Split Verdict on Whether Limitation Periods Under Sections 144C and 153 of Income Tax Act Operate Independently or Not

Assistant Commissioner of Income Tax (International Taxation) & Others Versus Shelf Drilling Ron Tappmeyer Ltd. Etc.

Assistant Commissioner of Income Tax (International Taxation) & Others Versus Shelf Drilling Ron Tappmeyer Ltd. Etc. - 2025 INSC 946 1. ISSUES PRESENTED and CONSIDERED

1.1 Whether the limitation period prescribed under Section 153(3) of the Income Tax Act, 1961 (the Act) for passing a fresh assessment order on remand applies cumulatively or concurrently with the timelines prescribed under Section 144C of the Act for eligible assessees.

1.2 Whether the period of eleven months prescribed under Section 144C(4) and (13) for completion of assessment proceedings is over and above, or subsumed within, the limitation period under Section 153(3) or Section 153(1) of the Act.

1.3 The interpretation and interplay between the non-obstante clauses contained in Section 144C(1), (4), and (13) and the limitation provisions in Section 153, particularly with respect to eligible assessees defined under Section 144C(15).

1.4 Whether the procedure under Section 144C constitutes a separate code for eligible assessees, distinct from the general assessment procedure under Sections 143 and 144, and the implications of such distinction on the limitation period for assessment.

1.5 The scope and effect of the non-obstante clauses in Section 144C on the applicability of Section 153 timelines to draft and final assessment orders.

1.6 Whether the timelines prescribed under Section 144C for the Dispute Resolution Panel (DRP) and the Assessing Officer are independent of, or included within, the limitation periods under Section 153.

1.7 The validity of the High Courts' judgments holding that the entire procedure under Section 144C must be completed within the limitation period prescribed under Section 153.

1.8 The meaning and scope of 'assessment order' and 'fresh assessment' in the context of Sections 144C and 153.

1.9 The relevance of legislative intent, including Budget speeches and explanatory notes, in interpreting the interplay between Sections 144C and 153.

1.10 The effect of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and related notifications on limitation periods.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Interpretation of the interplay between Section 144C and Section 153(3) limitation periods

- Legal framework: Section 153(3) prescribes a limitation period of nine months (extended to twelve months from 1.4.2019) from the end of the financial year in which an appellate order under Section 254 or similar is received by the Commissioner for passing a fresh assessment order. Section 144C prescribes a specific procedure for eligible assessees involving a draft order, objections to the DRP, directions by the DRP, and final assessment order within fixed timelines.

- Court's reasoning: The Court emphasized that Section 144C is a special procedural code applicable only to eligible assessees (non-resident companies and certain others) and contains its own timelines for completion of assessment proceedings. The non-obstante clauses in Section 144C(4) and (13) specifically override the limitation provisions in Section 153 or 153B for passing the assessment order under Section 144C.

- Key findings: The timelines under Section 144C for passing the final assessment order (one month from end of month in which acceptance or objections period expires, or one month from end of month in which DRP directions are received) are independent and additional to the limitation period under Section 153(3) for passing a fresh assessment order on remand.

- Application to facts: The Court held that the limitation period under Section 153(3) applies to passing the draft assessment order under Section 144C(1), while the timelines under Section 144C(4) and (13) for passing the final assessment order operate over and above that period. Thus, the procedure under Section 144C is not subsumed within the limitation period prescribed under Section 153(3).

- Competing arguments: Revenue argued that Section 144C timelines are to be read cumulatively within Section 153(3) limitation, while respondents contended that Section 153(3) applies to the entire procedure. The Court rejected the latter, holding that the non-obstante clauses in Section 144C exclude the application of Section 153(3) timelines for final assessment order.

- Conclusion: The limitation period under Section 153(3) governs the passing of the draft assessment order, and the timelines under Section 144C govern the subsequent procedure, including DRP directions and final assessment order, which are additional and independent.

2.2 Scope and effect of non-obstante clauses in Section 144C

- Legal framework: Section 144C(1) contains a non-obstante clause 'notwithstanding anything to the contrary contained in this Act' requiring the Assessing Officer to forward a draft order to the eligible assessee. Sections 144C(4) and (13) contain non-obstante clauses 'notwithstanding anything contained in Section 153 or 153B' requiring the assessment order to be passed within one month from specified events.

- Court's interpretation: The non-obstante clause in Section 144C(1) is a legislative device to establish a distinct procedural code for eligible assessees, mandating the issuance of a draft order before final assessment. It is not directed at overriding the limitation provisions in Section 153. In contrast, the non-obstante clauses in Sections 144C(4) and (13) explicitly override the limitation periods in Section 153 or 153B for passing the final assessment order.

- Reasoning: The Court examined authoritative precedents on non-obstante clauses, emphasizing that such clauses only override conflicting provisions to the extent intended by the legislature and must be read in context. The non-obstante clause in Section 144C(1) does not conflict with Section 153 but establishes a different procedural step. The clauses in 144C(4) and (13) specifically deal with limitation periods and thus override Section 153 timelines for final assessment.

- Conclusion: The non-obstante clause in Section 144C(1) establishes a separate procedure for eligible assessees, while those in Sections 144C(4) and (13) override limitation periods for final assessment orders, thereby separating the timelines for draft and final orders.

2.3 Meaning of 'assessment order' and 'fresh assessment' under Sections 144C and 153

- Legal framework: Section 153(3) refers to 'an order of fresh assessment' to be passed within the prescribed limitation period. Section 144C(1) requires forwarding a 'draft order' of assessment, which is not a final assessment order. Sections 144C(4) and (13) deal with passing the final assessment order.

- Court's reasoning: The Court held that the draft order under Section 144C(1) is distinct from the final assessment order contemplated under Section 143(3) and Section 153(3). The draft order is a preliminary step in the special procedure for eligible assessees, while the final assessment order determines total income and tax payable.

- Key findings: The 'order of fresh assessment' under Section 153(3) means the final assessment order and not the draft order. The procedure under Section 144C contemplates a draft order first, followed by objections and directions, and then a final order. The timelines for these stages are separately prescribed.

- Conclusion: The draft assessment order under Section 144C is not an 'order of fresh assessment' within the meaning of Section 153(3). The final assessment order under Section 144C is the 'order of fresh assessment' subject to the timelines prescribed in Section 144C(4) and (13).

2.4 Legislative intent and purpose behind Section 144C and its timelines

- Material: Budget speeches of Finance Ministers (2009 and subsequent years), Memorandum to the Finance Bill 2009, and explanatory notes to Finance Acts of 2016, 2017, 2021, and 2022.

- Court's interpretation: The legislative intent behind Section 144C was to provide an alternative dispute resolution mechanism within the Income Tax Department for speedy disposal of tax disputes involving eligible assessees, particularly foreign companies and non-residents. The DRP mechanism was introduced to reduce prolonged litigation and uncertainty affecting foreign investment.

- Reasoning: The Court emphasized that the procedure under Section 144C was designed to be expeditious and distinct from the general assessment procedure. The timelines prescribed under Section 144C reflect a balance between giving the revenue adequate time to assess and protecting the assessee's rights to timely resolution.

- Conclusion: The timelines under Section 144C are intended to provide a fast-track dispute resolution mechanism and must be interpreted as a separate procedural code with fixed timelines, independent of the limitation periods under Section 153.

2.5 Principles of statutory interpretation applied

- The Court applied established principles including purposive interpretation, strict construction of taxing statutes, and harmonious construction of apparently conflicting provisions.

- It rejected interpretations that would render provisions futile or unworkable, emphasizing that statutes must be construed to give effect to legislative intent and to ensure operability.

- The Court distinguished between non-obstante clauses and 'subject to' clauses, noting that non-obstante clauses override conflicting provisions only to the extent intended.

- It held that the non-obstante clauses in Section 144C must be read in context and not to negate the entire limitation framework under Section 153.

- The Court reaffirmed that equitable considerations or adequacy of time are not grounds to depart from clear statutory language in fiscal statutes.

2.6 Treatment of competing High Court judgments and precedents

- The Bombay and Madras High Courts held that the entire procedure under Section 144C must be completed within the limitation period prescribed under Section 153(3), thus subsuming Section 144C timelines within Section 153.

- The Supreme Court, in the opinion dissenting from the majority, rejected this view, holding that such interpretation would be unworkable and contrary to legislative intent, and that Section 144C timelines operate independently and additionally.

- The majority judgment held that the High Courts' interpretation is correct, that the limitation under Section 153(3) applies to the entire procedure under Section 144C, and no additional time beyond Section 153 is available.

- The Court considered precedents on statutory interpretation, non-obstante clauses, and the meaning of assessment orders, and found the High Courts' approach consistent with statutory scheme and legislative intent.

- The Court distinguished the Madras High Court's decision in Roca Bathroom Products Pvt. Ltd., which supported the High Courts' view, and overruled the contrary view that Section 144C timelines are additional.

2.7 Impact of TOLA and related notifications on limitation periods

- The Court noted that due to the COVID-19 pandemic, the Central Board of Direct Taxes issued notifications extending limitation periods under Section 153 to 30.09.2021.

- These extensions were relevant in the facts of the case where the draft assessment order was passed on 28.09.2021, just before the extended limitation period expired.

- The Court held that the extended limitation period under Section 153(3) applied and that no final assessment order could be passed after expiry of this period.

2.8 Application of law to facts and conclusions

- The respondents were eligible assessees under Section 144C(15) and the assessment proceedings involved draft orders, objections, DRP directions, and final assessment orders.

- The Income Tax Appellate Tribunal set aside the original assessment and remanded the matter, triggering Section 153(3) limitation period for fresh assessment.

- The Assessing Officer passed a draft assessment order and final assessment order after expiry of the limitation period prescribed under Section 153(3) (as extended by TOLA), but within the timelines prescribed under Section 144C.

- The High Courts held that the final assessment orders were barred by limitation as the entire Section 144C procedure must be completed within Section 153(3) timelines.

- The Supreme Court majority concurred with the High Courts, dismissing the Revenue's appeals and holding that the limitation period under Section 153(3) subsumes the timelines under Section 144C.

- The dissenting opinion held the opposite view, that Section 144C timelines are independent and additional to Section 153(3).

2.9 Consequences of the Court's interpretation

- If the procedure under Section 144C is to be completed within the limitation period prescribed under Section 153(3), the Assessing Officer must pass the draft assessment order within the limitation period and complete the entire procedure including DRP directions and final assessment order within the same period.

- Failure to comply with the limitation period under Section 153(3) results in the assessment order being time-barred and the return of income filed by the assessee must be accepted.

- The Court emphasized that adequacy of time or practical difficulties faced by the Assessing Officer cannot override the statutory limitation periods.

- The Revenue is not precluded from taking other lawful steps in accordance with the Act.

2.10 Additional observations

- The Court noted that the option to file objections before the DRP is exercised by the assessee and cannot be a ground for extending limitation periods.

- The procedure under Section 144C is a continuation of the assessment proceedings and not an appeal proceeding.

- The timelines under Section 144C are designed to ensure expeditious disposal of disputes involving eligible assessees, consistent with the legislative objective of promoting foreign investment and reducing uncertainty.

- The Court directed constitution of an appropriate Bench to consider the divergent opinions expressed.