Limitation for TDS default proceedings against payer of non-resident property sale must be initiated within a reasonable period

Where tax was required to be deducted at source on purchase of immovable property from a non-resident seller, the Tribunal held that proceedings under sections 201(1) and 201(1A) must still be initiated within a reasonable time even though no express outer limit is prescribed for such action. Applying its earlier view and binding precedent, it treated four years from the end of the relevant assessment year as the reasonable period. As the notice was issued after more than four years, the notice and consequential orders were held barred by limitation and unsustainable.

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Issues: Whether the notice initiating proceedings under section 201(1) and section 201(1A) of the Income-tax Act, 1961 was barred by limitation.

Analysis: The assessees purchased immovable property from a non-resident seller and were required to deduct tax at source under section 195 of the Income-tax Act, 1961. The notice under sections 201(1) and 201(1A) was issued after more than four years from the end of the relevant assessment year. The Tribunal followed its earlier view, together with the jurisdictional High Court and other binding precedents relied on for the proposition that, where the Act does not prescribe an express outer limit for action against a payer in respect of payments to a non-resident, initiation must still be within a reasonable period, which was held to be four years. The contrary reliance on the Allahabad High Court decision was found distinguishable on facts because the non-resident status was reflected in the sale deed and simultaneous proceedings had been initiated.

Conclusion: The notice and the consequential orders under sections 201(1) and 201(1A) were barred by limitation and could not be sustained.

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