The scheme of review by Dispute Resolution Panel (‘DRP’) was introduced in the Income-tax Act, 1961 (‘IT Act’) vide Finance Act, 2009, with effect from 1 April 2009. The well-founded intent behind the scheme was to safeguard non-residents and those subjected to transfer pricing assessments from arbitrary demands by providing a review mechanism from a panel of three Commissioners before the final orders were passed. The review process was merged with the existing assessment regime compelling the assessing officers to pass the draft orders to give the taxpayers an option to seek review from DRP before the final orders are framed.
While the implementation of DRP was mostly seamless, with the officers usually adhering to the legislative mandate of passing draft orders in cases of eligible assessees wherein variations were proposed, the computation of period of limitation for completion of assessment process in cases involving review by DRP has been a subject matter of debate and dispute.
Background
At the core of this controversy are the differing interpretations sought to be given by the Income-tax Department (‘Department’) and taxpayers to the provisions of Sections 144C and 153 of the IT Act.
Section 153 provides that a final order of assessment under Section 143(3) has to be passed within twelve months[1] from the end of assessment year. Further, in cases involving reference to the transfer pricing officer, the period of limitation in increased by another twelve months. Section 144C contains a non obstante clause providing that the DRP has to pass the directions within nine months from the end of the month in which the reference is made to it by the taxpayer. It is also provided therein that notwithstanding Section 153, the Assessing Officer is required to pass final order after giving effect to DRP directions within one month from the end of the month in which DRP directions are received by the Assessing Officer.
It is owing to the varying timelines provided in Sections 153 and 144C that dispute arose between the taxpayers and taxman regarding the period within which the final order is to be passed. The taxpayers contend that Section 153 of the IT Act provides an outer timeline within which the final order which incorporates directions of DRP must be passed. The argument is premised on the structure of Section 153 of the IT Act wherein exceptions are provided which the said provision extends timelines in certain circumstances. Interestingly, time taken by DRP for reviewing the draft order is not specifically excluded from the timelines mentioned in Section 153 of the IT Act. Thus, the taxpayers contend that timelines provided in Section 153 are sacrosanct and the authorities must align the assessment procedure including DRP review to these timelines.
On the other hand, the Department contends that Section 144C is a self-contained code containing a specific non obstante to extend the timelines provided in Section 153 of the IT Act. Thereby, once the draft order has been framed by the Assessing Officer within the timeline provided in Section 153 of the IT Act, the timelines contained in Section 144C take over and the assessment process thereafter can completed within the timelines provided in Section 144C notwithstanding the fact that such timeline may fall beyond the period prescribed in Section 153 of the IT Act. m
When the matter was put to judicial scrutiny, the High Courts of Madras and Bombay in their decisions in Roca Bathroom Products Pvt. Ltd.[2] (‘Roca Bathroom’) and Shelf Drilling Ron Teppmeyer Ltd.[3] (‘Shelf Drilling’) respectively upheld the contentions advanced by the taxpayers. The High Court emphasized that Sections 144C and 153 are mutually inclusive, and the time limits under Section 153 continue to apply even in case where objections have been filed before the DRP.
Proceedings before the Supreme Court in Shelf Drilling
Both of the aforesaid decisions were challenged by the Department before the Supreme Court by way of SLPs[4]. While the SLP in the case of Roca Bathroom is pending adjudication, a split verdict has been passed in the SLP for Shelf Drilling.
In Shelf Drilling, at the stage of admission, the Supreme Court passed an interim order on 22 September 2023 (‘Interim Order’) whereby it held that the judgment of the High Court of Bombay ‘shall not be cited as a precedent in any other subsequent matter until further orders.’
Eventually, the Division Bench passed its judgment, with the judges expressing divergent views and delivering a split verdict. In light of the divergent views, the Division Bench directed the Registry to place the matter before the Hon’ble Chief Justice for constituting an appropriate Bench to adjudicate upon the issue under consideration.
Thus, this inconclusive outcome, along with the directions in the Interim Order, has left taxpayers grappling with a dilemma about the legal position on this issue till the time the Supreme Court renders its final decision. The question that now arises for consideration is whether the judgments delivered by Hon’ble Bombay and Madras High Courts and the interim order passed by the Hon’ble Supreme Court will be binding on the lower authorities till the final verdict is tendered by the Supreme Court.
Impact of the Supreme Court’s split verdict and the interim order
In light of this context, it is apposite to note that it is settled law in the context of Article 145(5) of the Constitution of India (‘Constitution’) that concurrence of a majority of Judges present at the hearing of a case is necessary for any judgement or order to be enforceable[5]. Consequently, when the judges of the Supreme Court differ in opinion and deliver a split verdict, the effect is that no conclusive law emerges within the meaning of Article 141 of the Constitution. Therefore, even in the case of Shelf Drilling, where a split verdict has been rendered by the Division Bench, the opinions of the judges are not enforceable as law and not binding on the lower authorities.
It also becomes imperative to take into consideration the Doctrine of Merger. The doctrine is founded on the principle that there cannot simultaneously exist more than one operative decree or order governing the same subject matter. For a judgment of the High Court to merge into a decision of the Supreme Court, it is necessary that the Supreme Court delivers an order or judgement affirming, modifying, or reversing the judgement of the High Court. However, in the case of Shelf Drilling none of the said situations have arisen since the judges have delivered a split verdict and there is no majority decision that conclusively deals with the High Court’s judgement.
Thus, the High Court judgments should continue to operate in the absence of a conclusive pronouncement by the Supreme Court. It also a settled position of law that the binding nature or the precedential value of a High Court’s judgement does not get diminished even if an appeal has been filed against the said judgment and is pending for final disposal.[6] It is an equally well established principle of law that when an order or decree of a lower court is carried before a higher court, such order remains effective and binding, though its finality is placed in abeyance until the final order of the higher court.[7]
Therefore, ordinarily even in the case of Shelf Drilling the decision of the High Court of Bombay would continue to hold field in the light of the Division Bench’s split verdict. However, a wrench that is thrown in the works is the Interim Order of the Supreme Court. This is because the Supreme Court, by way of the Interim Order, has expressly directed that the High Court’s judgment shall not be cited as a precedent.
Viewed in this light, a further question arises as to whether the split verdict of the Supreme Court in the SLP automatically vacates the Interim Order. In this regard, the position of law is that an interim stay can only be vacated upon the passing of a specific order to that effect not merely by reason of procedural developments. [8] The Interim Order was passed by the Division Bench of the Hon’ble Supreme Court and there were no divergent views with respect to the position stated in the interim order. Accordingly, the Supreme Court’s Interim Order in Shelf Drilling, which has the effect of restricting the precedential value of the Bombay High Court’s judgment, does not automatically cease to operate merely because of the split verdict. It continues to bind until a Larger Bench specifically modifies or sets it aside. As a result, till further orders, the Bombay High Court’s judgement is not binding on lower forums.
Conclusion
As may be seen from the above, following the Supreme Court’s split verdict in Shelf Drilling, the controversy surrounding the interplay between Sections 153 and 144C has reverted to the status quo ante. Moreover, as things stand, due to the operation of the Interim Order, taxpayers are restricted from placing reliance on the judgment of the High Court of Bombay in Shelf Drilling as a precedent.
At this stage, it is pertinent to note unlike in case of Shelf Drilling, no interim order has been passed by the Hon’ble Supreme Court in Revenue’ SLP against the judgment of the Madras High Court in the case of Raco Bathroom. Thus, the precedential value of the judgment of the High Court of Madras continues to hold good and would continue to bind the lower authorities.
Therefore, till the time the Supreme Court definitively decides the issue of limitation under Section 144C read with Section 153 of the IT Act, the road ahead remains uncertain for the taxpayers, the Department and the tax practitioners. A recent development which aptly demonstrates this is the recent notification[9] issued by the Delhi Bench of the ITAT whereby all matters involving this issue have been adjourned sine die. This seems to indicate that the Tribunal Benches may wait for the final Supreme Court judgment before adjudicating appeals involving this dispute. Consequently, developments on this issue will continue to be of much interest to all the stakeholders involved.
[The authors are Partner, Associate Partner and Senior Associate, respectively, in Direct Tax practice at Lakshmikumaran & Sridharan Attorneys]
[1] For AY 2018-19 and from AY 2022-23 onwards.
[2] CIT v. Roca Bathroom Products Pvt. Ltd., [2022] 445 ITR 537 (Madras)
[3] Shelf Drilling Ron Tappmeyer Ltd. v. Asst. CIT, International Taxation, [2023] 457 ITR 161 (Bom.)
[4] Commissioner of Income-tax v. Roca Bathroom Products (P.) Ltd., [2023] 147 taxmann.com 224 (SC) and ACIT v. Shelf Drilling Ron Teppmeyer Ltd., [2025] 177 taxmann.com 262 (SC)
[5]Gaurav Jain & Supreme Court Bar Association v. Union of India & Ors., 1998 SCC OnLine SC 236
[6] Union of India v. Kamalakshi Finance Corporation Ltd., AIR 1992 SC 711
[7] Kunhayammed v. State of Kerala, (2000) 6 SCC 359
[8] High Court Bar Association, Allahabad v. State of U.P. and Ors., MANU/SC/0149/2024
[9]F.No.70/AT/Jud.Am/Judicial/Del/2025-26-Noticc-32
