The Delhi High Court (HC), in a recent ruling in the case of P.D.R SOLUTIONS FZC has allowed the Writ petition filed by the petitioner and set aside the order of the Dispute Resolution Panel (DRP) holding that the DRP erred in not taking into consideration all the material and contentions furnished by the petitioner before the DRP. The matter was remanded back to the DRP for considering the objections raised by the petitioner in detail and for passing a fresh order on merits by giving reasons and findings. To put in perspective, the petitioner was a UAE tax resident company engaged in the business of selling domain names, providing web hosting services & server space to clients. The petitioner had claimed a non-taxable position under India-UAE DTAA , which was one of the objection raised before the DRP. The DRP however, without examining the objection, passed an adverse direction following the decision of the Income Tax Appellate Tribunal (ITAT) in case of GoDaddy.com, taxability in which case was determined only under the domestic tax laws.
As a norm, Writ remedies are generally not entertained when there is alternate appellate remedy available to the taxpayer. However, in this case the HC observed that since no assessment order had yet been passed by the Assessing officer (AO), the alternate remedy was not available as yet. Further, the DRP did not adjudicate petitioner’s categorical objections on the taxability under the India-UAE DTAA which violated the principles of natural justice, there was a fundamental error relating to the exercise of jurisdiction and the approach of the DRP rendered the entire process of the dispute resolution as per the scheme of law farcical.
In the ordinary course, a taxpayer would be required to go through the tedious process of litigation – filing appeal before the next level appellate forum (ITAT) against the final order once issued by the AO (based on DRP direction). In a matter like this where the DRP has not examined the technical merits of the case, generally the ITAT would remand the matter back to AO/DRP for consideration on merits. Procedurally, this may take substantial time, perhaps years, before appeal is considered by the ITAT. Given the favourable consideration by HC at the draft order stage (where only DRP direction has been passed), there may now be another opportunity for tax payer to perhaps explore the Writ option and expedite their litigation where there is a blatant non considerations of the objection raised before the DRP. Having said that, one needs to take note (as observed by the HC) that not every order, where there is a non-application of mind, would become open to challenge under Writ jurisdiction, but only fundamental error which are glaring and noticeable.
The HC has made a fine balance in all fairness and brings forth an alternate remedy where the taxpayer is aggrieved against DRP direction, albeit which may be considered judiciously in exceptional circumstances.