Case Note & Summary
This separate opinion by Nagarathna J. arises from civil appeals filed by the Revenue against a common order of the Bombay High Court. The High Court had allowed writ petitions filed by non-resident assessees (respondents) engaged in oil exploration services, holding that draft assessment orders passed just before expiry of limitation were invalid because the mandatory procedure under Section 144C of the Income Tax Act, 1961 could not be completed within the limitation period prescribed by Section 153. The assessees had opted for presumptive taxation under Section 44BB but later filed returns showing losses. After scrutiny, draft assessment orders were issued, and the Dispute Resolution Panel (DRP) process was followed. The original final assessment order was appealed to the Income Tax Appellate Tribunal, which remanded the matter. On remand, the Assessing Officer issued fresh draft assessment orders on 28 September 2021, two days before the extended limitation deadline of 30 September 2021 under Section 153(3) read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA). The assessees contended that the remaining steps under Section 144C—filing objections, DRP directions, and final order—would necessarily exceed the limitation. The Bombay High Court, following the Madras High Court in Roca Bathroom Products, quashed the draft orders. On appeal, a two-judge bench of the Supreme Court divided: Satish Chandra Sharma J. allowed the Revenue’s appeals, while Nagarathna J. delivered this dissenting opinion dismissing them. Nagarathna J. framed the core legal question as whether the eleven-month period under Section 144C is in addition to or must be subsumed within the limitation under Section 153. The Revenue argued that Section 144C is a self-contained code with non-obstante clauses that override Section 153, thus providing additional time. The assessees argued that limitation is strict and Section 144C cannot extend it. Nagarathna J., after hearing submissions, concluded that the appeals should be dismissed, thereby affirming the High Court’s view that the time for Section 144C proceedings must be accommodated within the limitation period, and that the non-obstante clauses do not extend limitation. She emphasized that statutory interpretation of fiscal laws must respect clear timelines. The special leave petition concerning an interim order was also dismissed. The result of the split bench was that the appeals would stand dismissed as a majority could not be formed.
Headnote
A) Income Tax - Assessment Procedure - Limitation - Income Tax Act, 1961, Sections 144C, 153 - The issue was whether the limitation under Section 153 applies to proceedings under Section 144C or whether Section 144C provides an extended timeline. Nagarathna J. held that the period for completing assessment under Section 144C must be subsumed within the limitation under Section 153 and dismissed the Revenue's appeals. (Paras 2.2, 4.1-4.3) B) Statutory Interpretation - Non-Obstante Clause - Effect on Limitation - Income Tax Act, 1961, Section 144C - The Revenue argued that the non-obstante clauses in Section 144C override the limitation in Section 153. Nagarathna J. rejected this and held that the non-obstante clauses do not extend the limitation period but only ensure the special procedure applies. (Paras 4.2, 4.3) C) Tax Procedure - Draft Assessment Order - Limitation Expiry - Income Tax Act, 1961, Sections 144C, 153 - The Revenue issued a draft order two days before expiry of limitation. The court noted that such timing renders the Section 144C procedure impossible to complete within limitation, and held that the Revenue must pass the draft order sufficiently in advance. (Paras 2.2, 3.2-3.5)
Issue of Consideration
Interpretation of Section 144C in light of Section 153 of the Income Tax Act, 1961, specifically whether the eleven-month period under Section 144C is additional to the limitation period prescribed under Section 153(1) or (3) and whether the time consumed in proceedings under Section 144C must be subsumed within such limitation.
Final Decision
Nagarathna, J. dismissed the appeals filed by the Revenue in SLP(C) Nos.20569-20572 of 2023 and dismissed the special leave petition in SLP(C) No.25798 of 2024, thereby affirming the Bombay High Court's view that the limitation period under Section 153 must accommodate the entire Section 144C procedure, and the non-obstante clauses do not extend limitation.
Law Points
- period under Section 144C must be subsumed within limitation under Section 153
- non-obstante clause does not extend limitation
- harmonious construction of fiscal statutes
- draft assessment order must be passed sufficiently in advance to complete DRP process within limitation
