Court sets aside Income Tax Settlement Commission order, directs final hearing for petitioner's tax matters.

The court set aside the order of the Income Tax Settlement Commission (SC) and directed a final hearing under Section 245D(4) for the petitioner's tax matters for AY 2015-16 to 2018-19. The SC was instructed to consider all materials, hear both parties, and issue orders within twelve weeks. The court emphasized that tax liability determination should occur after a final decision on taxability of offshore income. The writ petition was allowed without costs.

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Issues Involved:
1. Validity of the order passed by the Income Tax Settlement Commission (SC) under Section 245D(2C) of the Income Tax Act, 1961.
2. Taxability of income from offshore supply of goods.
3. Determination of total income and tax liability for the petitioner for Assessment Years (AY) 2015-16 to 2018-19.
4. Full and true disclosure of income by the petitioner.

Detailed Analysis:

1. Validity of the Order Passed by the SC:
The petitioner challenged the order passed by the SC under Section 245D(2C) of the Income Tax Act, 1961, dated 09.01.2019. The SC, while considering the validity of the application, delved into the merits of the matter and concluded that the contract was composite and indivisible, thus holding that the petitioner failed to make a full and true disclosure of income. The court found this approach improper, stating that the SC should have first decided the issue of taxability of income from offshore supply before determining the full and true disclosure of income. The court emphasized that the demand for additional tax liability can only be raised after a final decision is rendered under Section 245D(4) by the SC.

2. Taxability of Income from Offshore Supply of Goods:
The petitioner contended that the income from offshore supplies would not be liable to tax in India, as the scope of work under each contract was separate and distinct. The Revenue argued that the bifurcation between offshore supply and onshore supply and services was artificial and aimed at reducing income tax liability. The court noted that the question of whether the contract is divisible or indivisible is a matter for the SC to consider during the final hearing under Section 245D(4).

3. Determination of Total Income and Tax Liability:
The petitioner had filed returns for AY 2015-16 to 2018-19, offering to tax the income from onshore supply and services only. The SC, in its preliminary order, admitted the application for further proceedings but later concluded that the petitioner had not made a full and true disclosure of income. The court clarified that the determination of total income and tax liability should be made by the SC during the final hearing, considering all relevant materials and submissions by both parties.

4. Full and True Disclosure of Income:
The SC initially admitted the petitioner's application, noting that all technical parameters were fulfilled and there was no prima facie material suggesting that the petitioner had not made a full and true disclosure. However, the SC later reversed its stance, concluding that the petitioner failed to disclose the true nature of the contract. The court held that the SC's decision on the disclosure should be made in the context of the issues offered for settlement and the additional tax remittances, which should be finalized during the final hearing under Section 245D(4).

Conclusion:
The court set aside the impugned order of the SC, stating it was beyond the scope of Section 245D(2C) and directed the SC to take up the matter for final hearing under Section 245D(4). The SC was instructed to hear both parties on merits, consider all materials, and pass orders within twelve weeks from the date of the first hearing. The writ petition was allowed, and no costs were imposed.

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