2025 (10) TMI 1309 - HC - Income Tax

Orders under Section 201 quashed for A.Y. 2018-19 and 2019-20; matters remitted to assessing officer after appeal

HC quashed orders under section 201 for A.Y. 2018-19 and 2019-20, holding the Assessing Officer (TDS) acted without jurisdiction and that proceedings ... PE in India or not - Assessee in default for not deducting tax at source from payments made towards grading fees to GIA US - proceedings under Section 201 of the Act were initiated against the Petitioner - HELD THAT:- The availability of alternate remedy will not be a bar to the maintainability of the present petitions in view of the peculiar facts of this case and especially since the issue is no longer res integra. This Court has already held that proceedings contrary to the Tribunal's decision cannot be taken and, on that footing, the order passed u/s 201 against these very Petitioners, for A.Y. 2014-15 and A.Y. 2016-17, were quashed. Even otherwise, we are of the view that the Assessing Officer (TDS) was acting without jurisdiction in passing orders contrary to the decisions of the Tribunal, which warrants our interference. Hence, the argument of the Revenue on the availability of an alternate remedy is hereby rejected. It is common ground before us that the facts of the case for the present years [A.Y. 2018-19 and A.Y. 2019-20] are identical to the facts of the case for A.Y. 2014-15 and A.Y. 2016-17 and, therefore, the impugned orders cannot survive. Hence, they are quashed and set aside. However, keeping in mind the decision of the Hon'ble Supreme Court in Union of India vs. Kamalakshi Finance Corporation Ltd. [1991 (9) TMI 72 - SUPREME COURT] we direct that for A.Y. 2018-19 and A.Y. 2019-20, the matter be remitted to the Assessing Officer (TDS) at the stage of issuance of Show Cause Notice under Section 201 so that after the decision of the High Court in the pending appeal, the same can be proceeded further in accordance with law and on merits, if need be. The impugned orders are quashed on these terms. Needless to add, all consequential proceedings become infructuous. Petitioner undertakes that the Appeals filed by the Petitioner will be withdrawn within 2 weeks of this order being uploaded on the High Court website. The said undertaking is accepted. In the event this order is challenged by the Revenue and is set aside, the Appeals filed by the Petitioner for A.Y. 2018-19 and 2019-20 before the CIT(A) shall stand revived and thereafter, be heard on merits and in accordance with law. ISSUES PRESENTED AND CONSIDERED 1. Whether an Assessing Officer (TDS) may proceed to treat a payer as an assessee in default under Section 201 of the Income-Tax Act for failure to deduct tax at source where the recipient's taxability in India (business profits/PE) has been finally adjudicated by the Tribunal in favour of the recipient. 2. Whether the existence of pending appeals filed by the Department against the Tribunal's finding (that the recipient does not have a Permanent Establishment in India) permits the Assessing Officer to ignore the Tribunal's decision and proceed under Section 201. 3. Whether availability of alternative remedies (appeal under statutory provisions) or possible reversal of the Tribunal's view by a higher forum bars writ jurisdiction or requires refusal of relief where the Assessing Officer has acted contrary to the Tribunal's decision. 4. The appropriate remedial course where prior years' identical TDS orders had been quashed by the High Court and that quashal was affirmed/clarified by the Supreme Court with directions for remittal to the Assessing Officer at the show-cause stage. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Power of TDS Officer to treat payer as assessee in default when Tribunal has held recipient not taxable in India Legal framework: Section 201 of the Income-Tax Act treats a person liable to pay tax as an assessee in default where there is failure to deduct tax at source as required by Chapter XVII-B (notably Section 195 for payments to non-residents). The taxing consequence hinges on whether the payment is chargeable to tax in India in the hands of the recipient. Precedent treatment: The Court relied on established principle (as articulated in earlier authority) that a Tribunal's adjudication on the taxability of a non-resident is binding on the Assessing Officer and must be followed in its true letter and spirit; administrative displeasure or pendency of departmental appeals does not justify ignoring such adjudication unless operation has been stayed by a competent court. Interpretation and reasoning: Where the Tribunal has concluded that the recipient does not have a PE in India and thus that the payments are not taxable here, the legal basis for invoking Section 201 against the payer (for failure to deduct tax) collapses. The Assessing Officer lacks jurisdiction to issue an order inconsistent with a final adjudication of taxability by the Tribunal. Proceeding under Section 201 in spite of a contrary Tribunal finding amounts to acting without jurisdiction and causes undue harassment and administrative inconsistency. Ratio vs. Obiter: Ratio - An Assessing Officer cannot validly proceed under Section 201 against a payer where the Tribunal has finally held that the recipient's receipts are not taxable in India (no PE), as the essential liability to deduct does not arise. Conclusion: Orders under Section 201 passed contrary to the Tribunal's findings are unsustainable and subject to quashing; the Assessing Officer must follow the Tribunal's decision unless its operation is stayed by a competent court. Issue 2 - Effect of pending departmental appeals against Tribunal's decision on Assessing Officer's obligation to follow that decision Legal framework: Administrative hierarchy and appellate rights permit the Department to file appeals, but finality of appellate proceedings at each stage confers binding effect on orders of the Tribunal until lawfully stayed or reversed. Precedent treatment: The Court reaffirmed the proposition that mere dissatisfaction by the Department and filing of appeals does not entitle the Assessing Officer to disregard the Tribunal's order. The Assessing Officer must follow a Tribunal's order unless its operation has been suspended by competent authority. Interpretation and reasoning: The Assessing Officer's reliance on departmental appealability as a ground to refuse to follow the Tribunal's decision is an objectionable practice that undermines predictability and causes harassment. The pending appeal before a higher court does not, by itself, revive the Assessing Officer's power to issue adverse orders inconsistent with the Tribunal's ruling. Ratio vs. Obiter: Ratio - A pending appeal by the Department against the Tribunal does not justify TDS action contrary to the Tribunal's findings; the AO must follow the Tribunal unless the order is stayed. Conclusion: The Assessing Officer erred in refusing to follow the Tribunal's consistent rulings on the recipient's non-taxability merely because the Department had filed appeals; such action is invalid. Issue 3 - Maintainability of writ relief despite existence of alternative statutory remedies Legal framework: Writ jurisdiction is discretionary but may be exercised when alternative remedies are inadequate or when lower authorities have acted without jurisdiction, causing irreparable prejudice; availability of an alternate remedy is not an absolute bar in exceptional circumstances. Precedent treatment: The Court relied on previous rulings rejecting a per se bar where the Assessing Officer acts contrary to binding appellate orders and on the Court's own earlier decision quashing similar orders for prior years. Interpretation and reasoning: Given the identical factual matrix, the prior quashal of Section 201 orders for earlier years and the Tribunal's consistent determination, the existence of appeals or statutory remedies did not preclude writ relief. The Assessing Officer was acting without jurisdiction, which is a recognized ground for exercise of writ jurisdiction even where statutory remedies exist. The approach prevents multiplicity of proceedings and protects the assessee from undue harassment. Ratio vs. Obiter: Ratio - Writ relief is maintainable where the Assessing Officer proceeds in contradiction of the Tribunal's binding decisions and thereby acts without jurisdiction, notwithstanding availability of alternative remedies. Conclusion: The petitions were maintainable; arguments premised on alternative remedies or future appellate reversal did not preclude judicial interference. Issue 4 - Appropriate remedial direction when quashing Section 201 orders in light of Supreme Court's prior directive remitting similar matters to AO at show-cause stage Legal framework: Courts may quash unlawful administrative orders but, having regard to appellate proceedings and broader litigation, may remit issues to the Assessing Officer at an appropriate stage to allow proceedings to be conducted in accordance with law and in light of outcomes in pending appeals. Precedent treatment: The Supreme Court's prior direction in related earlier proceedings to remit the matter to the Assessing Officer at the stage of issuance of a show-cause notice was followed as a guiding precedent for appropriate remedial action. Interpretation and reasoning: While the impugned Section 201 orders were quashed because they were inconsistent with the Tribunal's findings, fairness and adherence to the Supreme Court's approach warranted remittal to the Assessing Officer to the limited stage of issuance of a show-cause notice. This preserves the Department's ability to proceed afresh in accordance with law after higher courts decide the pending appeals, while protecting the petitioner from the immediate consequences of an order passed without jurisdiction. The petitioner's undertaking to withdraw its statutory appeals if the orders are quashed was taken into account to avoid duplicative litigation, with revival provisions in case of successful challenge by the Revenue. Ratio vs. Obiter: Ratio - When quashing Section 201 orders passed contrary to Tribunal findings, the Court may remit the matter to the Assessing Officer at the show-cause stage to enable legally compliant proceedings thereafter; such remittal respects higher court directions and procedural fairness. Conclusion: The impugned Section 201 orders were quashed; the matters are remitted to the Assessing Officer at the show-cause stage so that further action, if any, may be taken in accordance with law after determination of the pending higher forum appeals; consequential proceedings become infructuous pending such lawful action.