2023 (12) TMI 343 - HC - Income Tax

CIT cannot exercise Section 263 revisionary powers against agent when principal non-resident company has ceased to exist

Delhi HC held that CIT cannot exercise revisionary powers under Section 263 against an agent when the principal non-resident company has ceased to exist. ... Revision u/s 263 against assessee as an agent of the non-resident Monet Ltd.- Validity of order passed u/s 163 whereby the respondent/assessee was treated as an agent of the non-resident company - whether the CIT could have exercised powers against the respondent/assessee i.e., Cairnhill CIPEF Ltd. when the principal had ceased to exist? - HELD THAT:- As noticed by us, Monnet Ltd. ceased to exist on 19.12.2018, whereas, the CIT exercised its revisionary power much later i.e., on 31.03.2021. The other submission made that the revisionary power under Section 263 of the Act is directed towards the assessment order is also, in our view, an untenable submission for the reason that the assessment order is framed qua “an assessee”. In this case, the assessee was Monet Ltd. and before exercising the power under Section 263 of the Act, notice would have to be issued to Monet Ltd. and in some cases (where principal, perhaps, is not found available) to its agent by exercising powers under Section 163 of the Act. In this particular case, the record shows that it is not the appellant’s/revenue’s assertion that Monet Ltd. was not available. The record, however, indicated, as alluded to above, that Monet Ltd. had ceased to exist, therefore, the submission that the CIT could revise the assessment order dated 12.12.2018 when Moent Ltd. was not in existence, in our view, is untenable in law. The third submission made that the assessee i.e., Cairnhill CIPEF Ltd. would be liable only to the extent of the benefit it received i.e., by way of acquisition of shares of Mankind Ltd., is again, in our view, misconceived because it ignores the fact that under Section 163 of the Act, it is only when an entity/person is treated as an agent of a principal, which is in existence, such approach is acceptable in law. The arguments of Appellant in sum, veers around the proposition that Section 163 of the Act recognizes a person or an entity as an agent, irrespective of whether or not the principal is in existence. In the usual and normal course, the expression “agent” suggests that there is a principal in existence, on whose behalf the agent acts. The fact that an entity or a person is treated as an agent only buttresses this point of view. In our opinion, none of the submissions made persuade us that the impugned order requires interference. No substantial question of law. Issues involved: Condonation of delay in filing appeal, Assessment Year 2016-17, Revision of assessment order under Section 263 of the Income Tax Act, 1961, Authority of the Commissioner of Income Tax (CIT) to revise assessment order.Condonation of Delay in Filing Appeal:The appellant/revenue sought condonation of a 114-day delay in filing the appeal, which was not objected to by the respondent/assessee. The delay was condoned by the court, and the application was disposed of accordingly.Assessment Year 2016-17:The appeal concerned the Assessment Year 2016-17 and aimed to challenge the order passed by the Income Tax Appellate Tribunal related to a share purchase agreement involving Cairnhill CIPEF Ltd., Cairnhill CGPE Ltd., and Monet Ltd. The assessment order noted the sale of shares by Monet Ltd., a subsidiary of Chryscapital IV LLC, to Cairnhill CIPEF Ltd. and Cairnhill CGPE Ltd., resulting in Long Term Capital Gain (LTCG) and subsequent set-off against brought forward losses.Revision of Assessment Order under Section 263:The Commissioner of Income Tax (CIT) passed an order treating Cairnhill CIPEF Ltd. as an agent of Monet Ltd. after Monet Ltd. had ceased to exist. The Tribunal concluded that the CIT did not have the authority to pass such an order under Section 163 of the Act. The Tribunal's decision was based on the appealability of orders under Section 246A, specifically Clause (d) related to orders passed under Section 163.Authority of the Commissioner of Income Tax (CIT) to Revise Assessment Order:The Tribunal found that the CIT's revisionary powers could not be exercised against Cairnhill CIPEF Ltd. when Monet Ltd. had already ceased to exist. The Tribunal emphasized that the CIT's order under Section 163 should have been passed by an officer lower in rank than the Commissioner. The appellant's arguments regarding the CIT's powers and the liability of Cairnhill CIPEF Ltd. were deemed untenable by the court.Conclusion:The court dismissed the appeal, stating that no substantial question of law arose for consideration. The court found that the CIT could not revise the assessment order dated 12.12.2018 after Monet Ltd. had ceased to exist. The appeal was accordingly dismissed, and the pending application was closed.