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Commissioner of Income Tax (IT-4) v. M/s Reliance Telecom Ltd.

Civil Appeal · 2021 INSC 815Decided 3 Dec 2021
Civil Appeal No. 7110 of 2021
Justice M.R. Shah · Justice B.V. Nagarathna

Background

Reliance Telecom had paid a non-resident company for software without deducting tax, arguing no tax was due under India's tax treaties. The Income Tax Appellate Tribunal (ITAT) first ruled against Reliance Telecom on merits in 2013, but later, acting on a rectification application, "recalled" its own order and effectively re-decided the whole appeal afresh in Reliance Telecom's favour. The Revenue (tax department) challenged this recall before the High Court, which upheld the ITAT's action, leading the Revenue to appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that the ITAT's rectification power under Section 254(2) of the Income Tax Act is narrow: it only allows correcting an obvious mistake apparent from the record, not reopening and re-deciding the entire case on merits as if hearing a fresh appeal. Since the ITAT had, in substance, reheard the whole matter rather than fixed a clerical or apparent error, its recall order was beyond its powers and unsustainable, and the High Court should have struck it down. The Court restored the ITAT's original 2013 order but gave the assessee six weeks to file a fresh appeal before the High Court against that original order, to be decided on merits without any objection on limitation.

Lesson Learnt

A tribunal's power to "rectify" its own order is meant only for correcting clear, apparent mistakes: it cannot be used as a backdoor to reopen and fully re-argue a case that has already been decided; the proper route for a party aggrieved by an allegedly wrong decision is a formal appeal.

Official source (sci.gov.in)View Judgment (PDF)

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