2009 (12) TMI 679 - HC - Income Tax

Court Rules Time Limit for Tax Authority Actions under Income-tax Act

The court held that orders under sections 201 and 201(1A) of the Income-tax Act, 1961, passed beyond four years were time-barred. The Revenue's argument ... Extended period of limitation - assessee is engaged in running hydroelectric power - In proceedings under the Land Acquisition Act, interest was payable to the land owners - According to the Revenue, as per law, the assessee was bound to deduct tax at source before making payment of interest to the land owners – appeals relate to the financial years 1991-92, 1992-93 corresponding to the assessment year 1992-93 and 1993-94 respectively - notices under section 201 and 201(1A) of the Income-tax Act, 1961, were issued to the assessee on July 22, 2003 – Held that:- even if no period of limitation is prescribed, the statutory power must be exercised within a reasonable period - reasonable period taking into consideration the various provisions of the Income-tax Act has been held to be four years in a number of cases - no reason to extend this period any further – In favor of assessee Issues:- Interpretation of time limitation for passing orders under section 201 and 201(1A) of the Income-tax Act, 1961.Analysis:1. The case involved the question of whether the orders under sections 201 and 201(1A) of the Income-tax Act, 1961, passed by the Assessing Officer beyond four years were barred by time limitation. The appeals related to the financial years 1991-92, 1992-93, and 1993-94, with notices issued to the assessee on July 22, 2003.2. The Revenue contended that no specific limitation is prescribed under the Income-tax Act for taking action under sections 201 and 201(1A). The Tribunal held the notices as time-barred since they were issued beyond four years, leading to the claim being considered time-barred.3. The Revenue relied on a Kerala High Court judgment stating no limitation under section 231 for demanding interest. The argument was that the claim of the Revenue was within limitation since the tax was not deposited by the assessee as required by law.4. The assessee's counsel referred to an apex court judgment regarding revisional powers under the Sales Tax Act, emphasizing the need for exercising such powers within a reasonable period. The court held that revisional jurisdiction should generally be exercised within three to five years.5. A Delhi High Court Division Bench held that while no specific limitation is prescribed for exercising power under sections 201(1) and 201(1A) of the Income-tax Act, if such power is not exercised within a reasonable period, it would become time-barred.6. The Delhi High Court further discussed a case involving a foreign company that failed to deduct tax at source on salaries paid in the employees' home country. The court determined that a reasonable period for exercising power under section 201 of the Act should be four years, aligning with the decision of the apex court.7. The judgment of the Delhi High Court was in agreement with the law laid down by the apex court, emphasizing the need to exercise statutory powers within a reasonable period. The court upheld the four-year period as reasonable for initiating action under section 201 of the Income-tax Act.8. Ultimately, both appeals were dismissed, with the judgment favoring the assessee and against the Revenue. The court held that the statutory power must be exercised within a reasonable period, which, considering the provisions of the Income-tax Act, was determined to be four years in this case.