THE PRINCIPAL COMMISSIONER OF INCOME TAX vs. CHAMBAL FERTILIZERS AND CHEMICALS LTD.

PDF · subscribers
ITA/47/2025HC RajasthanRJHC02029276202511 August 2025Author: SANJEEV PRAKASH SHARMA,SANJEET PUROHIT2 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the ITAT's findings on both issues were factual. Regarding the first issue, the Tribunal noted the ITAT's conclusion that payments made to an Indian Bank, to which the Bank Negotiation Act, 1949 applies, are exempt from TDS under Section 194A(3)(iii). Therefore, the PCIT's order remanding the matter to the Assessing Officer on this point was deemed illegal and factually incorrect. Concerning the second issue, the Tribunal observed that the ITAT factually determined that the assessee held more than the prescribed 26% shares under Section 115BBD, leading to the conclusion that income from the joint venture was to be treated as dividend income. As these were factual findings, the High Court did not interfere.

What were the facts?

The Revenue has appealed against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had quashed an order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. The PCIT's order had set aside the original order passed by the Assessing Officer. The appeal concerns the assessment year(s) not explicitly stated but implied to be under review. The dispute involves the tax treatment of interest paid outside India or to non-residents, and dividend income under Section 115BBD.

What were the issues?

1. Whether the ITAT erred in holding that non-deduction of TDS on interest paid outside India or to non-residents (other than companies) was correctly decided, in light of Section 194 of the Act of 1961? The Revenue contends that the ITAT's decision on TDS non-deduction was incorrect. The Assessee's arguments are not explicitly detailed, but the ITAT's finding suggests reliance on Section 194A(3)(iii). 2. Whether the ITAT correctly decided that dividend income, as per Section 115BBD, should be treated as business income? The Revenue argues this was incorrectly decided. The ITAT's finding indicates a factual determination regarding the assessee's shareholding and the nature of the income.

Which sections of the Income-tax Act were involved?

Section 263,Section 194,Section 194A(3),Section 115BBD

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
[2025:RJ-JP:31076-DB] HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 47/2025 The Principal Commissioner Of Income Tax, Aayakar Bhawan Udaipur Rajasthan Subcity Centre, Savina, Udaipur (Raj). ----Appellant Versus Chambal Fertilizers And Chemicals Ltd., Cfcl Complex Gadepan,kota- 325208, Rajasthan. (Pan No. Aaacc 9762 A). ----Respondent For Appellant(s) : Mr. Shantanu Sharma, Adv. with Mr. Aditya Doda, Adv. For Respondent(s) : HON'BLE MR. JUSTICE SANJEEV PRAKASH SHARMA HON'BLE MR. JUSTICE SANJEET PUROHIT

Order 11/08/2025

1.

The present appeal has been preferred by the Revenue assailing the order passed by the Income Tax Officer, whereby the order passed by the Principle Commissioner of Income Tax (For short ‘PCIT’) under Section 263 of the Income Tax Act, 1961 (for short ‘the Act of 1961’) invoking Section 263 of the Act of 1961 setting aside the order passed by the Assessing Officer, was quashed.

2.

Learned counsel appearing for the Revenue submits that issuance of non-deduction of TDS on the interest paid outside India or paid in India to the non-resident other than a company or a foreign company and the issue of dividend as per Section 115BBD should be treated as a business income, has not been correctly decided by the ITAT.

[2025:RJ-JP:31076-DB] (2 of 2) [ITA-47/2025]

3.

We find that both the questions of law as framed and suggested by learned counsel are on the issues which are on factual aspects. Categorical factual finding has been arrived by the ITAT on the aspect relating to application under Section 194 of the Act of 1961 to the facts of the present case. The ITAT has upon considering the provisions under Section 194A(3) reached to the conclusion that payments made to an Indian Bank would not invite deduction at source in view of provisions contained under Section 194A(3)(iii). The income credited to any banking company to which the Bank Negotiation Act, 1949 applies would be out of the purview of Section 194 and TDS could not have been deducted.

4.

In view thereto, the order passed by the PCIT remanding the matter back to the Assessing Officer on the said question was held to be illegal and do not conform to the facts of the case. The second aspect relating to the income received by way of dividend on account of declaration of dividend was examined factually by the ITAT and it has reached to the conclusion that the assessee had 33.33% share which were more than 26% shares prescribed under Section 115BBD of the Act of 1961 and therefore, the income received from the joint venture was to be treated as dividend income.

5.

These are factual findings and this Court, therefore, is not required to go into the same. No other question of law arises in the present appeal and the same is accordingly, dismissed.

6.

Pending application, if any, also stands disposed of. (SANJEET PUROHIT),J (SANJEEV PRAKASH SHARMA),J MAHIMA/RAHUL/23

More judgments on Section 263

All 13,616 judgments and leading authorities on Section 263 →

Recent GST High Court judgments

Search GST case law →