2024 (9) TMI 873 - HC - Income Tax

Tax Assessment Orders Overturned Due to Limitations Period Exceeding Four Years for 2007-10 Income Tax Assessments.

The HC ruled in favor of the appellant, determining that the order under Section 201(1) and 201(1A) of the Income Tax Act for assessment years 2007-08 to ... Validity of order passed u/s 201 passed beyond period of limitation - TDS u/s 195 on consultancy charges paid to foreign company - HELD THAT:- Admittedly, the transaction or payment made to MJR Consultancy Pvt. Ltd., based in Singapore relates to financial years 2006-07, 2007-08, 2008-09. Admittedly, under letter dated 31.1.2014 the appellant is asked to explain as to why the consultancy charges paid to foreign company shall not be treated as fees for technical service as per the provisions of Section 9 (1) (vii) of the Act. In pursuance to the said letter/show cause notice, order dated 6.3.2014 was passed under Section 201 (1) and 201 (1A) of the Act. The initiation of proceedings under letter dated 31.1.2014 or order passed on 6.3.2014 is clearly beyond four years. Therefore, following the decisions of the coordinate Benches of this Court in Bharat Hotels Ltd. [2015 (12) TMI 1469 - KARNATAKA HIGH COURT] and The Execution Engineer, M/s. Bangalore Water Supply and Sewerage Board [2020 (8) TMI 619 - KARNATAKA HIGH COURT] we answer the first substantial question of law in favour of the assessee and against the revenue. Issues:1. Whether the order passed under Section 201 (1) and 201 (1A) of the Income Tax Act, 1961 for the assessment years 2007-08 to 2009-10 is barred by limitationRs.2. Whether the payment made by the appellant to a Singapore based company should be treated as fees for technical services and subject to tax deduction at source under section 195 of the ActRs.3. Whether the payment made to the foreign company for consultancy services is chargeable to tax in India without a permanent establishment in IndiaRs.Analysis:1. The appellant challenged the order passed by the Income Tax Appellate Tribunal (ITAT) for the assessment years 2007-08 to 2009-10, questioning the legality and correctness of the order dated 12.8.2016. The key substantial questions of law examined were the limitation on the order passed under Section 201 (1) and 201 (1A) of the Act, the nature of payments made to a Singapore based company, and the tax liability on payments made for consultancy services.2. The appellant contended that the order passed under Section 201 (1) and 201 (1A) of the Act was beyond the limitation period. The appellant argued that the order dated 6.3.2014 was issued for payments made during the financial years 2006-07 to 2008-09, which exceeded four years from the end of the financial year 2008-09. Citing relevant judgments, the appellant claimed that the order was time-barred, and if the court accepted this contention, other substantial questions need not be addressed.3. The revenue, represented by counsel, argued that there is no specific time limit prescribed under the Act for payments made to non-residents or foreign companies for consultancy charges. The Tribunal and authorities supported the order passed, contending that no time limit applies to such transactions. However, the High Court held that the initiation of proceedings and the order passed were beyond the four-year limitation period, as per relevant precedents. Consequently, the Court ruled in favor of the appellant on the issue of limitation, setting aside the orders passed by the lower authorities.4. Given the finding on the limitation issue, the High Court did not delve into the other substantial questions raised by the appellant. The Court allowed the appeal, setting aside the orders dated 6.3.2014, 15.12.2014, and 12.8.2016, thereby ruling in favor of the appellant on the basis of the limitation aspect.This detailed analysis of the judgment provides a comprehensive understanding of the issues raised, arguments presented, and the final decision rendered by the High Court in this case.