Clarifying the Clock: Supreme Court Defines the Relationship between Section 144C & Section 153 of the Income-tax Act, 1961

Introduction

In Assistant Commissioner of Income Tax (Intl. Taxation) & Ors. v. Shelf Drilling Ron Tappmeyer Ltd., 2025 INSC 946, the Supreme Court was called upon to decide a deceptively simple but widely litigated question: How do the limitation periods prescribed in Section 153 interact with the specialised timeline architecture of Section 144C? The answer has direct consequences for every assessment involving (a) foreign companies and other “eligible assessees” that trigger the DRP route under s.144C, and (b) reassessments remanded by the Income-tax Appellate Tribunal (ITAT).

The case produced two sharply divergent opinions (Nagarathna J. and Satish Chandra Sharma J.), resulting in a split verdict. The matter now awaits reference to a larger Bench, but both judgments are reasoned expositions that will influence litigation until the larger Bench settles the law.

Summary of the Judgment(s)

Nagarathna J. (for dismissal of Revenue’s appeal)
• The entire Section 144C procedure (draft order → objections → DRP directions → final order) must fit inside the “overall” limitation of s.153(3) (twelve months from the end of the FY in which ITAT’s remand order is received).
• Failure to do so time-bars the assessment; hence the High Court was right in quashing the draft orders of September 2021.
Sharma J. (for allowing Revenue’s appeal)
• Section 153 timelines govern only up to the issuance of the draft order under s.144C(1).
• Thereafter, the discrete timelines inside s.144C(4) & 144C(13) operate “in addition” to s.153.
• Madras & Bombay High Court decisions equating the two regimes are “wholly incorrect”.
Result: Split decision – Registry directed to place the matter before the Chief Justice for a larger Bench.

Analysis

1. Precedents Cited and Their Influence

Roca Bathroom Products Pvt. Ltd. (Mad HC, 2022) – Held s.144C timelines are subsumed within s.153(3). Followed by Bombay HC in the present matter. Nagarathna J. approves; Sharma J. overrules.
Nokia India Pvt. Ltd. (Del HC, 2018) – Similar ratio to Roca; relied upon by assessees.
Classic principles on non-obstante clauses (e.g., Aswini Kumar Ghose, 1952; Central Bank of India v. Kerala, 2009) invoked by both sides.
Interpretative canons: purposive approach (Whitney 1926; Bennion; Franklin Templeton 2021) profusely quoted in Nagarathna J.’s opinion.

2. The Competing Legal Reasoning

Nagarathna J.	Sharma J.
Scope of Non-obstante in s.144C(1): It clarifies a distinct procedure (draft order) but does not override s.153 limitation. Purposive Intent: Parliament introduced s.144C to expedite assessments for foreign investors; extending total time would defeat that intent. Harmonious Reading: Since s.153(3) supplies an outer limit, all intermediate steps—including DRP—must finish within 12 months. Administrative Practicality: Assessing Officers must “work backwards”; any inconvenience cannot rewrite a fiscal statute.	Dual-track System: Eligible assessees enjoy a “code by itself”; Parliament deliberately used further non-obstante clauses in s.144C(4) & 144C(13) overriding s.153. Draft vs. Final Order: Limitation under s.153 applies only up to the draft order. After that the Act gives (i) 1 month if no DRP; (ii) 9 + 1 months if DRP. Avoiding Absurdity: If entire DRP process must fit into 12 months, AO will have negligible time; law would be “unworkable”. Revenue Protection: Acceptance of HC view jeopardises ₹1.3 lakh crores of disputed tax.

Nagarathna J.

Sharma J.

Scope of Non-obstante in s.144C(1): It clarifies a distinct procedure (draft order) but does not override s.153 limitation.
Purposive Intent: Parliament introduced s.144C to expedite assessments for foreign investors; extending total time would defeat that intent.
Harmonious Reading: Since s.153(3) supplies an outer limit, all intermediate steps—including DRP—must finish within 12 months.
Administrative Practicality: Assessing Officers must “work backwards”; any inconvenience cannot rewrite a fiscal statute.

Dual-track System: Eligible assessees enjoy a “code by itself”; Parliament deliberately used further non-obstante clauses in s.144C(4) & 144C(13) overriding s.153.
Draft vs. Final Order: Limitation under s.153 applies only up to the draft order. After that the Act gives (i) 1 month if no DRP; (ii) 9 + 1 months if DRP.
Avoiding Absurdity: If entire DRP process must fit into 12 months, AO will have negligible time; law would be “unworkable”.
Revenue Protection: Acceptance of HC view jeopardises ₹1.3 lakh crores of disputed tax.

3. Impact of the Divergence

Until a larger Bench decides, legal uncertainty persists. Key consequences:

Pending Assessments: Thousands of DRP-eligible cases and remand-back assessments may hinge on whether their draft orders met s.153 deadlines.
Litigation Strategy: Taxpayers will invoke Nagarathna J.’s view; Revenue will rely on Sharma J. to keep assessments alive.
Administrative Practice: CBDT may issue interim SOPs urging AOs to complete draft orders within s.153 while still reserving extra time for DRP, to hedge risk.
Legislative Response: Parliament may amend s.153 or s.144C to settle the timeline explicitly (similar to the 2016 and 2017 rationalisations).

Complex Concepts Simplified

Draft Assessment Order: A provisional order proposing additions/variations; unique to eligible assessees under s.144C.
DRP (Dispute Resolution Panel): A collegium of three Commissioners serving as an internal high-speed appellate tribunal; must issue directions within 9 months.
Section 153 “Outer-limit”: General statute-wide cap (12 / 18 / 21 months depending on AY) within which any assessment or reassessment must ordinarily finish.
Non-obstante Clause: A legislative device (“notwithstanding…”) giving a provision priority over conflicting provisions.

Conclusion

The judgment(s) present a textbook study in statutory construction: textual fidelity versus pragmatic workability. Both opinions grapple convincingly with Parliamentary intent, but reach opposite destinations. The ratio ultimately awaits a larger Bench, but several interim takeaways emerge:

Until clarified, prudent Assessing Officers should treat s.153 timelines as governing their draft orders, and still endeavour to keep the entire s.144C chain within one year to avoid future invalidation.
Taxpayers can legitimately challenge belated draft orders by citing Nagarathna J.; Revenue will defend by citing Sharma J. — litigation churn is inevitable.
Legislative or CBDT clarification would reduce uncertainty and avoid clogged dockets.

Whichever way the larger Bench rules, the decision will mark a watershed on how India balances tax certainty with revenue protection in cross-border commerce. For the moment, the clock keeps ticking—though no one is yet sure which one.