2012 (4) TMI 122 - AT - Income Tax

Tribunal invalidates orders under sections 195, 201(1), 201(1A) due to missed deadline

Crompton Greaves Ltd. Versus Deputy Commissioner of Income-tax (TDS), Circle 1 (1)

Crompton Greaves Ltd. Versus Deputy Commissioner of Income-tax (TDS), Circle 1 (1) - [2012] 17 ITR 151 Issues Involved:1. Maintainability of appeal under section 201.2. Accrual of Income.3. No payment, so no TDS.4. Direct sale and taxability.5. Nature of services rendered (Technical, Managerial, Consultancy).6. Taxability of reimbursement of expenses.7. Applicability of the judgment of Transmission Corpn. of A.P. and validity of order u/s 195.8. Applicability of DTAA.9. Limitation period for passing orders under sections 195, 201(1), and 201(1A).Detailed Analysis:1. Maintainability of Appeal under Section 201:The CIT(A) held that an appeal by the assessee is maintainable against an order passed under sections 201(1) and 201(1A) of the Act.2. Accrual of Income:The CIT(A) concluded that the income should be deemed to have accrued or arisen in India irrespective of the place where services were rendered, as the services were utilized by the assessee in its business carried on in India.3. No Payment, So No TDS:The CIT(A) rejected the argument that no payment was made to the Lead Managers, stating that it was a constructive payment by the assessee, thereby creating an obligation to deduct tax at source.4. Direct Sale and Taxability:The CIT(A) determined that the payments made to the Lead Managers were for services rendered and could not be considered part of the consideration received for GDRs.5. Nature of Services Rendered:The CIT(A) held that the services rendered by the Lead Managers were technical and managerial in nature.6. Taxability of Reimbursement of Expenses:The CIT(A) ruled that reimbursement of expenses was an integral part of the fees paid to the Lead Managers and was therefore taxable.7. Applicability of the Judgment of Transmission Corpn. of A.P. and Validity of Order u/s 195:The CIT(A) held that it was a statutory obligation to deduct tax at source, and if the payer feels the amount is not taxable, they should file an application before the AO. The assessee cannot decide on their own whether the income is chargeable to tax.8. Applicability of DTAA:The CIT(A) stated that since the assessee did not deduct tax at source under section 195, the question of examining the issue from the DTAA angle did not arise.9. Limitation Period for Passing Orders under Sections 195, 201(1), and 201(1A):The Tribunal admitted the additional ground of appeal regarding the limitation period, referencing the Special Bench decision in Mahindra & Mahindra Ltd. The Tribunal concluded that no order under sections 195, 201(1), or 201(1A) can be passed if the revenue has not taken any action against the payee within the time limit for initiating proceedings under section 147. Since no action was taken against the payee within the prescribed time, the orders under sections 195, 201(1), and 201(1A) were deemed invalid.Conclusion:The Tribunal allowed the appeals of the assessee, setting aside the orders under sections 195, 201(1), and 201(1A) as invalid. Consequently, the Tribunal did not address whether the payments constituted Fees for Technical Services or other submissions related to DTAA provisions.