MALINEE P MCMASTER vs. PRINCIPAL COMMISSIONER OF INCOME TAX AND ORS

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WP/343/2022HC BombayHCBM01040867202110 July 2023Bench: HON'BLE SHRI JUSTICE K.R. SHRIRAM,HON'BLE SHRI JUSTICE FIRDOSH PHIROZE POONIWALLA5 pages
AI SummaryRemanded

What did the High Court hold?

The High Court condoned the delay in filing the application under Section 264 of the Income Tax Act, 1961. The Court found that the assessee's explanation for the delay, stemming from her lack of awareness of the correct legal position under the India-USA DTAA, was plausible, and that the PCIT's refusal to condone the delay on the sole ground of insufficient supporting documents for this reason was not justified. Regarding the opportunity for hearing, the Court acknowledged the difficulties posed by the COVID-19 pandemic and the short notice given by the PCIT. It observed that the PCIT incorrectly recorded that the opportunity was not availed, as the assessee had communicated her inability to provide a detailed reply within the short timeframe due to the pandemic. Consequently, the Court quashed and set aside the impugned order of the PCIT and remanded the matter back to the PCIT for de novo consideration on merits. The PCIT was directed to grant a personal hearing to the assessee, with at least ten working days' advance notice. The Court explicitly stated that no observations were made on the merits of the matter.

What were the facts?

The assessee, a resident of India since August 7, 2012, filed her return of income for AY 2016-17 declaring Rs. 28,22,720. She had received US $12,804 each as social security benefit from the USA, equivalent to Rs. 849,326 each. This amount, including that received by her minor son, was offered to tax. In 2019, the assessee's Chartered Accountant realized this benefit was not taxable under Article 20(2) of the India-USA DTAA. The assessee filed an application under Section 264 on August 23, 2019, seeking revision of her income. The Principal Commissioner of Income Tax (PCIT) rejected the application on March 30, 2021, refusing to condone the delay and noting that the assessee did not avail the opportunity for a hearing. The assessee contended that the delay was due to her lack of awareness of the DTAA provisions and that the opportunity for hearing was missed due to the COVID-19 pandemic and a short notice.

What were the issues?

1. Whether the delay in filing the application under Section 264 of the Income Tax Act, 1961, for revision of income should be condoned, considering the assessee's claim of lack of awareness of the India-USA DTAA provisions (specifically Article 20(2)) as a sufficient cause. 2. Whether the assessee was afforded a proper opportunity for a hearing by the PCIT before the impugned order was passed, given the circumstances of the COVID-19 pandemic and the short notice provided. Assessee's Arguments: The assessee argued that the delay was unintentional and arose from her genuine lack of knowledge regarding the taxability of social security benefits under the DTAA. She contended that the opportunity for a hearing was not availed due to the prevailing COVID-19 situation, which made it difficult to consult her elderly representative, and the short notice given for the hearing. The assessee relied on the principle that delay should be condoned when there is a sufficient cause and that the opportunity for a hearing should be meaningful. Revenue's Arguments: The revenue, through the PCIT's order, contended that there was no sufficient cause for the delay in filing the revision application. It also noted that the assessee failed to avail the opportunity provided for explaining her case on merits.

Which sections of the Income-tax Act were involved?

Section 264,Section 143(1),Section 64

AI-generated summary — verify with the full judgment below

1 435&436-wp-343-2022 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.343 OF 2022 WITH WRIT PETITION NO.416 OF 2022 Malineee P. Mcmaster … Petitioner V/s. Principal Commissioner of Income Tax & Ors.

… Respondents ----- Mr. Dharan V. Gandhi for Petitioner in both Petitions. Mr. Suresh Kumar for Respondents in both Petitions. ----- CORAM : K. R. SHRIRAM & FIRDOSH P. POONIWALLA, JJ. DATE : 11th JULY 2023. P. C.:- WRIT PETITION NO.

343

2022

1.

Petitioner, a widow, is a resident of India. Petitioner was earlier resident of United States of America (‘USA’) and returned to India on 7th August 2012 on transfer of residence from USA. Since then Petitioner has been a resident of India and has been regularly filing her Return of Income. 2. For the Assessment Year (“AY”) 2016-17 Petitioner filed a Return of income on 19th July 2016 declaring total income of Rs.28,22,720/-. While in USA, Petitioner did not pay any taxes as her income was exempt in USA. Mr. Gandhi states that Petitioner moved to India after her husband expired. Ashvini Kakde

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2 435&436-wp-343-2022 Petitioner’s minor son lives with Petitioner. Petitioner and her son got US $12,804/-each equivalent to Rs.849,326/-(each) at the prevalent rate of exchange as social security benefit from Government of USA. The social security benefit amount that the minor son received was also clubbed with the income of Petitioner in accordance with the provisions of Section 64 of the Income Tax Act 1961(“the Act”) and offered for tax by Petitioner in her Return of Income for AY 2016-17. The Return of Income was processed and intimation dated 9th October 2016 under Section 143(1) of the Act was communicated to Petitioner. 3. It is averred in the Petition that some time in the year 2019, Petitioner’s Chartered Accountant realized that the social security benefit that Petitioner and her minor son received was not chargeable to tax as per Clause-2 of Article-20 of the India-USA Double Taxation Avoidance Agreement (“DTAA”). Petitioner realized that the same was wrongly offered to tax by Petitioner in her Return of Income. Since Petitioner had not preferred any Appeal, Petitioner filed an Application on 23rd August 2019 under Section 264 of the Act for leave to revise the income at Rs.11,25,570/- after deducting Rs. 8,49,326/- X 2 and Petitioner be taxed accordingly. Respondent No.1, by an order dated 30th March 2021, rejected this Application. Respondent No.1 refused to condone the delay and also has Ashvini Kakde

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3 435&436-wp-343-2022 observed that on merit, an opportunity was provided to Petitioner to explain vide communication dated 23rd March 2021 but the same has not been availed. 4. In the Revision Application, Petitioner has explained the reason for the delay in the Petition. It is Petitioner’s case that Petitioner has submitted the Application after she came to know about Article 20 of DTAA (between India and USA). The delay has not been condoned only on the ground that Petitioner has failed to submit any explanation/supporting documents to prove that she has been prevented by sufficient cause from making this Application. We do not understand what supporting documents could be submitted for the reason given in the Application because Petitioner has simply stated that she was not aware about the correct position in law until the date on which she made the Application. 5. As regards not availing of the opportunity to explain on the merits, Petitioner has, in response to the notice for hearing dated 20th March 2021 addressed a communication dated 23rd March 2021 in which Petitioner has stated (and we must be conscious of the fact that this was during the peak Covid Pandemic time) that due to Covid it was difficult to approach her representative Shri. Maganlal Thacker, who is 86 years old to submit details as required by him and submit proper reply within such a short time. Short Ashvini Kakde

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4 435&436-wp-343-2022 time is because in the notice dated 20th March 2021 Petitioner was informed that hearing was fixed at 3.00 p.m. on 23rd March 2021. Petitioner had sought eight days time to submit written submissions/representation. Respondent No.2 without considering the request has passed the order on 30th March 2021 and has incorrectly recorded that the opportunity was not availed. 6. Therefore, we condone the delay in filing the Application under Section 264 and remand the matter to Respondent No.1 to consider the Application de-novo on merits. Respondent No.1 before he passes any order, shall give a personal hearing to Petitioner, notice whereof shall be communicated at least ten working days in advance. 7. Petition disposed. 8. We hasten to add that we have not made any observation on the merits of the matter. WRIT PETITION NO.416 OF 2022 1. The facts in this case are identical to the facts in Writ Petition No.343 of 2022, except that the Assessment Year is different-2015-16 in this case. The impugned order is identically worded and the grounds are also identical. Ashvini Kakde

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5 435&436-wp-343-2022 2. In the circumstances, in view of our order passed in Writ Petition No.343 of 2022 and the reasons given therein, impugned order dated 30th March 2021 in this Petition is also quashed and set aside. 3. We condone the delay in filing the Application under Section 264 and remand the matter to Respondent No.1 to consider the Application de-novo on merits. Respondent No.1, before he passes any order, shall give a personal hearing to Petitioner, notice whereof shall be communicated at least 10 working days in advance. 4. Petition disposed. 5. We hasten to add that we have not made any observation on the merits of the matter. (FIRDOSH P. POONIWALLA., J.) (K. R. SHRIRAM, J.) Ashvini Kakde

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