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Hamir Real Estate Pvt. Ltd. Versus ITO (TDS) , Ward 1 (2) , New Delhi

2017 (9) TMI 1150 - ITAT DELHI

TDS u/s 195 - TDS liability on payment for purchase of land - Limitation in respect of deduction from non-residents - whether Shri Surinder Singh Chahal was resident of USA and the assessee was required to deduct TDS under section 195? - limitation period for passing an order under section 201(1)(a), when the deductee is a non-resident - Held that:- High Court in the case of Bharti Airtel Ltd. vs. Union of India (2016 (12) TMI 1601 - DELHI HIGH COURT) has decided exactly similar issue wherein th .....

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and the provisions contained in section 201(1) and 201(3) prescribing time limit as relied 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 Ga .....

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ot 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 Chahal for purchase of land at Mohali, on the ground of being initiated, and the impugned order being passed, beyond the period of limitation and was, thus, beyond jurisdiction, bad in law and void-ab-initio. 1.1 That the CIT (A) erred on facts and in law in .....

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ged failure to deduct tax at source from payment made to non-resident. 3. That the CIT(A) erred on facts and in law in not holding that the appellant was not an assessee in default since the Revenue had traced, framed assessment and initiated recovery proceedings against, the non-resident recipient. 3.1 That the CIT (A) erred on facts and in law in not appreciating that the proceedings under section 201 of the Act can be initiated/ carried on against the deductor, only when the assessment could .....

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01 of the Act is barred by limitation, as the same has been done beyond the period of four years from the end of the relevant financial year. Therefore, in view of the judgment of the Hon'ble jurisdictional High Court in the case of CIT vs. NHK Japan Broadcasting Corpn., 305 ITR 137 (Del), which has been reiterated in a recent judgment by the Hon'ble High Court in the case of Bharti Airtel Ltd. vs. Union of India, 245 taxman 80 (Del), that the initiation of proceedings under section 201 .....

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CIT 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 .....

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uired to deduct TDS under section 195. Before the Assessing Officer, the assessee had challenged the limitation for issuance of such notice after a lapse of four years from the end of relevant financial year and hence, the proceeding is beyond the reasonable time period and barred by limitation. The Assessing Officer, rejected the assessee s objection on the ground that the time period for issuing notice under section 201(1)(a) of the Act as per provisions of section 201(3)(ii) applies in case w .....

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holding a person to be an assessee in default 50.1 Currently, the Income Tax Act does not provide for any limitation of time for passing an order u/s 201(1) holding a person to be an assessee in default. In the absence of such a time limit, disputes arise when these proceedings are taken up or completed after substantial time has elapsed. In order to bring certainty on this issue, specific time limits is provided in the Act within which order u/s 201(1) will be passed. 50.2 It has been provided .....

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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 emp .....

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egal merits. Accordingly, AO held that the assessee was liable to deduct tax under section 195 while making payment to Shri Surinder Singh Chahal on purchase of land in Mohali and treated the assessee as assessee-in-default and levied tax and interest for the sums aggregating to ₹ 1,82,09,546/-. 6. Before the ld. CIT (A), the assessee had strongly relied upon the judgment of the Hon'ble Delhi High Court in the case of CIT vs. NHK Japan Broadcasting Corpn. (Supra) and also the judgment .....

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. (supra) on the ground that now in the wake of amendment brought in law by the Finance Act (No.2) of 2009, amendment with regard to time limit has been prescribed for six years, which has again been enhanced to 7 years vide Finance Act, 2014 the 7 assessee s plea for limitation period of 4 years will not be applicable. Accordingly, Ld. CIT (A) held that proceedings are not barred by limitation and reasonable time limit for initiation of proceedings for default in deduction of tax on payments ma .....

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le High Court has taken note of the amendment as well as the Explanatory notes to Finance Act, 2009 which has been referred and relied upon by the Assessing Officer as well as the ld. CIT (A). After considering the entire gamut of the provisions as well as various decisions, the Hon'ble High Court, have reiterated that notice under section 201 to the assessee in respect of payments made to non-residents after expiry of four years from the end of the relevant financial year, is clearly barred .....

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ue 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 relevan .....

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e of CIT vs. NHK Japan Broadcasting Corpn. (Supra) will not apply because at that time no such limitation was provided in the statute, as the order of the Hon'ble High Court itself is dated 23/4/2008. Now as pointed out by the ld. Counsel for the assessee, the jurisdictional High Court in the case of Bharti Airtel Ltd. vs. Union of India (supra) has decided exactly similar issue wherein they have held that period of limitation prescribed under the amended Act is only applicable for the payme .....

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n the resident and non-resident. Therefore, the remote question will be whether such distinction exists and can one read a reasonable time period into that for the payment made to nonresident also. The Hon'ble High Court while proceeding with the writ petition clarified that the purview of adjudication by the Court was restricted to payments made to non-resident only. The Hon'ble High Court after taking note of the argument put forth by both the parties and also the amendment brought w.e .....

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that proceedings under Section 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 .....

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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 commencing on or before 1st day of April, 2007 may be passed at any time on or before the 31st day of March, 2011. The sub- clause also provides that the provisions of sub-clause (ii) of sub-section (3) of section 153 and of Explanation 1 to section 153 shall, so far as may apply to the .....

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n the absence of such a time limit, disputes arise when these proceedings are taken up or completed after substantial time has elapsed. In order to bring certainty on this issue, it is proposed to provide for express time limits in the Act within which specified order u/s 201(1) will be passed. 11 It is proposed that an order u/s 201(1) for failure to deduct the whole or any part of the tax as required under this Act, if the deductee is a resident taxpayer shall be passed within two years from t .....

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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, (c) the deductee is a non-resident as it may not be administratively possible to recover the tax from the non- resident. It is propos .....

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owever, 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 .....

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residents and non-residents through the amendment, can mean that where no period of limitation for Sections 200 and 201 has been prescribed, one cannot be read into the Act. However, the legislative history here becomes instructive; in that context extrinsic material, in the form of statements of objects and reasons, become relevant. At all material times, payments made to residents and nonresidents were treated alike. The revenue does not state what necessitated the distinction, made through th .....

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ounds of administrative convenience is arbitrary, discriminatory and violative of Article 14 and 265 of the Constitution. They have submitted that the basis of 'administrative convenience' in respect of TDS provisions had already been rejected by the Supreme Court in the case of GE India Technology Centre v. CIT 2010 (10) SCC 29. Taking their argument forward, the Petitioner submitted that the provision lacked any intelligible differentia, with no basis in law to provide for period of li .....

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ntions. The Court had then ruled as follows: 9. More recently in CIT v. Calcutta Knitwears [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 discre .....

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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 proceedings are completed under section 158BC of the Act of the searched person.' 10. An added reason why the submission of the Revenue is unacceptable is that had Parliament indeed intended to overrule or set aside the re .....

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ult under section 201 of the Act could be initiated for a period earlier than four years prior to March 31, 2011. 18. Mr. M. S. Syali, the learned senior advocate for the petitioners states that although the challenge in these petitions is also to the vires of the proviso to section 201(3) of the Act as inserted by the Finance (No. 2) Act, 2009, the petitioners would be satisfied if the 15 interpretation sought to be advanced by them on the scope and ambit of proviso to sub-section (3) of sectio .....

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nior standing counsel for the Revenue, however, seeks to advance a different line of argument. According to him the action taken by the Department was pursuant to a decision in CIT v. Idea Cellular Ltd. [2010] 325 ITR 148 (Delhi) where the amounts paid to the channel partners for the pre-paid cards and other products was held to be commission by the court within the meaning of section 194H of the Act. It is stated that it is consequent upon the said decision that the Department issued the impugn .....

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, 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 en .....

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or initiating proceedings qua other assessees. 22. Secondly there has to be a finding or directions as regards the issue in question, viz., the non-deduction of tax at source resulting in an assessee having to be declared an assessee in default under section 201 of the Act. In Rajinder Nath v. CIT [1979] 120 ITR 14 (SC), it was held that the existence of an order disposing of a case qua an assessee containing specific directions of the court was a sine qua non for invoking the powers under secti .....

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against the petitioner is misconceived. 16. The court was conscious of the absence of any limitation period in respect of payments to non-residents, for the purpose of Section 195 read with Section 201. Yet, it was held that proceedings could be initiated within reasonable time. The circular relied on by the revenue, furnishing a rationale for not providing limitation: as it may not be administratively possible to recover the tax from the nonresident , was decisively rejected in G.E. Technologie .....

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any sum paid to any resident . Similarly, sections 194EE and 194F, inter alia, provide for deduction of tax in respect of any 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 .....

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he 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 there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated e .....

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lection and recovery. As held in the case of CIT v. Eli Lilly and Co. (India) (P.) Ltd. [2009] 312 ITR 225 the provisions for deduction of TAS which are in Chapter XVII dealing with collection of taxes and the charging provisions of the Income-tax Act form one single integral, inseparable code and, therefore, the provisions relating to TDS apply only to those sums which are chargeable to tax under the Income- tax Act. It is true that the judgment in Eli Lilly [2009] 312 ITR 225 was confined to s .....

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It is in this sense that we hold that the Income-tax Act constitutes one single integral inseparable code. Hence, the provisions relating to TDS applies only to those sums which are chargeable to tax under the Income- tax Act. If the contention of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the moneys deposited by the payer even if the sum paid is not char .....

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m 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 s .....

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h Court, would plug the loophole as the said interpretation requires the payer to make a declaration before the Income- tax Officer (TDS) of payments made to non- residents. In other words, according to the Department, section 195(2) is a provision by which the payer is required to inform the Department of the remittances he makes to non-residents by which the Department is able to keep track of the remittances being made to non-residents outside India. We find no merit in these contentions. As .....

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. The abovementioned contention of the Department is based on an apprehension which is ill-founded. The payer is also an assessee under the ordinary provisions of the Incometax Act. When the payer remits an amount to a non21 resident out of India he claims deduction or allowances under the Income-tax Act for the said sum as an expenditure . Under section 40(a)(i), inserted, vide Finance Act, 1988, with effect from April 1, 1989, payment in respect of royalty, fees for technical services or other .....

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y claim deduction under the Income-tax Act for such remittance and on inquiry if the Assessing Officer finds that the sums remitted outside India come within the definition of royalty 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 fur .....

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