the legal interpretation of Sections 144C and 153 of the Income Tax Act, 1961.

These provisions relate to the timelines and procedures for assessment in cases involving non-resident assessees.

With the judges delivering conflicting decisions, the matter would now be placed before the Chief Justice of India on the administrative side for taking appropriate directions of listing the matter before a larger bench.

The case involved foreign drilling companies, including Shelf Drilling Ron Tappmeyer Ltd.

The dispute centred on whether the time period provided under Section 144C for the issuance of draft assessment orders should be treated independently or subsumed within the overall limitation period prescribed under Section 153 for completing assessments.

Justice Nagarathna rejected the appeal of the revenue department and concluded that the high court was correct in holding that assessment proceedings initiated under Section 144C in these cases were time-barred, as the final orders could not be passed within the extended deadline of September 30, 2021.

However, Justice Sharma allowed the Revenue’s appeals, holding that Sections 144C and 153 operate in a coordinated manner and must be interpreted harmoniously.

He noted that rigid interpretation of timelines under Section 153 could result in a denial of fair opportunity to the assessees and breach the principles of natural justice.

The pleas arose from a batch of petitions filed by non-resident assessees before the Bombay High Court, which were allowed via a common judgment dated August 4, 2023.

The assessees, engaged in offshore drilling activities, had opted out of the presumptive taxation scheme under Section 44BB for the assessment year (AY) 2014–15 and declared significant losses in their returns.

The Revenue’s challenge to these decisions brought the matter before the apex court.

With inputs from PTI