Finance Bill (No. 2) 2009
proposes to insert new section 144C and amend provisions of Ss. 131, 246A, and
253 to introduce a new scheme for Dispute Resolution.
2.1. What is DRP
DRP is a Collegium of three
Commissioners of Income Tax (CIT) to be constituted by the Central Board of
Direct Taxes (CBDT) for the purpose (S. 144C(16)(a)). A body of three CITs
would be constituted by the CBDT to decide specified issues. CBDT will also
make Rules for functioning of DRP (S. 144C(14)).
2.2. Eligible assessees
2.2.1 S. 144C(16)(b)
provides the class of assessees who would be entitled to and be subject to
process of DRP. The Scheme proposes that process of dispute resolution would
apply only to two specified class of assessees. Maybe with time and
experience gained, the category of cases that may be referred would be
widened. The two class of assessees specified as eligible assessee’s are as
follows:
i) Any person in whose case
TPO has passed order u/s. 92CA(3) varying its income, and ii) any foreign
company.
2.2.2 S. 92C gives
power to Assessing Officer to vary price in any international transaction
entered into by an assessee by applying arm’s length price for the
transaction and determine total income chargeable to tax under Income-tax
Act, 1961 accordingly. Under section 92CA, the AO may refer the matter of
determination of arm’s length price for an international transaction to
Transfer Pricing Officer (TPO) and order passed by the TPO on reference
would be binding on the Assessing Officer. The CBDT has by an administrative
circular fixed monetary limit for cases in which Assessing Officer may
determine arm’s length price himself without reference to TPO and when
reference has to be made to TPO. As only in cases where order is passed by
TPO u/s. 92CA(3) would be referred to DRP, cases where variation in arm’s
length price for an international transaction, in case of an assessee other
than a foreign company, is carried out by Assessing Officer without
reference to TPO, such variation would not be subject to proceedings under
S. 144C.
2.3. When to be referred
to DRP
2.3.1 Sub section
(1) provides that in every case of eligible assessee, the Assessing Officer
shall make a draft assessment order, if he proposes to vary income to
prejudice of eligible assessee. Though eligibility is only if order is
passed by TPO u/s. 92CA(3) or in case of a foreign company, once variation
is proposed, all issues would be before the DRP. Any decision in assessment
which would be prejudicial to eligible assessee would be subject matter of
draft assessment order and therefore will be referred to DRP.
2.3.2 Sub-section
(2) provides that an assessee served with the draft assessment order may
either file objection with both the DRP and the Assessing Officer on the
draft assessment order within thirty days of receipt of such order or file
his acceptance for proposed variations with the Assessing Officer.
2.3.3 The case is
referred to DRP only if the assessee files objection within thirty days. If
assessee files acceptance with Assessing Officer for the proposed variations
or does not file objections with DRP within thirty days, then under sub-
section (3), the Assessing Officer shall pass assessment order on the basis
of draft order.
2.3.4 If objection
is not filed with DRP within prescribed time or assessee accepts variation,
case will not be referred to DRP but Assessing Officer has to pass final
assessment order on the basis of draft order.
Whether assessee can opt
not to refer the case to DRP
2.3.5 Question
arises as to whether the assessee has an option not to refer the case to DRP
and yet object to the variation proposed. In my opinion, the assessee can
opt not to refer the case to DRP and yet object to variations proposed by
the Assessing Officer. The assessee can file objections with the Assessing
Officer after period of thirty days but before due to date of passing the
assessment order. As objections are not filed within thirty days with DRP,
case does not get referred to DRP. Though the Assessing Officer has to pass
orders on the basis of draft order but regular appeal to Commissioner of
Income Tax (Appeals) u/s. 246A is not barred. Appeal to Commissioner of
Income Tax (Appeals) is barred only in case where assessment order is passed
in pursuance of directions of DRP and not otherwise.
Whether assessee can file
further submissions and evidences with DRP after filing of objections
2.3.6 The assessee
has to file objections to DRP within specified time of thirty days and the
same may not be sufficient in all cases. Case is referred to DRP only if
assessee files objection to draft order with DRP within thirty days of
receipt of draft order and there is no provision for extension of time. In
case of scarcity of time, the assessee may file grounds of objections within
prescribed time and later file further submissions before or during the
course of hearing granted by DRP. Sub-section (11) provides for opportunity
for hearing and sub- section (6) provides that DRP shall issue directions
after considering the objections filed by assessee and evidences furnished
by the assessee.
2.4 Powers of DRP
Section 131 is proposed to be
amended and DRP shall have all the powers granted to an income tax authority
u/s. 131. Also under sub-section (7) of S. 144C, the DRP may itself make such
enquiries or cause any further enquiry by any Income Tax Authority and report
the result of such enquiry.
2.5 Orders of DRP
2.5.1 Sub-section
(5) of S. 144C provides that the DRP may issue such directions as it thinks
fit for the guidance of Assessing Officer to enable him to complete the
assessment. Sub-section (10) provides that such directions will be binding
on the Assessing Officer. The directions are binding only on the Assessing
Officer and not on the assessee. Though no appeal is provided against the
directions of the DRP, the assessee can file appeal against the assessment
order passed in pursuance of such directions with Income Tax Appellate
Tribunal.
2.5.2 Sub-section
(8) provides that the DRP may confirm, reduce, or enhance the variation
proposed in draft assessment order. The wordings are similar to S. 251
except that unlike the Commissioner of Income Tax (Appeals) the DRP cannot
annul the draft assessment order. It has been further specifically provided
that the DRP shall not set aside the proposed variation nor issue direction
for further enquiry and passing of assessment order. Therefore the DRP has
to pass a final order on the variation proposed and not set aside for
further enquiry. It is a salutary provision inasmuch as finality will be
given without prolonging the issue.
2.5.3 Issue arises
whether the DRP can delve on its jurisdiction to deal with the issue or of
reference of the case to it u/s. 144C. Any authority before which any legal
proceedings are being prosecuted has the jurisdiction to decide whether it
has jurisdiction to deal with the case. Though DRP does not have
jurisdiction to annul the draft assessment order, it has jurisdiction and
also the duty, on being issue being raised before it, to decide whether it
has jurisdiction to issue directions u/s. 144C(5). In view of S. 292BB, it
is essential that irrespective of whether the DRP disposes of objections as
to its jurisdiction, the assessee raises objections to DRP’s jurisdiction,
if it is of the view that the DRP does not have the necessary jurisdiction.
2.5.4 Sub-section
(9) of S. 144C provides that in case of difference of opinion amongst
members of the DRP, points shall be decided according to the opinion of the
majority.
2.5.5 Sub-section
(11) provides that before issuing directions which are prejudicial to the
assessee, opportunity of being heard will be granted to the assessee.
Similarly if the directions are prejudicial to the Assessing Officer,
opportunity of being heard shall be granted to the Assessing Officer.
2.5.6 Sub section
(6) provides that DRP shall issue directions under sub section (5) after
considering the draft assessment order, objections and evidences filed by
the assessee, enquiry made or caused to be made, reports of Assessing
Officer, the TPO, or any other authority.
2.6 Time limits
2.6.1 No time limit
has been prescribed for passing of the draft assessment order and in view of
extension of time to pass assessment orders subsequent to passing the draft
assessment order, draft assessment order shall have to be passed within time
prescribed for passing of the assessment order u/s. 153.
2.6.2 If the assessee
intends to object to variations in draft assessment order with DRP, it has to
file objections with DRP and the Assessing Officer within thirty days of
receipt of draft assessment order.
2.6.3 If assessee
accepts the variation proposed in the draft assessment order or does not file
objections with DRP and the Assessing Officer within thirty days of receipt of
draft order, then under sub-section (3) Assessing Officer has to pass
assessment order within one month from the end of month in which acceptance is
received or time for filing objection expires.
2.6.4 The DRP has to
issue directions under sub- section (5) within nine months of the end of month
in which draft assessment order is forwarded to the assessee. The time limit
starts from the month in which draft assessment order is forwarded by
Assessing Officer irrespective of month in which order is served on the
assessee and month in which objections are filed by the assessee.
2.6.5 The Assessing
Officer shall pass assessment order within one month from end of month in
which direction is received from the DRP.
2.7 Appeals
No appeal has been provided
against the directions issued by the DRP but appeal can be filed u/s. 253
against assessment order passed in pursuance of such directions with the
Income Tax Appellate Tribunal. Appeal can be filed only by the assessee and
department cannot file appeal against directions issued by DRP nor against the
assessment order.
One is advised to look for
pitfalls in carrying out any act by a saying: “Look before you Leap”. The
spate of amendments following any new provision for exemption/deduction
inspires one to give the same advice to law makers. S. 80IB(10) was enacted
w.e.f. 1-10-1998 granting exemption to developer and builders developing a
housing project if prescribed conditions are satisfied. The provisions have
been amended from time to time and benefit of deduction of profits is
available only in respect of housing projects commenced on or before
31-3-2007. As benefit is not available to projects commenced after 31-3-2007,
one would not be unreasonable to expect that no legislative amendment would be
made to the said provisions. But that is not to be. Two amendments have been
proposed to provisions of S. 80-IB(10).
3.1 Size of residential
unit
3.1.1 Clause (c) of
S. 80IB(10) provides condition as to size of residential unit in eligible
housing project. It provides that size of residential unit in a housing
project in city of Mumbai and Delhi should not exceed 1000 sq. ft. and in
any other areas is should not exceed 1500 sq. ft. Disputes have arisen as to
whether condition is violated if a flat purchaser buys more than one unit
either by himself or in names of his relatives and amalgamates the two
flats. The department took the stand that size of residential unit after
amalgamation of two or more units exceeds the prescribed size and the
assessee contended that it has no control over units after sale and that it
had constructed units within the prescribed sized.
3.1.2 Clause (e) is
proposed to be inserted in S. 80-IB(10) with effect from 1-4-2010. It
provides that not more than one unit shall be allotted to any person other
than an individual. In case of sale to an individual, no other unit is
allotted in the housing project to spouse or minor child of such individual
or to an HUF of which such individual is a Karta or any person representing
them. If project is consists of more than one building, the restriction is
on second allotment in whole of the project and not only in the same
building. Further, once the condition is violated deduction will be denied
on whole of the project and not only profit from sale of flats in violation
of the condition.
3.1.3 As amendment
is w.e.f. 1-4-2010, in respect of projects completed on or before 31-3-2009
in respect of which deduction is claimed prior to A. Y. 2010-11, amendment
will not apply. In respect of projects completed after the said date issue
would arise as to whether condition can apply to projects which have already
commenced.
3.1.4 If sale of
flats in violation of condition prescribed by clause (e) is made after
amendment then obviously condition is applicable. However, in cases where
sale in violation of such condition has already been made prior to
amendment, but deduction is claimed on or after A. Y. 2010-11, the
department would contend that law as on first day of the assessment year
would apply and therefore amended law would apply to claim u/s. 80-IB(10).
It is possible to contend in reply to such a contention that law as on first
day of assessment year is applicable subject to exceptions (See CIT vs.
Laxman Singh (1986) 159 ITR 983 (Raj) and CIT vs. Nirmal Textiles (1997) 224
ITR 378 (Guj)). It can be contended that in case of 80-IB(10), as far as
conditions for eligible project one has to look at provisions in the year in
which project commenced and not when project is completed and deduction is
claimed.
3.1.5 Such an
amendment also amounts to violation of promise of deduction of profits and
assessee may be able to claim that such an amendment violates principle of
promissory estoppel and reliance can be placed on Motilal Padampat Sugar
Mills P Ltd vs. State of Uttar Pradesh (1979) 118 ITR 326 (SC).
3.2 Deduction only to
a developer and not to a contractor S. 80-IB(10) reads: “in case of an
undertaking developing and building housing projects”. The intention of the
Legislature is manifest in the opening para itself that deduction is allowable
only to a developer. Issue has arisen in few cases about whether the deduction
is allowable to a contractor; though the issue was more of interpretation of
document of purchase of land, as to whether the assessee is a developer or a
contractor and it has been largely undisputed that deduction is not allowable
to a mere contractor. Explanation is proposed to be inserted with
retrospective effect from 1-4-2001 to provide that benefit would not be
available to an undertaking executing housing project as a works contract.