2024 (4) TMI 1026 - AT - Income Tax

Company gets section 115BAA tax benefit despite delayed Form 10-IC filing due to technical issues

Madison Communications Pvt. Ltd. Versus ACIT Circle 2 (2) (1), Mumbai

ITAT Mumbai allowed the appeal of a domestic company seeking benefit under section 115BAA for reduced tax computation. The company could not upload Form ... Denial of benefit u/s 115BAA - while filing its return of income as it was unable to upload Form 10-IC due to technical glitches - scope of circulars or directions amending provisions of the Act - DR has argued that the appellant company has not exercised its option for taxation u/s 115BAA of the Act at the time of submitting ROI electronically in accordance with condition 3(ii) of the above CBDT circular - whether the appellant company being a domestic company is entitled to get its tax liability computed in accordance with the provisions of section 115BBA(1) of the Act? HELD THAT:- In view of rule 21AE, the appellant assessee domestic company was to exercise its option for the benefit of computation of its tax liability u/s 115BAA(1) in accordance with the provision of sub-section 5 of section 115BAA for the relevant assessment year 2020-21 by furnishing prescribed form No. 10-IC electronically. It is not disputed that there was a technical problem in uploading the form 10-IC. This fact is substantiated by the referred CBDT circular dated 17.03.2022. CBDT circular condoned the delay in filing form 10-IC for the relevant A.Y. 2020-21. According to Para 2 of the circular, it is understood that the delay was condoned upon receiving representations stating that form 10-IC could not be filed along with the ROI for A.Y. 2020-21, which was the first year of filing the form. As far as the compliance of condition No. (ii) of CBDT circular by the appellant domestic company is concerned, the option by the appellant could be exercised only by uploading from 10-IC prescribed under Rule 21AE of the rules on 02.05.2021, the delay in uploading this form 10-IC was already condoned by the CBDT. It is well established precedent that a circular of CBDT, no doubt, has the force of law, can even supplant the law in cases where it is beneficial to the assessee and can mitigate or relax the rigors of the law. The powers of the CBDT in issuing circular for general guidance are subject to two important conditions. One is that it does not entitle the income tax authority including the Board to issue instructions or circulars contrary to the substantive provision of law or curtailing the relief to which the assessee is otherwise entitled under law. It is also settled law that circulars are not binding on assessee. The circular cannot therefore curtail the benefit conferred on assessee or be contradictory to the Act. Hon’ble Apex Court in Union of India V/s Wood Paper Ltd. [1990 (4) TMI 55 - SUPREME COURT] has held that the condition regulating the computation of benefit should be interpreted liberally. We are of the consistent view that the appellant assessee, as a domestic company, was free to opt for the beneficial part of the relevant law. The appellant company having exercised its option in consonance with aforesaid provision of law and having opted as per the procedure prescribed under the aforestated rule, is entitled to the benefit of section 115BAA(1) for the purpose of computation of income at the rate mentioned thereunder. The condition No. (ii) of CBDT dated 17.03.2022, thus, cannot be interpreted to take away the statutory right vested in the appellant assessee under the Act. CIT(A) has failed to rationally appreciate and diligently apply the relevant law on the facts of the present cast. We therefore set aside the order passed by CIT(A) along with assessment order to the aforestated extent. The aforesaid point related to the grounds of appeal, is accordingly determined positively in favour of the appellant assessee. AO is thus directed to compute the tax liability of the appellant assessee, a domestic company in accordance with the mandate of Section 115BAA(1) of the Act. The matter is restored to the file of AO for the statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether a domestic company is entitled to compute its tax liability under section 115BAA(1) of the Act where Form No. 10-IC (the prescribed option form under rule 21AE) could not be uploaded with the return of income due to technical glitches but was uploaded subsequently within the period condoned by the Board's circular? 2. Whether the conditions in the CBDT circular dated 17.03.2022 (specifying, inter alia, that the assessee must have indicated opt-in in the 'Filing Status' of ITR-6) can be interpreted or applied so as to curtail or deprive a taxpayer of the statutory option under section 115BAA when the statutory mode (Form 10-IC) has been complied with within the extended/condoned period? ISSUE-WISE DETAILED ANALYSIS - Issue 1: Entitlement to exercise option under section 115BAA where Form 10-IC was uploaded late due to technical glitch Legal framework: Section 115BAA(1) grants a domestic company an option to have its income tax computed at a concessional rate (22%) subject to conditions in subsection (2), and section 115BAA(5) (as referenced in rule 21AE) requires the option to be exercised in the prescribed manner on or before the due date under section 139(1). Rule 21AE prescribes Form No. 10-IC to be furnished electronically (sub-rules (1)-(3)). The CBDT issued a circular dated 17.03.2022 condoning delay in filing Form 10-IC for AY 2020-21 subject to three conditions (timely filing of ROI, opting in ITR-6 'Filing Status' e, and filing Form 10-IC electronically on or before 30.06.2022 or three months from the end of the circular month, whichever is later). Precedent treatment: The Tribunal relied on the principles from higher court decisions holding that CBDT circulars have force and can mitigate or relax law where beneficial to the taxpayer, but such circulars cannot be used to curtail or contradict the substantive provisions of the Act (citing Gestetner and Union of India v. Wood Paper Ltd. principles as applied in the judgment). Interpretation and reasoning: The Tribunal found that the assessee filed the return within the due date (condition (i)) and uploaded Form 10-IC electronically on 02.05.2021, within the condoned period (condition (iii)). Technical inability to upload at the time of filing ROI was established and substantiated by the CBDT circular. Given rule 21AE requires electronic filing of Form 10-IC and the circular expressly condoned delay in filing that form for the first year (AY 2020-21), the Tribunal held that the statutory option was validly exercised when Form 10-IC was later uploaded within the condoned timeframe. The Tribunal emphasised that the assessment record showed no discrepancy in the declared total income; hence the only impediment was procedural (technical failure) to upload Form 10-IC contemporaneously with ROI. Ratio vs. Obiter: Ratio - where Form 10-IC was uploaded within the period condoned by the Board and other statutory conditions are met, the taxpayer is entitled to exercise the option under section 115BAA for computation of tax despite initial technical failure to upload the form with the ROI. Obiter - general observations on the power of the Board to relax procedural requirements in beneficial cases. Conclusion: The Tribunal allowed the appeal on this point and directed the assessing officer to compute tax under section 115BAA(1), finding the assessee entitled to the concessional computation because Form 10-IC was filed within the condoned period and the ROI was filed by the statutory due date. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Effect and limits of the CBDT circular's condition requiring an opt-in entry in ITR-6 ('Filing Status') Legal framework: The CBDT circular set out three conditions to avail condonation; condition (ii) required the assessee to have opted for taxation under section 115BAA in the ITR-6 filing status field. The Tribunal analysed the interplay between statutory prescription (section 115BAA, rule 21AE requiring Form 10-IC) and the circular's conditions. Precedent treatment: The Tribunal applied established authority that circulars can clarify, mitigate or relax procedural requirements but cannot curtail substantive rights under statute nor issue instructions inconsistent with the Act; circulars are not intended to extinguish a statutory entitlement. Interpretation and reasoning: The Tribunal held that the statutory right to opt under section 115BAA is exercisable by furnishing the prescribed Form 10-IC electronically in accordance with rule 21AE. The Board's circular, being issued for administrative facilitation, cannot be interpreted to take away or abridge the statutory right conferred by section 115BAA. Condition (ii) of the circular - requiring a separate opt-in entry in the ITR-6 form - was not allowed to operate so as to nullify the appellant's statutory option where Form 10-IC had been uploaded within the condoned period and the return had been filed within the due date. The Tribunal treated the circular's condition as not overriding the statutory mode of exercise (i.e., filing Form 10-IC electronically within the permissible period), particularly where the circular itself was framed to condone technical difficulties in filing Form 10-IC in that first year. Ratio vs. Obiter: Ratio - administrative instructions or circulars cannot be interpreted to curtail or defeat a taxpayer's statutory right to exercise an option under section 115BAA when the prescribed statutory/formal mechanism (Form 10-IC filed electronically within the condoned period) has been complied with. Obiter - remarks on the general non-binding character of circulars vis-à-vis substantive statutory rights and the requirement for liberal interpretation of conditions regulating fiscal benefits. Conclusion: The Tribunal concluded that condition (ii) of the CBDT circular could not be construed to deny the assessee the statutory option under section 115BAA. Because conditions (i) and (iii) of the circular were satisfied and Form 10-IC was ultimately filed electronically within the condoned period, the assessee's option under section 115BAA stood valid and the tax liability must be computed accordingly. Ancillary holdings and directions 1. Finding of no discrepancy in declared total income by the assessment unit is noted and not disturbed; the dispute is limited to the procedural question of valid exercise of option under section 115BAA. 2. The Tribunal set aside the appellate and assessment orders to the extent of denying the benefit under section 115BAA and restored the matter to the assessing officer for computation of tax in accordance with section 115BAA(1) and for statistical compliance. 3. The appeal was allowed in the terms stated above.