Case Note & Summary
The case involves appeals by the Revenue against a common judgment of the Bombay High Court, which dismissed writ petitions challenging an order of the Income Tax Appellate Tribunal (ITAT) recalling its earlier order. The dispute originated from an application under Section 195(2) of the Income Tax Act, 1961, filed by the assessee (Reliance Telecom Limited and Reliance Communications Limited) seeking permission to make payments to a non-resident company (Ericsson A.B.) for software purchase without tax deduction at source. The Assessing Officer rejected the application, holding that the payment constituted royalty under Section 9(1)(vi) of the Act and Article 12(3) of the DTAA, and directed TDS at 10%. The CIT (Appeals) ruled in favor of the assessee, but the ITAT, by a detailed order dated 06.09.2013, allowed the Revenue's appeal, relying on Karnataka High Court decisions. The assessee filed a miscellaneous application under Section 254(2) for rectification and also an appeal before the High Court. The ITAT, by order dated 18.11.2016, allowed the miscellaneous application and recalled its earlier order, after which the assessee withdrew the High Court appeal. The Revenue challenged the recall order before the High Court, which dismissed the writ petitions. The Supreme Court held that the ITAT's recall order was beyond the scope of Section 254(2), which only permits rectification of mistakes apparent from the record, akin to Order XLVII Rule 1 CPC. The ITAT had re-heard the entire appeal on merits, which was impermissible. The Supreme Court quashed the ITAT's recall order and the High Court's judgment, restored the original ITAT order dated 06.09.2013, and granted the assessee six weeks to file a fresh appeal before the High Court, which shall be decided on merits without limitation objection.
Headnote
A) Income Tax - Rectification of Mistake - Section 254(2) of the Income Tax Act, 1961 - Powers of ITAT - The ITAT allowed a miscellaneous application under Section 254(2) and recalled its earlier order dated 06.09.2013 by re-hearing the entire appeal on merits. The Supreme Court held that the powers under Section 254(2) are akin to Order XLVII Rule 1 CPC and are limited to rectifying mistakes apparent from the record. The ITAT cannot revisit its earlier order or go into merits under the guise of rectification. The order recalling the earlier order was beyond the scope of Section 254(2) and was quashed. (Paras 3-6) B) Income Tax - Remedy Against Erroneous Order - Section 254(2) of the Income Tax Act, 1961 - If the assessee considered the ITAT order erroneous on facts or law, the remedy was to file an appeal before the High Court, not to seek recall under Section 254(2). The assessee had already filed an appeal but withdrew it after the ITAT recalled its order. The Supreme Court restored the original ITAT order and granted the assessee six weeks to file a fresh appeal before the High Court, which shall be decided on merits without limitation objection. (Paras 4, 7-8)
Issue of Consideration
Whether the Income Tax Appellate Tribunal (ITAT) can recall its earlier order under Section 254(2) of the Income Tax Act, 1961, by re-hearing the entire appeal on merits, or whether its powers are limited to rectifying mistakes apparent from the record.
Final Decision
The Supreme Court allowed the appeals, quashed the impugned common judgment of the High Court and the ITAT order dated 18.11.2016, restored the original ITAT order dated 06.09.2013, and granted the assessee six weeks to file a fresh appeal before the High Court, which shall be decided on merits without limitation objection.
Law Points
- Section 254(2) of Income Tax Act
- 1961
- powers of rectification
- mistake apparent from record
- functus officio
- scope of review
- Order XLVII Rule 1 CPC
