Recalling of earlier order by ITAT beyond the scope and ambit of the powers under Section 254(2) Income Tax Act: Supreme Court

  • Aishwarya Iyer
  • 08:18 PM, 04 Dec 2021

The Supreme Court on Friday held that recalling its earlier order is beyond the scope and ambit of the powers of ITAT under Section 254(2) of the Income Tax Act.

"In exercise of powers under Section 254(2) of the Act, the Appellate Tribunal may amend any order passed by it under sub-section (1) of Section 254 of the Act with a view to rectifying any mistake apparent from the record only. Therefore, the powers under Section 254(2) of the Act are akin to Order XLVII Rule 1 CPC...", held a bench of Justices MR Shah and BV Nagarathna.

"While considering the application under Section 254(2) of the Act, the Appellate Tribunal is not 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/correct any mistake apparent from the record", further opined the top court.

M/s Reliance Telecom Limited had entered into Supply Contract with Ericsson A.B. Thereafter, an application was filed under Section 195(2) of the Act before the Assessing Officer, to make payment to the non-resident company for purchase of software without TDS.

Reliance Telecom had contended that it was for the purchase of software and Ericsson A.B. had no permanent establishment in India and in terms of the DTAA between India and Sweden & USA, the amount paid is not taxable in India.

This application was rejected holding that the consideration for software licensing constituted under Section 9(1)(vi) of the Act and under Article 12(3) of the DTAA is liable to be taxed in India and accordingly Reliance was directed to deduct tax at the rate of 10% as royalty.

After deducting the tax, Reliance appealed before the Commissioner of Income Tax (Appeals) which ordered in its favor. The Revenue filed an appeal against this order, which was allowed by ITAT. In retaliation, Reliance filed miscellaneous application for rectification under Section 254(2) of the Act and an appeal before the High Court as well.

ITAT allowed the miscellaneous application and recalled its original order. The revenue had then preferred writ petition before the High Court which was dismissed. The instant appeal was filed against the said dismissal by the High Court.

The Bench observed that while allowing the application under Section 254(2) of the Act and recalling its earlier order, it appears that the ITAT has re-heard the entire appeal on merits as if the ITAT was deciding the appeal against the order passed by the C.I.T.

"If the Assessee was of the opinion that the order passed by the ITAT was erroneous, either on facts or in law, in that case, the only remedy available to the Assessee was to prefer the appeal before the High Court, which as such was already filed by the Assessee before the High Court, which the Assessee withdrew after the order passed by the ITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013", added the Bench.

Moreover, the grounds for dismissal mentioned in the impugned judgment and order passed by the High Court, were held to be untenable in law.

With this view, the court set aside the judgment of the High Court and the ITAT and restored the original orders passed by the ITAT in the respective appeals preferred by the Revenue.

Cause Title: Commissioner of Income Tax (IT-4), Mumbai v M/s Reliance Telecom Limited