Reasonable time limit for section 206C default orders bars belated tax and interest demands after five years.

Section 206C contains no express limitation period for passing an order treating a person as in default for failure to collect tax at source, but the power must still be exercised within a reasonable time. Applying precedent on tax deduction at source proceedings, the Tribunal treated four years from the end of the relevant financial year as a reasonable period. As the show-cause notice and consequential action were initiated after five years, the proceedings were held to be beyond a reasonable period, and the demand of tax and interest was quashed.

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Issues: Whether an order under section 206C of the Income-tax Act, 1961 treating the assessee as in default for failure to collect tax at source and levying consequential interest could be sustained when issued after an unreasonable lapse of time.

Analysis: No express limitation period is prescribed in section 206C for passing an order of default. The Tribunal held that, in the absence of a statutory time limit, the power must nonetheless be exercised within a reasonable period. Relying on judicial precedent concerning tax deduction at source proceedings, it held that four years from the end of the relevant financial year constitutes a reasonable period for initiating and passing such an order. Since the show-cause notice and consequential action were initiated after five years from the end of the relevant financial year, the order was held to be beyond a reasonable period.

Conclusion: The assessee could not be treated as an assessee in default under section 206C, and the demand of tax and interest was quashed.

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