The Division Bench of the Supreme Court consisting of Justices M.R. Shah and B.V. Nagarathna held that the order passed by the Income Tax Appellate Tribunal, Bench at Mumbai (hereafter referred to as “ITAT”)  recalling its earlier order which has been passed in exercise of powers under Section 254(2) of the  Income Tax Act (hereafter referred to as “the Act”)  is beyond the scope and ambit of the powers of the Appellate Tribunal conferred under Section 254 (2) of the Act.

Section 254(2) in The Income- Tax Act, 1995 states that:

“(2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub- section (1) and shall make such amendment if the mistake is brought to its notice by the assessee or the 2 Assessing] Officer: Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this. sub- section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard”

Facts

  • The Assessee entered into Supply Contract dated 15.06.2004 with Ericsson A.B. Assessee filed an application under Section 195(2) of the Act before the Assessing Officer, to make payment to the non-resident company for purchase of software without TDS. It was contended by the Assessee that it was for the purchase of software and Ericsson A.B. had no permanent establishment in India and in terms of the DTAA between India and Sweden & USA, the amount paid is not taxable in India.
  • The Assessing Officer passed an order dated 12.03.2007 rejecting the Assessee’s application holding that the consideration for software licensing constituted under Section 9(1)(vi) of the Act and under Article 12(3) of the DTAA is liable to be taxed in India and accordingly directed the assessee to deduct tax at the rate of 10% as royalty.
  • The Assessee after deducting the tax appealed before the Commissioner of Income Tax (Appeals). CIT vide order dated 27.05.2008 held in favour of the Assessee. Revenue appealed before the ITAT and by a detailed judgment and order dated 06.09.2013, the ITAT allowed the Revenue’s appeal by relying upon the judgments/decisions of the Karnataka High Court and held that payments made for purchase of software are royalty. Against the detailed judgment and order dated 06.09.2013 passed by the ITAT, the Assessee filed miscellaneous application for rectification under Section 254(2) of the Act. Simultaneously, the Assessee also filed the appeal before the High Court against the ITAT order dated 06.09.2013.
  • Vide common order dated 18.11.2016, the ITAT allowed the Assessee’s miscellaneous application filed under Section 254(2) of the Act and recalled its original order dated 06.09.2013. Immediately, on passing the order dated 18.11.2016 by the ITAT recalling its earlier order 3 dated 06.09.2013, the Assessee withdrew the appeal preferred before the High court, which was against the original order dated 06.09.2013.
  • Feeling aggrieved and dissatisfied with the order passed by the ITAT allowing the miscellaneous application under Section 254(2) of the Act and recalling its earlier order dated 06.09.2013, the Revenue preferred writ petition before the High Court. By the impugned common judgment and order, the High Court has dismissed the said writ petition/s. Hence, the Revenue is before this Court by way of present appeal.

Procedural History

Petition was filed before the Supreme Court after feeling aggrieved and dissatisfied with the impugned common judgment and order dated 08.08.2017 passed by the High Court of Bombay in Writ Petition No. 1432/2017 and 1406/2017, in which the High Court has dismissed the aforesaid writ petitions preferred by the Commissioner of Income Tax (IT-4), Mumbai and has confirmed the order passed by the Income Tax Appellate Tribunal, Bench at Mumbai (ITAT) dated 18.11.2016 passed in Miscellaneous Application Nos. 261/M/2014 and 419/M/2013, by which the ITAT in exercise of powers under Section 254(2) of the Income Tax Act has recalled its earlier order dated 06.09.2013 passed in ITA No. 5096/Mum/2008 and ITA No. 837/Mum/2007.

Observations of the Court

The Bench opined that the order passed by the ITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013 is beyond the scope and ambit of the powers under Section 254(2) of the Act. While allowing the application under Section 254(2) of the Act and recalling its earlier order dated 06.09.2013, it appears that the ITAT has re-heard the entire appeal on merits as if the ITAT was deciding the appeal against the order passed by the C.I.T. In exercise of powers under Section 254(2) of the Act, the Appellate Tribunal may amend any order passed by it under sub-section (1) of Section 254 of the Act with a view to rectifying any mistake apparent from the record only. Therefore, the powers under Section 254(2) of the Act are akin to Order XLVII Rule 1 CPC. While considering the application under Section 254(2) of the Act, the Appellate Tribunal is not required to re-visit its earlier order and to go into detail on merits. The powers under Section 254(2) of the Act are only to rectify/correct any mistake apparent from the record. They observed that:

“If the Assessee was of the opinion that the order passed by the ITAT was erroneous, either on facts or in law, in that case, the only remedy 5 available to the Assessee was to prefer the appeal before the High Court, which as such was already filed by the Assessee before the High Court, which the Assessee withdrew after the order passed by the ITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013. Therefore, as such, the order passed by the ITAT recalling its earlier order dated 06.09.2013 which has been passed in exercise of powers under Section 254(2) of the Act is beyond the scope and ambit of the powers of the Appellate Tribunal conferred under Section 254 (2) of the Act. Therefore, the order passed by the ITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013 is unsustainable, which ought to have been set aside by the High Court.”

Judgment

The bench held the impugned common judgment and order passed by the High Court as well as the common order passed by the ITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013 were to be accordingly quashed and set aside. The original orders passed by the ITAT dated 06.09.2013 passed in the respective appeals preferred by the Revenue were hereby restored.

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