7 years Limitation Period for limitation u/s 201(1) for TDS on NRIs: The Doctrine of "Reasonable Time Period" applies [Sec 201 of ITA'61 - Sec 398 of ITA'25]

Section 201 of the Act, as it originally stood did not prescribe any limitation for passing an order under Section 201 of the Act. Subsequently, vide Finance (No.2) Act, 2009 w.e.f. 01.04.2010 sub-section (3) to Section 201 of the Act was inserted thereby providing limitation 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 in respect of payments to residents. Thereafter, vide Finance Act, 2012, the limitation of four years was extended to six years for passing orders deeming a person to be an "assessee in default" for failure to deduct tax at source in respect of payments to residents with retrospective effect from 01.04.2010. Subsequently, another amendment was brought in vide Finance (No.2) Act, 2014, whereby limitation was further extended from six years to seven years in sub-section (3) to Section 201 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.

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.

Doctrine of "Reasonable Time Period" will be applicable for orders under Section 201(1) and must be passed within a reasonable period in the absence of any limitation provided under the Act. In the following judgments, it has been held that four years from the end of the relevant Financial Year would be a reasonable period for the purpose of passing orders under Section 201 of the Act deeming a person to be an "assessee in default" for failure to deduct tax at source in respect of payments to nonresidents viz. -

(i) COMMISSIONER OF INCOME-TAX Versus NHK JAPAN BROADCASTING CORPORATION - 2008 (4) TMI 182 - DELHI HIGH COURT

(ii) Bharti Airtel Ltd. And Anr. Versus Union of India And Anr. - 2016 (12) TMI 1601 - DELHI HIGH COURT

(iii) Vodafone Essar Mobile Services Limited (Now Known As Vodafone Mobile Services Limited), Tata Teleservices Ltd. Versus Union of India & Others, The Assistant Commissioner of Income Tax & Others -2016 (8) TMI 509 - DELHI HIGH COURT

(iv) COMMISSIONER OF INCOME TAX Versus HUTCHISON ESSAR TELECOME LTD - 2010 (4) TMI 45 - DELHI HIGH COURT

(v) Director of Income Tax (International Taxation) Versus M/s. Mahindra & Mahindra Limited - 2014 (7) TMI 265 - BOMBAY HIGH COURT

(vi) Commissioner of Income Tax II, Hyderabad Versus M/s. UB. Electronic Instruments Ltd. - 2014 (12) TMI 635 - ANDHRA PRADESH HIGH COURT

(vii) Commissioner of Income Tax, TDS, Tax Recovery Officer (TDS) Versus M/s Bharat Hotels Ltd. - 2015 (12) TMI 1469 - KARNATAKA HIGH COURT

(viii) Commissioner of Income Tax (TDS) Versus Anagram Wellington Assets Management Co Ltd. - 2016 (8) TMI 964 - GUJARAT HIGH COURT

However, limitation u/s 201(3) for residents was extended to seven years subsequently. Hence, since 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 and based on the Doctrine of "Reasonable Time Period" it was thus decided in the case of Vedanta Limited (Successor of Sterlite Industries (India) Ltd.) Versus The Deputy Commissioner of Income Tax (International Taxation), The Commissioner of Income Tax (International Taxation) - 2023 (3) TMI 867 - MADRAS HIGH COURT, that 7 years would be the Limitation period for 201(1) cases for TDS on NRIs.