Uttarakhand High Court
Director Income Tax International ... vs M/S Hyundai Heavy Industries Co. Ltd on 14 March, 2019
Author: N.S. Dhanik
Bench: Ramesh Ranganathan, N.S. Dhanik
THE HIGH COURT OF UTTARAKHAND AT NAINITAL
Income Tax Appeal No. 30 of 2011
Director Income Tax International Taxation .....Appellant
Vs.
M/S Hyundai Heavy Industries Co. Ltd. ...Respondent
Present:
Mr. H.M. Bhatia, learned Senior Standing Counsel for the appellant-Income tax
Department.
Mr. P.R. Mullick, Advocate along with Mr. Sudesh Poojari, Advocate for the respondent.
Dated: 14th March, 2019
Coram: Hon'ble Ramesh Ranganathan, C.J.
Hon'ble N.S. Dhanik, J.
Ramesh Ranganathan, C.J. (Oral) This appeal is preferred by the Revenue, under Section 260A of the Income Tax Act, aggrieved by the common order dated 29.05.2009 passed by the Income Tax Appellate Tribunal, New Delhi, in eight appeals for the assessment years 1997-1998 to 2004-2005.
Two contentions have been put forth by Sri H.M. Bhatia, learned Senior Standing Counsel for the appellant- Income-tax-department, as substantial questions of law arising from the order of the Tribunal. Firstly, that the finding recorded by the Tribunal, that Article 5 (3) is a special provision having overriding effect over Clauses (1) & (2) of Article 5 of the Double Tax Treaty Agreement, is perverse; the Tribunal failed to note that, by the use of word "likewise" in Article 5 (3), the definition of a "Permanent Establishment" therein would bring within its ambit matters in addition to those covered by Clauses (1) & (2) of Article 5, and would not override Clauses (1) & (2) of Article 5; the Bombay office of the assessee is its Permanent Establishment; as such, one percent of the total receipts of the assessee, arising outside India, must be held attributable to the Bombay Office (which is its Permanent Establishment); and the 2 conclusion of the Tribunal, to the contrary, gives rise to a substantial question of law.
The other contention put forth by Sri H.M. Bhatia, learned Senior Standing Counsel, for the first time during the course of hearing of this appeal, is that, while computing the assessee's presumptive income under Section 44BB of the Income Tax Act, the assessing authority had erred in deducting the amounts paid by them to their sub-contractors, and in computing presumptive tax under Section 44BB only on the net receipts (gross receipts less the amount paid by the assessee to its sub-contractors). While fairly stating that this contention was not urged at any stage before the hearing of this appeal, and that this ground does not even find mention in the grounds of appeal filed before this Court, Sri H.M. Bhatia, learned Senior Standing Counsel for Income-tax, would rely on the judgments of the Supreme Court in Municipal Committee, Hoshiarpur vs. Punjab State Electricity Board & others: (2010) 4 RCR (Civil), and the Division Bench of this Court in M/S B.J. Services Company Middle East Limited vs. Assistant Commissioner of Income Tax (O.S.D.) Range-1, Dehradun (order in Income Tax Appeal No. 1 of 2010 and batch dated 19.05.2015) to contend that such a contention can be raised for the first time during the course of hearing of the appeal.
On the other hand Sri P.R. Mullick, learned counsel for the respondent-assessee, would place before us a copy of the grounds of appeal filed by the Revenue, before the Income Tax Appellate Tribunal, to contend that, since the Revenue had not even put the findings recorded by the Commissioner of Income Tax (Appeals), with regards the assessee's income outside India, in issue before the Tribunal and, since it is only a substantial question of law which can be raised in an appeal under Section 260A of the Income Tax Act, the findings of fact recorded by the Commissioner of Income Tax (Appeals), which 3 has not been put in issue by the Revenue before the Tribunal, would disentitle them from raising any question on the validity of such findings of fact, for the first time, in an appeal under Section 260A of the Income Tax Act.
On the contention regarding income arising within India, Sri P.R. Mullik, learned counsel for the respondent- assessee, would submit that the assessment order passed by the Assessing Officer had attained finality in so far as this question is concerned; the Commissioner did not exercise his power under Section 263 of the Income Tax Act to revise the assessment order; this issue does not find mention either in the order of the Commissioner of Income Tax (Appeals) or in the order of the Income Tax Appellate Tribunal; it does not also form part of the grounds of appeal filed before this Court; and, since it is not a pure question of law unrelated to facts, it cannot be raised for the first time in proceedings under Section 260A of the Income Tax Act. Sri P.R. Mullick, learned counsel for the respondent-assessee, would rely on the judgment of the Supreme Court, in Commissioner of Income-tax vs. Scindia Steam Navigation Co. Ltd: AIR 1961 SC 1633 and the Karnataka High Court in Principal Commissioner of Income Tax, Banglore vs. Softbrands India (P.) Ltd: (2018) 94 taxmann.com 426 (Karnataka), in this regard.
On the question, whether the assessee was liable to be subjected to tax on income arising outside India on the ground that the Bombay office of the assessee is its Permanent Establishment, it is necessary to note that the Commissioner of Income Tax (Appeals) had, in his appellate order dated 29.11.2006, held that the Assessing Officer had, in his assessment order, held that the Mumbai office of the assessee was its Permanent Establishment; on the issue whether the office of the assessee at Mumbai is a Permanent Establishment under Article 5 (3), the duration of the respective projects must 4 be looked at for determining the existence, or otherwise, of a Permanent Establishment; the ITAT had categorically held, in the assessee's own case for the assessment years 1986-1987, 1987-1988 and 1988-1989, that Article 5 (3) is a more specific provision, and would override Article 5 (2); the ITAT's findings on the issue of overriding effect of Article 5 (3), over the provisions of Article 5 (2), had also been confirmed by the Uttaranchal High Court; as regards the nature of services rendered by the Mumbai office, which existed ever since 1983, the conditions imposed by the letter of Reserve Bank of India made it clear that the said office had been granted project specific approval, and was to render co-ordination activity; the basic ingredient of the term "Permanent Establishment", under Article 5, was "existence of an enterprise being a fixed place of business through which the business/enterprise is carried out"; the Assessing Officer had failed to establish that the said office in Mumbai was the fixed place of business through which the appellant was carrying on business; and, to the contrary, the learned counsel for the assessee had submitted a letter of RBI, copies of invoices raised from the Korean Head Office, correspondence between the client and the Head Office, including a letter of intent issued to the Korean Head Office; they had also argued that the contracts were entered into between the Indian clients, and the appellant's Head Office, in Korea; having regard to the aforesaid facts, it was evident that the Mumbai Office was not the place where the business of the assessee was being carried on; and it was only a preparatory or auxiliary office which, having regard to Article 5 (4) (e) of the Double Taxation Avoidance Agreement, could not be regarded as a Permanent Establishment in India.
Following the decision of the ITAT in the assessee's own case, for the assessment years 1986-1987, 1987-1988, and 1988-1989 which had been confirmed by the Uttaranchal High 5 Court, the Commissioner of Income Tax (Appeals)-II, Dehradun held that the test for a Permanent Establishment was whether or not the project lasted for over nine months in each case; and the office of the assessee at Mumbai could not be construed to be a Permanent Establishment.
In the grounds of appeal filed before the Tribunal, against the order passed by the Commissioner of Income Tax (Appeals), all that the Revenue has urged is (1) whether the learned CIT (A) had erred in law, and on facts, in holding that the assessee company did not have a Permanent Establishment in respect of the CRMP project; (2) whether the learned CIT (A) had erred in law in holding that the revenues, which related to outside India activity, were not to be included in the total income of the assessee, a Non-resident Company; and (3) the order of CIT (A) be set-aside, and that of the Assessing Officer be restored.
The findings of fact recorded by the Commissioner of Income Tax (Appeals), in his order dated 29.11.2006, to the effect that the Mumbai Office was not carrying on the business of the assessee, and was only a preparatory or auxiliary office which, having regard to Article 5 (4) (e) of the DTAA, could not be regarded as a Permanent Establishment in India, was not even put in issue by the Revenue, in the appeal filed by them before the Tribunal. Consequently, the Tribunal was not even called upon to examine whether, in view of Article 5 (4) (e) of the DTAA, the Bombay Office was required to be excluded from the ambit of a "Permanent Establishment" under clauses (1), (2) & (3) of Article 5 of the DTAA.
As noted by the Commissioner of Income Tax (Appeals), in his order dated 29.11.2006, the Division Bench of this Court had dismissed the appeal preferred by the Revenue, against the order passed by the Income Tax Appellate Tribunal 6 in the assessee's own case for the earlier assessment years 1986- 1987 to 1988-1989.
In Commissioner of Income-tax vs. Hyundai Heavy Industries Co. Ltd: (2007) 163 TAXMAN 378, the Division Bench of this Court had observed:
".............. The Income-tax Appellate Tribunal in its judgment has recorded that learned counsel stated that sub-paragraph 1 of the article 5 of the CADT generally provided that affixed place of business would be regarded as a 'permanent establishment' if the assessee carried on his business wholly or partly from this fixed place. Article 5 (2) provided that the term 'permanent establishment' would include six locations referred to therein. According to learned counsel, the six locations could become permanent establishments only if they satisfied the test laid down in article 5 (1), i.e. the business of the enterprise was wholly or partly carried on through such locations. Article 5 (3) according to learned counsel was a specific provision and it was well-settled that a specific provision overrides the general provision. The plea in concluding was that article 5 (3) was an exception to article 5(1) and article 5 (2) and where a building, site or construction assembly or installation project does not exist for a period exceeding nine months, an office rendering support services to such project could not be regarded as a 'permanent establishment' within the meaning of articles 5(1) and 5(2) since article 5(3) was a specific provision. The Income-tax Appellate Tribunal has also recorded in its finding that we are not sufficiently convinced to treat the income from Indian operations at Rs. Nil for the assessment year 1988-89, specially where the assessee had failed even before the tax authorities to support its facts and figures and we have upheld the application to section 145. The Income-tax Appellate Tribunal was right in rejecting the argument of zero profit on the Indian operations and to accept the alternative argument holding that Instruction No. 1767 is after all a guideline and computation can be made under the relevant provisions of the Act read with the guidelines themselves.
The Income-tax Appellate Tribunal after detailed discussions held that Instruction No. 1767 is after all a guideline and computation can be made under the relevant provisions of the Act read with the guidelines themselves and further held that it would be fair and reasonable if profits from Indian operations are worked out by applying a rate of 3 per cent. With the agreement of learned counsel for the parties, the Income-tax Appellate Tribunal has rightly held that a specific provision would override a general provision. All the issues in the appeal are concluded by a finding of fact.
7Thus, in our opinion, no substantial question of law arises to be answered in these appeals....."
(emphasis supplied).
The finding recorded by the Income Tax Appellate Tribunal in the orders passed in the aforesaid three years, was that Article 5 (3) is an exception to Articles 5 (1) & 5 (2), and would prevail notwithstanding Article 5 (1) & 5 (2), since the former was a specific provision. This conclusion of the Tribunal has not been negated by the Division Bench of this Court in the aforesaid judgment.
While Sri H.M. Bhatia, learned Senior Standing Counsel for Income-tax, may be justified in his submission that the Division Bench has not, independently, analyzed the scope of Article 5 of the DTAAA, and has not recorded its opinion on the construction to be placed on various sub-Articles of Article 5 of the DTAA, the fact remains that the Division Bench has not interfered with the order of the Tribunal. The Commissioner of Income Tax (Appeals) was, in the present case, justified in holding that, since the issue stood concluded in the earlier assessment year in the assessee's own case, by the Income Tax Appellate Tribunal, no interference was called for.
In this context, it is useful to refer to Article 5 of the Double Taxation Avoidance Agreement which reads as under:
ARTICLE 5 PERMANENT ESTABLISHMENT
1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
2. The term "permanent establishment"
includes especially -
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop; and
(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources 8
3. The term "permanent establishment" likewise encompasses a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only where such site, project or activities continue for a period of more than nine months.
4. Notwithstanding the preceding provisions of this article, the term "permanent establishment" shall be deemed not to include -
(a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;
(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;
(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for collecting information, for the enterprise;
(e) the maintenance of a fixed place of business solely for the purpose of advertising, the supply of information, scientific research or any other activity, if it has a preparatory or auxiliary character in the trade or business of the enterprise;
(f) the maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (e) of this paragraph, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.
5. Notwithstanding the provisions of paragraphs (1) and (2), where a person - other than an agent of an independent status to whom paragraph (6) applies - is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph (4) which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment by virtue of that paragraph.
6. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of 9 an independent status, where such persons are acting in the ordinary course of their business.
7. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise) shall not of itself constitute either company a permanent establishment of the other.
It is true that sub-Article (3) of Article 5 uses the word "Likewise". Sri H.M. Bhatia, learned Senior Standing Counsel for Income Tax, would submit that, in view thereof, a "permanent establishment", falling within the ambit of Article 5 (3), would be in addition to those falling within the ambit of Articles 5 (1) & (2), and would not override clauses (1) & (2) of Article 5. While this submission of Sri H.M. Bhatia, learned Senior Standing Counsel for Income Tax, cannot be brushed aside as without merit, we see no reason to examine this contention, in the present appeal, since Article 5 (4) (e) specifically provides that, nothing in the preceding provisions in this Article (meaning thereby Sub-Articles (1), (2) & (3) of Article 5) would require the term "Permanent Establishment to be deemed not to include the maintenance of a fixed place of business for any other activity if it has a preparatory or auxiliary character in the trade or business of enterprise." Maintenance of a fixed place of business for any activity, if it only has a preparatory or auxiliary character in the trade or business of the business enterprise, would, in view of Article 5 (4) (e) of the DTAA, require such a fixed place of business to be deemed not to be a Permanent Establishment.
As Article 5(4) of the DTAA contains a non-obstante clause, and stipulates that, notwithstanding the provisions of Articles 5(1) to (3), the term "permanent establishment" must be deemed not to include the facilities / maintenance of a fixed place of business, as is referred to in Sub-clauses (a) to (f) thereunder, it is only if Article 5(4)(e) is held inapplicable, 10 would the question whether a "permanent establishment", falling within the ambit of clauses (1) and (2) of Article 5, is in addition to those falling within the ambit of Article 5(3), necessitate examination in order to determine whether the Bombay Office of the assessee was its "permanent establishment".
As the findings of fact recorded by the Commissioner of Income Tax (Appeals), that the Bombay office of the assessee was preparatory or auxiliary in character, has not been subjected to challenge in appeal, before the Tribunal, by the Revenue, and the Tribunal was neither called upon nor did it express any opinion on the findings recorded by the Commissioner of Income Tax (Appeals), such findings of fact cannot be questioned in an appeal under Section 260A of the Income Tax Act, since, as held by the Division Bench of the Karnataka High Court in Principal Commissioner of Income Tax, Banglore vs. Softbrands India (P.) Ltd, it is only if the findings of fact recorded by the Tribunal are perverse would it give rise to a substantial question of law.
As these findings of fact, recorded by the Commissioner of Income Tax (Appeals), were not even put in issue before the Tribunal, which is the final Court of fact, it would be wholly inappropriate for this Court to examine such findings of fact, recorded by the Commissioner of Income Tax (Appeals), for the first time in proceedings under Section 260A of the Income Tax Act. We see no reason, therefore, to interfere with the order of the Income Tax Appellate Tribunal to the extent it held that the income of the assessee, arising outside India, was not attributable to the Bombay office since it could not be held to be a Permanent Establishment in view of Article 5(4)(e) of the Double Taxation Avoidance Agreement.
The other contention, which as noted hereinabove has been raised for the first time during the course of hearing of 11 this appeal, (and has not been raised earlier even in the grounds of appeal filed before this Court), relates to the assessee's income arising within India. In his assessment order, passed under Section 143 (3) of the Income Tax Act, on 12.07.2000, the Assessing Authority has computed the presumptive gross Indian revenues of the assessee, under Section 44BB of the Income Tax Act, to be Rs. 217,50,15, 996/-. The Assessing Authority has deducted therefrom the sub- contractors cost (foreign), the sub-contractors cost (Indian), salary costs, and sub-contractors cost (others) i.e. for a total sum of Rs. 108,43,87,754/-, and has arrived at the net total inside India receipts as Rs. 109,06,28,242/-. He has, thereafter, computed 10% thereof as deemed profit under Section 44BB i.e. for Rs. 10,90,62,824/-. The contention urged before us, for the first time during the course of hearing of this appeal by Sri H.M. Bhatia, learned Senior Standing Counsel for Income-tax, is that the Assessing Authority has erred in deducting Rs. 108,43,87,754/- and, instead, the deemed profits of the assessee, under Section 44BB of the Income Tax Act, should have been computed on the gross Indian Revenues of Rs. 217,50,15,996/-.
As noted herein above, this contention has not been urged at any stage before the course of hearing of this appeal. The question which necessitates examination is whether such a contention can be raised for the first time by the Revenue under Section 260A of the Income Tax Act. While an appeal is provided to an assessee, against the order passed by the Assessing Officer, to the CIT (Appeals) under Section 246 / 246- A of the Income Tax Act, no such remedy is available to the Revenue, and it is only the Principal Commissioner/ Commissioner who can exercise his power of revision, under Section 263 (1), that too only if they consider that the order, passed by the Assessing Officer, is erroneous in so far as it is prejudicial to the interests of Revenue. Admittedly, in the 12 present case, neither the Principal Commissioner nor the Commissioner have exercised their power of revision under Section 263 (1) of the Income Tax Act.
While the assessee had, no doubt, preferred an appeal to the Commission of Income Tax (Appeals), and had contended that Section 44BB of the Act itself was inapplicable, the question whether the deemed presumptive income under Section 44BB of the Act should be computed before or after deducting the amounts paid to sub-contractors etc. was not even in issue in the appeal preferred by the assessee to the Commissioner of Income Tax (Appeals).
As noted hereinabove, the assessment order has not been subjected to revision under Section 263 of the Income Tax Act. As the appeal preferred by the Revenue to the Tribunal, is against the appellate order passed by the Commissioner of Income Tax (Appeals) it is evident that the Revenue has not put the aforesaid question in issue (nor could they have) in appeal before the Income Tax Appellate Tribunal. It is in this context that the judgment of the Supreme Court in Municipal Committee, Hoshiarpur vs. Punjab State Electricity Board & others, reliance on which is placed by Sri H.M. Bhatia, learned Senior Standing Counsel for Income tax, necessitates examination. In Municipal Committee, Hoshiarpur vs. Punjab State Electricity Board & others: the Supreme Court observed:
"............While dealing with the issue, this Court in Leela Soni & Ors. v. Rajesh Goyal & Ors., (2001) 7 SCC 494, observed as under:
"20. There can be no doubt that the jurisdiction of the High Court under Section 100 of the Code of Civil Procedure (CPC) is confined to the framing of substantial questions of law involved in the second appeal and to decide the same. Section 101 CPC provides that no second appeal shall lie except on the grounds mentioned in Section 100 CPC. Thus it is clear that no second appeal can be entertained by the High Court on questions of fact, much less can it interfere in the findings of fact recorded by the lower appellate court. This is so, not only when it is possible for the 13 High Court to take a different view of the matter but also when the High Court finds that conclusions on questions of fact recorded by the first appellate court are erroneous.
21. It will be apt to refer to Section 103 CPC which enables the High Court to determine the issues of fact: xx xx xx
22. The section, noted above, authorises the High Court to determine any issue which is necessary for the disposal of the second appeal provided the evidence on record is sufficient, in any of the following two situations: (1) when that issue has not been determined both by the trial court as well as the lower appellate court or by the lower appellate court; or (2) when both the trial court as well as the appellate court or the lower appellate court have wrongly determined any issue on a substantial question of law which can properly be the subject-matter of second appeal under Section 100 CPC."
22. Before powers under Section 103 C.P.C. can be exercised by the High Court in a second appeal, the following conditions must be fulfilled:
(i) Determination of an issue must be necessary for the disposal of appeal;
(ii) The evidence on record must be sufficient to decide such issue; and
(iii) (a) Such issue should not have been determined either by the trial court, or by the appellate court or by both; or
(b) such issue should have been wrongly determined either by trial court, or by the appellate court, or by both by reason of a decision on substantial question of law.
If the above conditions are not fulfilled, the High Court cannot exercise its powers under Section 103 CPC.
Thus, it is evident that Section 103 C.P.C. is not an exception to Section 100 C.P.C. nor is it meant to supplant it, rather it is to serve the same purpose. Even while pressing Section 103 C.P.C. in service, the High Court has to record a finding that it had to exercise such power, because it found that finding(s) of fact recorded by the court(s) below stood vitiated because of perversity. More so, such power can be exercised only in exceptional circumstances and with circumspection, where the core question involved in the case has not been decided by the court(s) below....."
While examining the scope of Section 100 r/w Section 101 & 103 of the Civil Procedure Code, the Supreme Court, in Municipal Committee, Hoshiarpur, has held that the High Court could determine any issue which was necessary for 14 disposal of the second appeal, provided the evidence on record was sufficient, in any of the following two situations: (1) when that issue has not been determined both by the trial court as well as the lower appellate court or by the lower appellate court; or (2) when both the trial court as well as the appellate court or the lower appellate court have wrongly determined any issue on a substantial question of law which can properly be the subject-matter of a second appeal under Section 100 CPC. The first condition referred to hereinabove does not apply, since the Assessing Officer has determined this issue. The second condition may apply, since it could be contended that the trial court had wrongly determined the issue regarding computation of presumptive tax under Section 44BB of the Act.
As Section 103 of the Code of Civil Procedure is not an exception to Section 100 thereof, but is meant to serve the very same purpose, it is only if the question, which falls for determination, is a substantial question of law would the High Court be justified in exercising its jurisdiction under Section 100 CPC. Even in those rare cases, where the jurisdiction under Section 100 is exercised, the High Court is required to record its satisfaction that determination of such an issue is necessary for the disposal of the second appeal; and that it had exercised such a power as it found that the findings of fact recorded by the Courts below stood vitiated by perversity. Further, such an issue should have been wrongly determined, by the Trial Court or the Appellate Court or both, only by reason of a decision on a substantial question of law. The High Court is required to exercise its powers, under Section 100 read with Section 103 CPC, only in exceptional circumstances and with circumspection, that too in cases where the core question involved in the case has not been decided by the Courts below.
Even if we were to presume that the provisions of Sections 100 and 103 CPC would apply to the present case, it is 15 difficult for us to hold that the present case is of an exceptional circumstance warranting exercise of such a power. In any event this question, raised for the first time before us by Sri H.M. Bhatia, learned Senior Standing Counsel for Income Tax, during the course of hearing of this appeal, does not form the core question involved in the case. It is difficult for us, therefore, to agree with the submission of the learned Senior Standing Counsel that this contention, which was never urged earlier, should be examined by us for the first time in proceedings under Section 260-A of the Income Tax Act, though it does not even form a part of the grounds raised in this appeal.
In this context, it is useful to examine the scope of an appeal to the High Court under Section 260A of the Income Tax Act:
"260A. Appeal to High Court.- (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal before the date of establishment of the National Tax Tribunal, if the High Court is satisfied that the case involves a substantial question of law.
(2) The Chief Commissioner or the Commissioner or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be--
(a) filed within one hundred and twenty days from the date on which the order appealed against is received by the assessee or the Chief Commissioner or Commissioner;
(b) {***}
(c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved.
(2A) The High Court may admit an appeal after the expiry of the period of one hundred and twenty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the same within that period.
(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.
(4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the 16 appeal, be allowed to argue that the case does not involve such question:
Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.
(5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.
(6) The High Court may determine any issue which--
(a) has not been determined by the Appellate Tribunal; or
(b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub-section (1).
(7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section."
Clause (6) of Section 260A of the Income Tax Act enables the High Court to determine any issue which (a) has not been determined by the Appellate Tribunal. Clause (b) has no application since this issue was not urged before the Tribunal, and consequently the Tribunal cannot be said to have wrongly determined a question of law which was not even raised before it. Reference to Sub-Section (1), in Sub-Section (6) of Section 260A, would mean that the question must involve a substantial question of law.
Sub-Section (7) of Section 260A of the Act makes the provision of the Code of Civil Procedure 1908, relating to appeals to the High Court, applicable to appeals under Section 260A of the Act. By use of the words, "save as otherwise provided" in Section 260A (7) of the Income Tax Act, the legislature has made it clear that it is only if the Income Tax Act does not otherwise so provide, would the provisions of Code of the Civil Procedure apply to appeals before the High Court under Section 260A of the Act. It is necessary for us, therefore, to examine whether there is anything in the Income Tax Act 17 which makes the provisions of Section 100 & 103 CPC inapplicable to appeals under Section 260A of the Act.
As noted hereinabove, in so far as the revenue is concerned, except in cases where the power of revision has been exercised under Section 263, the assessment order would attain finality. While the assessee has the remedy of preferring an appeal to the Commissioner of Income Tax (Appeals) under Section 246/246-A and, if they are still aggrieved by the order of the CIT (A), to prefer a further appeal to the Tribunal under Section 253 of the Act, the right of the Revenue to prefer an appeal to the Tribunal would arise only if it is aggrieved by any order passed by the Commissioner of Income Tax (Appeals), in an appeal preferred by the assessee, and not by the order passed by the Assessing Officer as the Income Tax Act does not provide for an appeal against such an order, and only provides for a revision under Section 263 of the Act. As power has not been exercised by the Principal Commissioner/ Commissioner, to revise the assessment order under Section 263 of the Act, the order passed by the Assessing Officer has attained finality in so far as the Revenue is concerned, and they are disabled thereby to raise any contention, relating to any error in the assessment order, either before the Tribunal or before this Court. In any event, in the present case, the appeal to the Tribunal was preferred by the Revenue against the order passed by the CIT (A), and not by the assessee against any order passed in revision.
Even otherwise, none of these contentions have been raised by the Revenue before the Tribunal or in the grounds of appeal filed before this Court. In Commissioner of Income-tax vs. Scindia Steam Navigation Co. Ltd, while examining the scope of Section 66 (1) of the Income Tax Act 1922, the Supreme Court observed:
18"...... The result of the above discussion may thus be summed up :
(1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order.
(2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order.
(3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.
(4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it...."
None of the tests laid down by the Supreme Court, in Commissioner of Income-tax vs. Scindia Steam Navigation Co. Ltd, have been satisfied by the Revenue in the present case, for it to be permitted to raise this contention for the first time during the hearing of this appeal. Further a reference, under Section 66 (1) of the Income Tax Act, 1922, could be made to the High Court on any question of law arising out of an order of the Appellate Tribunal. The requirement of an appeal to be entertained, under Section 260A of the Act, is narrower in its scope, since an appeal can be entertained by the High Court not on every question of law but only on a substantial question of law.
In M/S B.J. Services Company Middle East Limited vs. Assistant Commissioner of Income Tax (O.S.D.) Range-1, Dehradun, the Division Bench of this High Court was not called upon to consider the scope of sub-section (7) of Section 260A of the Income Tax Act. Unlike in the present case, where the Revenue has advanced such a contention before us, the question of law raised before the Division Bench, in M/S B.J. Services Company Middle East Limited vs. Assistant Commissioner of Income Tax (O.S.D.) Range-1, Dehradun, was by the assessee. The question raised therein was whether 19 the interest received by the assessee, on the refund made to it by the Income Tax Department, should be included as part of the presumptive income of the assessee under Section 44 BB (2) of the Income Tax Act. In that case, the Assessing Officer had held that it was not liable to be included in the presumptive income under Section 44 BB of the Act, but was liable to be subjected to tax as income from other sources and, consequently, the assessee was required to pay tax at a far higher rate, than he would have if the income had been included in his total presumptive income under Section 44 BB of the Act. This issue, albeit in a different form, was raised both before the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. It is no doubt true that the Division Bench had opined that such a contention was raised for the first time before it during the hearing of the appeals under Section 260A of the Income Tax Act. In its order, in M/S B.J. Services Company Middle East Limited vs. Assistant Commissioner of Income Tax (O.S.D.) Range-1, Dehradun, the Division Bench observed:
".........On a conspectus of these provisions, the legal effect of the Section would appear to be that the appeal is normally to be heard on the substantial questions of law formulated and the appellant can be allowed to argue only in regard to the same. It is also open to the respondent to point out that though a substantial question of law has been formulated but in fact and in law, the said question of law is really not a substantial question of law. The High Court is to deliver judgment on the basis of the decision on the question of law framed and it also provides that the High Court may also decide the appeal on any other substantial question of law which may not have been formulated. The only condition is that it should be satisfied that the case involved such a question. Even if the Appellate Tribunal has not decided an issue or an issue has been wrongly decided, it is open to the High Court in a proceeding under Section 260A of the Act to either decide the question which has not been decided or to decide the question which is wrongly decided subject to the only limitation that this is occasioned by the decision which it renders on the substantial question of law. Therefore, in the ultimate analysis, the High Court's interference with the impugned decision must be premised on the existence of the substantial question of law and a decision on the same. If there is a substantial 20 question of law made out; it provides power to interfere with the Appellate Tribunal's order; be it on an issue which has been decided by it erroneously or on an issue not decided by it. In this case, it may be true that the appellant has not raised this question before the Appellate Authority and also before the Appellate Tribunal. The appellant has not produced the memorandum of the appeal before the Tribunal and the order of the Appellate Tribunal also does not bear it out that the appellant has raised this question, but we would think that the question which is raised essentially, appears to be a pure question of law and it is substantial in the sense that it has got a direct and substantial impact on the destiny of the appellant's case and we hence proceed to formulate the following substantial question of law:-
Whether in the circumstances of the case, the Appellate Authority and the Tribunal should have found that the amount of interest received on the refund by the Income Tax Department should be included in the amount on which the appellant was taxed under Section 44BB of the Act?....."
(emphasis supplied) Accepting the submission of Sri H.M. Bhatia, learned Senior Standing Counsel for Income tax, that what applied to the assessee, in M/S B.J. Services Company Middle East Limited vs. Assistant Commissioner of Income Tax (O.S.D.) Range-1, Dehradun, would also apply to the Revenue in the present case, would enable the Revenue to have the assessment order set at naught, even without the power of revision under Section 263 (1) of the Income Tax Act having been exercised, and though the assessment order had attained finality. We are satisfied that such a course is impermissible.
We see no reason, therefore, to entertain an appeal under Section 260-A of the Income Tax Act on this question regarding the assessee's income arising within India, urged for the first time across the bar during the hearing of this appeal. The appeal fails and is, accordingly, dismissed. No costs.
(N.S. Dhanik, J.) (Ramesh Ranganathan, C.J.) 14.03.2019 A.kaur