Bombay High Court
Paypal Payments Private Limited vs Assistant Commissioner Of Income Tax on 13 August, 2024
Author: G. S. Kulkarni
Bench: G. S. Kulkarni
901.WPL30944_2023 COPY F.DOCX
Vidya Amin
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION (L) NO. 30944 OF 2023
PayPal Payments Private Ltd. ... Petitioner
vs.
Assistant Commissioner of Income Tax & Ors. ...Respondents
Mr. Jehangir Mistry, Senior Advocate, Rubal Bansal, Anuj Jhaveri, Prakhar
Pandey a/w. Mihir Modi i/b. Anuj Jhaveri for the petitioner.
Mr. N. Venkataraman, A.S.G. a/w. Mr. Akhileshwar Sharma for the
respondents.
_______________________
CORAM: G. S. KULKARNI &
SOMASEKHAR SUNDARESAN, JJ.
Reserved on: 8 August, 2024
Pronounced on: 13 August, 2024
_______________________
P.C. :-
1. This petition under Article 226 of the Constitution of India is filed
inter alia praying that the assessment order dated 17 October, 2023 passed
under Section 143(3) read with Section 144C(3) and Section 144B of the
Income-tax Act (for short "the Act) be quashed and set aside. We note the
substantive prayers as made in the petition, which read thus:
a) That this Hon'ble Court be pleased to issue a Writ of
Certiorari or a writ in nature of Certiorari or any other writ,
order or direction of like nature, to call for, examine and quash
and set aside the (i) Final Assessment Order dated 17.10.2023
passed under Section 143(3) read with Section 144C(3) and
144B of the Act (the Impugned Order); (ii) Notice of demand
dated 17.10.2023 under Section 156 of the Act (the Impugned
Demand Notice); (iii) Notice for penalty dated 30.07.2023
Digitally
signed by
under Section 274 read with Section 271G of the Act (the
PRASHANT
PRASHANT VILAS
VILAS
RANE
RANE
Date:
Impugned Notice); (iv) Notice for penalty dated 17.10.2023
2024.08.13
19:12:17
+0530 under Section 274 read with Section 270A of the act (the
Impugned Penalty Notice); (v) Draft Assessment Order dated
30.08.2023 under Section 144C(1) of the Act (the Impugned
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Draft Order); (vi) Order dated 29.07.2023 under section
92CA of the Act (the Impugned TPO Order).
b) That this Hon'ble Court be pleased to issue a Writ of
Mandamus for setting aside the Impugned Order dated
17.10.2023 and subsequent and consequential proceeding(s)
thereof.
c) That this Hon'ble Court be pleased to issue a Writ of
prohibition restraining the respondents from giving effect to
and/or proceeding with the Impugned Order, the Impugned
Demand Notice, the Impugned Notice, the Impugned Penalty
Notice, the Impugned Draft Order and the Impugned TPO
Order."
2. Briefly, the facts are: On 05 August 2009, the petitioner was
incorporated under the Companies Act, 1956. The petitioner is stated to
be engaged by the PayPal group of companies to act as an exclusive retail
distributor of "PayPal Payment Processing Services", to customers in India
and to undertake marketing support activities. The present proceedings
relate to the assessment year 2020-21. The petitioner electronically filed its
Income-tax return on 14 February, 2021. On 29 June, 2021, a notice under
section 143(2) of the Act was issued to the petitioner, which was responded
by the petitioner by its letter dated 14 July, 2021 setting out all necessary
details. Thereafter, again a notice dated 16 November, 2021 under section
142(1) was issued to the petitioner, which too was responded by petitioner's
reply dated 30 November, 2021.
3. On such backdrop, on 25 January, 2022, a notice was issued to the
petitioner under Section 92CA of the Act, ["Reference to Transfer Pricing
Officer"]. The petitioner replied to such notice by its letter dated 9
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February, 2022 furnishing the relevant particulars, as also recording, that if
any further particulars are required, the same would be provided.
4. Thereafter, a show cause notice dated 15 July, 2023 was issued to the
petitioner under section 92CA(3) of the Act, which the petitioner
responded by its letter dated 21 July, 2023 wherein the petitioner inter alia
submitted that in the event, the Transfer Pricing Officer proposes to
determine the arm's length price for assessee's international transactions, to
be different from the price determined by assessee, the petitioner would
intend to avail an opportunity of making further submissions, for which a
personal hearing be granted to the petitioner. It is on such backdrop that
on 29 July, 2023, the Transfer Pricing Officer passed an order under
section 92CA(3) of the Act. In pursuance of such order, the Transfer
Pricing Officer also issued notice under section 274 read with Section
271G. Thereafter, on 4 August, 2023 a notice under section 142(1) was
issued to the petitioner. The petitioner by its letter dated 8 August, 2023
replied the said notice inter alia setting out the amounts of net foreign
exchange gain and loss and the total net foreign exchange gain as received
by it, of an amount of Rs.5,12,94,266/-. The ledger copies of foreign
exchange gain or loss were also submitted. As also the details of foreign
outward remittance of an amount of Rs.70,294.99 were furnished with a
request that the said amounts be taken into consideration.
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5. On such backdrop, a draft order dated 30 August, 2023 under
section 144C(1) was communicated by the Assessing Officer to the
petitioner on 30 August, 2023. A Final Assessment Order under section
143(3) read with Section 144C(3) read with Section 144B was passed on 17
October, 2023, which was accompanied by a demand notice under section
156 and a penalty notice under section 274 read with Section 270A, which
were served on the petitioner. It is on such conspectus, the petitioner is
before the Court assailing the final assessment order and the notices issued
as noted by us hereinabove.
6. Mr. Mistry, learned senior counsel for the petitioner, in support of
the reliefs as prayed for, would submit that the impugned assessment order
dated 17 October, 2023 as also the consequent demand and penalty notices
are illegal and void ab initio and without jurisdiction, as such proceedings
are ex-facie barred by limitation in view of the express provisions of Section
153 of the Act. It is submitted that the prescribed limitation / time limit for
completion of the assessment is governed by the provisions of clause (ii) of
second proviso to Section 153(1) read with Section 153(4) of the Act. His
submission is that considering the facts of the case, the statutory time limit
prescribed under section 153 for passing the final assessment order under
Section 143 read with Section 144C expired on 30 September, 2023,
rendering the assessment order being passed beyond the statutory period of
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limitation, as per the provisions of clause (ii) of the second proviso to
Section 153(1) read with Section 153(4) of the Act. It is contended that on
a conjoint reading of clause (ii) of the second proviso to Section 153(1) read
with Section 153(4) of the Act, the statutory time limit to pass an
assessment order under section 143 of the Act necessarily was a period of
eighteen months plus twelve months from the end of the assessment year,
in which the income was first assessable. According to Mr. Mistry, the
following chart would show that the limitation for passing the order of
assessment under Section 143 of the Act had expired:-
Relevant AY 2020-21
End of the AY in which income was first 31.03.2021
assessable [(Section 153(1)]
18 months from the end of 31.03.2021 30.09.2022
[clause (ii) of Second Proviso to Section
153(1)]
Extension of 12 months to the limitation 30.09.2023
period prescribed under Section 153(1)
[Section 153(4)]
Impugned order passed on 17.10.2023
(beyond the statutory
period of limitation,
i.e., 30.09.2023)
It is hence Mr. Mistry's submission that the limitation to pass the
assessment order expired on 30 September 2023, whereas the impugned
assessment order came to be passed on 17 October 2023, hence the same is
ex-facie time barred. Mr. Mistry referring to the provisions of Section 153
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as also the provisions of Section 144C and Section 92CA contends that
there is an inherent interplay in these provisions from the perspective of the
applicability of the provisions of Section 153 to the proceeding under
Section 144C of the Act. In such context, Mr. Mistry would submit that
the issue in regard to the applicability of provisions of Section 153 to the
proceedings under section 144C is no more res integra in view of decision
rendered by this Court and the different High Courts. He would submit
that a co-ordinate Bench of this Court in Shelf Drilling Ron Tappmeyer
Limited vs. Assistant Commissioner of Income Tax & Ors. 1 has held that
necessarily Section 153 of the Act qua the period of limitation it provides is
applicable to the proceedings under Section 144C of the Act. Mr. Mistry
has submitted that such decision of this Court is challenged by the Revenue
before the Supreme Court, in such proceedings, the Supreme Court has
ordered that the said decision may not be cited as a precedent. It is,
however, submitted that the view taken by this Court in Shelf Drilling Ron
Tappmeyer Limited (supra) was also the view taken by the Division Bench
of Madras High Court in a prior decision in Commissioner of Income Tax
& Anr. vs. Roca Bathroom Products P. Ltd. 2 as also another decision of
Madras High Court in Iljin Automotive Private Ltd. & Anr. vs. Dispute
Resolution Panel & Ors.3. It is submitted that even the Delhi High Court
1
(2023) 457 ITR 161 (Bom.)
2
(2022) 445 ITR 537 (Mad.)
3
Writ Petition Nos. 7644 & 7645/2020, 7214 & 7219/2021 decided on 07.11.2022.
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in Bid Services Division Mauritius Ltd. vs. Assistant Commissioner of
Income Tax & Anr.4 has taken a similar view.
7. On the other hand, Mr. Venkataraman, learned ASG has made
extensive submissions. His submission is that different High Courts have
consistently held that Section 144C is a self-contained Code. It is
submitted that it prescribes inbuilt provisions on limitation, in the nature of
sub-section (4) or sub-section (13) which are required to be read with the
non-obstante clause as contained in sub-section (1) of Section 144C. It is
submitted that in this view of the matter, the petitioner's contention that
Section 153 becomes applicable to the proceedings under section 144C
cannot be accepted. It is submitted that the decision of the Division Bench
of this Court in Shelf Drilling Ron Tappmeyer Limited (supra) as also the
decision of Madras High Court in Roca Bathroom Products P. Ltd. (supra)
does not lay down the correct interpretation on the purport of Section
144C and the application of Section 153, to the proceedings under Section
144C. It is, therefore, his submission that it would not be correct to accept
the petitioner's proposition that the impugned assessment order is barred
by limitation, as provided under clause(ii) of second proviso to Section
153(1) read with Section 153(4), when the petitioner contends that in the
present case the limitation expired on 30 September, 2023. Mr.
Venkataraman has placed on record detailed written submissions in support
4
Writ Petition © No. 11060/2023 decided on 21.08.2023.
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of his contentions as to what according to the Revenue would be the correct
interpretation of these provisions of the Act, as also the legal propositions.
8. Mr. Venkataraman would next submit that the decision of this Court
in Shelf Drilling Ron Tappmeyer Limited (supra) is challenged by the
revenue in the proceedings of Special Leave Petition (C) Nos. 20569-
20572/2023 and on which a notice was issued as also the following interim
order came to be passed by the Supreme Court on 22 September, 2023:
" Issue notice to the respondents.
We have heard learned Additional Solicitor General for the
petitioners and learned Senior Counsel Shri J.D. Mistri for the
respondent-assessee.
Having heard the respective senior counsel for the parties, we
observe that the impugned judgment shall not be cited as a
precedent in any other subsequent matter until further orders.
We also clarify that the operative portion of the judgment shall
apply only insofar as the respondents herein are in question."
(emphasis supplied)
9. It is hence submitted that the petitioner would not be correct in
relying on the decision of this Court in Shelf Drilling Ron Tappmeyer Ltd.
(supra). Mr. Venkataraman would further submit that even the decisions of
the Madras High Court in Roca Bathroom Products Pvt. Ltd., Freight
Systems (India) Pvt. Ltd. and Delhi High Court in Nokia India Pvt. Ltd.5
are assailed by the Revenue before the Supreme Court, and such
proceedings are pending consideration before the Supreme Court, on which
notices are issued.
5
Writ Petition No. 1773 of 2016 (decision dated 21 September, 2017)
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10. Mr. Venkataraman's submission is to the effect that in view of the
specific order passed by the Supreme Court in Shelf Drilling's Ron
Tappmeyer Ltd., this Court ought not to look into the decision of the
Division Bench in Shelf Drilling Ron Tappmeyer Ltd. (supra), as the
Supreme Court has specifically directed that the same be not treated as
precedent. It is, therefore, submitted that the Court needs to independently
consider the contentions as urged on behalf of the revenue on the
interpretation of Section 144C in the context of applicability of Section
153, and if the Court is convinced that a different view needs to be taken
the issue needs to be referred to a larger bench.
11. Mr. Venkataraman has submitted that the Income-tax Act
contemplates two methods of assessments, namely, a) in the case of "eligible
assessees" as defined under Section 144C(15)(b); and b) assessees who fall
under the normal category from such perspective. It is submitted that the
decision of the co-ordinate Bench of this Court in Shelf Drilling Ron
Tappmeyer Limited (supra) does not take into consideration the effect of
some of the specific provisions of the Act. He submits that in any event,
this Court now would not consider the said decision as a precedent in view
of the specific order passed by the Supreme Court and therefore, on a fresh
consideration of such provisions and the position in law, an appropriate
view needs to be taken. Mr. Venkataraman submits that on a correct
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reading of the law, Section 144C proceedings are required to be held to be
independent from the applicability of Section 153. It is submitted that Writ
Petition assailing the impugned order would in fact not warrant
consideration and that even if the Writ Petition is admitted, interim reliefs
deserve to be rejected.
12. Mr. Mistry has made submissions in rejoinder. He submits that the
contentions as urged by Mr. Venkataraman are untenable. Mr. Mistry
emphasized that the decision of this Court in Shelf Drilling Ron
Tappmeyer Limited (supra) as also the decision of Madras High Court in
Roca Bathroom Products Pvt. Ltd., Freight Systems (India) Pvt. Ltd. and
Delhi High Court in Nokia India Pvt. Ltd. (supra) lay down the correct
position in law. He submits that it is wholly untenable that the provisions
of Section 153, can be kept away from the proceedings as initiated by the
petitioner under section 144C of the Act. He submits that this is a clear
case where the impugned assessment order was barred by limitation, passed
after the prescribed limitation expired on 30 September, 2023. In support
of the contentions, Mr. Mistry has also placed reliance on the decision of
Supreme Court in Kalyankumar Ray vs. Commissioner of Income Tax,
West Bengal-IV, Calcutta6 to contend that even if the proceedings are under
section 144C, necessarily the assessment order is passed under section
143(4) and which is the only recourse available under the I.T. Act. Mr.
6
1992 Supp (2) SCC 424
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Mistry submits that the impugned order itself shows that the assessment
order is inter alia passed under Section 143 and is not falling within a
special and distinct class of assessment, as submitted on behalf of the
Revenue. Mr. Mistry thus, submits that Revenue's contentions on there
being two distinct classes of assessments is not an acceptable proposition.
13. We have heard learned counsel for the parties. We have also perused
the record as also the decisions cited before us. As seen from the
submissions made at the bar, the question which falls for our consideration
is in regard to the applicability of the provisions of Section 153, being the
limitation provision to the proceedings under section 144C of the Act,
which is to the effect, whether the period of eleven months as envisaged
under section 144C, should be over and above the time limit prescribed
under section 153(1) r/w. 153(4) or whether such time period needs to be
subsumed within the timelines stipulated under Section 153.
14. As noted by us hereinabove, Mr. Venkataraman has made extensive
submissions that in the decision of this Court in Shelf Drilling Ron
Tappmeyer Limited (supra), wherein this Court has held that the limitation
envisaged under section 144C should be subsumed within the outer limit
of Section 153(1) read with Section 153(4) would not be the correct
position in law. Such submission of Mr. Venkataraman is on the premise
that there is a specific reference to Section 143 and Section 144 in Section
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153(1) whereas a reference to Section 144C is conspicuously absent in
Section 153(1). It is also his submission that there is no reference to any
draft assessment order or a timeline for completion of the same, under
Section 153(1), hence to trace Section 144C into section 153 qua the
prescription of time limits, would amount to rewriting the legislative
provision. It is also his submission that Section 144C is a provision which
stands independent notwithstanding anything contained under section 153,
when it specifically incorporates that it is a provision "notwithstanding
anything to the contrary contained in this Act". It is hence his submission
that such exception carved out qua the proceedings under Section 144C(1)
rules out anything contained in the Act to include anything contrary to the
provisions of Section 144C, commencing from the passing of the draft
assessment order till the passing of the order under section 144C(5) or
Section 144C(13). Hence to envisage the applicability of Section 153 to
the proceedings under Section 144C is wholly ruled out. Such is the
complexion of the contentions as raised before us on behalf of the revenue.
15. On the other hand, apart from the interpretation which Mr. Mistry
has placed on the provisions, he would emphatically submit that the issue is
no more res integra in view of the decision of the co-ordinate Bench of this
Court in Shelf Drilling Ron Tappmeyer Limited (supra), which is pending
consideration before the Supreme Court. He also submits that in an
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elaborate judgment rendered by the Division Bench of Madras High Court
in Roca Bathroom Products Pvt. Ltd. (supra), the Court has categorically
held that the provisions of Section 144C and Section 153 are not mutually
exclusive but are rather mutually inclusive. Also that the Division Bench of
this Court in Shelf Drilling Rono Tappmeyer Limited (supra) has also taken
a similar view. We also find that similar is the interpretation of these
provisions in the decisions as rendered in Freight Systems (India) Pvt. Ltd.
(supra) and Nokia India Pvt. Ltd. (supra).
16. As urged on behalf of the Revenue, the decision of the Division
Bench cannot be treated as a precedent as specifically ordered by the
Supreme Court. This would in fact mean that we would not be in a
position to dispose of the proceedings following the decision in Shelf
Drilling Rono Tappmeyer Limited (supra), and that we need to
independently consider the issue of law and the facts of the case, assuming
that no precedent on the issue of law rendered by the jurisdictional High
Court is available. However, considering the decisions as cited before us, it
clearly appears that apart from the decision of this Court in Shelf Drilling
Rono Tappmeyer Ltd. (supra), the Division Bench of Madras High Court in
Roca Bathroom Products Pvt. Ltd. (supra) as also the Delhi High Court in
Nokia India Pvt. Ltd. (supra) and in Bid Services Division Mauritius Ltd.
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(supra) have considered the relevant provisions as discussed by us, to reach
a conclusion that Section 144C and Section 153 are not mutually exclusive.
17. At this stage of the proceedings, what is significant, is that the
revenue has assailed the said decisions of this Court, of the Madras High
Court and of the Delhi High Court, which are rendered on the very same
question of law which has arisen for consideration in the present
proceedings, before the Supreme Court. On such proceedings, notices have
been issued by the Supreme Court and no stay has been granted to such
decisions which interpret the law as made by the other High Courts
(excluding in the case of Shelf Drilling Ron Tappmeyer Limited (supra), on
any of these proceedings. Thus the issue of law, which would touch not
only the present proceedings, but hundreds of other pending proceedings as
urged by Mr. Venkataraman, is at large before the Supreme Court. The
Supreme Court is seized of the proceedings in which the Supreme Court
would decide on the correct purport and the determination on
interpretation on the interplay between Section 144C and Section 153 of
the Act.
18. In this view of the matter, we are not persuaded to accept Mr.
Venkataraman's submission that as merely large number of proceedings are
pending in which the stake of about Rs.5 lakh crores in tax is involved on
such issue, we need to take a different view of the matter including to refer
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the issue for consideration of a Larger Bench. In our opinion, such
approach would not bring about any concrete conclusion as such question
of law is pending determination before the Supreme Court, arising not only
from the decision of this Court, but also from the decision of the other
High Courts. It would be thus appropriate and desirable, that this Court
awaits the decision of the Supreme Court in the pending proceedings in
Shelf Drilling Ron Tappmeyer Limited (supra) and Roca Bathroom
Products Pvt. Ltd. (supra). We may also observe that Mr. Mistry has also
tendered circulars issued by the Revenue to all its representatives in
Mumbai to seek adjournments in all pending cases involving this issue
before the Income-tax Appellate Tribunal to submit that the piling up of
the cases and the size of the amount involved is because the Revenue not
pursuing the matters, awaiting the Supreme Court to decide the appeals.
19. Insofar as the interim relief in the present petition is concerned, we
may observe that assessees similarly placed as the petitioner, have succeeded
before the Madras High Court inter alia in Roca Bathroom Products Pvt.
Ltd. (supra) as also before the Delhi High Court in Nokia India Pvt. Ltd.
(supra). As noted above, proceedings arising from such decisions of the
Madras and the Delhi High Courts are pending before the Supreme Court.
The orders of the High Courts setting aside the assessment orders are not
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stayed by the Supreme Court. Thus, in similar proceedings the assessees
having succeeded before the other High Courts.
20. In view of the above discussion, we are inclined to pass the following
order:
ORDER
(i) Rule. Respondents waive service.
(ii) As and by way of interim relief, ad-interim order dated 28 June, 2024 shall continue to operate till the final disposal of this petition.
(iii) Liberty to the parties to apply, in the event orders relevant to the issue of law as involved, are passed by the Supreme Court and/or on a final decision being rendered by the Supreme Court.
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