2021 (3) TMI 911 - HC - Income Tax

Court Emphasizes Tax Jurisdiction in Income Tax Act Proceedings

BT (India) Private Limited Versus Income Tax Officer & Anr.

The court held that initiating proceedings under Sections 201(1) and 201(1a) of the Income Tax Act, 1961 without determining the jurisdictional issue of ... Proceedings under Sections 201(1) and 201(1a) - whether proceedings could have been initiated without the concerned officer determining the jurisdictional issue as to whether the remittances made were chargeable to tax? - As submitted only a show-cause notice has been issued and therefore, this Court ought not to interfere at this stage in exercise of powers under Article 226 of the Constitution - HELD THAT:- According to us, if the statutory authority exercises its powers without determining whether or not it has jurisdiction in the matter, that itself, may, in certain cases, call for interference. As pointed out by Mr. Vohra (something which has not been refuted by Mr. Aggarwal), 85 to 90% of the remittances have been made to the BT Plc, a non-resident company, which approached the Authority for Advance Rulings [in short “AAR”] as far back in 2015. Record shows that the application of AAR was admitted as far back on 07.08.2015. Therefore, a large part of problem, to say, has its genesis in the AAR not acting with due alacrity. Captioned writ petitions can be disposed of with the following directions: (i) The concerned authority will adjudicate the impugned show cause notices qua which we are told that the petitioners have filed their replies. (ii) While carrying out the adjudication, the concerned authority will in the first instance determine as to whether or not the jurisdictional facts obtain in the matter i.e. whether the remittances in issue are chargeable to tax. (iii) The concerned authority will, therefore, in the first instance pass an order on this aspect of the matter. (iv) The concerned authority in this behalf will give personal hearing to the authorized representative of the petitioner, which will include the advocate engaged by the petitioner. (v) A speaking order will be passed and a copy of the same will be furnished to the petitioner. (vi) The petitioner will have liberty to assail the same as per law by taking recourse to an appropriate remedy. (vii) In case, the order passed is adverse to the interests of the petitioner, the same will not be given effect to for four weeks, commencing from the date the said order is served on the petitioner. (viii) In case, the concerned authority feels it is necessary to await the decision of the AAR in the matter concerning BT Plc, it will be free to take this aspect into account as well. Issues:1. Whether proceedings under Sections 201(1) and 201(1a) of the Income Tax Act, 1961 could have been initiated without determining the jurisdictional issue of tax chargeability.Analysis:The court considered whether the initiation of proceedings under Sections 201(1) and 201(1a) of the Income Tax Act, 1961 without determining the jurisdictional issue of tax chargeability was valid. The petitioner argued that the concerned officer should have decided the tax chargeability issue at the outset. The petitioner's counsel cited Supreme Court decisions to support this argument, emphasizing the importance of determining jurisdictional issues before initiating proceedings. On the other hand, the respondent contended that the petitioners had made deductions for various recipients besides BT Plc and had utilized remedies available under the Act for certain assessment years. The respondent also argued that only a show-cause notice had been issued, suggesting that the court should not interfere at this stage under Article 226 of the Constitution.The court noted that exercising powers without determining jurisdiction could warrant interference in certain cases. It was highlighted that a significant portion of the remittances were made to BT Plc, a non-resident company that had approached the Authority for Advance Rulings (AAR) in 2015. The delay in AAR's response contributed to the issue at hand. Despite this, the court decided to dispose of the writ petitions with specific directions. These directions included the concerned authority adjudicating the show cause notices, determining the jurisdictional facts regarding tax chargeability, providing a personal hearing to the petitioner's representative, issuing a speaking order, and allowing the petitioner to challenge the order through appropriate legal means. Additionally, the authority was permitted to consider awaiting AAR's decision on the matter involving BT Plc.In conclusion, the court closed the pending applications based on the directions provided for the adjudication of the show cause notices and the determination of tax chargeability jurisdiction.