COMMISSIONER OF INCOME TAX (IT-4), MUMBAI versus M/S RELIANCE TELECOM LIMITED on 3 December 2021

1. Feeling aggrieved and dissatisfied with the impugned commonjudgment and order dated 08.08.2017 passed by the High Court of A

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AJudicature at Bombay in Writ Petition No. 1432/2017 and Writ PetitionNo. 1406/2017, by which the High Court has dismissed the aforesaidwrit petitions preferred by the Commissioner of Income Tax (IT-4),Mumbai (hereinafter referred to as the ‘Revenue’) and has confirmedthe order passed by the Income Tax Appellate Tribunal, Bench at Mumbai(hereinafter referred to as the ‘ITAT’) dated 18.11.2016 passed inBMiscellaneous Application Nos. 261/M/2014 and 419/M/2013, by whichthe ITAT in exercise of powers under Section 254(2) of the Income TaxAct (hereinafter referred to as the ‘Act’) has recalled its earlier orderdated 06.09.2013 passed in ITA No. 5096/Mum/2008 and ITA No. 837/Mum/2007, the Revenue has preferred the present appeals.C

2. The facts leading to the present appeals in a nutshell are asunder. For the sake of convenience, the facts in Civil Appeal No. 7110of 2021 arising from Special Leave Petition (Civil) No.13963/2018 in thecase of M/s Reliance Telecom Limited (hereinafter referred to as the‘Assessee’) are narrated. The facts in another appeal are similar exceptDthat the assessee is different, but with respect to same group ofcompanies.

2.1 That the Assessee entered into Supply Contract dated15.06.2004 with Ericsson A.B. Assessee filed an application under Section195(2) of the Act before the Assessing Officer, to make payment to theEnon-resident company for purchase of software without TDS. It wascontended by the Assessee that it was for the purchase of software andEricsson A.B. had no permanent establishment in India and in terms ofthe DTAA between India and Sweden & USA, the amount paid is nottaxable in India.F2.2 The Assessing Officer passed an order dated 12.03.2007rejecting the Assessee’s application holding that the consideration forsoftware licensing constituted under Section 9(1)(vi) of the Act and underArticle 12(3) of the DTAA is liable to be taxed in India and accordinglydirected the assessee to deduct tax at the rate of 10% as royalty.

G2.3 The Assessee after deducting the tax appealed before theCommissioner of Income Tax (Appeals). CIT vide order dated27.05.2008 held in favour of the Assessee. Revenue appealed beforethe ITAT and by a detailed judgment and order dated 06.09.2013, theITAT allowed the Revenue’s appeal by relying upon the judgments/decisions of the Karnataka High Court and held that payments made forH

purchase of software are in the nature of royalty. Against the detailedjudgment and order dated 06.09.2013 passed by the ITAT, the Assesseefiled miscellaneous application for rectification under Section 254(2) ofthe Act. Simultaneously, the Assessee also filed the appeal before theHigh Court against the ITAT order dated 06.09.2013.

2.4 That vide common order dated 18.11.2016, the ITAT allowedthe Assessee’s miscellaneous application filed under Section 254(2) ofthe Act and recalled its original order dated 06.09.2013. Immediately, onpassing the order dated 18.11.2016 by the ITAT recalling its earlier orderdated 06.09.2013, the Assessee withdrew the appeal preferred beforethe High court, which was against the original order dated 06.09.2013.

2.5 Feeling aggrieved and dissatisfied with the order passed bythe ITAT allowing the miscellaneous application under Section 254(2) ofthe Act and recalling its earlier order dated 06.09.2013, the Revenuepreferred writ petition before the High Court. By the impugned commonjudgment and order, the High Court has dismissed the said writ petition/s. Hence, the Revenue is before this Court by way of present appeal/s.

3. We have heard Shri Balbir Singh, learned Additional SolicitorGeneral of India appearing on behalf of the Revenue and Shri AnujBerry, learned Advocate appearing on behalf of the ResolutionProfessional of the respondent-company. At this stage, it is required tobe noted that the respondent-company/companies – respective assesseescurrently are undergoing corporate insolvency resolution process andthe Resolution Professional is appointed. We have heard learned counselfor the Resolution Professional of the respondent-assessee.

3.1 We have considered the order dated 18.11.2016 passed bythe ITAT allowing the miscellaneous application in exercise of powersunder Section 254(2) of the Act and recalling its earlier order dated06.09.2013 as well as the original order passed by the ITAT dated06.09.2013.

3.2 Having gone through both the orders passed by the ITAT, weare of the opinion that the order passed by the ITAT dated 18.11.2016recalling its earlier order dated 06.09.2013 is beyond the scope and ambitof the powers under Section 254(2) of the Act. While allowing theapplication under Section 254(2) of the Act and recalling its earlier orderdated 06.09.2013, it appears that the ITAT has re-heard the entire appealon merits as if the ITAT was deciding the appeal against the order passed A

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Aby the C.I.T. In exercise of powers under Section 254(2) of the Act, theAppellate Tribunal may amend any order passed by it under sub-section(1) of Section 254 of the Act with a view to rectifying any mistakeapparent from the record only. Therefore, the powers under Section254(2) of the Act are akin to Order XLVII Rule 1 CPC. While consideringthe application under Section 254(2) of the Act, the Appellate Tribunal isBnot required to re-visit its earlier order and to go into detail on merits.The powers under Section 254(2) of the Act are only to rectify/correctany mistake apparent from the record.

4. In the present case, a detailed order was passed by the ITATwhen it passed an order on 06.09.2013, by which the ITAT held in favourCof the Revenue. Therefore, the said order could not have been recalledby the Appellate Tribunal in exercise of powers under Section 254(2) ofthe Act. If the Assessee was of the opinion that the order passed by theITAT was erroneous, either on facts or in law, in that case, the onlyremedy available to the Assessee was to prefer the appeal before theDHigh Court, which as such was already filed by the Assessee before theHigh Court, which the Assessee withdrew after the order passed by theITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013.Therefore, as such, the order passed by the ITAT recalling its earlierorder dated 06.09.2013 which has been passed in exercise of powersunder Section 254(2) of the Act is beyond the scope and ambit of theEpowers of the Appellate Tribunal conferred under Section 254 (2) of theAct. Therefore, the order passed by the ITAT dated 18.11.2016 recallingits earlier order dated 06.09.2013 is unsustainable, which ought to havebeen set aside by the High Court.

5. From the impugned judgment and order passed by the HighFCourt, it appears that the High Court has dismissed the writ petitions byobserving that (i) the Revenue itself had in detail gone into merits of thecase before the ITAT and the parties filed detailed submissions based onwhich the ITAT passed its order recalling its earlier order; (ii) the Revenuehad not contended that the ITAT had become functus officio afterGdelivering its original order and that if it had to relook/revisit the order, itmust be for limited purpose as permitted by Section 254(2) of the Act;and (iii) that the merits might have been decided erroneously but ITAThad the jurisdiction and within its powers it may pass an erroneous orderand that such objections had not been raised before ITAT.

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6. None of the aforesaid grounds are tenable in law. Merelybecause the Revenue might have in detail gone into the merits of thecase before the ITAT and merely because the parties might have fileddetailed submissions, it does not confer jurisdiction upon the ITAT topass the order de hors Section 254(2) of the Act. As observedhereinabove, the powers under Section 254(2) of the Act are only tocorrect and/or rectify the mistake apparent from the record and notbeyond that.

Even the observations that the merits might have been decidederroneously and the ITAT had jurisdiction and within its powers it maypass an order recalling its earlier order which is an erroneous order,cannot be accepted. As observed hereinabove, if the order passed bythe ITAT was erroneous on merits, in that case, the remedy available tothe Assessee was to prefer an appeal before the High Court, which infact was filed by the Assessee before the High Court, but later on theAssessee withdrew the same in the instant case.

7. In view of the above and for the reasons stated above, theimpugned common judgment and order passed by the High Court aswell as the common order passed by the ITAT dated 18.11.2016 recallingits earlier order dated 06.09.2013 deserve to be quashed and set asideand are accordingly quashed and set aside. The original orders passedby the ITAT dated 06.09.2013 passed in the respective appeals preferredby the Revenue are hereby restored.

8. Considering the fact that the Assessee had earlier preferredappeal/s before the High Court challenging the original order passed bythe ITAT dated 06.09.2013, which the Assessee withdrew in view of thesubsequent order passed by the ITAT dated 18.11.2016 recalling its earlierorder dated 06.09.2013, we observe that if the Assessee/s prefers/preferappeal/s before the High Court against the original order dated 06.09.2013within a period of six weeks from today, the same may be decided anddisposed of in accordance with law and on its/their own merits and withoutraising any objection with respect to limitation.

9. Both the appeals are accordingly allowed in the aforesaid terms.However, there shall be no order as to costs.

Devika Gujral

Appeals allowed.

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