IBS SOFTWARE PRIVATE LIMITED V. THE UNION OF INDIA

WP(C)/32098/2018

AI Insights

The case involves IBS Software Private Limited, which challenged a notice under Section 148 of the Income Tax Act concerning income escaping assessment for the assessment year 2008-09. The notice was issued after the company had previously secured a stay on the original assessment proceedings from the High Court. The core legal issue was whether the period of stay in the original proceedings could be excluded from the limitation period for issuing notices under Section 149. The Department argued that equity should allow for such exclusion, citing similarities with Section 153, which does allow for exclusion of time during judicial stays. However, the court found that Section 149 explicitly does not provide for such exclusion, and thus, the notice was barred by limitation.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 679040 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 28-11-2018
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: CHRISTOPHER ABRAHAM; K PANDALAI; M N VEDARA; JAI SHANKAR NAIR
• Assessee Lawyers: M NAMBIAR; JOSON MANAVALAN; K MATHAI; KURYAN THOMAS; PAULOSE ABRAHAM; P GOPINATH; RAJAKANNAN
• Keywords: Income escaping assessment; Limitation; Reassessment; Stay; Equity vs Statute
• Section: 147; 148; 153; 149

Judgement Text

"C R IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU WEDNESDAY,THE 28TH DAY OF NOVEMBER 2018 / 7TH AGRAHAYANA, 1940 WP(C).No. 32098 of 2018 PETITIONER: IBS SOFTWARE PRIVATE LIMITED (FORMERLY KNOWN AS IBS SOFTWARE SERVICES PRIVATE LIMITED), 521-524, NILA, TECHNOPARK CAMPUS, THIRUVANANTHAPURAM-695 518, REPRESENTED BY ITS CFO, VIKAS SUREKA. BY ADVS. SRI.M.GOPIKRISHNAN NAMBIAR SRI.JOSON MANAVALAN SRI.K.JOHN MATHAI SRI.KURYAN THOMAS SRI.PAULOSE C. ABRAHAM SRI.P.GOPINATH SRI.RAJA KANNAN RESPONDENTS: 1 THE UNION OF INDIA, REPRESENTED BY THE SECRETARY, MINISTRY OF FINANCE (DEPARTMENT OF REVENUE), NORTH BLOCK, NEW DELHI- 110 001. 2 THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1), AAYAKAR BHAVAN, KOWDIAR P.O. THIRUVANANTHAPURAM - 695 003. 3 THE COMMISSIONER OF INCOME TAX, AAYAKAR BHAVAN KOWDIAR P.O. THIRUVANANTHAPURAM - 695 003. BY ADVS. SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT SRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT SRI.M.N.VEDARAJ SRI JAISHANKAR. V. NAIR, CGC THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 28.11.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).No. 32098 of 2018 2 C R JUDGMENT An assessee faced assessment proceedings. Its challenge against them is pending before the Appellate Tribunal. Initially, before this Court, the assessee enjoyed the stay for a few years. Pending those proceedings, the petitioner faced a notice under Section 148 of the Income Tax Act; the notice concerns income escaping assessment. The notice is attacked on the grounds of limitation—four years under Section 149 of the Act. Under Section 153 of the Act time limit for assessment and reassessment is flexible; the period of stay or injunction stands excluded. But Section 149 does not enjoy such accommodation. 2. To save the limitation under Section 149, the Department takes shelter under the equity principle, for Section 153 of the Act saves the limitation under, as the Department puts it, similar circumstances. Can equity supplant statute? Facts: 3. Petitioner, IBS Software, is an assessee under the Income Tax Act. For the assessment year 2008-09, he suffered the Ext.P2 order of assessment, dated 28-12-2011. Assailing that order of assessment, IBS Software filed W.P.(C) No.1102 of 2012. It enjoyed a stay for three years and seven months. WP(C).No. 32098 of 2018 3 Eventually, this Court, through the Ext.P3 judgment, dated 13-03-2015, refused to entertain the writ petition. Instead, it allowed IBS Software to assail the Ext.P2 before the Appellate Authority. Indeed, IBS Software did file an appeal but had it rejected, through the Ext.P4 order. Now it seems that against that order of rejection, IBS Software is before the Appellate Tribunal with its second appeal. 4. On the other hand, the Department issued the Ext.P6 notice on 28- 03-2018, under Section 148 of the Income Tax Act. It concerns the alleged “escaped assessment”. IBS Software has submitted its Ext.P7 objection. The principal objection is that the Ext.P6 notice is barred by limitation. But the Department, through the Ext.P8, rejected the IBS Software’s objections and decided to proceed. Aggrieved, IBS Software has filed this writ petition. Submissions: Petitioner’s: 5. Sri Gopinath Menon, the learned counsel for IBS Software, has acknowledged that IBS Software enjoyed the stay, granted by this Court, in the original assessment proceedings. But that very stay never disabled, according to him, the Department from invoking Section 148 of the Income Tax Act and reassess IBS Software’s income. Unless there is an express saving as contained WP(C).No. 32098 of 2018 4 in Section 153, the Department cannot defeat IBS Software’s accrued right. 6. In response, the Standing Counsel for the Income Tax Department has submitted that only because of the stay this Court imposed on all further proceedings, could the Department not proceed to invoke Section 147 of the Act. According to him, whatever applies under Section 153, as with the original assessment orders, should apply as a matter of equity against the reassessment, too. 7. Heard the learned counsel for the petitioner, learned Standing Counsel for the Department and the learned Central Government Counsel. Discussion: 8. Indeed the facts are not in dispute. IBS Software first assailed Ext.P2 original assessment order and secured a stay from this Court. That stay lasted for over three years. The question is, has the stay in the pending original proceedings, or the litigation concerning the original assessment proceedings, disabled the Department from taking appropriate steps to reassess IBS Software on escaped assessment? 9. We will examine the statutory scheme. Section 147 of the Act deals with the income escaping assessment. 10. Under Section 147, if the Assessing Officer suspects that any income WP(C).No. 32098 of 2018 5 chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income and also any other income which comes to his notice in the course of the proceedings. This assessment or reassessment is subject to Sections 148 to 153. He can recompute the loss or the depreciation allowance or any other allowance for the assessment year concerned. 11. The proviso sets limitations. If an assessment is made under subsection (3) of Section 143 or Section 147 for the relevant assessment year, “no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year”. But this limitation does not apply if the income chargeable to tax has escaped assessment because of the assessee’s failure to make a return under section 139 or, in response to a notice under Section 142(1), or Section 148. Even if the assessee fails to disclose fully and truly all material facts necessary for his assessment for that year, the limitation does not affect the proceedings. 12. Section 147, to the extent relevant, reads: 147. Income escaping assessment.— If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss WP(C).No. 32098 of 2018 6 or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: * * * Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. * * * [Italics supplied] 13. Section 148 mandates the Assessing Authority to put the assessee on notice before his making the assessment, reassessment, or recomputation under section 147. Through that notice, he will ask the assessee to furnish, within a specified period, a return of his income or the income of any other person for which he is assessable. Section 149, however, sets the time limit for notice. The Assessing Authority shall issue no notice under section 148 if four WP(C).No. 32098 of 2018 7 years has elapsed from the end of the relevant assessment year. Clause (b) and clause (c) carve out exceptions, though. Under clause (b), if the income escaped from assessment comes to one lakh rupees or more for that assessment year, the notice can be issued in six years. When the income relates to assets located abroad, the limitation is sixteen years. 14. Section 149 of the Act reads: 149. Time limit for notice.— (1) No notice under Section 148 shall be issued for the relevant assessment year,— 1[(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) 2[or clause (c)]; (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year.] 3[(c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment.] Explanation.—In determining income chargeable to tax which has escaped assessment for the purposes of this subsection, the provisions of Explanation 2 of Section 147 shall apply as they apply for the purposes of that section. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of Section 151. WP(C).No. 32098 of 2018 8 (3) If the person on whom a notice under Section 148 is to be served is a person treated as the agent of a non-resident under Section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of 4[six years] from the end of the relevant assessment year. 5[Explanation.—For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.] 15. We may finally turn to Section 153 of the Act. It deals with the time limit for completion of the assessment, reassessment, and recomputation. Subsection (1) of Section 153 mandates that no order of assessment shall be made under section 143 or section 144 at any time after twenty-one months from the end of the assessment year in which the income was first assessable. Explanation to this Section holds the key. Under explanation 1, in clause (ii), finds mentioned is the delay because of judicial intervention. So to the extent relevant, we will extract Section 153: 153. Time limit for completion of assessment, reassessment and recomputation.— (1) No order of assessment shall be made under Section 143 or Section 144 at any time after the expiry of twenty- one months from the end of the assessment year in which the income was first assessable: * * * Explanation 1.— For the purposes of this section, in computing the period of limitation— WP(C).No. 32098 of 2018 9 (i) the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be reheard under the proviso to Section 129; or * * * (italics supplied) 16. Now, we will put the statutory stipulations in perspective. The first proviso to Section 147 of the Act fixes a time frame. If an assessment either under subsection (3) of Section 143 or Section 147 has been made, no action shall be taken under Section 147 after four years from the end of the relevant assessment year. But this limitation of four years does not apply if any income chargeable to tax has escaped assessment for that assessment year; this escapement must have been because of the assessee's failure to file a return under Section 139 or in response to a notice issued under sub-section (1) of section 142 or Section 148, or to disclose fully and truly all material facts necessary for his assessment for that assessment year. 17. Section 148 provides for the procedural mechanism. It reckons that the Department can issue a notice to the assessee on whatever escaped assessment. Then Section 149 explicitly mentions the time limit for notice. No notice under Section 148 can be issued for the relevant assessment year if four years has elapsed from the end of the relevant assessment year. Of course, WP(C).No. 32098 of 2018 10 clauses (b) and (c) carve out exceptions. If the case falls under either clause, the limitation could be extended, subject to other conditions, however. 18. Under Section 153, clause (ii) to the first explanation mandates that the period during which the assessment proceedings are stayed by order of stay or injunction by any court must be excluded. Conspicuously Section 149 does not contain any such exception as does Section 153. Of the two analogous provisions, one may contain an exception, and the other does not. Then the missing exception is by legislative design. That is, the legislature has intended to apply the exception to one set of facts but not the other. To hold that Section 149 stands out and does not have the luxury of extended limitation as does Section 153, we may also refer to Section 150 of the Act. 19. The notice under Section 148 may be issued at any time for assessing, or reassessing, or recomputing. If that notice is issued based on any finding or direction, or order by any authority in any proceeding under this Act, it may be based on a Court’s order in any proceeding under any other law. That exception apart under Section 150, I find no other. In other words, Section 149 does not control this provision if the proceedings have judicial or quasi- judicial backing. 20. In fact, the Department’s defence, filed as its counsel’s statement, too WP(C).No. 32098 of 2018 11 admits that Section 149 has no statutory exception to exclude the time during which the Court stayed the proceedings. It places on the record that “there is no statutory support for such a claim unlike that available under Section 153, which specifically provides for the exclusion of the period during which the assessment proceeding is stayed by order of injunction of any court.” Then it adds, “the present claim is, therefore, made on the basis of equitable consideration.” I am afraid once a statute governs a field of activity, then equity has no role to play; equity yields to a statute. 21. Under these circumstances, I hold that the proceedings the Department initiated against the petitioner could not be sustained. As a result, the Writ Petition stands allowed as prayed for. Sd/- DAMA SESHADRI NAIDU JUDGE mpm / sd WP(C).No. 32098 of 2018 12 APPENDIX PETITIONER'S/S EXHIBITS: EXHIBIT P1 THE TRUE COPY OF THE ORDER DATED 26/12/2011 ISSUED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-1, TRIVANDRUM UNDER SECTION 144A OF THE IT ACT, FOR THE A.Y.2008-09. EXHIBIT P2 THE TRUE COPY OF THE ORDER OF ASSESSMENT DATED 28/12/2011 ISSUED BY THE 2ND RESPONDENT UNDER SECTION 143(3)READ WITH 144A FOR THE ASSESSMENT YEAR 2008-09. EXHIBIT P3 THE TRUE COPY OF THE JUDGMENT DATED 13/03/2015 PASSED BY THIS HON'BLE COURT IN W.P.(C) NO.1102/2012. EXHIBIT P4 THE TRUE COPY OF THE APPELLATE ORDER DATED 12/07/2016 ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS), TRIVANDRUM, RELATING TO THE AY 2008-09. EXHIBIT P5 THE TRUE COPY OF THE APPEAL MEMORANDUM (WITHOUT ANNEXURES) DATED 06/09/2016 FILED AGAINST EXHIBIT P4 ORDER, BEFORE THE INCOME TAX APPELLATE TRIBUNAL, COCHIN. EXHIBIT P6 THE TRUE COPY OF THE NOTICE DATED 28/03/2018, ISSUED BY THE 2ND RESPONDENT UNDER SECTION 148 OF THE IT ACT FOR THE YEAR 2008-09. EXHIBIT P7 THE TRUE COPY OF THE REPLY DATED 03/04/2018 SUBMITTED BY THE PETITIONER IN RESPONSE TO EXHIBIT P6 NOTICE. EXHIBIT P8 THE TRUE COPY OF THE ORDER DATED 23/07/2018 ISSUED BY THE 2ND RESPONDENT RELATING TO THE A.Y.2008-09. RESPONDENTS' EXHIBITS - NIL // TRUE COPY // P.A. TO JUDGE SD "