Tax deduction default orders are not assessment orders and are not governed by assessment limitation.

A deeming provision that treats a payer as an assessee in default for failure to deduct tax at source from payments to a non-resident creates a limited fiction for recovery of the tax that should have been withheld. It does not convert the consequential order into an assessment order, because the liability arises from the payer's default and not from the ordinary charging or assessment machinery. The comparable scheme under the 1961 Act also treats non-deduction or non-payment as a separate consequence. On that basis, the limitation applicable to assessment orders does not govern such an order.

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Issues: Whether an order made under section 18(7) of the Indian Income-tax Act, 1922, deeming a payer to be an assessee in default for failure to deduct tax payable to a non-resident, is an order of assessment so as to attract the limitation under section 34(3) of the Act.

Analysis: The relevant scheme of the Act showed that the duty to deduct tax at source from payments to a non-resident was distinct from the ordinary process of assessment. The legal fiction in section 18(7) was confined to the purpose for which it was created, namely, recovery of the tax that ought to have been deducted. An order under that provision did not arise from the charging sections, but from the payer's failure to deduct and remit tax, and the liability flowed from the order itself. The Court also noted that the comparable provisions in the 1961 Act treated failure to deduct or pay tax as a separate consequence and did not characterise such an order as an assessment or reassessment. The broad meaning of "assessment" could not be extended beyond the context of section 18(7).

Conclusion: An order under section 18(7) of the Indian Income-tax Act, 1922, is not an order of assessment and is therefore not barred by the limitation prescribed in section 34(3); the question was answered against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered by holding that the impugned order was not time-barred under section 34(3) because it was not an assessment order within the meaning of the Act.

Ratio Decidendi: A deeming provision treating a payer as an assessee in default for failure to deduct tax at source creates a limited legal fiction for recovery purposes only and does not convert the consequential order into an assessment order.

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