TMI Blog2017 (9) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... upon by the Ld. CIT (A) is only for the residents and is not applicable for the non-residents. Thus, we hold that the proceedings under section 201 are barred by limitation and accordingly the same are quashed. - Decided in favour of assessee. - I.T.A. No.5799/DEL/2015 - - - Dated:- 18-9-2017 - SHRI G. D. AG RAWAL, PRESIDENT AND SHRI AMIT SHUKLA JUDICIAL MEMBER For The Applicant : Shri Ajay Vohra Shri Gaurav Jain, Advocates For The Respondent : Shri S.S. Rana,CIT (D.R.) ORDER PER AMIT SHUKLA, J.M.: The aforesaid appeal has been filed by the assessee against the impugned order dated 20/8/2015, passed by the ld. CIT (Appeals)-43, New Delhi in relation to the order passed under section 201 of the Act for the assessment year 2009-10. 2. In the grounds of appeal, the assessee has raised the following grounds:- 1. That the Commissioner of Income Tax (Appeals) [ CIT(A) ] erred on facts and in law in not quashing the order passed by the assessing officer under section 201 r.w.s 195 of the Income-tax Act, 1961 ( the Act ) treating the appellant to be 2 in default for alleged non-deduction of tax at source from payment to Mr. Surinder Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apart from that, catena of other judgments have also been filed for the same proposition, the list of which are as und 1 Bharti Airtel Ltd. v. U. 0.I, 245 Taxman 80 (Del) 2. Vodafone Essar Mobile Services Ltd. v U.O.I., 385 ITR 436 (Del) 3. CIT v. NHK Japan Broadcasting Corpn., 305 ITR 137 (Del) 4. CIT v. C.J. International Hotels (P.) Ltd: 372 ITR 684 (Del) 5. CIT v. Bharat Hotels Ltd., 384 ITR 77 (Kar) 6 ACIT v. Catholic Relief Services, 55 SOT 405 (Del Trib.) 7. Crompton Greaves Ltd. v. DCIT; 149 TTJ 484 (Mum Trib.) 4 4. Explaining the brief facts qua the preliminary issue of limitation, Mr. Vohra submitted that the assessee is a private limited company which is engaged in the business of real estate. It had purchased a land in Mohali from one, Shri Surinder Singh Chahal vide sale deed dated 27/6/2008 for a consideration of ₹ 5,55,04,626/-. At the time of purchase, the assessee was under a belief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of the financial year in which the payment is made or credit is given. To provide sufficient time for pending cases, it is provided that such proceedings for a financial year beginning from 1st April, 2007 and earlier years can be completed by the 31st March, 2011. 50.3 However, no time-limits have been prescribed for order under sub-section (1) of section 201 where:- ( a) the deductor has deducted but not deposited the tax deducted at source, as this would be a case of defalcation of government dues, ( b) the employer has failed to pay the tax wholly or partly, under sub-section (1A) of section 192, as the employee would not have paid tax on such perquisites, 6 ( c) the deductee is a non-resident as it may not be administratively possible to recover the tax from the non-resident. 5. Relying upon the provisions of the Act read with Explanatory notes to the Finance Act, 2009, AO held that there is no limitation period for passing an order under section 201(1) (a), when the deductee is a non-resident and, therefore, the contention of the assessee that the action is barred by limitation is devoid of any legal merits. Accordingly, AO held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the end of the relevant financial year, is clearly barred by limitation. Thus, this judgment clearly clinches the issue in favour of the assessee. 8. On the other hand, the ld. D.R. strongly relied upon the order of the ld. CIT (A) and submitted that the provisions as amended from time to time in section 201(3) laying down limitation period should be followed as the time limit is clearly 6 years from the end of the relevant financial year. 8 9. We have heard the rival submissions and perused the relevant finding given in the impugned order qua the issue relating to limitation as challenged by the assessee in ground No.1.1. Admittedly, here in this case the transaction of purchase of land by the assessee was conducted on 27/6/2008 [financial year 2008-09] relevant to the assessment year 2009-10. The payment for purchase of land has been made to a non-resident without deducting tax at source. The proceedings under section 201 has been initiated vide notice dated 17/4/2013 which is clearly after a lapse of four years from the end of the relevant financial year, that is, 4 years from 31/3/2009. Both the authorities, have heavily relied upon the amendment made in section 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 201 cannot be initiated beyond the period of four years. The revenue characterises this position as untenable since the two cases did not make a distinction between payments made to residents and nonresidents. The Statement of Objects and Reasons of the Finance (No. 2) Bill, 2009 in relation to the amendment to Section 201 of the Act read as follows: Sub-clause (b) of clause 65 seeks to provide time limit for passing of order under sub-section (1) of section 201 in case of resident tax payers. It provides that no order 10 shall be made under sub-section (1) of section 201, deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax in the case of a person resident in India, at any time after the expiry of two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been filed. It further provides that in any other case such order shall not be made at any time after four years from the end of the financial year in which payment is made or WP (C) Nos.8535, 8536, 8537/2011 and credit is given. It further provides that such order for a financial year c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010. Accordingly it will apply to such orders passed on or after the 1st April, 2010. 12. When NHK Japan (supra) and Hutchinson (supra) were decided, the amendment was not brought about and therefore the issue of existence of a period of limitation did not arise. The court therefore, considered, on the basis of 12 available authority, that a four year period was reasonable period as the outer limit for issuance of notice under Section 201. However, in the present case, Parliament consciously amended the Act. In doing so, it prescribed a limitation only for residents. Instead of actively barring the applicability of the provision on non-residents, did the Parliament choose to passively do so by remaining silent on non-residents and only amending the provision, for residents. The question is, whether the petitioner is right in contending that if the Act does not specify a time period, then a reasonable time period should be read into the Act. This contention is based on judgments which were delivered when the Legislature had not made a distinction between residents and non-residents. The question is when such a distinction exists, can one read a reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... twears [2014] 362 ITR 673, the Supreme Court had the occasion to deal with the correct position in law as to the initiation of Income-tax proceedings. Although, the context of the dispute was in respect of recording of a satisfaction note as to the initiation of proceedings against third parties under the erstwhile section 158BD of the Act which did not prescribe the period of limitation and left it to the discretion of the Assessing Officer to decide on being satisfied that such proceedings were required to be initiated, the court limited such discretion in the following terms (page 691 of 362 ITR): 14 44. In the result, we hold that for the purpose of section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the Assessing Officer before he transmits the records to the other Assessing Officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act; (b) along with the assessment proceedings under section 158BC of the Act; and (c) immediately after the assessment pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Mr. Shivpuri cannot be accepted if section 153 is perused carefully. It reads as under: '153. Time limit for completion of assessments and reassessments.--... ( 3) The provisions of sub-sections (1), (1A), (1B) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, subject to the provisions of sub-section (2A), be completed at any time-- 16 ( ii) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 250, 254, 260, 262, 263 or 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act. 21. In the first place, what the said provision does is to not apply the time limit of two years for completing the assessment from the end of the financial year where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order . . . or in an order of any court in a proceeding otherwise than by way of appeal or referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y amount referred to in the specified provisions. In none of the provisions we find the expression sum chargeable under the provisions of the Act , which as stated above, is an expression used only in section 195(1). Therefore, this court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. Section 195(2) is not merely a provision to provide information to the Income-tax Officer (TDS). It is a provision requiring tax to be 18 deducted at source to be paid to the Revenue by the payer who makes payment to a non-resident. Therefore, section 195 has to be read in conformity with the charging provisions, i.e., sections 4, 5 and 9. This reasoning flows from the words sum chargeable under the provisions of the Act in section 195(1). The fact that the Revenue has not obtained any information per se cannot be a ground to construe section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read section 195, as suggested by the Department, namely, that the moment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the recipient of the sum, i.e., the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments, the payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words chargeable under the provisions of the Act to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in 20 India, the Government would nonetheless collect tax. In our view, section 195(2) provides a remedy by which a person may seek a determination of the appropriate proportion of such sum so chargeable where a proportion of the sum so chargeable is liable to tax. The entire basis of the Department's contention is based on administrative convenience in support of its interpretation. According to the Department, huge seepage of revenue can take pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or fees for technical service or other sums chargeable under the Income-tax Act then it would be open to the Assessing Officer to disallow such claim for deduction. Similarly, vide the Finance Act, 2008, with effect from April 1, 2008, sub-section (6) has been inserted in section 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. This provision is brought into force only from April 1, 2008. It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage. 17. In this court s view, therefore, since Vodafone Essar (supra) considered the entire issue and noted that even recently a reasonable period was read into the Act, in relation to exercise of powers (although in a different context) 22 accepting the petitioner s contention in the present case is based on precedent. Furthermore, the only reason cited by the respondent, i.e. administrative convenience, cannot outweigh the harsh nature of the consequence, which would expose resident payers to the onerous resp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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