2007 (10) TMI 648 - HC - Income Tax

Summary

Issues involved:
The judgment involves the interpretation of the provisions of section 263 of the Income-tax Act, 1961, specifically related to assessment orders passed by the Inspecting Assistant Commissioner under section 146(3) of the Act. The questions of law referred for opinion include the applicability of section 263 to such assessment orders, the existence of a business connection in India due to the functioning of Indian branches, and the tax liability of a non-resident assessee in India based on the activities of its Indian branch.

Interpretation of Section 263:
The counsel for the assessee argued that if it is held that the Commissioner of Income-tax could not exercise powers under section 263, then the subsequent questions regarding business connection and tax liability would become irrelevant. The counsel for the revenue acknowledged this position but highlighted that some High Courts have taken a different view based on the Explanation in the Act, considering it clarificatory and retrospective. The amendment to section 263 in 1984 was discussed, emphasizing its prospective effect from 1-10-1984, as mentioned in the Taxation Laws (Amendment) Act, 1984.

Comparison of Amendments:
The court compared the language of the 1984 amendment with the subsequent 1989 amendment to section 263, noting the addition of clause (c) in the latter. The Supreme Court's interpretation of the 1989 amendment was discussed, indicating that it was deemed retrospective. The absence of certain crucial words in the 1984 amendment highlighted its prospective nature. The court also examined previous decisions by different High Courts and emphasized the importance of analyzing the language used in each amendment for determining retrospective applicability.

Conclusion:
After reviewing the arguments and previous decisions, the court upheld its earlier stance established in a previous case, ruling in favor of the assessee regarding the applicability of section 263 to the assessment order in question. Consequently, the subsequent questions related to business connection and tax liability were deemed unnecessary for consideration. The court disposed of the reference accordingly, affirming its decision on question No. (1) in favor of the assessee and against the revenue.