Section 144C(1) of the Income Tax Act
Income-tax Act, 2025: s.275
Section 144C(1) falls under section 144C of the Income-tax Act, 1961, which corresponds to section 275 (Reference to Dispute Resolution Panel) of the Income-tax Act, 2025.
Read section 275 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 144C(1) is East India Pharmaceutical Works Ltd. v. CIT (224 ITR 627), cited in 146 of the 423 judgments on BharatTax that turn on this section.
Leading authorities on Section 144C(1)
Where an assessee has mixed funds (both interest-bearing and interest-free funds) and makes an interest-free advance or investment, it is presumed that the interest-free funds were utilized first if they are sufficient to cover such advances or investments. This prevents disallowance of interest on borrowed funds under Section 36(1)(iii).
Passing a final assessment order under Section 143(3) directly, without first issuing a draft assessment order under Section 144C(1) for an eligible assessee, constitutes a fundamental jurisdictional defect. This defect cannot be cured by a subsequent corrigendum, especially if issued beyond the prescribed period of limitation.
Where proceedings are initiated under Section 147, but the assessment is completed under Section 143(3), it is not a prerequisite that the assessee must have filed a return under Section 139.
Payments for web hosting services, including data back-up, maintenance, security, and uninterrupted services, are not taxable as royalty under Section 9(1)(vi) of the Income Tax Act, as they do not constitute 'consideration for use of, or right to use, scientific equipment'.
Customer acquisition costs and advertisement expenditures are treated as revenue expenditures, not deferred expenditures, as there is no general concept of deferred expenditure for such items under Income Tax Law.
Interest income earned by an assessee during the period when its business has not commenced, even from funds meant for capital expenditure, is revenue in nature and is assessable under the head 'income from other sources'. The nature of the income, rather than the source of the funds generating it, determines its taxability.
Failure to issue a draft assessment order under Section 144C(1) makes the final assessment order illegal and beyond jurisdiction. Non-compliance with Dispute Resolution Panel (DRP) directions renders the final assessment order bad in law.
When transactions are part of a package deal with a composite price or are interdependent such that an assessee must accept all of them together, they must be aggregated and treated as a single international transaction for transfer pricing purposes.
Retrospective amendments to Section 9(1)(vi) of the Income-tax Act, introducing Explanations 5 and 6 regarding royalty income, do not automatically apply to Double Taxation Avoidance Agreements (DTAAs) if the DTAAs themselves have not been correspondingly amended.
The requirement to pass a draft assessment order under Section 144C of the Act is mandatory. A final assessment order issued without such a draft order is a nullity, constituting an incurable jurisdictional error that cannot be saved by Section 292B, even in set-aside proceedings following an ITAT remand.
