Tax deduction limitation: past remittance demands were barred, but future remittances remained subject to withholding compliance.

Past remittance demands for tax not deducted at source were held unenforceable where the statutory limitation period for treating the payer as an assessee in default and for recovery had expired. The Court accepted that liability had arisen when the payments were made, but barred enforcement once the prescribed time limits under the Income-tax Act and the repealed recovery provisions had passed. By contrast, the department was entitled to insist on deduction of tax at source for future remittances to the non-resident recipient, and that compliance direction was upheld.

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Issues: (i) Whether the demand raised in respect of past remittances and the value of shares was barred by limitation under the scheme of the Income-tax Act; (ii) Whether the department could require deduction of tax at source before making future remittances to the non-resident recipient.

Issue (i): Whether the demand raised in respect of past remittances and the value of shares was barred by limitation under the scheme of the Income-tax Act.

Analysis: For past remittances, the liability under the deduction-at-source provisions had already arisen when the payments were made without deduction. Any determination treating the payer as an assessee in default had to be made within the statutory period applicable to assessment. The Court also held that recovery proceedings for such past amounts could not be commenced after the expiry of the period prescribed for recovery under the repealed Act and the corresponding provision of the 1961 Act.

Conclusion: The demand in respect of past remittances was barred and could not be enforced under the Income-tax Act; this issue was decided in favour of the assessee.

Issue (ii): Whether the department could require deduction of tax at source before making future remittances to the non-resident recipient.

Analysis: The petitioner did not dispute that, for proposed future remittances, the statutory machinery requiring deduction of tax before payment was applicable. The challenge was confined to the earlier remittances, and the Court accepted that the department could insist on compliance for remittances yet to be made.

Conclusion: The direction requiring deduction of tax before future remittances was upheld; this issue was decided against the assessee.

Final Conclusion: The impugned communications were sustained only to the extent they required tax deduction for future remittances, while the demand relating to past remittances was held unenforceable under the statutory limitation scheme.

Ratio Decidendi: A payer cannot be treated as an assessee in default or subjected to statutory recovery for past non-deduction beyond the limitation period prescribed by the Income-tax Act, but the obligation to deduct tax at source continues to apply to future remittances where the statute so requires.

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