AI Drafter 
TaxTMI 
TaxTMI 
2017 (9) TMI 1150
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.... the impugned order being passed, beyond the period of limitation and was, thus, beyond jurisdiction, bad in law and void-ab-initio. 1.1 That the CIT (A) erred on facts and in law in holding that time limit for initiating proceedings under section 201 should be more than six/ seven years in cases where deductee is a non-resident (as in present case), while applying the period of limitation provided in section 201(3) of the Act, failing to appreciate that the said provisions were not applicable upon the appellant. Without prejudice 2. That the CIT(A) erred on facts and in law in upholding the action of the assessing officer in treating the appellant to be in default for alleged failure to deduct tax at source from payment made to non-resident. 3. That the CIT(A) erred on facts and in law in not holding that the appellant was not an assessee in default since the Revenue had traced, framed assessment and initiated recovery proceedings against, the non-resident recipient. 3.1 That the CIT (A) erred on facts and in law in not appreciating that the proceedings under section 201 of the Act can be initiated/ carried on against the deductor, only....
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.... the Assessing Officer initiated the proceedings under section 201 vide notice dated 17/4/2013 on the ground that Shri Surinder Singh Chahal was resident of USA and the assessee was required to deduct TDS under section 195. Before the Assessing Officer, the assessee had challenged the limitation for issuance of such notice after a lapse of four years from the end of relevant financial year and hence, the proceeding is beyond the reasonable time period and barred by limitation. The Assessing Officer, rejected the assessee's objection on the ground that the time period for issuing notice under section 201(1)(a) of the Act as per provisions of section 201(3)(ii) applies in case where payment is made to resident of India. In any case, clause (ii) to section 201(3) read with proviso thereto prescribes time limit of six years from the end of the financial year and therefore it is within time limit. He also referred to the Explanatory note to the Finance Act, 2009, wherein the amendment in sub-section (3) to section 201 had been explained in the following manner:- "Explanatory Circular for Finance (No. 2) Act, 2009 5 50. Providing time limits for passing of orders u/s 20....
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....see had strongly relied upon the judgment of the Hon'ble Delhi High Court in the case of CIT vs. NHK Japan Broadcasting Corpn. (Supra) and also the judgment in the case of Hutchisson Essar, reported in 323 ITR 20 (DEL). The ld. CIT (A), held that in the amendment in section 201(3), brought w.e.f. 1.4.2014, the time limit has not been prescribed with regard to the failure to deduct whole or any part of tax from a person who is not resident in India. He too relied upon the Explanatory notes in this as referred by the Assessing Officer and distinguished the judgment of the Hon'ble Delhi High Court in the case of CIT vs. NHK Japan Broadcasting Corpn. (supra) on the ground that now in the wake of amendment brought in law by the Finance Act (No.2) of 2009, amendment with regard to time limit has been prescribed for six years, which has again been enhanced to 7 years vide Finance Act, 2014 the 7 assessee's plea for limitation period of 4 years will not be applicable. Accordingly, Ld. CIT (A) held that proceedings are not barred by limitation and reasonable time limit for initiation of proceedings for default in deduction of tax on payments made to non-resident, if at all, is more ....
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....been held that the judgment of Hon'ble Delhi High Court in the case of CIT vs. NHK Japan Broadcasting Corpn. (Supra) will not apply because at that time no such limitation was provided in the statute, as the order of the Hon'ble High Court itself is dated 23/4/2008. Now as pointed out by the ld. Counsel for the assessee, the jurisdictional High Court in the case of Bharti Airtel Ltd. vs. Union of India (supra) has decided exactly similar issue wherein they have held that period of limitation prescribed under the amended Act is only applicable for the payments made to residents of India and the Parliament has not said anything or remained silent on payments made to nonresident while amending the said provision. We find that the issue before the Hon'ble High Court was that, whether the 9 assessee is legally correct in contending that if the Act does not specify a time period, then a reasonable time period should be read into the Act and earlier judgment rendered on this issue was delivered when the Parliament did not made any distinction between the resident and non-resident. Therefore, the remote question will be whether such distinction exists and can one read a reasona....
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....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. 11 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 filed by the deductor. Where no such statement is filed, such order can be passed up till four years....
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....dents 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 nonresidents 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. 13 14. It was argued that the basis and/or reasoning of not applying the limitation in respect of deduction from nonresidents 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 'administrative convenience' in respect of ....
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.... 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 15 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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....or directions as regards the issue in question, viz., 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 the existence 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 17 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 ti....
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....ection 195(1). While interpreting a section one has to give weightage to 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 19 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-r....
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....n by which the payer is required to inform the Department of the remittances he makes 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 assessee- in-default only when he fails to fulfill 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 Incometax Act. When the payer remits an amount to a non21 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 ....