S J SANGHVI vs. COMMISSIONER OF INCOME TAX

ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) This petition challenges order dated 29.12.1995 passed under section 264 of the Income Tax Act, 1961 [the Act] by respondent No.1 in relation to A.Y. 93-94. The relevant facts which are material for the purposes of appreciating the present controversy read as under, as stated in paragraph No.2 of the petition:

“2. The assessment year herein concerned is 1993-94. During this year, the petitioner rendered service as a Professor in Socialist Peoples' Libyan Arab Jamahiriya Al-Arab Medical University and earned salary income equivalent to Rs.5,66,392 on which tax equivalent to Rs.1,63,802 was deducted at source by the said employer. The petitioner submitted a return under section 139, showing the said income and also stating that Rs.1,63,802 was the T.D.S. therefrom in Libya. Under section 80R, 50% of the above income is available by way of deduction and accordingly the petitioner did claim in the statement of income (copy at Exhibit 'A'.) the deduction of Rs.2,83,196. Further in the said statement of income the petitioner claimed a deduction of Rs.1,26,872 when in fact he had paid, as stated above, Rs.1,63,802 TDS in Libya on the said income. The assessing officer passed 143 (1) (a)

SCA/2711/1996 3/7 order (copy at Exhibit 'B'). In the annexed hereto marked Exhibit 'C' and since what is reported in Taxation is a summary of the decision, xerox copy of the full decision as report in 51 TTJ 97 is annexed hereto marked Exhibit C1. Therefore, the petitioner submitted a revised return with a statement of income (copy at Exhibit 'D'), wherein the petitioner showed that as the TDS of Rs.1,63,802 paid in Libya was more than Rs.1,40,183 which is otherwise payable on the total income of the petitioner, nothing is payable by the petitioner and he is entitled to the refund of Rs.15000 paid as advance tax on 15.10.1992. The petitioner thereafter preferred a revision application dated 6th July, 1995 (copy at Exhibit 'E') to the Respondent NO.1, stating the above facts, also drawing attention to the above Tribunal decision in Dr. D.K. Jain's case and praying for the refund of the advance tax of Rs.15000 with interest. Respondent No.1 passed an adverse order dated 29.12.1995 (copy at Exhibit 'F') rather made the petitioner worse off without even giving notice to his desire to make the petitioner worse off. Respondent No.1 reproduced the relevant Article 20 of the India Libya Double Taxation Agreement which is as follows:

SCA/2711/1996 4/7 “1. When a resident of a Contracting state derives income which has also suffered tax in the other Contracting State, the first mentioned State shall allow a deduction from its tax on the income of that person equal to the tax in the other Contracting State; provided that the deduction shall not exceed that part of the tax, as computed before the deduction is given which is applicable to the income taxed in the other Contracting State.” The grievance of the petitioner is that while framing the order under section 264 of the Act, the respondent authority has exceeded his jurisdiction by issuing directions to respondent No. 2 so as to result in a situation where the petitioner is made worse off in a Revision Application moved by the petitioner. It is submitted that even if the petitioner may not be entitled to any relief as prayed for in the Revision Application, the petitioner cannot be saddled with any additional liability in an application moved by the petitioner without granting an opportunity of hearing or a notice in accordance with law. Learned Senior Standing Counsel appearing on behalf of the respondent authorities has relied on the reasons recorded by respondent No.1 in the impugned order to submit that the petition is required to be rejected. The relevant operative part of the impugned order reads as under:

SCA/2711/1996 5/7 “6. In view of the above, the application filed by the assessee is rejected. It is seen from the computation of income that credit for TDS was given at Rs.1,26,872/- which is not correct. The A.O. is directed to give relief u/s. 90 by giving rebate at the average rate applicable to the total income of the assessee, on the foreign income included in the total income.” Section 264 of the Act under sub-section (1) specifically stipulates that in case of any order made by an authority subordinate to him, the Commissioner may, either of his own motion or on an application by the assessee in revision, call for the record in any proceedings under the Act in which any such order has been passed and after making such inquiry or causing such inquiries to be made, make an order, not being an order prejudicial to the assessee, as the Commissioner may think fit, subject to the provisions of the Act. Therefore, the section itself contemplates passing of an order whereby either the applicant assessee can be granted relief in the revision petition preferred by the assessee or the revision petition can at best be rejected, but no order prejudicial to the interest of the applicant assessee can be passed under section 264 of the Act. The reason is that under section 263 of the Act, the Commissioner is empowered to pass an order which is prejudicial to an assessee but even under the said provision, legislature has specifically provided that such an order can be made after giving the assessee an opportunity of being heard.

SCA/2711/1996 6/7 In the present case, admittedly respondent No. 1 was called upon to exercise powers on a Revision Application made under section 264 of the Act. The respondent No.1

therefore could not have passed an order which was prejudicial to the petitioner assessee. In the event respondent No.1 wanted to exercise powers under section 263 of the Act, an independent notice granting an opportunity of hearing was required to be issued after establishing existence of jurisdictional facts. In the absence of such an exercise, the impugned order to the extent it is adverse to the petitioner assessee cannot be sustained. In the circumstances, the following direction issued to respondent No.2 authority in the impugned order, which is made by respondent NO.2 without jurisdiction, is quashed and set aside: “It is seen from the computation of income that credit for TDS was given at Rs.1,26,872/- which is not correct. The A.O. is directed to give relief u/s. 90 by giving rebate at the average rate applicable to the total income of the assessee, on the foreign income included in the total income.” The petition is accordingly allowed to the aforesaid extent. Rule is made absolute accordingly. There shall be no order as to costs. [D.A.MEHTA, J.]

SCA/2711/1996 7/7 mathew [H.B.ANTANI, J.]