Civil Appeal No. 8945 of 2019 @ SLP(C) No.20728 of 2019 Genpact India Private Limited v. Deputy Commissioner of Income Tax & Anr.

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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.8945     OF 2019 (Arising out of Special Leave Petition (Civil) No.20728 of 2019)

GENPACT INDIA PRIVATE LIMITED …Appellant

VERSUS

DEPUTY COMMISSIONER OF  INCOME TAX & ANR. …Respondents

J U D G M E N T

Uday Umesh Lalit, J.

1.  Leave granted.

2. This  appeal  arises  out  of  the  final  judgment  and  order  dated

19.08.2019  passed  by  the  High  Court  of  Delhi  at  New  Delhi  in  Writ

Petition No.686 of 2017.

3. The facts leading to the filing of the present appeal, in brief, are as

under:

(a) Out of opening share capital of 25,68,700 shares held by its sole

shareholder  and holding company Genpact  India  Investment,  Mauritius,

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the  appellant  bought  back  2,50,000  shares  in  May  2013  at  the  rate  of

Rs.32,000/- per share for a total consideration of Rs.800 crores.

(b) On  10.05.2013,  Chapter  XIIDA consisting  of  Sections  115QA,

115QB and 115QC was inserted in the Income Tax Act, 1961 (hereinafter

referred to as ‘the Act’) by the Finance Act, 2013 which came into effect

from 01.06.2013.  Section 115QA as it stood prior to the amendment which

came into effect on 01.06.2016 was to the following effect:

“Section  115QA:  Tax  on  distributed  income  to shareholders – (1)  Notwithstanding  anything  contained  in  any  other provision  of  this  Act,  in  addition  to  the  income-tax chargeable  in  respect  of  the  total  income  of  a  domestic company  for  any  assessment  year,  any  amount  of distributed income by the company on buy-back of shares (not being shares listed on a recognised stock exchange) from  a  shareholder  shall  be  charged  to  tax  and  such company shall be liable to pay additional income-tax at the rate of twenty per cent on the distributed income. Explanation.—For the purposes of this section,—

(i) "buy-back" means purchase by a company of its own  shares  in  accordance  with  the  provisions  of section 77A of the Companies Act, 1956 (1 of 1956);

(ii) "distributed  income"  means  the  consideration paid by the company on buy-back of shares as reduced by the amount which was received by the company for issue of such shares.

(2)  Notwithstanding  that  no  income-tax  is  payable  by  a domestic  company  on  its  total  income  computed  in accordance with the provisions of this Act, the tax on the distributed income under sub-section (1) shall be payable by such company.

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(3) The principal officer of the domestic company and the company shall be liable to pay the tax to the credit of the Central Government within fourteen days from the date of payment of any consideration to the shareholder on buy- back of shares referred to in sub-section (1).

(4) The tax on the distributed income by the company shall be treated as the final payment of tax in respect of the said income and no further credit therefor shall be claimed by the  company  or  by  any  other  person  in  respect  of  the amount of tax so paid.

(5) No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the  income  which  has  been  charged  to  tax  under  sub- section (1) or the tax thereon.”

The Explanation in relation to “buy back” was, however, amended  

and with effect from 01.06.2016, it reads as:-

“(i) “buy-back” means purchase by a company of its own shares in accordance with the provisions of any law for the time being in force relating to companies;”

(c) On 10.09.2013, a  scheme for  arrangement  was approved by the

High  Court  of  Delhi  in  Company  Petition  No.349  of  2013.   Pursuant

thereto, the appellant bought back another tranche of 7,50,000 shares at the

rate  of  Rs.35,000 per share for  a  total  consideration of  Rs.2,625 crores

from said Genpact India Investment, Mauritius.

(d) In the income tax return filed on 28.11.2014 by the appellant for

the  assessment  year  2014-15,  “Details  of  tax  on  distributed  profits  of

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domestic  companies  and  its  payment”  were  given  in  “Schedule  DDT”

where the details of aforesaid transactions were given but the liability to

pay any tax was denied.  A notice under Section 143(2) of the Act was

issued to the appellant on 03.09.2015 seeking further explanation, pursuant

to which requisite details were furnished.

(e) The matter was thereafter considered and an assessment order was

passed by the first respondent on 31.12.2016.  As many as 10 additions

were made by the first respondent, one of them being in respect of liability

under Section 115QA of the Act.  Since we are concerned in this appeal

only with the issue with regard to liability under Section 115QA, we need

not deal with other issues.   

f) As  regards  the  issue  in  question,  the  submissions  advanced  on

behalf of the appellant-assessee were noted as under:

“Vide  Letter  dated  28.12.2016,  the  assessee  has submitted that the buy back of shares has been done in pursuance of scheme of arrangement under Section 391 of the Companies Act, 1956 approved by Hon’ble High Court of Delhi and in such manner that the same is not a buy back in terms of the Section 115QA of the Act.”

g) The matter was dealt with by the first respondent as under:

“The submission of the assessee was considered but was  not  found  acceptable  as  it  has  no  substance. Before discussing the facts of the case and argument in  support  of  the  revenue  it  is  also  important  to

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understand  the  background  of  the  Section  115QA. Section 115QA was inserted by Finance Act, 2013 to counter the tax avoidance practice mainly adopted by Indian  subsidiaries  to  distribute  income  to shareholders  to  Mauritius  based  Holding  company under the garb of Buyback of shares.  Under Income Tax Act, buyback of shares is taxable u/s 46A in the hands of shareholders.  However, taking the benefit of Article 13 of India-Mauritius DTAA, which provides for  capital  gain  arising  on  transfer  of  shares  of Mauritius resident taxable in that country and under Mauritius  tax  laws  capital  gain  is  totally  exempt, entire transaction used to escape the tax net.  Thus to plug this loop hole in the statute, Section 115QA is introduced to  provide  that  where  shares  are  bought back at a price higher than the price at which those shares  were  issued  then,  balance  amount  will  be treated as distribution of income to shareholder and Tax@20% will be payable by the Company.  Section 115QA  is  applicable  only  to  domestic  unlisted companies.

The  provisions  of  Section  115QA  have  been introduced  as  part  of  Chapter  XIIA  as  an  anti- avoidance measure as also with an intent to widen the tax  base  in  India.   The  explanatory  Memorandum made it clear that the object is to curb tax avoidant practice of unlisted companies resorting to buy-back of shares in lieu of payment of income to shareholders and  which  is  taxable  in  India.   Buy  back  tax  is attracted on amounts distributed by the company on buy-back of its own shares.

…    … …

Section 115QA overrides all  the sections of the Act and  it  is  a  separate  charging  section  which  taxes amount distributed on buy back of shares.”

Rejecting the submission advanced on behalf of the appellant, the

first  respondent thus held that over and above nine heads under which

additions were made, the appellant-assessee was also liable to pay tax at

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the  rate  of  20% in  terms  of  Section  115QA of  the  Act  in  respect  of

distributed income of Rs.2,625 crores.

h. It may be mentioned that insofar as those nine additions made by

the aforesaid assessment order by the first respondent are concerned, an

appeal was filed by the appellant.  We have been apprised that the appeal

was decided in favour of the appellant but further challenge at the instance

of the Revenue is under consideration.  

As regards  the issue  concerning tax under  Section  115QA,  the

appellant  filed Writ Petition (Civil)  No.686 of 2017 in the High Court

submitting, inter alia,  that the order passed by the first respondent was

without  jurisdiction  as  buy  back  of  shares  in  the  instant  case  was  in

pursuance of the scheme of arrangement approved by the High Court.   

i) The matter came up before the High Court on 25.01.2017 when a

preliminary objection was raised that alternate and efficacious remedy of

filing an appeal was available.  While issuing notice it was observed by

the High Court:

“Prima facie, in this Court’s opinion, the non-obstante clause in Section 115QA of the Act restricts the nature of the levy to the transactions defined by the provision itself.  The transactions defined are those covered by Section 77A of the Companies Act.  Significantly, the Parliamentary  intent  to  cover  all  manners  of  share

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acquisition  by  the  Company  of  its  own  shares,  is evident  from  a  subsequent  amendment  to  Section 115QA of the Act, when it explained the meaning of ‘buy-back’ in  the  First  Explanation  by  not  alluding merely to Section 77A of the Companies Act but all other provisions of law.  That this provision was not given  retrospective  effect,  in  this  Court’s  opinion, further strengthens the petitioner’s submissions.

In view of these  prima facie reasons, the Court is of the opinion that the impugned demand to the tune it seeks to recover levy under Section 115QA of the Act should not be enforced till the next date of hearing.  It is so directed.

List on 28.03.2017.”

j) The matter  thereafter  came up on 30.08.2017 when the interim

order dated 25.01.2017 was made absolute.   

k) When the matter was taken up after completion of pleadings, it

was submitted on behalf of the Revenue that since the remedy of appeal

was available to the appellant, the Writ Petition may not be entertained.

On the other  hand, it  was submitted by the appellant  that  the demand

raised under Section 115QA could not be considered as forming part of

the  assessment  order  passed  by  the  first  respondent  and  it  must  be

something separate from the order of assessment.  The submission was,

however, rejected by the High Court observing as under:

“At the outset, the Court would first like to deal with the  submissions  of  Mr.  Ganesh  that  the  impugned

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demand raised under Section 115QA of the Act should not  be  construed  as  forming  part  of  the  impugned assessment  order  and  that  it  is  something  separate from  it.   While  it  is  true  that  the  demand  under Section 115QA of the Act would be in addition to the total  income,  the  fact  of  the  matter  is  that  in  the present case it forms an integral part of the impugned assessment  order  under  Section  143(3)  of  the  Act. Reading the assessment order as a whole, it is plain to the Court that this demand under Section 115QA of the Act is in addition to demands under other issues, all  of  which form part  of  the impugned assessment order.   In  fact,  paragraph  11  of  the  impugned assessment order, which gives the computation of the total  taxable  income,  includes  the  demands  raised under  all  heads  and  it  includes  the  demand  under Section  115QA  of  the  Act.   Therefore,  it  is  not possible for this Court to read this part of the order separate from the rest of the assessment order.”

l) On the issue whether the Writ Petition be entertained in the face of

availability of an alternate remedy, the High Court considered relevant

case law touching upon the issue and observed:

“23.  The  question  regarding  the  interpretation  of Section 115QA of the Act, as it stood at the relevant time,  can  definitely  be  gone  into  by  the  CIT (A). Further, this Court has in fact not expressed any view yet on the maintainability of the petition, although as rightly pointed out the matter was heard on this aspect earlier as well.  The fact remains that the Respondent raised the objection at the first available opportunity. Due to reasons noted hereinbefore, the issue could not be decided till now.  It would, however, not be correct to state that this Court has impliedly overruled such an  objection  and  decided  to  hear  the  petition  on merits.

24. The  Court  also  notes  in  this  context  that  the Assessee has in fact succeeded in its appeal before the

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CIT  (A)  on  other  issues  arising  out  of  the  same impugned  assessement  order  and  it  is  the  Revenue which is now in appeal before the ITAT.   There is no reason  why  this  one  other  issue  arising  from  the impugned assessment order cannot also be examined by the CIT (A).”

m) The High Court also recorded certain concessions made on behalf

of  the Revenue and disposed of  the Writ Petition by its  Judgment and

Order dated 19.08.2019 with following directions:

“(i) The Court declines to entertain this writ petition under  Article  226  of  the  Constitution  against  the impugned demand raised by the Revenue by way of the impugned assessment order under Section 115QA of the Act against the Assessee.  

(ii) The Assessee is granted an opportunity to file an appeal under Section 246-A of the Act before the CIT (A) to challenge the impugned assessment order only insofar as it creates a demand under Section 115QA of the Act.  

(iii)  If  such an appeal is filed within ten days from today, it will be considered on its own merits and a reasoned order disposing of the appeal will be passed by the CIT (A) on all issues raised by the Assessee, not limited to the issues raised in the present petition as well as on the response thereto by the Revenue in accordance with law.  

(iv) The reasoned order shall be passed by the CIT (A)  not  later  than  31st  October,  2019.  It  will  be communicated  to  the  Petitioner  within  ten  days thereafter. For a period of two weeks after the date of such communication of order, the demand under the impugned assessment  order,  if  it  is  affirmed by the CIT (A) in appeal,  will  not be enforced against the Assessee.

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(v) The Court places on record the statement of the Revenue that it will not raise any objection before the CIT (A) as to the maintainability of such an appeal and as to the appeal being barred by limitation. The Court  also  takes  on  record  the  statement  of  the Revenue that it will not enforce the demand in terms of the impugned assessment order till the disposal of the above appeal.  All of the above is subject to the Assessee filing the appeal before the CIT (A) within ten days from today.

(vi) It is made clear that this Court has not expressed any  view  whatsoever  on  the  contentions  of  either party on the merits of the case.”

4. Challenge  to  the  aforesaid  view taken  by  the  High  Court  was

raised by way of Special Leave Petition No.20728 of 2019 filed in this

Court on 26.08.2019.  Within the time limit of 10 days as afforded by the

High  Court,  an  appeal  was  also  preferred  by  the  appellant  “without

prejudice” on 30.08.2019 against the “demand raised/order passed under

Section 115QA”.  The aforesaid Special Leave Petition came up before

this Court  on 06.09.2019, whereafter  the matter  was adjourned on few

occasions and then taken up for final disposal.   

5. We heard Mr. Mukul Rohatgi and Mr. S. Ganesh, learned Senior

Advocates for the appellant and Mr. Zoheb Hossain, learned Advocate for

the respondents.  

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It was submitted by the appellant that in relation to an order passed

under Section 115QA of the Act, no right of appeal would be available

under the provisions of the Act and as such the premise on which the High

Court proceeded was wrong; in any case plea of existence of any alternate

and efficacious remedy would be considered at the threshold when a writ

petition is taken up for preliminary hearing; since the preliminary objection

was taken and despite such objection, discretion was exercised by the High

Court which is evident from orders dated 25.01.2017 and 30.08.2017, the

very same issue ought not to have weighed with the High Court; that the

scheme of amalgamation was approved by the High Court and any buy

back of shares in pursuance thereof would not be covered by the provisions

of Section 115QA of the Act.   

On the other hand it was submitted by the Revenue that any order

determining  the  liability  to  pay  tax  under  Section  115QA would  be

appealable;  any  other  view  would  entail  tremendous  prejudice  to  the

concerned  assessees;  the  concessions  given  on  behalf  of  the  Revenue

which were recorded in the directions passed by the High Court, would

completely  take  care  of  any  inconvenience  and  prejudice  that  could

possibly arise in the matter.

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6. In its written submissions, the appellant submitted:-

I. No statutory appeal has been provided against an order  under  section  115QA after  it  was  introduced into the statute book with effect from 01.06.2013.  A section 115QA order cannot possibly be equated with an  assessment  order  passed  under  section  143(3) against which an appeal lies under section 246A.  An order under section 143(3) only makes an assessment of the “total  income” of the assessee,  as defined in section 2(45) of the IT Act.  The tax payable under section 115QA by the company making a buy-back is a tax payable on the payment made by the company and  not  the  tax  payable  on  its  “total  income” and, therefore, section 115QA does not at all speak of an “assessment”,  which is  a  term of  art  in the Income Tax Act,  confined to the determination of the “total income of the assessee.”  The “denial of the assessee’s liability  to  be  assessed”  in  section  246A  is  also confined to his liability to be assessed under section 143(3)  and  the  same  has  nothing  to  do  with  an assessee’s liability to pay tax under section 115QA.   

…   … …

II. The  Division  Bench which admitted the  matter and  granted  interim  relief  had  unequivocally exercised  its  discretion  in  case  of  the  Petitioner  to entertain  the  Writ  Petition  despite  the  argument  of alternative remedy.  Further, another Division Bench also similarly exercised it’s discretion again in favour of  the  Petitioner  on 26.07.2017 and 30.08.2017.   It was therefore not open for another Division Bench, which heard the matter on 19.08.2019 to exercise it’s discretion  in  a  fundamentally  different  way,  as compared to the two earlier Division Benches….

….the  objection  of  alternative  remedy  can  only  be raised at the admission stage and not at the stage of final hearing, after the completion of the pleadings…”

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7. Two issues arise  for  consideration,  one regarding availability  of

appellate remedy and the other concerning refusal to exercise Jurisdiction

under  Article  226  because  of  availability  of  an  alternate  efficacious

remedy.  In essence, the matter revolves around the question whether there

is in fact an appellate remedy available, in case any determination is made

under  Section  115QA of  the  Act  that  the  Company  is  liable  to  pay

“additional income tax at the rate of 20% on the distributed income”.  For

the purpose of considering whether there is any such appellate remedy, we

must note the concerned Sections in the Act dealing with appellate remedy

and provisions touching upon exercise of such right of appeal.  Sections

246(1) and 246A(1) being relevant for the present purposes are extracted

hereunder:-

"246. Appealable  orders  -  (1)  Subject  to  the provisions of sub-section (2), any assessee aggrieved by any of the following orders of an Assessing Officer other than the Joint Commissioner may appeal to the Deputy Commissioner (Appeals) before the 1st day of June, 2000 against such order–  

(a) an order against the assessee, where the assessee denies his liability to be assessed under this Act, or  an  intimation  under  sub-section  (1)  or  sub- section  (IB)  of  section  143,  where  the  assessee objects to the making of adjustments, or any order of  assessment  under  sub-section  (3)  of  section 143 or section 144, where the assesse objects to the amount of income assessed, or to the amount of  tax  determined,  or  to  the  amount  of  loss computed,  or  to  the  status  under  which  he  is assessed;

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(b) an  order  of  assessment,  reassessment  or recomputation under section 147 or section 150;

(c) an order under section 154 or section 155 having the effect of enhancing the assessment or reducing a refund or an order refusing to allow the claim made  by  the  assesssee  under  either  of  the  said sections;

(d) an  order  made  under  section  163  treating  the assessee as the agent of a non-resident;

(e) an order under sub-section (2) or sub-section (3) of section 170;

(f) an order under section 171;

(g) any order under clause (b) of sub-section (1) or under sub-section (2) or sub-section (3)  or  sub- section  (5)  of  section  185  in  respect  of  any assessment for the assessment year commencing on or before the 1st day of April, 1992;

(h) any  order  cancelling  the  registration  of  a  firm under sub-section (1) or under sub-section (2) of section 186 in respect of any assessment for the assessment year commencing on or before the 1st

day of April, 1992;

(i) an order under section 201;

(j) an  order  under  section  216  in  respect  of  any assessment for the assessment year commencing on  the  1st day  of  April,  1988,  or  any  earlier assessment year;

(k) an order under section 237;

(l) an order imposing a penalty under-

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(i) section 221, or

(ii) section 271, section 271A, section 271B, section 272A, section 272AA or section 272BB;

(iii) section 272, section 272B or section 273, as they stood immediately before the 1st

day  of  April,  1989,  in  respect  of  any assessment  for  the  assessment  year commencing on the 1st day of April, 1988, or any earlier assessment years.

246A.  Appealable  orders  before  Commissioner (Appeals).– (1) Any assessee or any deductor or any collector  aggrieved  by  any  of  the  following  orders (whether made before or after the appointed day) may appeal to the Commissioner (Appeals) against–  

(a) an  order  passed  by a  Joint  Commissioner  under clause (ii) of sub-section (3) of section 115VP or an order against the assessee where the assessee denies his liability to be assessed under this Act or an intimation under sub-section (1) or sub-section (1B) of section 143 or sub-section (1) of section 200A or sub-section (1) of section 206CB, where the  assessee  or  the  deductor  or  the  collector objects to the making of adjustments, or any order of assessment under sub-section (3) of section 143 except an order passed in pursuance of directions of  the  Dispute  Resolution  Panel  or  an  order referred to in sub-section (12) of section 144BA or section  144,  to  the  income  assessed,  or  to  the amount of tax determined, or to the amount of loss computed,  or  to  the  status  under  which  he  is assessed;

(aa)an order of assessment under sub-section (3) of section  115WE  or  section  115WF,  where  the assessee, being an employer objects to the value of fringe benefits assessed;

(ab)an  order  of  assessment  or  reassessment  under section 115WG;

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(b) an  order  of  assessment,  reassessment  or recomputation under section 147 except an order passed in pursuance of directions of the Dispute Resolution Panel  or  an order  referred to  in  sub- section (12) of section 144BA or section 150;   

(ba) an  order  of  assessment  or  reassessment  under section 153A except an order passed in pursuance of directions of the Dispute Resolution Panel or an order  referred  to  in  sub-section  (12)  of  section 144BA;

(bb)an  order  of  assessment  or  reassessment  under sub-section (3) of section 92CD;

(c) an order made under section 154 or section 155 having the effect of enhancing the assessment or reducing a refund or an order refusing to allow the claim made by the assessee under either of the said sections  except  of  an  order  referred  to  in  sub- section (12) of section 144BA;

(d) an  order  made  under  section  163  treating  the assessee as the agent of a non-resident;

(e) an order made under sub-section (2) or sub-section (3) of section 170;

(f) an order made under section 171;

(g) an order made under clause (b) of sub-section (1) or under sub-section (2) or sub-section (3) or sub- section  (5)  of  section  185  in  respect  of  an assessment  for  the  assessment  year  commencing on or before the 1st day of April, 1992;

(h) an order cancelling the registration of a firm under sub-section (1) or under sub-section (2) of section 186  in  respect  of  any  assessment  for  the assessment year commencing on or before the 1st

day of April, 1992, or any earlier assessment year;

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(ha) an order made under section 201;

(hb)an order made under sub-section (6A) of section 206C;

(i) an order made under section 237;

(j) an order imposing a penalty under–  

(A) section 221; or

(B) section  271,  section  271A,  271AAA, 271AAB,  section  271F,  section  271FB, section 272AA or section 272BB;

(C) section 272, section 272B or section 273, as they stood immediately before the 1st day of April, 1989, in respect of any assessment for the  assessment  year  commencing  on  the  1st

day of April, 1988, or any earlier assessment years;

(ja) an order of imposing or enhancing penalty under sub-section (1A) of section 275;

(k) an  order  of  assessment  made  by  an  Assessing Officer  under  clause  (c)  of  section  158BC,  in respect  of  search  initiated  under  Section  132 or books of account, other documents or any assets requisitioned under section 132A on or after the 1st

day of January, 1997;

(l) an order imposing a penalty under sub-section (2) of section 158BFA;

(m) an order imposing a penalty under section 271B or section 271BB;

(n) an  order  made  by  a  Deputy  Commissioner imposing  a  penalty  under  section  271C,  section 271CA, section 271D or section 271E;

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(o) an  order  made  by  Deputy  Commissioner  or  a Deputy Director imposing a penalty under section 272A;

(p) an  order  made  by  a  Deputy  Commissioner imposing a penalty under section 272AA;

(q) an order imposing a penalty under Chapter XXI;

(r) an order made by an Assessing Officer other than a Deputy Commissioner  under the  provisions  of this  Act  in  the  case  of  such  person  or  class  of persons,  as  the Board may, having regard to the nature of the cases, the complexities involved and other relevant considerations direct.  

Explanation.– For the purposes of this sub-section, where on or after the 1st day of October, 1998, the post  of  Deputy  Commissioner  has  been redesignated as Joint Commissioner and the post of Deputy Director has been redesignated as joint Director,  the  references  in  this  sub-section  for “Deputy  Commissioner”  and  “Deputy  Director” shall be substituted by “Joint Commissioner” and “Joint Director” respectively.”

8. One of the key expressions appearing in Section 246(1)(a) as well

as in Section 246A(1)(a) is “where the assessee denies his liability to be

assessed under this Act.”

9. Similar  expression  occurring  in  Section  30  of  the  Income  Tax,

1922 came up for  consideration before this  Court  in  Commissioner  of

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Income Tax, U.P., Lucknow v. Kanpur Coal Syndicate1.  The relevant part

of Section 30(1) as quoted in the decision was:-

“30.(1)  Any  assessee  objecting  to  the  amount  of income assessed under Section 23 … or the amount of tax determined under Section 23 … or denying his liability to be assessed under this Act … may appeal to the Appellate Assistant Commissioner against the assessment or against such refusal or order:”

The contention raised by the assessee was considered as under:-

“The  Income  Tax  Officer  may  reject  its  contention and may assess the total income of the association as such and impose the tax on it.  Under Section 30 an assessee objecting to the amount of income assessed under  Section  23  or  the  amount  of  tax  determined under the said section or denying his liability to be assessed under the Act can prefer an appeal against the order of the Income Tax to the Appellate Assistant Commissioner.  It is said that an order made by the Income  Tax  Officer  rejecting  the  plea  of  an association of persons that the members thereof shall be  assessed individually does  not  fall  under  one or other of the three heads mentioned above.  What is the substance  of  the  objection  of  the  assesses?   The assessee denies his liability to be assessed under the Act in the circumstance of the case and pleads that the members  of  the  association  shall  be  assessed  only individually.   The expression “denial  of liability” is comprehensive enough to take in not  only the  total denial  of liability  but also the liability to tax under particular circumstances.  In either case the denial is a denial of liability to be assessed under the provisions of the Act.     In one case the accessee says that he is not liable to be assessed to tax under the Act, and in the other case the assessee denies his liability to tax under the provisions of the Act if the option given to the appropriate officer under the provisions of the Act is judicially exercised.  We, therefore, hold that such an assessee has a right of appeal under Section 30 of

1AIR (1965) SC 325 : 1964 (53) ITR 225

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the Act against the order of the Income Tax Officer assessing the association of  members instead of the members thereof individually.”

It  was  concluded  that  the  expression  “denial  of  liability”  is

comprehensive enough to take in not only the total denial of liability but

also the liability to tax under particular circumstances.

10. The submission advanced on behalf of the appellant, however, is

that “denial of the assessee’s liability to be assessed” in Section 246A is

confined to his liability to be assessed under Section 143(3) of the Act and

the same has nothing to  do with the  liability  to  pay tax under  Section

115QA.  According to the appellant, tax payable in respect of buy back of

shares under Section 115QA is not a tax payable on “total income”.

11. We may now consider kinds of orders or situations that are referred

to in Section 246(1)(a) of the Act, which are:-

(i) An order against the assessee, where the assessee denies his liability

to be assessed under this Act, or

(ii) An intimation under sub-section (1) or sub-section (1B) of Section

143 where the assessee objects to the making of adjustments, or

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(iii) Any  order  of  assessment  under  sub-section  (3)  of  Section  143  or

Section 144, where the assessee objects:-

to the amount of income assessed, or

to the amount of tax determined, or

to the amount of loss computed, or

to the status under which he is assessed.  

The contingencies detailed in (ii) and (iii) hereinabove arise out of

assessment proceedings under Section 143 or Section 144 of the Act but

the first contingency is a standalone postulate and is not dependant purely

on the assessment proceedings either under Section 143 or Section 144 of

the Act.  The expression “denies his liability to be assessed” as held by this

Court in Kanpur Coal Syndicate1 is quite comprehensive to take within its

fold every case where the assessee denies his liability to be assessed under

the Act.   

12. Section 115QA of the Act stipulates that in case of buy back of

shares referred to in the provisions of said Section, the company shall be

liable to pay additional income tax at the rate of 20% on the distributed

income.  Any determination in that behalf, be it regarding quantification of

the liability or the question whether such company is liable or not would be

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matters  coming  within  the  ambit  of  the  first  postulate  referred  to

hereinabove.  Similar is the situation with respect to provisions of Section

246A(1)(a) where again out of certain situations contemplated, one of them

is “an order against the assessee, where the assessee denies his liability to

be assessed under this Act”.  The computation and extent of liability is

determined  under  the  provisions  of  Section  115QA of  the  Act.   Such

determination  under  the  Act  would  squarely  get  covered  under  said

expression.  There is no reason why the scope of the such expression be

restricted and confined to issues arising out of or touching upon assessment

proceedings either under Section 143 or Section 144 of the Act.

13. If the submission of the appellant is accepted and the concerned

expression  as  stated  hereinabove  in  Section  246(1)(a)  or  in  Section

246A(1)(a) is to be considered as relatable to the liability of an assessee to

be  assessed  under  Section  143(3)  as  contended,  there  would  be  no

appellate remedy in case of any determination under Section 115QA.  The

issues may arise not just confined to the question whether the company is

liable  at  all  but  may also  relate  to  other  facets  including the  extent  of

liability  and  also  with  regard  to  computation.   If  the  submission  is

accepted,  every  time  the  dispute  will  be  required  to  be  taken  up  in

proceedings such as a petition under Article 226 of the Constitution, which

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normally would not be entertained in case of any disputed questions of fact

or concerning factual aspects of the matter.  The assessee may thus, not

only lose a remedy of having the matter considered on factual facets of the

matter  but  would also stand deprived of  regular  channels  of  challenges

available to it under the hierarchy of fora available under the Act.

14. We,  therefore,  reject  the  submissions  advanced by the  appellant

and hold that an appeal would be maintainable against the determination of

liability under Section 115QA of the Act.

15. We now turn to the question whether the High Court was justified

in refusing to entertain the writ petition because of availability of adequate

appellate remedy.  The law on the point is very clear and was summarised

in Commissioner of Income Tax and others v. Chhabil Dass Agarwal2  as

under:-

“11. Before discussing the fact proposition, we would notice the principle of law as laid down by this Court. It  is  settled  law that  non-entertainment  of  petitions under  writ  jurisdiction  by  the  High Court  when an efficacious alternative remedy is available is a rule of self-imposed  limitation.  It  is  essentially  a  rule  of policy, convenience and discretion rather than a rule of law. Undoubtedly, it is within the discretion of the High Court to grant relief under Article 226 despite the existence of an alternative remedy. However, the High Court must not interfere if there is an adequate efficacious  alternative  remedy  available  to  the

2 (2014) 1 SCC 603

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petitioner  and  he  has  approached  the  High  Court without availing the same unless he has made out an exceptional case warranting such interference or there exist  sufficient  grounds  to  invoke  the  extraordinary jurisdiction under Article  226.  (See  State of  U.P. v. Mohd. Nooh3,  Titaghur Paper Mills Co. Ltd. v.  State of Orissa4,  Harbanslal  Sahnia v.  Indian Oil Corpn. Ltd.5 and  State  of  H.P. v.  Gujarat  Ambuja  Cement Ltd.6)

12. The Constitution  Benches  of  this  Court  in  K.S. Rashid  and  Son v.  Income  Tax  Investigation Commission7,  Sangram Singh v.  Election  Tribunal8, Union of India v. T.R. Varma9, State of U.P. v. Mohd. Nooh3 and  K.S.  Venkataraman  and  Co.  (P)  Ltd. v. State of Madras10 have held that though Article 226 confers  very  wide  powers  in  the  matter  of  issuing writs  on  the  High  Court,  the  remedy  of  writ  is absolutely  discretionary  in  character.  If  the  High Court is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere, it can refuse to exercise its jurisdiction. The Court,  in extraordinary circumstances, may exercise the power if it comes to the  conclusion  that  there  has  been  a  breach  of  the principles of natural justice or the procedure required for  decision  has  not  been  adopted.  [See  N.T. Veluswami  Thevar v.  G.  Raja  Nainar11,  Municipal Council,  Khurai v.  Kamal  Kumar12,  Siliguri Municipality v. Amalendu Das13, S.T. Muthusami v. K. Natarajan14,  Rajasthan  SRTC v.  Krishna  Kant15, Kerala  SEB v.  Kurien  E.  Kalathil16,  A.

3 AIR 1958 SC 86 4 (1983) 2 SCC 433 : 1983 SCC (Tax) 131 5 (2003) 2 SCC 107 6 (2005) 6 SCC 499 7 AIR 1954 SC 207 8 AIR 1955 SC 425 9 AIR 1957 SC 882 10AIR 1966 SC 1089  11 AIR 1959 SC 422 12 AIR 1965 SC 1321 : (1965) 2 SCR 653 13  (1984) 2 SCC 436 : 1984 SCC (Tax) 133 14 (1988) 1 SCC 572 15 (1995) 5 SCC 75 : 1995 SCC (L&S) 1207 : (1955) 31 ATC 110  16 (2000) 6 SCC 293

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Venkatasubbiah  Naidu v.  S.  Chellappan17,  L.L. Sudhakar Reddy v.  State of A.P.18,  Shri Sant Sadguru Janardan  Swami  (Moingiri  Maharaj)  Sahakari Dugdha Utpadak Sanstha v.  State of Maharashtra19, Pratap  Singh v.  State  of  Haryana20 and  GKN Driveshafts (India) Ltd. v. ITO21.]

…

15. Thus,  while  it  can  be  said  that  this  Court  has recognised some exceptions to the rule of alternative remedy i.e. where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of  judicial  procedure,  or  has  resorted to  invoke the provisions which are repealed, or when an order has been  passed  in  total  violation  of  the  principles  of natural  justice,  the  proposition  laid  down  in Thansingh  Nathmal  case22,  Titaghur  Paper  Mills case4 and other similar judgments that the High Court will not entertain a petition under Article 226 of the Constitution  if  an  effective  alternative  remedy  is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance still holds the field. Therefore, when a statutory forum is created  by  law  for  redressal  of  grievances,  a  writ petition  should  not  be  entertained  ignoring  the statutory dispensation.”

Recently, in Authorised Officer, State Bank of Travancore & Anr.

v. Mathew K.C.23, the principles laid down in Chhabil Dass Agarwal2 were

reiterated as under:

17 (2000) 7 SCC 695 18 (2001) 6 SCC 634 19 (2001) 8 SCC 509 20 (2002) 7 SCC 484 : 2002 SCC L&S) 1207 : (1995) 31 ATC 110 21 (2003) 1 SCC 72

22 AIR 1964 SC 1419 23 (2018) 3 SCC 85

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“The discretionary jurisdiction under Article 226 is not absolute but has to be exercised judiciously in the given facts of a case and in accordance with law. The normal rule is that a writ petition under Article 226 of the  Constitution  ought  not  to  be  entertained  if alternate  statutory  remedies  are  available,  except  in cases  falling  within  the  well-defined  exceptions  as observed in CIT v. Chhabil Dass Agarwal2 …”  

16. We do not, therefore, find any infirmity in the approach adopted by

the High Court in refusing to entertain the Writ Petition.  The submission

that once the threshold was crossed despite the preliminary objection being

raised, the High Court ought not to have considered the issue regarding

alternate remedy, may not be correct.   The first  order dated 25.01.2017

passed by the High Court  did record the preliminary objection but was

prima facie of the view that the transactions defined in Section 115QA

were  initially  confined  only  to  those  covered  by  Section  77A of  the

Companies Act.   Therefore,  without rejecting the preliminary objection,

notice was issued in the matter.  The subsequent order undoubtedly made

the  earlier  interim order  absolute.   However,  the  preliminary  objection

having not been dealt with and disposed of, the matter was still at large.   

In  State of U.P.   v.   U.P. Rajya Khanij Vikas Nigam Sangharsh

Samiti and others24 this Court dealt with an issue whether after admission,

the Writ Petition could not be dismissed on the ground of alternate remedy.

The submission was considered by this Court as under:  

24 (2008) 12 SCC 675

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“38. With respect to the learned Judge, it is neither the legal position  nor  such  a  proposition  has  been  laid  down  in Suresh Chandra Tewari25 that once a petition is admitted, it cannot be dismissed on the ground of alternative remedy. It is  no  doubt  correct  that  in  the  headnote  of  All  India Reporter  (p.  331),  it  is  stated  that  “petition  cannot  be rejected on the ground of availability of alternative remedy of filing appeal”. But it has not been so held in the actual decision of the Court. The relevant para 2 of the decision reads thus: (Suresh Chandra Tewari case, AIR p. 331)

“2. At the time of hearing of this petition a threshold question, as to its maintainability was raised on the ground that  the impugned order was an appealable one and, therefore, before approaching this Court the petitioner  should  have  approached  the  appellate authority.  Though  there  is  much  substance  in  the above contention,  we do not feel  inclined to reject this  petition  on  the  ground  of  alternative  remedy having regard to the fact that the petition has been entertained and an interim order passed.”

(emphasis supplied)

Even otherwise,  the  learned Judge  was  not  right  in  law. True it  is that issuance of rule nisi or passing of interim orders  is  a  relevant  consideration  for  not  dismissing  a petition if it appears to the High Court that the matter could be decided by a writ court. It has been so held even by this Court  in  several  cases  that  even if  alternative  remedy is available,  it  cannot  be  held  that  a  writ  petition  is  not maintainable. In our judgment, however, it cannot be laid down  as  a  proposition  of  law that  once  a  petition  is admitted,  it  could  never be  dismissed  on  the  ground  of alternative remedy. If such bald contention is upheld, even this Court cannot order dismissal of a writ petition which ought not to have been entertained by the High Court under Article 226 of the Constitution in view of availability of alternative and equally efficacious remedy to the aggrieved party, once the High Court has entertained a writ petition albeit wrongly and granted the relief to the petitioner.

25  AIR 1992 All 331  (Suresh Chandra Tewari  vs.  District Supply Officer)

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17. We  do  not,  therefore,  find  any  error  in  the  approach  of  and

conclusion arrived at by the High Court.  It is relevant to mention that the

concessions given on behalf of the Revenue as recorded in the directions

issued by the High Court also take care of matters of prejudice, if any.

Consequently, the appellant, as a matter of fact, will have a fuller, adequate

and efficacious remedy by way of appeal before the appellate authority.

18. Certain issues raised during the course of hearing touching upon

the aspects whether the appellant is liable under Section 115QA of the Act

or  whether  the  transaction  of  buy back of  shares  in  the  present  matter

would come within the statutory contours of said Section 115QA or not,

are  issues  which  will  be  gone  into  at  the  appropriate  stages  by  the

concerned authorities; and as such we have refrained from dealing with

those issues.

19. In the circumstances we find that the judgment and order under

appeal  does  not  call  for  any  interference.   This  appeal  is,  therefore,

dismissed.  No costs.

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20. Needless  to  say  that  the  appeal  preferred  by  the  appellant  on

30.08.2019 shall now be proceeded with in accordance with law.

……………………….J. (Uday Umesh Lalit)

……………………….J. (Indira Banerjee)

New Delhi; November 22, 2019.