2019 (1) TMI 606 - HC - Income Tax

Rectification of mistake - distribution fee was not royalty was recorded and yet not dealt with in the order - Held that - Tribunal ought to have decided the issue of the character of distribution fees is royalty or not, as all facts were available before it and submissions also made, rather than remanding the issue to TPO. Besides non-consideration of the above basic submission made at the hearing as recorded, is clearly a mistake apparent from the record. The Tribunal ought to have allowed the rectification application dated 5.10.2017 and recalled the order dated 26.7.2017 for fresh consideration of the appeal.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal under Section 254(2) of the Income Tax Act, 1961 for rectification of assessment year 2011-12.

Analysis:
The petitioner, engaged in distributing television channels, challenged the transfer pricing adjustment made by the Transfer Pricing Officer (TPO) of ?335.69 crores, which was later reduced to ?297.62 crores by the Disputes Resolution Panel (DRP). The assessing officer then passed a final assessment order. The petitioner contended that the distribution fees paid to its Associate Enterprises should not be considered as royalty, citing a previous court decision. However, the Tribunal did not address this issue and remanded it back to the TPO for fresh consideration.

The petitioner filed a rectification application under Section 254(2) of the Act, seeking clarification on the character of the distribution fee as royalty or not. The Tribunal rejected the application, stating that the issue had already been referred back to the assessing officer for fresh adjudication. The Tribunal's decision was based on the principle that not considering an argument made by a party does not warrant rectification, citing a previous court ruling.

The High Court found that the Tribunal's failure to address the fundamental dispute regarding the nature of the distribution fee as royalty or not was a mistake apparent from the record. The Court held that all necessary facts were available for the Tribunal to decide on the issue itself, rather than remanding it to the TPO. The Court emphasized that the Tribunal's decision led to further litigation and uncertainty for both the Revenue and the assessee.

In light of the above, the High Court allowed the petition, set aside the Tribunal's order, and directed the appeal to be restored to the Tribunal for fresh disposal in accordance with the law. The Court concluded the judgment by stating that no costs were to be awarded in the matter.