The Supreme Court delivered a split verdict on the interplay between Sections 144C and 153 of the Income Tax Act, 1961. The key legal question was whether the detailed procedure and timelines under Section 144C for eligible assessees operate within or in addition to the limitation period prescribed under Sections 153 for passing assessment orders. The divergence of opinion led to the matter being referred to a larger bench for final determination.
Facts Of The Case:
The case involved several foreign companies, including Shelf Drilling Ron Tappmeyer Ltd., engaged in oil exploration in India. For Assessment Years 2014-15 and 2018-19, the companies filed returns declaring losses. Their cases were selected for scrutiny, and the Assessing Officers passed draft assessment orders under Section 144C of the Income Tax Act, 1961, as they were eligible assessees. Following the Dispute Resolution Panel’s (DRP) directions, final assessment orders were passed. The companies appealed to the Income Tax Appellate Tribunal (ITAT), which set aside the assessments and remanded the matters back to the Assessing Officers for fresh adjudication. Upon remand, the Assessing Officers issued fresh draft assessment orders in September 2021. The companies challenged these draft orders before the Bombay High Court, contending that the entire process under Section 144C had to be completed within the limitation period of twelve months prescribed under Section 153(3) of the Act for passing a fresh assessment order after a remand. They argued that since the limitation period was set to expire imminently, no valid final assessment order could be passed. The High Court agreed, quashing the proceedings. The Revenue appealed this decision to the Supreme Court.
Procedural History:
The procedural history of this case began with the Bombay High Court’s common order dated 04.08.2023. The High Court allowed several writ petitions filed by the respondent-assessees, quashing the draft assessment orders issued by the tax authorities. It held that the entire procedure under Section 144C of the Income Tax Act, including the issuance of directions by the Dispute Resolution Panel (DRP) and the passing of a final assessment order, must be conclusively completed within the strict limitation period mandated by Section 153 of the Act.Aggrieved by this decision, the Revenue authorities filed Special Leave Petitions (SLPs) before the Supreme Court of India. Upon granting leave, the appeals were heard by a two-judge bench. The bench delivered a split verdict, with the two judges authoring divergent opinions on the core legal question. Justice Nagarathna agreed with the High Court’s interpretation and would have dismissed the Revenue’s appeals. Conversely, Justice Satish Chandra Sharma disagreed with the High Court’s reasoning, allowed the Revenue’s appeals, and set aside the impugned order. Due to this disagreement, the bench issued a final order referring the matter to the Chief Justice of India for the constitution of a larger bench to conclusively adjudicate the substantial question of law involved.
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Court Observation:
The Supreme Court bench delivered divergent observations on the core legal issue. Justice Nagarathna observed that the non-obstante clauses in Section 144C(1), (4), and (13) serve distinct purposes. She concluded that the procedure under Section 144C is a special mechanism that must be entirely subsumed within the overarching limitation period prescribed under Section 153, emphasizing a strict and harmonious interpretation of the statutory timelines. In contrast, Justice Sharma observed that Section 144C is a self-contained code. He concluded that the specific timelines for the Dispute Resolution Panel process and the passing of the final order under Section 144C(4) and (13) operate independently and are in addition to the limitation period for passing the draft order under Section 153, warning that the opposite view would render the provision unworkable and cause administrative catastrophe for the Revenue.
Final Decision & Judgement:
The Supreme Court bench delivered a split verdict, resulting in no final binding judgement on the merits. Justice B.V. Nagarathna, in her opinion, agreed with the Bombay High Court’s reasoning and concluded that the proceedings under Section 144C must be completed within the limitation period prescribed by Section 153, thereby dismissing the Revenue’s appeals. Conversely, Justice Satish Chandra Sharma held a contrary view, allowing the Revenue’s appeals and setting aside the High Court’s order on the grounds that the timelines under Section 144C operate independently of and in addition to those under Section 153. Due to this fundamental disagreement between the two judges on a substantial question of law, the bench could not arrive at a majority decision. Consequently, the final order directed the Registry to place the matters before the Chief Justice of India for the constitution of an appropriate larger bench to hear and decide the issue afresh.
Download The Judgement Here