2024 (9) TMI 1570 - HC - Income Tax

Maintainability of appeal against High Court - Appropriate remedy for the petitioner is to avail of a statutory appeal - order u/s 201 (1) raising a demand and interest u/s 201 (1A) - TDS u/s 195 non deducted on acquisition/purchase of a Trade Mark registered in India by the petitioner from the foreign/non-resident group entities Whether the petitioner has made out any case of patent illegality of the impugned order and / or of any gross jurisdictional error going to the root of the proceedings so that an exception needs to be carved out to deviate from the well settled principle of law that once a statutory remedy as prescribed by law is available a litigant needs to take recourse to such statutory remedy? - HELD THAT - We are of the opinion that necessarily mixed issues of fact and law arise for consideration in the present proceedings in testing the impugned order on its merits which would include applicability of the principles of territoriality as recognized by Toyota Jidosha Kabushiki Kaisha 2017 (12) TMI 1886 - SUPREME COURT - Also the petitioner s contention relying on the decision in Cub Pty Limited 2016 (7) TMI 1094 - DELHI HIGH COURT when it recognizes principles of situs of the Trade Mark being of the ownership of the foreign entity whether would apply in the facts of the present case and more particularly on examining the different clauses / terms and conditions of the agreement so as to be considered that the situs fell outside India are issues which can be effectively gone into by the Appellate Authority for appropriate findings of fact to be recorded and thereafter the issue being tested on the principles of law as laid down in the different decisions being relied on behalf of the parties. We may also observe that this is certainly not a case where the Assessing Officer has conferred upon himself a jurisdiction which is not vested in him in law in passing the impugned order so that the Court needs to hold that the authority lacked jurisdiction to pass the impugned order. Certainly if the Assessing Officer was to exercise jurisdiction not vested in him or in a patently illegal manner or ex facie contrary to the substantive provisions of the Income Tax Act then certainly following the well settled principles of law as laid down in catena of judgments of the Supreme Court the Court would unhesitatingly interfere in writ proceedings. However the petitioner s contention that the Deputy Commissioner in view of the decision of the Delhi High Court in CUB Pty Ltd. 2016 (7) TMI 1094 - DELHI HIGH COURT ought to have held that the transaction in question fell outside the purview of the Income Tax Act as the seller of the trade mark was a foreign entity is certainly a debatable issue on applicability of the legal principles vis-a-vis the substantive provisions of the Act. This cannot be said to be an issue determining the substantive jurisdiction of the Dy. Commissioner as conferred under the provisions of the Act to initiate an action under Section 201. It would be a question merely as to whether the principles of law in a given decision were applicable in the facts and circumstances of the case and more particularly when it is vehemently contested on behalf of the Revenue that such decision of the Delhi High Court is not applicable to the facts in hand. In our opinion these are routine issues which arise before the authorities under the Income Tax Act as also the Income Tax Appellate Tribunal or in any adjudicatory process before the Court. However the applicability or non applicability of any decision in our opinion certainly does not present a core jurisdictional issue when tested on the powers conferred on the authority under the substantive provisions of the Act. Considering the facts of the case once a substantive statutory remedy is provided and available to the petitioner it would not be appropriate that the Court exercises its extraordinary jurisdiction under Article 226 of the Constitution and entertain this writ petition. If the proposition as canvassed by Mr. Mistri is to be applied then the appellate remedy as provided under the Act would remain to be a paper provision and every order passed by the Assessing Officer on the considerations as canvassed before us would be amenable to challenge in writ proceedings. In our opinion this is certainly not an acceptable proposition. As decided in Kharghar Co-op. Housing Societies Federation Ltd. through General Secretary Anr. vs. Municipal Commissioner Panvel Municipal Corporation Ors 2023 (4) TMI 1241 - BOMBAY HIGH COURT Court had held that it may not be appropriate for the Writ Court to short circuit or circumvent statutory procedures and it is only where statutory remedies are entirely ill-suited to meet the demands of extraordinary situations or where private or public wrongs are so inextricably mixed up and the prevention of public injury and the vindication of public justice require a recourse to Article 226 of the Constitution be permitted. Insofar as the issue of limitation is concerned it appears to be an admitted position that Section 201 ipso facto has not provided for any limitation of one year. We may also refer to the decision of the Division Bench of the Telangana High Court which considered the decision of this Court in Mahindra Mahindra Limited 2014 (7) TMI 265 - BOMBAY HIGH COURT as also the decision of Bharti Airtel Limited Vs. Union of India 2016 (12) TMI 1601 - DELHI HIGH COURT wherein the Division Bench held that the legislature has consciously not prescribed any time limit for an order under Section 201 (1) of the Act insofar as non-resident is concerned; the reason being that deductee is a non-resident it may not be administratively possible to recover the tax from the non-resident. We are not persuaded to accept the case of the petitioner that the present writ petition be made an exception and the same be entertained by not relegating the petitioner to avail of alternate remedy of an appeal as provided under the Act. We accordingly dismiss this petition permitting the petitioner to avail of the statutory remedy of an appeal. All contentions of the parties on all issues of facts and law are expressly kept open. We permit the petitioner to file an appeal within 15 days from the receipt of the fresh order along with stay application including to make appropriate prayers in regard to penalty proceedings. Till appropriate orders are passed on the stay application the demand be not enforced against the petitioner.

Summary

Issues Involved:
1. Jurisdiction and applicability of Section 195 of the Income Tax Act.
2. Compliance with the principles of territoriality.
3. Limitation period for passing an order under Section 201 of the Income Tax Act.
4. Availability and appropriateness of alternate remedies.
5. Propriety of the Deputy Commissioner's comments on a judicial decision.

Issue-wise Detailed Analysis:

1. Jurisdiction and Applicability of Section 195 of the Income Tax Act:
The petitioner challenged the order dated 23 August 2024, passed under Section 201(1) and (1A) of the Income Tax Act, raising a demand for non-compliance with Section 195 regarding TDS on the acquisition of a trademark registered in India. The petitioner argued that the acquisition did not involve the transfer of a capital asset in India, thus not attracting capital gains under Section 9(1)(i) of the Act. The petitioner relied on the Delhi High Court's decision in CUB PTY Ltd. and the Bombay High Court's decision in Mahyco Monsanto Biotech to support their claim that there was no obligation to deduct tax at source. The Court noted that these issues presented mixed questions of fact and law, which could be effectively addressed in appellate proceedings.

2. Compliance with the Principles of Territoriality:
The Additional Solicitor General (ASG) argued that the trademark, being registered in India, constituted an asset within the country's territory, thus attracting the provisions of Section 195. The ASG relied on the Supreme Court's decision in Toyota Jidosha Kabushiki Kaisha, which affirmed the territoriality principle. The Court recognized that the principles of territoriality were central to the case and should be examined by the appellate authority, particularly regarding the applicability of the Trade Marks Act and the situs of the trademark.

3. Limitation Period for Passing an Order under Section 201 of the Income Tax Act:
The petitioner contended that the impugned order was not passed within a reasonable period, referencing the Income Tax Appellate Tribunal's decision in Mahindra and Mahindra Limited and the Bombay High Court's acceptance of a one-year limitation period. The Court observed that Section 201 does not prescribe a specific limitation period and noted that the Tribunal's suggestion of a one-year limit was not conclusively upheld by the High Court. The Court also referred to the Telangana High Court's decision, which emphasized that the legislature had not prescribed a limitation period for non-residents, suggesting that a reasonable period should be determined based on the facts and circumstances of each case.

4. Availability and Appropriateness of Alternate Remedies:
The Court emphasized that the petitioner had an efficacious alternate remedy of an appeal under Section 253 of the Income Tax Act. The Court cited several precedents, including Shivram Poddar and S.B. Singar Singh & Sons, to underscore that the writ jurisdiction should not be used to bypass statutory appellate remedies. The Court concluded that the issues raised by the petitioner, involving mixed questions of fact and law, could be effectively addressed by the appellate authority.

5. Propriety of the Deputy Commissioner's Comments on a Judicial Decision:
The petitioner criticized the Deputy Commissioner's comments on the Delhi High Court's decision in CUB PTY Ltd., terming them as per incuriam. The ASG agreed that the comments were unwarranted and lacked propriety, and apologized on behalf of the department. The Court took serious note of the inappropriate language used by the Deputy Commissioner and directed that the offending comments be expunged from the order. The Court also urged the Revenue Department to ensure that its officers maintain propriety in their quasi-judicial roles through regular training sessions.

Conclusion:
The Court dismissed the writ petition, directing the petitioner to avail of the statutory appellate remedy. The petitioner was permitted to file an appeal within 15 days from the receipt of the fresh order, along with a stay application. The Court ordered that the demand not be enforced until appropriate orders were passed on the stay application. The Court also directed the deletion of the Deputy Commissioner's inappropriate comments from the impugned order and emphasized the need for propriety in the language used by Revenue officers in their orders.