TMI Blog2023 (3) TMI 867X X X X Extracts X X X X X X X X Extracts X X X X ..... lative action - The legislature having prescribed the limitation for passing order u/s 201(1) of the Act deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to residents, the above prescription of limitation is instructive and would serve as a guide to the Courts in determining what would constitute a reasonable period under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to non-residents. Thus the limitation prescribed for passing orders under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to residents would constitute reasonable period in the absence of a legislative prescription of limitation for passing orders under Section 201(1) of the Act, deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to non-residents as well. Reasonableness not a static concept - Limitation introduced vide Section 201(3) of the Act while passing orders deeming a person to be an assessee in default for failure to ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assessee in default for failure to deduct TDS on payments to non-residents. Impact of amendment vide the Finance Act 2014 extending period of limitation for passing orders under Section 201 of the Act, in respect of residents - As relying on B.K. Educational Services (P) Ltd. [ 2018 (10) TMI 777 - SUPREME COURT] extended period of limitation of 7 years would be available for passing orders under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct taxes in respect of payments to residents. The sequitur is that the reasonable period for passing orders under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct taxes in respect of payments to non-residents shall also be 7 years from the end of the Financial year in which the payment is made or credit given w.e.f. 1.4.2010. As the challenge in these writ petitions were limited to the aspect of limitation which is clarified, it is left open to the petitioner to file appeals challenging the order on merits. If the petitioner raises the plea of limitation, the same shall be decided by the appellate authority in accordance with legal posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultancy Agreement and Representative Office Agreement on 29.03.2005. Under the said agreement VR PLC provided legal advice, marketing and IT support to the petitioner. In lieu of these services, VR PLC was remunerated on a cost-plus basis. The remuneration paid by the petitioner was disclosed through Form No.15CA/CB filed for the relevant financial year to the Respondents/Income Tax Department. b. VR PLC being a non-resident, petitioner was under an obligation to deduct tax at source on payments made to VR PLC . Petitioner failed to deduct tax at source. Failure to discharge the obligation to deduct taxes at source would result in the petitioner being deemed to be an assessee in default in terms of Section 201(1) of the Act. There is no limitation prescribed for passing an order under Section 201(1) of the Act, deeming a person to be an assessee in default for failure to deduct tax at source (hereinafter referred to as TDS ) on payments to non-residents. c. The respondent issued Show Cause Notice under Section 201(1) of the Act for failure on the part of the petitioner to deduct TDS in respect of the payments made to VR PLC/non-resident by the petitioner for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one within a reasonable period. It has been held that four years would constitute a reasonable period for passing orders under Section 201 (1) of the Act, in case of failure to deduct tax at source in respect of payments to non-residents, by various High Courts, some of them being:- i. Commissioner of Income-Tax v. NHK Japan Broadcasting Corporation, 2008 (305) ITR 137 (Delhi) ii. Bharti Airtel Ltd. v. UOI, (2017) 291 CTR 254, iii. Vodafone Essar Mobile Services Limited v. Union of India, (2016) 385 ITR 436 (Del). iv. CIT vs. Hutchision Essar Telecome Ltd., (2010) 323 ITR 230 (Delhi) v. Director of Income Tax vs. Mahindra and Mahindra Limited [2014] 365ITR 560 (Bom. ) vi. CIT v. U.B. Electronic Instruments Ltd 92015) 371 ITR 314 (AP) vii. CIT v. Bharat Hotels Ltd (2016) 384 ITR 77 (Kar.) viii. CIT (TDS) v. Anagram Wellington Assets Management Co. Ltd (2016) 389 ITR 654 (Guj.) Relying upon the above judgments, it was submitted that the reasonable period for passing orders deeming a person to be an assessee in default for failure to deduct TDS on payments to non-residents is four years from the end of the financial year in which pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any view, the submission of the petitioner that the impugned orders are barred by limitation needs to be rejected for the following reasons: a) It is not permissible to read reasonable time/period when the Legislature has chosen not to stipulate/ prescribe, limitation for passing orders under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to non-residents. b) Assuming that orders under Section 201 of the Act ought to be made within reasonable time/ period it cannot be less than the period prescribed in relation to residents. c) Mere filing of Form 15CA and 15CB by the petitioner would not amount to compliance of the Act. The conclusions arrived by the Transfer Pricing Officer related to Arm's Length price of transaction with respect to Cost Recovery and Corporate Guarantee, whereas the present proceedings are on foreign remittances made in the nature of fees for Technical Services and applicability of TDS on foreign remittance transaction. d) The Doctrine of Reasonable Time Period will not attract to an action under Section 201(1) of the Act as no right gets vested in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n years from the end of the financial year in which payment is made or credit is given. From the above, it is clear that prior to the year 2009, there was no time limit prescribed for passing an order under Section 201(1) of the Act irrespective of whether or not the recipient of the payment is a resident or nonresident. Importantly, even after successive amendments made post the year 2009 introducing and extending limitation for passing orders under Section 201(1) of the Act, deeming a person to be an assessee in default for failure to deduct TDS on payments to residents, no limitation was however prescribed insofar as passing orders under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to non-residents. 7. It is trite law that in the absence of statutory prescription of limitation for passing an order, the same ought to be passed within a reasonable period. In this regard, it may be relevant to refer to the following judgments: i. S.B. Gurbaksh Singh v. Union of India (1976) 2 SCC 181: 15... It may well be that for an exercise of the suo motu power of revision also, the revi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te reasonable period for passing orders under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to non-residents or should it be left to the assessing authorities to decide in individual cases depending on the facts of each case. To answer the above question it would be useful to refer to the judgment of the Hon'ble Supreme Court in the case of State of Punjab v. Bhatinda District Coop. Milk Producers Union Ltd., reported in (2007) 11 SCC 363, wherein question arose as to what would constitute a reasonable period for exercising revisional jurisdiction in the absence of limitation provided under the Act and whether it could be left to the statutory authorities to decide the same. It was held the authorities under the Act being creatures of the statute would not be able to determine the same. Thus, it is for this Court in exercise of its plenary jurisdiction under Article 226 of the Constitution of India, to determine what would constitute reasonable period for passing orders under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct tax at source in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould remain hanging on his head for all times to come. 8.3. Yet another reason for entertaining these writ petitions is the fact that different views had been expressed by different High Courts, on this issue while some High Courts had proceeded to determine the reasonable period for passing orders under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct TDS on payments to non-residents to be four years. Few other Courts have taken a view that reasonable period cannot be fixed but would depend on the facts of each case. The cleavage of judicial opinion is another compelling factor for entertaining the present writ petitions. For the above reasons, it is for this Court to determine as to what would constitute reasonable period for passing orders under Section 201(1) of the Act, deeming a person to be an assessee in default for failure to deduct TDS on payments to non-residents in exercise of its jurisdiction under Article 226 of the Constitution of India. 9. Precedents on the issue: The question as to what would constitute a reasonable period for the purpose of passing an order under Section 201(1) of the Act, deeming a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Though in Bharti Airtel one of the Financial years under challenge related to the Financial year 2010-2011 i.e., after introduction of limitation for residents. The Delhi High Court in Bharti Airtel followed the judgments in the case of NHK Japan and Vodafone Essar, both of which were concerned with orders passed under Section 201 of the Act in relation to periods prior to introduction of limitation even in respect of residents. The impact of the amendment introducing limitation vide sub-section (3) to Section 201 of the Act albeit with reference to residents and the subsequent amendments made thereto, in determining the limitation for passing orders deeming a person to be an assessee in default for failure to deduct TDS on payments to non-residents was not examined. Thus the judgment of the Delhi High Court in Bharti Airtel case would not constitute a precedent in respect of the issue on hand i.e., what would constitute reasonable period for passing orders under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to non-residents in view of the Doctrine of sub-silentio which has been explained b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in respect of payments to residents. However soon thereafter vide Finance Act, 2012, the limitation of four years was extended to six years w.r.e.f. 01.04.2010. Subsequently, another amendment was brought in vide Finance (No.2) Act, 2014 whereby the limitation was further extended from six to seven years. 10. It is the case of the petitioner that the Courts having determined the reasonable period for passing orders under Section 201(1) of the Act at four years deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to non-residents and Parliament having not stipulated any limitation for passing orders under Section 201(1) of the Act, deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to non-residents. The above limitation determined by various High Courts should continue to govern in the absence of any limitation having been provided deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to nonresidents. On the other hand, it is the case of the revenue that in the absence of any limitation having been provided for passin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 201 of the Act in regard to payments made to residents'' The observation in the case of Bharati Airtel vs. Union of India, reads as under: ''At all material times, payments made to residents and non residents were treated alike'' II. The object behind TDS is common for both residents as well as nonresidents: The object behind any TDS provisions be it with reference to residents/non-residents is to secure the taxes or a portion of it at the earliest. TDS provisions are useful in two ways. They ensure that the Revenue Department can collect taxes in advance, that is, before the final assessment and this is helpful in meeting their urgent requirement for money. TDS provisions are essentially meant to ensure easier collection of taxes. The logic is that certain sums, though taxable in the hands of the payee might escape tax because of problems in enforcement machinery in the case of payees, the problem becomes more acute where the payee is a non-resident. Hence, those sums should be deducted by the payer, from whom they can be recovered more easily. Chapter XVII provides for collection and recovery of tax under the Act. These pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for the purpose for which they are enacted. Presumption is, therefore, in favour of the constitutionality of an enactment.'' ii) Bharat Petroleum Corpn. Ltd. v. Maddula Ratnavalli, (2007) 6 SCC 81 22. Parliament moreover is presumed to have enacted a reasonable statute [see Breyer, Stephen (2005): Active Liberty: Interpreting Our Democratic Constitution, Knopf (Chapter on Statutory Interpretation, p. 99 for Reasonable Legislator Presumption ]. iii) Delhi Subordinate Services Selection Board v. Praveen Kumar, (2017) 11 SCC 283: ''Presumption of constitutionality and reasonableness ordinarily attached to legislative enactment, applies to statutory rules also. In P.V. Mani v. Union of India [P.V. Mani v. Union of India, 1985 SCC OnLine Ker 92 : AIR 1986 Ker 86] a Full Bench of the Kerala High Court observed as under: (SCC OnLine Ker para 18) iv) Orient Paper and Industries Ltd. v. State of Orissa, 1991 Supp (1) SCC 81 at page 102: 34. ... These measures are undoubtedly well within the province of the legislature and reasonably and rationally adapted to the end sought. The legislative findings and the subject matter of the legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assing orders under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to residents would constitute reasonable period in the absence of a legislative prescription of limitation for passing orders under Section 201(1) of the Act, deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to non-residents as well. IV. Reasonableness not a static concept: The attempt by the petitioner to submit that reasonable period for passing orders under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to non-residents having been held by Courts to be four years, the same ought not to be disturbed. The above submission cannot be countenanced inasmuch as reasonableness is not a static concept but dynamic/ progressive and must keep pace with the changing times. It must be related to the adjustments necessary to solve the problem which surfaces with the changing times. Greater leverage/latitude must be extended to the concept of reasonableness when tested in the context of a fis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fiscal laws - Result of Trial and Error: Importantly, in the context of economic and tax matters judicial deference ought to be shown to legislative wisdom in view of the fact that Courts lack the expertise and familiarity with the problem, necessary for making a wise decision with respect to raising and disposing public revenue. It is trite law that fiscal legislations are a matter and result of trial and error. That the limitation for passing orders under Section 201(1) of the Act in respect of residents was amended in view of the problems manifested by experience and the Legislature's attempt/resolve to remedy/address the mischief by bringing about two amendments in quick succession after its introduction vide Finance (No. 2) of 2010 extending the period of limitation is indicative of the need for reparation / correction in prescribing the limitation at 4 years originally. Apparently, Parliament after providing the limitation at 4 years for passing orders under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct tax at source in respect of payments to residents has on realizing the inadequacy of the period extended the limita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94 US 13] , namely, that courts do not substitute their social and economic beliefs for the judgment of legislative bodies . The Court must defer to legislative judgment in matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgment appears to be palpably arbitrary. The Court should constantly remind itself of what the Supreme Court of the United States said in Metropolis Theater Company v. City of Chicago [57 L Ed 730 : 228 US 61 (1912)] : The limitation for passing orders under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct TDS on payments to residents has been extended in view of the inadequacy of the original period of limitation which was fixed at 4 years as a result of trial and error. The above legislative action providing and extending the limitation for passing orders under Section 201(1) of the Act with regard to residents as stated above is instructive and serves as a guide in determining the reasonable period for passing orders under Section 201 (1) of the Act deeming a person to be an assessee in default for failure to deduct TDS on payments to non-reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year of assessment. But authority of the Income Tax Officer under the Act before it was amended by the Finance Act of 1956 having already come to an end, the amending provision will not assist him to commence a proceeding even though at the date when he issued the notice it is within the period provided by that amending Act... 10.2. To similar effect is the judgment in ITO v. Induprasad Devshanker Bhatt [AIR 1969 SC 778] . The Court held: (AIR p. 783, para 6) 6. In our opinion, the principle of this decision applies in the present case and it must be held that on a proper construction of Section 297(2)(d)(ii) of the new Act, the Income Tax Officer cannot issue a notice under Section 148 in order to reopen the assessment of an assessee in a case where the right to reopen the assessment was barred under the old Act at the date when the new Act came into force. It follows therefore that the notices dated 13-11-1963 and 9-1-1964 issued by the Income Tax Officer, Ahmedabad were illegal and ultra vires and were rightly quashed by the Gujarat High Court [Induprasad Devshanker Bhatt v. J.P. Jani, 1964 SCC OnLine Guj 18 : (1965) 58 ITR 559] by the grant of a writ. 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment/ re-assessment which was originally available had expired. In this regard, the following observations made in the above judgment are relevant: 25. Sub-section (2) provided that except as otherwise provided in this section, no order for any assessment year shall be made after the expiry of 4 years from the end of such year. However, after the amendment, a proviso was added to sub-section (2) under which the Commissioner of Sales Tax authorises the assessing authority to make assessment or reassessment before the expiration of 8 years from the end of such year notwithstanding that such assessment or reassessment may involve a change of opinion. The proviso came into force w.e.f. 19-2-1991. We do not think that sub-section (2) and the proviso added to it leave anyone in doubt that as on the date when the proviso came into force, the Commissioner of Sales Tax could authorise making of assessment or reassessment before the expiration of 8 years from the end of that particular assessment year. It is immaterial if a period for assessment or reassessment under sub-section (2) of Section 21 before the addition of the said proviso had expired. Here, it is the completion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assing orders under Section 201(1) of the Act deeming a person to be an assessee in default for failure to deduct taxes in respect of payments to non-residents shall also be 7 years from the end of the Financial year in which the payment is made or credit given w.e.f. 1.4.2010. 12. As the challenge in these writ petitions were limited to the aspect of limitation which is clarified, it is left open to the petitioner to file appeals challenging the order on merits. If the petitioner raises the plea of limitation, the same shall be decided by the appellate authority in accordance with legal position clarified by this Court and it would also be open to the respondents to rely upon the Taxation and other Laws (Relaxation of Certain Provisions) Ordinance, 2020 No.2 of 2020 (TOLO) and the judgment of the Hon'ble Supreme Court in exercise of suo moto power Cognizance for Extension of Limitation, (2020) 19 SCC 10. 13. If the petitioner chooses to file an appeal, the time spent in these writ petitions shall stand excluded while reckoning limitation and the same shall be decided in accordance with law. 14. With the above observations, the writ petitions are disposed of. No cost ..... X X X X Extracts X X X X X X X X Extracts X X X X
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