Indo-Swiss DTAA | Period Of Reference Can't Be Excluded From Limitation U/S 153B Income Tax Act If Reference Is Invalid: Delhi High Court

A division bench of Justices Vibhu Bakhru and Tejas Karia observed,

“On a plain reading of Clause (ix) of the Explanation to Section 153B of the Act, the exclusion of time taken for obtaining the information (or one year) for completion of the assessment under Section 153A of the Act is applicable only if a reference for exchange of information has to be made as per the Agreement under Section 90/90A of the Act. It is necessary that reference be made in terms of the agreement. In this case, the benefit of exclusion of time by virtue of Explanation (ix) of Section 153B of the Act would, thus, be available only if the reference was made in terms of IndoSwiss DTAA. However, as noted above, the request as made was not in terms of the Indo-Swiss DTAA. It was contrary to the limitations as expressly specified under Article 14 of the Amending Protocol.”

Put briefly, Revenue had information regarding the Assessees maintaining a Swiss bank account and the Assessee was confronted with the same during the course of the proceedings under Section 153A.

At the instance of the AO, the competent authority made a request for administrative assistance to the Switzerland Tax Authorities under the provisions of 'Exchange of Information' Article of Indo-Switzerland Double Taxation Avoidance Agreement [Indo-Swiss DTAA].

The information sought related to the period prior to 01.04.2011. The Swiss authorities sent a communication denying the request for information on the ground that the Indo-Swiss DTAA did not entail any obligation to provide information for a period prior to 01.04.2011.

Thereafter, the reassessment proceedings culminated in an assessment order making additions in the income from other sources and unexplained expenditure.

Assessees however succeeded in their respective appeals before ITAT on the ground that the assessment orders from which the appeals emanate were passed beyond the period as stipulated under Section 153B of the Act.

It was the Revenue's case that the assessment order was not barred by limitation as in terms of Clause (ix) of the Explanation to Section 153B of the Act, the period commencing from the date on which a reference was made for request for information by an authority competent under the agreement referred to in Section 90 or Section 90A of the Act – in this case the Indo-Swiss DTAA – and ending with the date on which the information is last received or a period of one year, whichever is less, is required to be excluded.

The Revenue claimed that the request for information in terms of the Indo-Swiss DTAA was made to the concerned authority of the Swiss Confederation and no response was received within the period of one year from the date of the making such request. Therefore, the period of one year is required to be excluded.

The Assessee on the other hand claimed that the reference made was not valid and thus, the benefit of Clause (ix) of the Explanation to Section 153B of the Act was not available to the Revenue.

At the outset, the High Court noted that the only agreement that existed between the Swiss Confederation and India in respect of exchange of information under the Indo-Swiss DTAA is embodied in Article 26, which was substituted by the Amending Protocol.

By virtue of the Amending Protocol, the Indo-Swiss DTAA stood novated insofar as the provision regarding exchange of information is concerned.

Court said it is well settled that novation discharges the original contract.

“Thus, for all intents and purposes, Article 26 as it existed prior to 30.08.2010, ceased to exist. Since the Amending Protocol was signed on 30.08.2010, Article 26 would be effective only for exchange of information that relates to the following fiscal year, that is, commencing 01.04.2011,” it held.

The Court further noted that there is no clause in the Amending Protocol that has an effect of saving any rights and obligations under Article 26 (numbered as Article 24 prior to 16.02.2000), or one which could be read as expressing the intention of the treaty partners to save any rights and obligations regarding exchange of information as extant prior to 30.08.2010.

“On the contrary, paragraph 3 of Article 14 of the Amending Protocol contains a non-obstante clause that makes it abundantly clear that Article 26 of the Indo-Swiss DTAA regarding exchange of the information would be applicable only for the information that relates to a fiscal year beginning or after the first day of January of the year following the date of the signing of the Amending Protocol, that is, a fiscal year commencing on or after 01.01.2011, which in the case of this country would be 01.04.2011. ”

In view of the above, the Court held that no request could be made by the Revenue for information relating to period prior to 01.04.2011 in terms of the Indo-Swiss DTAA.

The next question before it was whether the period for completion of the assessment would stand extended notwithstanding that the request for information made by the Revenue Authority was not maintainable.

It held that the period of limitation as prescribed under Section 153B of the Act is required to be construed strictly and thus held that limitation cannot be extended for the period of an invalid request.

As such, Revenue's appeals were dismissed.

Appearance: For the Appellant : Mr. Mr Puneet Rai, SSC, Mr Ashvini Kumar and Mr Rishabh Nangia, SCs and Mr Nikhil Jain, Advocates for the Revenue. For the Respondent : Dr Rakesh Gupta, Mr Somil Agarwal and Mr Dushyant Agarwal, Advocates for the Assessee.

Case title: The Pr. Commissioner Of Income Tax -Central -1 v. Sneh Lata Sawhney (and batch)

Citation: 2025 LiveLaw (Del) 606

Case no.: ITA 758/2023

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