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TaxTMI 
TaxTMI 
TaxTMI 
2016 (12) TMI 1601
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....in the present writ petition. 2. The respondents issued the Show Cause Notice dated 31.03.2011, for the period F.Y. 2001-2002 to 2010-2011, to the Petitioner asking it to show cause as to why it should not be deemed to be an assessee-in-default as it made payments on account of interconnection charges to various foreign entities without deduction of tax under Section 195 of the Act. Thereafter an additional Show Cause Notice dated 22.11.2011 was issued to the Petitioner in continuation of the earlier Show Cause Notice (dated 31.03.2011) refering to the interconnection charges to resident entities - and offering a final opportunity to explain as to why tax should not be charged from the petitioner under Section 201(1A) on account of failure to deduct tax at source on payments of interconnect usage charges to non-resident operators. A further notice, dated 05.03.2012 styled similarly on the same ground was issued for FYs 2001-2002 to 2006-2007.3. The issue raised in this petition is whether Section 201 of the Income Tax Act, 1961 (hereinafter 'the Act') would also apply to payments made to 'non-residents'. A second issue is whether the impugned notices are barred by limitation. In o....
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..... Therefore, the income tax authorities could not validly claim jurisdiction to issue Show Cause Notice treating deductors as assessees in default, under provisions of the Act. 6. It was also submitted that if the court were not to accept the construction given by the assessee, the result would be invalidation of the provision itself, because it seeks to treat one class of deductees or recipients more favourably than others. To the extent that this interpretation would lead to artificial distinction between domestic deductees and foreign deductees, whereas in reality they belong to one class and had always remained so, for purposes of treatment under Section 201, the distinction is invidious and amounts to impermissible classification, thus violative of Article 14 of the Constitution of India. It was submitted in this context that if the statute treated two individuals or entities as belonging to one class, for a particular purpose, there being no alteration in the situation, the sudden treatment of one category as belonging to another class, sub-serves no nexus with the object sought to be achieved by the enactment, i.e. the Income Tax Act. 7. Counsel for the assessee further ur....
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....his Act; or (b) referred to in sub-section (1A) of section 192 being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: [Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed] Provided [further] that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that su....
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....use (ii) of sub-section (3) of section 153 and of Explanation 1 to section 153 shall, so far as may apply to the time limit prescribed in proposed sub-section (3) of section 201." 11. The memorandum explaining the provisions of Finance (2) Bill, 2009, which was in the form of a circular issued by the Central Board of Direct Taxes (CBDT), reads as under: "f. Providing time limits for passing of orders u/s 201(1) holding a person to be an assessee in default Currently, the Income Tax Act does not provide for any limitation of time for passing an order u/s 201(1) holding a person to be an assessee in default. In the absence of such a time limit, disputes arise when these proceedings are taken up or completed after substantial time has elapsed. In order to bring certainty on this issue, it is proposed to provide for express time limits in the Act within which specified order u/s 201(1) will be passed. It is proposed that an order u/s 201(1) for failure to deduct the whole or any part of the tax as required under this Act, if the deductee is a resident taxpayer shall be passed within two years from the end of the financial year in which the statement of tax deduction at source is fi....
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....n between payments made to residents and non-residents through the amendment, can mean that where no period of limitation for Sections 200 and 201 has been prescribed, one cannot be read into the Act. However, the legislative history here becomes instructive; in that context extrinsic material, in the form of statements of objects and reasons, become relevant. At all material times, payments made to residents and non-residents were treated alike. The revenue does not state what necessitated the distinction, made through the amendment for the first time. The only clue to be found to this silence is in that part of the circular quoted above, which states that limitation period for non resident's payment is unfeasible "as it may not be administratively possible to recover the tax from the non- resident." However, that is not the reasoning given in the statement of objects and reasons. 14. It was argued that the basis and/or reasoning of not applying the limitation in respect of deduction from non-residents on grounds of administrative convenience is arbitrary, discriminatory and violative of Article 14 and 265 of the Constitution. They have submitted that the basis of 'admini....
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....r instances and more specifically in the case of section 201(1A), brought in a retrospective amendment, nullifying the precedent itself. That it chose to bring section 201(3) in the first instance in 2010 and later in 2014 fortifies the reasoning of the court. Accordingly, the issue is answered against the Revenue." 17. It appears to the court that the above decision settles the question whether to declare an assessee to be an assessee in default under section 201 of the Act could be initiated for a period earlier than four years prior to March 31, 2011. 18. Mr. M. S. Syali, the learned senior advocate for the petitioners states that although the challenge in these petitions is also to the vires of the proviso to section 201(3) of the Act as inserted by the Finance (No. 2) Act, 2009, the petitioners would be satisfied if the interpretation sought to be advanced by them on the scope and ambit of proviso to sub-section (3) of section 201 of the Act is accepted by the court. In other words what has been canvassed on behalf of the petitioners is that the proviso to section 201(3) of the Act has to be read consistent with the law explained by the court in CIT v. NHK Japan Broadcasting....
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....., the non-deduction of tax at source resulting in an assessee having to be declared an assessee in default under section 201 of the Act. In Rajinder Nath v. CIT [1979] 120 ITR 14 (SC), it was held that theexistence of an order disposing of a case qua an assessee containing specific directions of the court was a sine qua non for invoking the powers under section 153(3)(ii) of the Act. Even in the case relied upon by Mr. Shivpuri, i.e., CIT v. Idea Cellular Ltd. (supra), there is no such finding or direction to the Department by the court requiring it to initiate proceedings for declaring the assessee to be an assessee in default. The court is, therefore, of the view that the reliance by the Department on section 153(3)(ii) of the Act and the decision in CIT v. Idea Cellular Ltd. (supra) to justify initiation of the proceedings in the present case against the petitioner is misconceived." 16. The court was conscious of the absence of any limitation period in respect of payments to non-residents, for the purpose of Section 195 read with Section 201. Yet, it was held that proceedings could be initiated within reasonable time. The circular relied on by the revenue, furnishing a rationa....
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....every word used in that section. While interpreting the provisions of the Income-tax Act one cannot read the charging sections of that Act de hors the machinery sections. The Act is to be read as an integrated code. Section 195 appears in Chapter XVII which deals with collection and recovery. As held in the case of CIT v. Eli Lilly and Co. (India) (P.) Ltd. [2009] 312 ITR 225 the provisions for deduction of TAS which are in Chapter XVII dealing with collection of taxes and the charging provisions of the Income-tax Act form one single integral, inseparable code and, therefore, the provisions relating to TDS apply only to those sums which are "chargeable to tax" under the Income- tax Act. It is true that the judgment in Eli Lilly [2009] 312 ITR 225 was confined to section 192 of the Income-tax Act. However, there is some similarity between the two. If one looks at section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income "chargeable under the head salaries". Similarly, section 195 imposes a statutory obligation on any person responsible for paying to a non-resident any sum "chargeable under the provisions of the Act", which expressi....
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....es to non-residents by which the Department is able to keep track of the remittances being made to non-residents outside India. We find no merit in these contentions. As stated hereinabove, section 195(1) uses the expression "sum chargeable under the provisions of the Act." We need to give weightage to those words. Further, section 195 uses the word "payer" and not the word "assessee". The payer is not an assessee. The payer becomes an assesseein-default only when he fails to fulfil the statutory obligation under section 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee-in-default. The abovementioned contention of the Department is based on an apprehension which is ill-founded. The payer is also an assessee under the ordinary provisions of the Income-tax Act. When the payer remits an amount to a non-resident out of India he claims deduction or allowances under the Income-tax Act for the said sum as an "expenditure". Under section 40(a)(i), inserted, vide Finance Act, 1988, with effect from April 1, 1989, payment in respect of royalty, fees for technical services or other sums chargeable under the I....