2023 (11) TMI 87 - HC - Income Tax

Income Tax Commissioner's four-year limitation period for TDS default proceedings under sections 201(1) and 201(1A) set aside as legally unjustified

Telangana HC set aside orders of Commissioner of Income Tax (Appeals) and Tribunal that applied a four-year limitation period for proceedings under ... Assessee in Default u/s 201(1) and 201(1A) - period of limitation - non deduction of TDS on payments made to the international telecom operators - HELD THAT:- As respondent does not dispute the fact that the Division Bench of this very High Court itself recently had taken a view that there is no specific period of limitation prescribed for initiating a proceeding u/s 201(1) and 201(1A) of the Act. In the given factual backdrop and the recent decision of the Division Bench of this very High Court in the case of Dr. Reddys Laboratories Limited [2023 (9) TMI 111 - TELANGANA HIGH COURT] which as a matter of judicial propriety binds this Bench also, we are inclined to endorse the view of the Division Bench of this Court. What needs to be considered is the fact that the Division Bench in the case of Dr. Reddys Laboratories Limited (supra) have also considered the decision of the High Court of Delhi and have reached to a specific conclusion that the term ‘reasonable period’ in the absence of any statutory limitation cannot be accepted as a straight jacket answer. It was also held by the Division Bench of this Court that what is a reasonable period would depend on the facts and circumstances of each case. The Division Bench went on to quote that neither a period of four (4) years nor a period of one (1) year can be said to be the period of limitation for passing of an order under Section 201. Since the Commissioner of Income Tax (Appeals) so also the Tribunal have decided the two appeals accepting the period of limitation to be four (4) years, which in the teeth of the order of the Division Bench in the case of Dr. Reddys Laboratories Limited (supra) cannot be said to be proper, legal or justified. Thus the orders therefore, are not sustainable and the same deserves to be and are ordered accordingly. The matter is further ordered to be remitted back to the Commissioner of Income Tax (Appeals) for passing of fresh orders. Issues involved:The judgment involves the issue of whether payments made to international telecom operators are considered fees for technical services or not.Summary:The judgment pertains to three appeals arising from a common order concerning the same assessee for different assessment years. The instant appeal by the Revenue challenges the order passed by the Income Tax Appellate Tribunal regarding payments made to international telecom operators. The Assessing Officer initially held the assessee liable for TDS, leading to the declaration of the assessee as 'an assessee in default.' The Commissioner of Income Tax (Appeals) granted relief to the assessee, citing a jurisdictional High Court decision and a limitation period issue. The Tribunal rejected the appeals, prompting the present appeals. The High Court considered the limitation period for passing orders under Section 201(1) and 201(1A) of the Income Tax Act, emphasizing the absence of a specific time limit for non-residents. The Court highlighted the importance of a reasonable period for such orders, referencing a recent decision and remitted the matter back to the Commissioner of Income Tax (Appeals) for fresh orders based on these observations.The core issue of whether payments to international telecom operators constitute fees for technical services was discussed extensively in the judgment. The Division Bench of the High Court emphasized the lack of a prescribed limitation period for initiating proceedings under Section 201(1) and 201(1A) of the Act. The Court noted that the term 'reasonable period' is case-specific and rejected fixed timeframes like four or one year for passing orders under Section 201. Consequently, the Tribunal's acceptance of a four-year limitation period was deemed improper, leading to the orders being deemed unsustainable and remitted back to the Commissioner of Income Tax (Appeals) for fresh consideration in line with the Court's observations in a related case.The judgment underscores the significance of a reasonable period for passing orders under the Income Tax Act, particularly in cases involving payments to international entities. The decision provides clarity on the absence of a specific limitation period for non-residents and stresses the need for a case-specific approach to determining what constitutes a reasonable timeframe for such proceedings. The Court's ruling highlights the importance of judicial propriety and aligning decisions with recent precedents to ensure legal validity and justification in tax-related matters.