PRINCIPAL COMMISSIONER OF INCOME TAX-I vs. M/S K.S. CAPITAL SERVICES PRIVATE LIMITED

ITA 63/2024 & other connected matter

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$~5& 6 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 63/2024 THE COMMISSIONER OF INCOME TAX - INTERNATIONAL TAXATION -3 ..... Appellant Through: Mr. Ruchir Bhatia, SSC with Ms. Deeksha Gupta, Adv.

versus

QUALCOMM INCORPORATED

..... Respondent Through: Mr. Percy Pardiwalla, Sr. Adv. with Mr. Nishant Thakkar, Mr. Nikhil Ranjan, Ms. Jasmin Amalsadwala & Mr. Kamal K. Arya, Advs. 6 + ITA 64/2024 THE COMMISSIONER OF INCOME TAX - INTERNATIONAL TAXATION -3 ..... Appellant Through: Mr. Ruchir Bhatia, SSC with Ms. Deeksha Gupta, Adv.

versus

QUALCOMM INCORPORATED

..... Respondent Through: Mr. Percy Pardiwalla, Sr. Adv. with Mr. Nishant Thakkar, Mr. Nikhil Ranjan, Ms. Jasmin Amalsadwala & Mr. Kamal K. Arya, Advs.

CORAM:

HON'BLE MR. JUSTICE YASHWANT VARMA HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV

O R D E R %

16.02.2024

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appeals assails the order of the Income Tax Appellate Tribunal1 dated 24 November 2021 for Assessment Year2 2006-07 [ITA No. 63/2024] and AY 2005-06 [ITA No. 64/2024]. The ITAT has essentially held that the draft as well as the final assessment orders framed by the Assessing Officer3 for the subject AYs’ would be barred by limitation in terms of the provisions of Section 153(2A). Sub-section 2A as it stood on the statute book at the relevant time read as follows:- “(2A) Notwithstanding anything contained in sub-sections (1), (1A), (1B) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment in pursuance of an order under section 250 or section 254 or section 263 or section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of one year from the end of the financial year in which the order under section 250 is received by the Principal Chief Commissioner or section 254 is or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be the order under section 263 or section 264 is passed by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner:

Provided that where the order under section 250 or section 254 is received by the Principal Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, on or after the 1st day of April, 1999 but before the 1st day of April, 2000, such an order of fresh assessment may be made at any time to the 31st day up to of March, 2002: Provided further that where the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner on or after the 1st day of April, 2005 but before the 1st day of April, 2011, the provisions of this sub-section shall have effect as if for the words "one year", the words "nine months" had been substituted: Provided also that where the order under section 254 is received by

1 ITAT 2 AYs 3 AO This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 18/12/2024 at 15:12:50

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the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or as the case may be, the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner on or after the 1st day of April, 2006 but before the 1st day of April, 2010, and during the course of the proceedings for the fresh assessment of total income, a reference under sub-section (1) of section 92CA- (i) was made before the 1st day of June, 2007 but an order under sub-section (3) of section 92CA has not been made before such date; or (ii) is made on or after the 1st day of June, 2007, the provisions of this sub-section shall, notwithstanding anything contained in the second proviso, have effect as if for the words "one year", the words "twenty-one months" had been substituted: Provided also that where the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner as the case may be, the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner on or after the 1st day of the proceeding for the fresh assessment of total income, a reference under sub-section (1) of section 92CA is made, the provisions of this sub-section shall, notwithstanding anything contained in the second proviso, have effect as if for the words "one year", the words "two years" had been substituted.”

4 2017 SCC OnLine Del 7622 5 2019 SCC OnLine Del 12407 This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 18/12/2024 at 15:12:50

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The appeals propose the following question of law for our consideration: - “(i) Whether on the facts and circumstances of the case the Income Tax Appellate Tribunal has erred in holding that the draft assessment order and final assessment order passed by the Assessing Officer, are barred by limitation under section 153(2A) of the Income Tax Act, 1961?” 3. For the purposes of evaluating the correctness of the submissions which were addressed on behalf of the appellants, we propose to take note of the following salient facts as they appear in ITA 64/2024. On 03 April 2007, the assessee filed its Return of Income which thereafter appears to have been selected for scrutiny assessment and a notice under Section 143(2) of the Income Tax Act, 19616 being issued. On 31 December 2007, the AO passed an assessment order referable to Section 143(3) determining the total taxable income of the respondent at INR 138,83,40,893/-. It also taxed the revenue of the assessee generated through BREW operator agreements as well as royalty on the sale of CDMA handsets. 4. Aggrieved by the aforesaid, the respondent preferred an appeal before the Commissioner of Income Tax (Appeals)7 which confirmed the view taken by the AO in terms of its order dated 26 September 2009. The CIT(A), however, accorded partial relief to the respondent by permitting recomputation of the income of the assessee for AY 2005-06 in relation to the number of CDMA handsets. The assessee took the aforesaid order before the ITAT and which by its judgment of 20 February 2015 deleted the additions with respect to revenue earned through BREW operator agreement and partially

6 Act 7 CIT(A) This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 18/12/2024 at 15:12:50

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remanded the matter to the file of the AO to consider related issues afresh. It is pursuant to the aforesaid order of remit that the AO on 27 December 2016 drew up a draft assessment order. 5. Aggrieved by the aforesaid and asserting that the same had come to be made beyond the period prescribed under Section 153(2A), the respondent filed its objections before the Dispute Resolution Panel8. Those objections came to be disposed of with the DRP confirming the order of the AO on 26 September 2017. Pursuant to the rejection of those objections, a final assessment order came to be framed on 31 October 2017. It was the aforenoted orders which came to be assailed before the ITAT. 6. The ITAT has while accepting the assertion of the respondents observed as under: - “39. When the Assessing Officer framed order dated 12.03.2015 giving appeal effect to the order of the Tribunal, he was in full knowledge of the decision of the Tribunal. In our considered opinion, the word “received” mentioned in section 153 (2A) of the Act (supra) has to be construed as “having knowledge”. Since the Assessing Officer had full knowledge of the order of the Tribunal and pursuant to such knowledge, he framed the appeal effect order dated 12.03.2015, therefore, the remaining effect should also have been given on or before 31.03.2016. The draft orders dated 27.12.2016 and final assessment orders dated 30.10.2017 are, therefore, barred by limitation in light of the judicial decisions of the Hon’ble Jurisdictional High Court of Delhi (supra) and the Hon’ble High Court of Kerala (supra). Allowing the additional grounds raised by the assessee, we hold that draft assessment orders and final assessment orders are barred by limitation. 40. Since we have quashed the assessment order as null and void being barred by limitation, we do not find it necessary to dwell into the merits of the case.” 7. It was the correctness of the aforesaid view which was questioned by Mr. Bhatia before us. Mr. Bhatia submitted that the

8 DRP This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 18/12/2024 at 15:12:50

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ITAT has clearly erred in seeking to interpret the word “received” as occurring in Section 153(2A) as being equivalent to knowledge being derived of the order passed by the ITAT. It was his submission that the decision in Odeon Builders as well as GE Energy Parts were clearly distinguishable since in those cases certified copies had in fact been obtained and it was the aforesaid facet which led to the Court answering the questions that stood posited against the Revenue. According to learned counsel, the word “received” cannot possibly be construed as intending limitation to be computed from the date when the Commissioner may have derived knowledge of the order passed by the ITAT. According to learned counsel, acceptance of such a view would clearly amount to reconstructing Section 153(2A) and substituting the word “received” with aspects of knowledge derived. 8. Appearing for the assessee, Mr. Pardiwalla, learned senior counsel, contended that the issue stands conclusively settled by the judgment of the Full Bench in Odeon Builders and consequently there exists no justification for the Court to either admit or entertain these appeals. It was the submission of Mr. Pardiwalla that quite apart from the principles which the Full Bench enunciated, GE Energy Parts was a decision more apt having been rendered on facts identical to those which obtain in the present case. 9. It was submitted that a plain reading of the order dated 12 March 2015 would establish that the AO had full knowledge of the order dated 20 February 2015 passed by the ITAT and consequently the period of limitation as prescribed in Section 153(2A) would have to be computed accordingly. 10. Our attention was drawn to the order of 12 March 2015 which reads thus:- This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 18/12/2024 at 15:12:50

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“INCOME TAX DEPARTMENT 1 Name of the assessee M/s Qualcomm Incorporated 2 Address C/o S.R. Batliboi & Co. 401, 4th Floor, Ashoka Bhopal Chambers, S.P. Road, Secunderabad. 3 Assessment Year 2005-06 4 PAN AAACQ1484H 5 Circle Circle -3(1)(1), International Taxation, New Delhi 6 Status Foreign Company 7 Whether Resident/Resident but Not Ordinarily Resident/ Non-reside Non-Resident 8 Previous year 2004-05 9 Date of Order 12.03.2015

Appeal Effect to the order of Hon'ble ITAT New Delhi The assessee filed return of income declaring a taxable income of Rs. 5,32,88,790/-. Assessment was completed u/s. 143(3)/250 18.09.2009 at an income of Rs. 125,52,57,206/-. The assessee filed return of income holding that the royalty income was not taxable in India as the company is a tax resident of USA and the OEM's from which the royalty was received are situated out side India. Against the assessment order, the assessee filed appeal before the. Ld. CIT(A) where CIT(A) upheld action of the A.O but reduced the amount of Royalty chargeable to tax in India. The assessing Officer held that the royalty received by the company is taxable in India as the end users are situated in India. Accordingly, the income was assessed at Rs. 125,52,57,206/- taxable at 15% being royalty and FTS. The assessee further preferred an appeal before Hon'ble ITAT, Delhi Bench, New Delhi. Hon'ble ITAT has restored back the matter to the Assessing Officer vide the consolidated order dated 20.02.2015. While restoring back, hon'ble ITAT has allowed a partial relief of Rs. 2,72,68,740/- on this issue Royalty from Brew Operator Agreement, which has been held to be not taxable in India.

In view of the Hob'ble ITAT combined order dated 20.02.2015 in ITA No. 3701 & 3702/Del/2009, 5343/Del/2010 This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 18/12/2024 at 15:12:50

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and 4608/Del/Del/11 which is a combined order for A.Y. 2005-06 to 2008-09. The income of the assessee is recalculated u/s 254 as under:-

Income assessed u/s 143(3)/250

Rs. 125,52,57,206/-

Less: Relief granted by the Hon'ble ITAT (Royalty from Brew Operator Agreement) Rs 2,72,68,740/-

The other additions made in the assessment order under head Royalty on Handsets of Rs.78,53,40,000/- and Royalty on Infrastructure Equipments of Rs 39,04,76,313/- are also being reduced for giving statistical effect to the order of hon'ble ITAT.

Net Taxable Income

Rs. 5,32,88,790/-

Appeal effect given as above for statistical purpose. Allow credit for taxes paid and calculate interest as per law. Issue necessary forms.

(Sanjoy Paul) Deputy Commissioner of Income Tax Cir-3(1)(1), Int’I Taxation, New Delhi Copy to the assessee Deputy Commissioner of Income Tax Cir-3(1)(1), Int’I Taxation, New Delhi”

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whether the words “Principal Chief Commissioner” or “Chief Commissioner” as appearing in Section 260A(2)(a) were liable to be interpreted to mean the jurisdictional Principal of Chief Commissioner of Income Tax, the Full Bench also considered the contention of the Revenue that unless the jurisdictional Commissioner receives a copy of the order of the ITAT, the limitation prescribed in the aforenoted provision for filing an appeal would not commence. It becomes pertinent to note that Section 260A also employs the expression “is received” and thus stands at par with Section 153(2A). 13. The Full Bench firstly took note of the ITAT having adopted the practice of pronouncing orders in terms of the observations as rendered by the Court in Commissioner of Income Tax v. Sudhir Choudhrie9. It thus took note of both the authorized representative of the assessee as well as of the Department becoming aware of the judgment of the ITAT upon its pronouncement. It also took note of the significant distinction which existed between Section 256(3) and Section 260A with the former using the word “served” as distinguished from “received” as occurring in Section 260A. The Full Bench thereafter proceeded to reject the contention of the Department that the receipt of the order of the ITAT must be considered as being service upon the jurisdictional Commissioner holding that the acceptance of such a view would amount to rewriting 153(2A) and construing that provision contemplating receipt of the order by the “concerned” Commissioner or Principal Commissioner of Income Tax. 14. It thereafter proceeded to render the following significant observations: -

9 2005 SCC OnLine Del 726 This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 18/12/2024 at 15:12:50

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“38. In other words, there can be no doubt that in all cases where the decision of the Income-tax Appellate Tribunal has gone against the Revenue, it is the Revenue as a whole which is the "aggrieved party". An individual Commissioner of Income-tax or Principal Commissioner of Income-tax can prefer the appeal on behalf of the Revenue as an aggrieved party. If the legislative intent was to confer the power to file an appeal only by the "concerned" Commissioner of Income-tax or Principal Commissioner of Income-tax or Chief Commissioner of Income- tax, then words to that effect ought to have been used. The use of the prefix "the" preceding the words Commissioner of Income-tax or Principal Commissioner of Income- tax in section 260A(2)(a) serves only the grammatical correctness of a preposition and nothing more. It is not to be read as meaning "that particular Commissioner of Income-tax" or the "concerned Commissioner of Income-tax". 39. The interpretation of the prefix "the" has to be both purposive and contextual. The object of the provision is to enable the filing of appeals within a period of limitation. As it is, the period of limitation (120 days) is considerably longer than in routine cases (30, 60 or a maximum of 90 days). The interpretation has to serve the purpose of not lengthening the period of limitation further, but to ensure that the time limit is strictly adhered to. Relaxation of the period of limitation in such cases has to be an exception and not the rule. The decisions in Consolidated Coffee v. Coffee Board (supra) and Shree Ishar Alloys Steels Ltd. v. JayaswalNeco (supra) were rendered in the context of different statutes where the wording of the provisions in question dictated the result of the interpretative exercise. They are not useful in the interpretation of the word "the" which precedes the words Commissioner of Income-tax or Principal Commissioner of Income- tax in section 260A(2)(a) of the Act. 40. The context in which the interpretative exercise is to be undertaken is that of the statute of limitation. Usually, the commencement of limitation is that point when there is "knowledge" of an order or judgment. In the context of section 260A(2)(a), the question that should be asked is : "when was the Department/Revenue aware of the order" and not "when was that particular Commissioner of Income-tax or Principal Commissioner of Income- tax having jurisdiction have knowledge of the order". Once a responsible officer or representative of the Department such as its Departmental representative or the Commissioner of Income- tax (Judicial) is aware of the order, then from that point it is a purely internal administrative arrangement as to how the said officer obtains and further communicates the order to the officer who has to take a decision on filing the appeal. Of course, the time This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 18/12/2024 at 15:12:50

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taken to obtain a copy of the order by such Departmental representative or Commissioner of Income-tax (Judicial) would be excluded. However, the period of limitation will not cease to run only because the "concerned" officer has not yet received the order.” 15. As is evident from the aforesaid extracts, the Full Bench had unequivocally found that while examining the issue of limitation, one would have to pose the question of when the Department became aware of the order and not when the concerned Commissioner or Principal Commissioner may have been served or had derived knowledge. It proceeded further to observe that once a responsible officer of the Department becomes aware of the order, the period of limitation would commence form that point in time. 16. In GE Energy Parts, the Court was concerned with the bar of limitation for imposing penalties as raised by virtue of Section 275 of the Act. It is relevant to note that Section 275 prescribed the outer limit which would operate for imposition of penalties from the end of the stipulated period when an order of the Commissioner of Appeals or the ITAT is “received”. On facts, the Court in GE Energy Parts found that undisputedly although the Commissioner had received a copy of the order of the ITAT only on 01 November 2017 and had contended on that basis that the period of limitation should be computed from that date, the assessee had already been placed upon notice under Section 271(1)(c) on 16 February 2017. It also took into consideration that the Section 275(1)(a) order which was framed by the respondents was drawn on 22 May 2017 and thus the said date being liable to be accepted as constituting the starting point from when the respondents would be deemed to have knowledge of the order passed by the ITAT. This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 18/12/2024 at 15:12:50

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YASHWANT VARMA, J.

PURUSHAINDRA KUMAR KAURAV, J. FEBRUARY 16, 2024/neha This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 18/12/2024 at 15:12:50