TMI Blog2023 (9) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... y respondent No. 1 was beyond limitation. The survey was conducted on 30.12.2015, show cause notice was issued on 20.01.2016 and the proceedings came to be concluded on 14.12.2018 which was within a reasonable time in view of DCIT. We see no infirmity in the view taken by DCIT. We are therefore not inclined to entertain the writ petition. - HON BLE THE CHIEF JUSTICE UJJAL BHUYAN AND HON BLE SRI JUSTICE N. TUKARAMJI For the Petitioner : Mr. Deepak Chopra Mr. Pratishtha Singh For Respondent No. 1: Ms. K. Mamata Choudary, Sr. Standing Counsel, Income Tax Dept., For the Respondent No. 2: Mr. Gadi Praveen Kumar, Dy. Solicitor General of India ORDER: (PER THE HON BLE THE CHIEF JUSTICE UJJAL BHUYAN) Heard Mr. Deepak Chopra and Mr. Pratishtha Singh, learned counsel for the petitioner and Ms. K. Mamata Choudary, learned Senior Standing Counsel, Income Tax Department for respondent No. 1. We have also heard Mr. Gadi Praveen Kumar, learned Deputy Solicitor General of India for respondent No. 2. 2. By filing this petition under Article 226 of the Constitution of India, petitioner has assailed legality and validity of the order dated 14.12.2018 passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in default. Therefore, provisions of Section 195 of the Act were not attracted. 5. According to the petitioner, it was only on 03.10.2018, it became aware that the two foreign companies had filed applications before the Authority for Advance Ruling (briefly AAR hereinafter) seeking a ruling on the tax liability of the payments made to them on account of transfer of the trademarks. Petitioner brought this fact to the notice of respondent No. 1 vide letter dated 08.10.2018 and requested respondent No. 1 to keep in abeyance the proceedings initiated against it under Section 201 of the Act. Petitioner had also raised an objection as to limitation i.e., initiation of proceedings was barred by limitation and that the reasonable period for passing an order under Section 201 of the Act had lapsed. 6. After hearing the matter, respondent No. 1 passed the impugned order dated 14.12.2018 declaring that since petitioner did not deduct TDS as required under Section 195 of the Act on the taxable payments made to the two foreign companies during the financial year 2015-2016, it is deemed to be an assessee in default under Section 201(1) of the Act. Adverting to Section 201(1A)(i) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was inserted by Finance (No. 2) Act, 2009 w.e.f., 01.04.2010 providing the time limit in case of payment to persons resident in India, which was four years. It is stated that the notes on clauses attached to the Finance (No. 2) Bill, 2009 also clearly reflects the legislative intent that no time limit is sought to be prescribed where the recipient is a non-resident as it may not be administratively possible to recover the tax from a non-resident. 10.2. Vide the Finance Act, 2012, the period of four years in respect of resident Indians was replaced by six years. 10.3. Vide the Finance (No. 2) Act, 2014, Section 201(3) of the Act was further amended w.e.f., 01.10.2014 and as per the amended provision, time limit of seven years has been prescribed for passing an order under Section 201(1) in the case of resident Indians. 10.4. However, no time limit was fixed for passing an order under Section 201(1) of the Act in the case of non-residents. Thus, legislature has deemed it prudent not to fix any time limit for passing of an order under Section 201(1) of the Act in case of non-residents. 10.5. Insofar the present case is concerned, the survey operation was carried out on 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax [2009] 30 SOT 374 (Mumbai)(SB). Referring to the said decision, learned counsel submits that Special Bench has held that going by the same logic as is evident from Section 153(2) of the Act, completion of proceedings under Section 201(1) of the Act that is passing of the order under the said provision has to be within one year from the end of the financial year in which those proceedings under Section 201(1) were initiated. This view of the Special Bench of the Tribunal in Mahindra Mahindra Limited (1 supra) has been accepted by the Bombay High Court when the appeal filed by the revenue against the said decision in Director of Income Tax (International Taxation) v. Mahindra Mahindra Limited [2014] 48 taxmann.com 150 (Bombay) came to be dismissed by the Bombay High Court. He has also referred to a decision of the Delhi High Court in Bharti Airtel Limited v. Union of India [2016] 76 taxmann.com 256 (Delhi) and submits that in the aforesaid decision, Delhi High Court had set aside the notices issued under Section 201(1) of the Act regarding non-deduction of TDS in respect of payments made to non-residents. Those show cause notices were set aside on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce on a decision of this Court in CIT v. U.B. Electronic Instruments 371 ITR 314 (Andhra Pradesh) Limited to contend that by and large four years is treated as the period within which any penal action can be initiated against the assessees/petitioners. Since in that case, the notices were issued after nearly seven years those were interfered with. She has also placed reliance on the decision of the Punjab and Haryana High Court in CIT v. H.M.T. Limited [2012] 340 ITR 219 (Punjab Haryana) and that of the Calcutta High Court in Bhura Exports Ltd. v. Income Tax Officer (TDS) [2014] 365 ITR 548 (Calcutta). 13.3. Learned Standing Counsel has also pointed out that though the Bombay High Court had dismissed the appeal of the revenue against the decision of the Special Bench of the Tribunal in Mahindra Mahindra (1 supra), that was on the ground that no substantial question of law arose in that appeal. But Bombay High Court kept open the question as to what can be a reasonable period for passing of an order under Section 201(1) of the Act. She has also distinguished the decision of the Delhi High Court in Bharti Airtel Limited (3 supra). 14. Submissions made by le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequences of failure to deduct or pay 201.(1) If any such person and in the cases referred to in Section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax: Provided that no penalty shall be charged under Section 221 from such person, principal officer or company unless the Income-tax Officer is satisfied that such person or principal officer or company, as the case may be, has wilfully failed to deduct and pay the tax. (2) Where the tax has not been paid as aforesaid after it is deducted, it shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1). 18.2. Thus, sub-section (1) of Section 201 of the Act provided that if there was failure to deduct tax at source or after deducting not paying the tax, the person concerned as well as the company including its principal officer would be deemed to be an assessee in default in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of Section 153(3)(ii) of the Act and Explanation 1 to Section 153 of the Act shall so far as may apply to the time limit prescribed in sub-section (3) thereof. 18.8. In the memorandum preceding enactment of Finance (No. 2) Act 2009, it was mentioned that while time limit has been introduced for passing an order under Section 201(1) of the Act, no time limit has been prescribed for passing an order under subsection (1) of Section 201 of the Act where amongst others, the deductee is a non-resident as it may not be administratively possible to recover the tax from a non-resident. This has also been clarified by Circular No. 5 of 2010 issued by the Central Board of Direct Taxes (CBDT). 18.9. As already noticed above, the limitation was thereafter extended in respect of resident Indians to six years and finally to seven years. Sub-sections (3) and (4) of Section 201 of the Act as those provisions stand today read as follows: (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 resident in India, at any time after the expiry of seven years from the end of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge four years is treated as the period within which any penal action can be initiated against an assessee as a consequence of non-deduction of TDS. This Court further observed that failure to initiate steps within such period would disable the department to proceed against the assessee. With each passing year, the assessee is required to adjust his or her own affairs in such a way that the activity undertaken by it goes on smoothly. In case liability for the preceding one or two years is fastened, there can be scope for making adjustments in the subsequent years. However, if a fairly long gap intervenes, it becomes difficult for making such adjustments particularly when the activity is commercial in nature. In that case, the assessment years were 1989-90, 1990-91 and 1991-92. It was nearly seven years thereafter that the impugned notices were issued. In such circumstances, this Court concurred with the view taken by the Tribunal and answered amongst others, the question that the Income Tax Appellate Tribunal was justified in applying the theory of reasonable period for passing the order under Section 201(1A) of the Act in the absence of time limit specified in the Act. 20.1. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court was whether the assessing officer was competent to initiate proceedings under Section 201(1)/(1A) of the Act in the year 2007 for the assessment year 2002-03. 22.2. Calcutta High Court held that the time limit prescribed in Section 149 of the Act for taking action under Section 147 thereof by giving notice under Section 148 cannot have any application for taking action under Section 201 of the Act as it is not a case of income escaping assessment but a case of inaction of a debtor to deduct tax on interest while making payment of interest in violation of Section 194A of the Act. 22.3. Calcutta High Court further posed the question that if in any given statute there is no period of limitation prescribed for taking action under that statute, whether such action should be taken within a reasonable period ? 22.4. Calcutta High Court opined that if no period of limitation is prescribed under a statute for taking action under it and at the same time the Limitation Act, 1963 does not apply to such a statute, there cannot be any prescription of a period of limitation for taking action under the said statute unless there is any contrary intention expressed therein. 23. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in CIT v. NHK Japan Broadcasting Limited 305 ITR 137 (Delhi) as well as in CIT v. Hutchison Essar Telecom Limited 323 ITR 230 (Delhi) noted that the amendments brought into Section 201 of the Act by introducing limitation were silent about application of any period of limitation to amounts deducted and payments made to non-residents. 25.1. Applying the ratio in Vodafone Essar Mobile Services Limited v. Union of India 385 ITR 436 (Delhi) , Delhi High Court held that the theory of reasonable period would have to be read into Section 201(3) of the Act and the reason given by the revenue for not providing such a period of limitation i.e., administrative convenience cannot outweigh the harsh nature of the consequences which would expose the resident payers to the onerous responsibility of maintaining books and documents for an uncertain period of time. On such consideration, the impugned notices were quashed. 26. With utmost respect, we are unable to agree with the views expressed by the Delhi High Court. As we have already seen, initially the statute did not provide for any limitation, be it a resident Indian or a non-resident Indian. Subsequently, by way of amendment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 133A of the Act on 30.12.2015, it was detected that petitioner had made two payments to two foreign companies but did not deduct TDS under Section 195 of the Act. It was thereafter that the show cause notice was issued on 20.01.2016. It would be interesting to note that on the ground that the two foreign companies had filed applications before the AAR as to taxability of such transactions, petitioner had filed an application before respondent No. 1 to keep the proceedings under Section 201 of the Act in abeyance. Such an action of the petitioner would run counter to its very contention that the proceedings concluded by respondent No. 1 was beyond limitation. 31. Be that as it may, such a contention was rejected by respondent No. 1 and insofar limitation is concerned, respondent No. 1 held that though the Act did not provide for any time limit for passing an order under Section 201(1) of the Act, nonetheless principles of natural justice would require that proceedings should be completed within a reasonable time. Respondent No. 1 further noted that the survey was conducted on 30.12.2015, show cause notice was issued on 20.01.2016 and the proceedings came to be concluded on 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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