2025 (1) TMI 1500 - HC - Income Tax

Assessee can file Section 264 revision without amending return when correcting mistaken tax positions

M/s. SMEC India (P.) Ltd. Versus Principal Commissioner Of Income Tax – 8.

Delhi HC allowed writ petition challenging Commissioner's order under Section 264. Court held that amendment of return of income was not mandatory before ... Revision u/s 264 - Necessity of amendment of the RoI before the application u/s 264 - TDS liability u/s 195 - payment made by the petitioner, which was initially disallowed u/s 40(a)(i) due to non-deduction of tax at source - Applicability of Article 12 of the DTAA HELD THAT:- The scope of the power which the Commissioner could have exercised under Section 264 it was clearly not imperative for the petitioner to have amended its RoI. As was pertinently observed both in Vijay Gupta [2016 (3) TMI 977 - DELHI HIGH COURT] and Interglobe Enterprises [2023 (2) TMI 34 - DELHI HIGH COURT] an assessee could be taxed only in respect of such part of its total income as was exigible under the Act. The judgments noted supra, further hold that an assessee could invoke the power conferred by Section 264 in order to rectify a mistaken stand taken earlier and where it may have offered income to tax even though the law placed no such liability. It was pertinently observed that an assessee is liable to pay tax only on such income which is otherwise chargeable under the Act. Our Court thus held that merely because certain income or receipt may have been mistakenly offered to tax, the same would not be conclusive if it were found and established that the same was not chargeable at all. The said principles would equally apply to the suo moto disallowance which the petitioner had made under the bona fide and yet mistaken belief that the same was liable to be offered for taxation. The said stand, in our considered opinion, could not have been negated merely because the RoI had not been amended. The conclusion so reached by the Commissioner in this regard clearly fails to bear in consideration the salutary power that Section 264 creates and confers. The power that the statute vests in the Commissioner could have been validly invoked if the assessee were to assert that it had erred or proceeded on the mistaken assumption that the said item of income or expenditure was liable to be taxed under the Act. Findings rendered in the context of Section 9 are concerned, as noted hereinabove, the Commissioner has failed to either advert to or examine the aspect on the anvil of the DTAA and the stand of the petitioner that the “make available” condition was not satisfied and the expenditure thus not liable to be viewed as royalty on which tax could have been validly imposed. Allow the instant writ petition and quash the order. The revision application shall consequently be taken up for consideration afresh, bearing in mind the observations appearing hereinabove. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the petitioner was required to amend its Return of Income (RoI) before maintaining an application under Section 264 of the Income Tax Act, 1961.Whether the payment made by the petitioner, which was initially disallowed under Section 40(a)(i) due to non-deduction of tax at source, was indeed taxable under the provisions of the Income Tax Act or exempt under Article 12 of the India-Australia Double Taxation Avoidance Agreement (DTAA).Whether the Principal Commissioner erred in not considering the applicability of Article 12 of the DTAA when determining the taxability of the payment.Whether the Principal Commissioner correctly applied Section 9(1)(vii) of the Income Tax Act in concluding that the remittance was chargeable to tax as income arising or accruing in India.ISSUE-WISE DETAILED ANALYSIS1. Requirement to Amend RoI Before Section 264 ApplicationRelevant Legal Framework and Precedents: The Court examined the scope of Section 264 of the Income Tax Act, which allows for revision of orders by the Commissioner. Precedents from Vijay Gupta v. Commissioner of Income Tax and Interglobe Enterprises Pvt. Ltd. v. Pr. Commissioner of Income Tax were considered, highlighting that the powers under Section 264 are broad and not limited to correcting errors by authorities but also extend to errors by assessees.Court's Interpretation and Reasoning: The Court concluded that it was not necessary for the petitioner to amend its RoI to maintain an application under Section 264. The power under Section 264 could be invoked to rectify a mistake or a mistaken belief regarding taxability.Application of Law to Facts: The Court found that the petitioner's failure to amend the RoI did not preclude the application for revision under Section 264, as the law allows for correction of bona fide mistakes.Conclusions: The Court held that the Principal Commissioner erred in requiring an amendment to the RoI as a prerequisite for considering the Section 264 application.2. Taxability of Payment Under Article 12 of the DTAARelevant Legal Framework and Precedents: Article 12 of the India-Australia DTAA was central to the petitioner's argument that the payment was not taxable as it did not satisfy the 'make available' condition for technical services.Court's Interpretation and Reasoning: The Court noted that the Principal Commissioner failed to consider the applicability of Article 12 of the DTAA in determining the taxability of the payment.Application of Law to Facts: The Court emphasized that the Principal Commissioner's decision lacked an examination of whether the 'make available' condition was met, which could exempt the payment from being taxed as royalty.Conclusions: The Court found that the Principal Commissioner's order was flawed for not considering the DTAA provisions and remanded the matter for fresh consideration.3. Application of Section 9(1)(vii) of the Income Tax ActRelevant Legal Framework and Precedents: Section 9(1)(vii) pertains to income deemed to accrue or arise in India, including fees for technical services.Court's Interpretation and Reasoning: The Court observed that the Principal Commissioner relied on Section 9(1)(vii) without adequately addressing the DTAA's impact on the taxability of the payment.Application of Law to Facts: The Court determined that the Principal Commissioner's conclusion regarding the applicability of Section 9(1)(vii) was premature without a proper examination of the DTAA provisions.Conclusions: The Court held that the Principal Commissioner's reliance on Section 9(1)(vii) was not justified without considering the DTAA's relevance.SIGNIFICANT HOLDINGSCore Principles Established: The judgment reinforced the principle that the powers under Section 264 are broad and can be used to correct errors made by the assessee. It also emphasized the importance of considering applicable international agreements, like the DTAA, in determining tax liability.Final Determinations on Each Issue: The Court quashed the Principal Commissioner's order, directing a fresh consideration of the revision application with due regard to the DTAA and without requiring an amendment to the RoI.Verbatim Quotes of Crucial Legal Reasoning: 'The powers conferred under section 264 of the Act are very wide... It is settled proposition of law that no tax can be levied or recovered without authority of law.'The judgment concluded by allowing the writ petition, quashing the impugned order, and remanding the matter for fresh consideration, leaving all rights and contentions of the parties open for further evaluation by the Principal Commissioner.