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Commissioner of Income Tax, TDS, Tax Recovery Officer (TDS) Versus M/s Bharat Hotels Ltd.

TDS u/s 194I - assessee in default - Whether the Tribunal was correct in holding that the order passed under Section 201(1) and 201(1A) for the assessment year 2002-03 is barred by limitation? - Held that:- In the memorandum explaining the provisions in the Finance (II) Bill, 2009, it was clearly stated that ‘to provide sufficient time for pending cases, it is proposed to provide that such proceedings for a financial year beginning from 1st April, 2007 and earlier years can be completed by the 3 .....

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ion (3) did not legalize the cases where action had already been taken, but was meant for only such cases which were pending at the time of insertion of sub-section (3) to Section 201 of the Act. Thus, for the reasons given above, we find that the Tribunal was correct in holding that the order passed under Sec.201 (1) and (1A) of the Act on 28.1.2008 for the assessment year 2002-03, would be barred by limitation as the period of limitation would be four years from the end of the financial year i .....

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gh the liability to pay tax is that of the Recipient. The provision for payment of interest under sub-section (1A) of Section 201 of the Act is only of compensatory nature. It cannot be a means to penalise the payer. The provision for payment of interest would arise from the date when it ought to have been deducted i.e., from the date of payment by the payer to the Recipient. The liability to pay interest would end on the date when such tax has been deposited by the Recipient, either by way of a .....

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the liability of the assessee herein would not be for payment of interest after the period of deposit of tax by the Recipient.- Decided in favour of the respondent assessee and against the Revenue. - Income Tax Appeal 393/2009 - Dated:- 2-12-2015 - Vineet Saran And S. Sujatha, JJ. For the Appellant : Sri K V Aravind, Adv For the Respondent : Sri Rupesh Jain for Sri D Prashanth Kumar, Adv JUDGMENT The present appeal relates to the assessment year 2002-03 and has been filed by the Revenue challen .....

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st December, 2001 to 31st March, 2002. The admitted facts are that under an agreement between the respondent-assessee Bharat Hotels Ltd and KKFHPL, a license fee of ₹ 4.11 crores per annum was to be paid as a minimum guarantee payment to KKFHPL. The dispute in the present appeal is with regard to the assessee not having deducted the tax at source (TDS), as was required under Section 194 I of the Income Tax Act, 1961 (for short Act ). The assessee was thus held liable for the consequences f .....

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rn. The payment of licence fee made by the assessee to KKFHPL, under the lease agreement for the relevant period, amounted to ₹ 1.37 crores; plus ₹ 24.90 crores, which was further paid by the assessee as upfront fee to the KKFHPL (hereinafter also referred as Recipient) on which the Revenue claims that tax was to be deducted at source, which was not done. Thus, the admitted position is that on the said amount, neither any tax was deducted at source, nor the same was reflected in the .....

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of tax for the payment so made by the assessee to the Recepient KKFHPL was ever raised. It was only when a survey was conducted in the premises of the assessee on 19.9.2007, that proceedings for failure to deduct tax at source (TDS) during the assessment year 2002-03 was raised and consequently, notice was given to the assessee. Then by order dated 28.1.2008 passed by the Assessing Officer under Section 201(1) and 201(1A) of the Act, assessee was treated as in default in respect of non deductio .....

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and held that the impugned order passed by the Assessing Officer was within limitation. However, a finding was also recorded that the amount paid by the assessee to the Recipient was not towards rent and hence the provisions of Section 194 I of the Act were not attracted. Consequently it was held that, there was no failure to deduct tax and hence the provisions of Section 201 of the Act were not attracted. Challenging the said order of the Appellate Commissioner, the Revenue as well as the asses .....

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onsidering the licence fee then no interest u/s 201(1A) will be chargeable, as the Board Circular has mentioned that interest u/s 201(1A) is to be charged till the date of payment of tax by the deducteeassessee. Hence, the issue of computation of interest u/s 201(1A) for the asst. year 2002-03 will have to be worked again by the Assessing Officer in respect of licence fee. Since we have held that the assessee was required to deduct tax at source from the upfront amount and therefore, the Assessi .....

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follows: 1. Whether the Tribunal was correct in holding that the order passed under Section 201(1) and 201(1A) of the Act dated 28.1.2008 for the assessment year 2002-03 is barred by limitation? 2. Whether the Tribunal was correct in holding that the assessee was liable to pay interest under Section 201(1A) of the Act for not deducting TDS, from the date when the payment was made by the assessee to the Recipient, till the date the tax was deposited by the Recipient. We have heard Sri K V Aravin .....

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nly by the Finance Act, 2009 that sub-section (3) was inserted, initially providing for a period of limitation of two years from the end of the financial year in which the statement is filed; and four years from the end of the financial year in which the payment is made or credit is given. A proviso was also inserted in the said subsection (3) providing that for financial year commencing on or before 1.4.2007, orders may be passed at any time on or before 30.1.2011. The relevant sub-section (1) .....

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as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that no penalty shall be charged under Section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax. (1A) Without prejudice to the provisions of subsection (1), if any such person, principal officer .....

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te on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of Section 200. Sub-section (3) as it was inserted by Finance (No.2) Act, 2009 with effect from 1.4.2010 is also reproduced below: (3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person reside .....

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, 2012, the period of 4 years mentioned in clause (ii) of sub-section (3) was amended as 6 years to be given effect from 1.4.2010. It may be noted, by Finance (No.2) Act, 2014, sub-section (3) has further undergone an amendment with effect from 1.10.2014, whereby limitation of 7 years period from the end of the financial year has been provided. Such is the provision of law which we have to consider while deciding the first question. Admittedly, at the relevant time relating to assessment year 20 .....

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there is no limitation provided under the Act, proceedings can be initiated at any stage and at any time. In the alternative, he submitted that even if it is held that proceedings are to be initiated within a reasonable time, then too, the period of seven years from the end of the financial year, as has been provided for by the Finance Act, 2014, would be the reasonable time. He has submitted that Section 153 of the Act provides for time for completion of assessments and reassessments. Subsecti .....

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apply for computing the reasonable period and not Section 153(1) of the Act, and since notice under Section 148 could be served up to six years from the end of the relevant assessment year (in cases where the amount involved is more than ₹ 1 lakh) coupled with Section 153(2) of the Act providing one year time for passing the order of assessment, reassessement or recomputation in which the notice under Section 148 was served, the same would amount to seven years from the end of the financi .....

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efore 1.4.2007), the proceedings could be completed on or before 31.3.2011. Per contra, Sri Rupesh Jain, learned counsel for respondent assessee has submitted that when no limitation is provided, limitation would be a reasonable period and not unlimited period. According to him, reasonable period would be as provided under Section 153(1) of the Act, which is two years from the end of the assessment year in which the income was first assessable, that is, three years from the end of the financial .....

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eriod of limitation provided under the said sub-section was also the same as provided under Section 153(1) and thus, he contends that the same should be considered as the reasonable period of limitation for initiating proceedings under Section 201 for the assessment year 2002-03. Sri Rupesh Jain, learned counsel for the respondent assessee has further submitted that the proviso to subsection (3) of Section 201 would not be applicable to the case at hand, as it relates to pending cases and not ca .....

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iod of limitation has been prescribed, statutory authority must exercise its jurisdiction within a reasonable period. What, however, shall be the reasonable period would depend on the nature of the Statute, rights and liabilities there under and other relevant factors . In the case of Santoshkumar Shivgonda Patil Vs Balasaheb Tukaram Shevale & Ors (2009) SCC 352, the Apex Court has held: It seems to be fairly settled that if a statute does not prescribe the time limit for exercise of revisio .....

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the Apex Court, in the case of State of Gujarat Vs Patel Raghav Natha & Ors AIR 1969 SC 1297, has held that where there is no period of limitation prescribed, the same should be done within a reasonable time, and the length of reasonable time must be determined on the facts of the case. Then, in the year 1989, again the Apex Court in the case of Government of India Vs Citadel Fine Pharmaceuticals & Ors (1990) 184 ITR 467, while dealing with the case relating to excise duty, has held tha .....

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der which action has to be taken. This is necessary, also because if any right has accrued in favour of a person or party by passage of time, same cannot be unsettled by a statutory authority at any time or after an indefinite period, as the same would amount to unsettling a settled position, which can only be done within a reasonable period, and not at any time in the future after an unlimited period. Now what we have to consider is, what would be the reasonable period within which proceedings .....

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s concerned, our attention has been drawn to S.153(1)(a) thereof which prescribes the time limit for completing the assessment, which is two years from the end of the assessment year in which the income was first assessable. It is well known that the assessment year follows the previous year and, therefore, the time limit would be three years from the end of the financial years. This seems to be a reasonable period as accepted under S.153 of the Act, though for completion of assessment proceedin .....

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en the view that four years would be a reasonable period of time for initiating action, in a case where no limitation is prescribed. The Tribunal has relied on the said judgment and thus held that four years period would be a reasonable period of time for initiating action. Though learned counsel for the appellants / Revenue has vehemently argued that in view of the decision of the Apex Court in the case of Uttam Namdeo Mahale Vs Vithal Deo & Ors AIR 1997 SC 2695, when no period is prescribe .....

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asonable period of time, depending upon the facts of each case. The facts of the case before the Apex Court in the case of Uttam Namedeo Mahale (supra) were different from the facts of the case in hand. The provision for tax deduction at source is only a mechanism for collection of tax, which is to be actually paid by the Recipient of the money, and not by the payer. It is thus the liability of the Recipient and not the payer. However, under the Income Tax Act, a provision has been made requirin .....

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2002-03 was completed under Section 143(3) of the Act on 28.2.2005, where the receipt of the amount from the respondent assessee had been disclosed and the requisite tax had presumably been paid by the Recipient. The question of deduction of tax at source or payment of the same, was not raised by the Revenue at that time. In the case of the respondent assessee also, the assessment proceedings for the assessment year 2002-03 had again been completed, in which the payments made to the Recipient-KK .....

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ided for completion of assessment under Section 153 of the Act. The period for assessment or reassessment under Section 147 of the Act would be a different case, as it relates to income escaping assessment and not a normal, regular assessment. It would, thus, be a special provision and would not be a guiding factor for considering reasonable period of limitation under Section 201. The Delhi High Court in the case of NHK Japan Broadcasting Corporation (supra) has considered all these aspects and .....

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ld be a reasonable period of time to initiate action, the Delhi High Court held that where no limitation was prescribed (as under Section 201 of the Act), reasonable period would be four years. Following such decision of the Delhi High Court, the Tribunal also held that four years period would be a reasonable period for initiating action under Section 201 of the Act. Much reliance was placed by the learned counsel for the Revenue on the proviso added to sub-section (3) of Section 201 of the Act, .....

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o provide sufficient time for pending cases, it is proposed to provide that such proceedings for a financial year beginning from 1st April, 2007 and earlier years can be completed by the 31st March, 2011 . As such, the memorandum itself clarified that the proviso is for pending cases, and not decided cases. The Circular dated 3.6.2010, issued by the CBDT, also clearly specifies that the said proviso would be for pending cases and not decided cases. With regard to the applicability of the amendme .....

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201 (1) and (1A) of the Act on 28.1.2008 for the assessment year 2002-03, would be barred by limitation as the period of limitation would be four years from the end of the financial year in question. As such, we answer the first question raised in this appeal, in favour of the respondent assessee and against the Revenue. Question No.2: Now, coming to the second question of law, it is true that in view of the first question having been decided in favour of the assessee, this question remains only .....

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bmitted that sub-section (1A) of Section 201 of the Act provides for payment of interest. The sub-section, as it stood at the relevant time, prior to 1.7.2010, reads as under: (1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at on .....

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on which such tax was actually paid, i.e., tax was deposited by the Recipient. As we have already noticed above, the provision for tax deduction at source is only a mechanism for collection of tax by the payer, even though the liability to pay tax is that of the Recipient. The provision for payment of interest under sub-section (1A) of Section 201 of the Act is only of compensatory nature. It cannot be a means to penalise the payer. The provision for payment of interest would arise from the date .....

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has deposited the tax, the same would amount to undue enrichment of the Revenue, as even after receiving the tax, it would continue to get interest on the amount which has already been paid or deposited with it. As such, the liability of the assessee herein would not be for payment of interest after the period of deposit of tax by the Recipient. The Division Bench of this High Court, in the case of Solar Automobiles India (P) Ltd Vs Deputy Commissioner of Income Tax (2011) 245 CTR (Kar) 475 has, .....

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