TaxTMI 
TaxTMI 
2023 (3) TMI 867
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....esident it is permissible for the Court to determine the limitation for passing such orders. b. If the answer to the above question is in the affirmative, a further question arises as to what would constitute reasonable period for passing such orders. 2. Brief Facts: a. At the outset, it may be relevant to note that both the counsel for the Petitioner and the Respondents would submit that the facts and issues that arise for consideration are common in all the six writ petitions. The petitioner in this batch of writ petitions viz., Vedanta Limited is the successor entity of Sterlite Industries (India) Ltd. The petitioner company is engaged in the business of mining and exploration of metals and exploration of oil and natural gas. For the relevant period viz., Financial Years 2009-2010 to 2014-2015, the petitioner company entered into two agreements with Vedanta Resources Public Limited Company (hereinafter referred to as "VR PLC") viz., Consultancy Agreement and Representative Office Agreement on 29.03.2005. Under the said agreement "VR PLC" provided legal advice, marketing and IT support to the petitioner. In lieu of these services, "VR PLC" was remunerated on a cost-plus basis....
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...., marketing and IT support was provided to the petitioner. The impugned orders also levied interest in terms of Section 201(1-A) of the Act. There is no limitation prescribed under Section 201 of the Act to pass orders deeming a person to be an "assessee in default" for failure to deduct TDS on payments to non-residents. In the absence of a limitation prescribed /stipulated under the Act for passing orders, the same ought to be done within a reasonable period. It has been held that four years would constitute a reasonable period for passing orders under Section 201 (1) of the Act, in case of failure to deduct tax at source in respect of payments to non-residents, by various High Courts, some of them being:- i. Commissioner of Income-Tax v. NHK Japan Broadcasting Corporation, 2008 (305) ITR 137 (Delhi) ii. Bharti Airtel Ltd. v. UOI, (2017) 291 CTR 254, iii. Vodafone Essar Mobile Services Limited v. Union of India, (2016) 385 ITR 436 (Del). iv. CIT vs. Hutchision Essar Telecome Ltd., (2010) 323 ITR 230 (Delhi) v. Director of Income Tax vs. Mahindra and Mahindra Limited [2014] 365ITR 560 (Bom. ) vi. CIT v. U.B. Electronic Instruments Ltd 92015) 371 ITR 314 (AP) vii....
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....ial Year in which payment is made or credit is given is thus beyond reasonable period and thus barred by limitation and a nullity. 5. Case of the Respondents: It was submitted by Shri. Dilip Kumar, learned Senior Standing Counsel for the Respondents that the writ petitions ought not to be entertained inasmuch as the petitioner has an alternative remedy under Section 246 of the Act. 5.1. In any view, the submission of the petitioner that the impugned orders are barred by limitation needs to be rejected for the following reasons: a) It is not permissible to read reasonable time/period when the Legislature has chosen not to stipulate/ prescribe, limitation for passing orders under Section 201(1) of the Act deeming a person to be an "assessee in default" for failure to deduct tax at source in respect of payments to non-residents. b) Assuming that orders under Section 201 of the Act ought to be made within reasonable time/ period it cannot be less than the period prescribed in relation to residents. c) Mere filing of Form 15CA and 15CB by the petitioner would not amount to compliance of the Act. The conclusions arrived by the Transfer Pricing Officer related to Arm's Lengt....
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....be an "assessee in default" for failure to deduct tax at source in respect of payments to residents. The amended provision reads as under: "(3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of seven years from the end of the financial year in which payment is made or credit is given." From the above, it is clear that prior to the year 2009, there was no time limit prescribed for passing an order under Section 201(1) of the Act irrespective of whether or not the recipient of the payment is a resident or nonresident. Importantly, even after successive amendments made post the year 2009 introducing and extending limitation for passing orders under Section 201(1) of the Act, deeming a person to be an "assessee in default" for failure to deduct TDS on payments to residents, no limitation was however prescribed insofar as passing orders under Section 201(1) of the Act deeming a person to be an "assessee in default" for failure to deduct tax at source in respect of payments to non-residents. 7. It is trite law that in the ab....
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....sidents, must be passed within a reasonable period in the absence of any limitation provided under the Act. The question that now arises for consideration in this batch of writ petitions is whether this Court in exercise of its jurisdiction under Article 226 of the Constitution of India can determine as to what would constitute reasonable period for passing orders under Section 201(1) of the Act deeming a person to be an "assessee in default" for failure to deduct tax at source in respect of payments to non-residents or should it be left to the assessing authorities to decide in individual cases depending on the facts of each case. To answer the above question it would be useful to refer to the judgment of the Hon'ble Supreme Court in the case of State of Punjab v. Bhatinda District Coop. Milk Producers Union Ltd., reported in (2007) 11 SCC 363, wherein question arose as to what would constitute a "reasonable period" for exercising revisional jurisdiction in the absence of limitation provided under the Act and whether it could be left to the statutory authorities to decide the same. It was held the authorities under the Act being creatures of the statute would not be able to de....
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....pect of payments to non-residents. 8.2. The second reason which necessitates fixing a reasonable period in the absence of legislative prescription is also in view of the fact that, in fiscal matters, certainty and finality are important and assessee's cannot be put in a situation where the liability would remain hanging on his head for all times to come. 8.3. Yet another reason for entertaining these writ petitions is the fact that different views had been expressed by different High Courts, on this issue while some High Courts had proceeded to determine the reasonable period for passing orders under Section 201(1) of the Act deeming a person to be an "assessee in default" for failure to deduct TDS on payments to non-residents to be four years. Few other Courts have taken a view that reasonable period cannot be fixed but would depend on the facts of each case. The cleavage of judicial opinion is another compelling factor for entertaining the present writ petitions. For the above reasons, it is for this Court to determine as to what would constitute reasonable period for passing orders under Section 201(1) of the Act, deeming a person to be an "assessee in default" for failure to ....
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....s of cases referred above dealt with periods prior to 2010 i.e., when no limitation was stipulated for passing orders under Section 201(1) of the Act in respect of default in deducting TDS in respect of payments made to residents as well as non-residents. Though in Bharti Airtel one of the Financial years under challenge related to the Financial year 2010-2011 i.e., after introduction of limitation for residents. The Delhi High Court in Bharti Airtel followed the judgments in the case of NHK Japan and Vodafone Essar, both of which were concerned with orders passed under Section 201 of the Act in relation to periods prior to introduction of limitation even in respect of residents. The impact of the amendment introducing limitation vide sub-section (3) to Section 201 of the Act albeit with reference to residents and the subsequent amendments made thereto, in determining the limitation for passing orders deeming a person to be an "assessee in default" for failure to deduct TDS on payments to non-residents was not examined. Thus the judgment of the Delhi High Court in Bharti Airtel case would not constitute a precedent in respect of the issue on hand i.e., what would constitute reasona....
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....espect of payments to non-residents was granted legislative recognition by incorporation or adoption of the same for passing orders under Section 201(1) of the Act deeming a person to be an "assessee in default" for failure to deduct tax at source in respect of payments to residents. However soon thereafter vide Finance Act, 2012, the limitation of four years was extended to six years w.r.e.f. 01.04.2010. Subsequently, another amendment was brought in vide Finance (No.2) Act, 2014 whereby the limitation was further extended from six to seven years. 10. It is the case of the petitioner that the Courts having determined the reasonable period for passing orders under Section 201(1) of the Act at four years deeming a person to be an "assessee in default" for failure to deduct tax at source in respect of payments to non-residents and Parliament having not stipulated any limitation for passing orders under Section 201(1) of the Act, deeming a person to be an "assessee in default" for failure to deduct tax at source in respect of payments to non-residents. The above limitation determined by various High Courts should continue to govern in the absence of any limitation having been provide....
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....paragraph 3 of Assessment order ii) Written Submission of the Respondents: '' Reasonable time period if held attrached even for payment to non-resident cannot mean to be any period less than what is provided under Section 201 of the Act in regard to payments made to residents'' The observation in the case of Bharati Airtel vs. Union of India, reads as under: ''At all material times, payments made to residents and non residents were treated alike'' II. The object behind TDS is common for both residents as well as nonresidents: The object behind any TDS provisions be it with reference to residents/non-residents is to secure the taxes or a portion of it at the earliest. TDS provisions are useful in two ways. They ensure that the Revenue Department can collect taxes in advance, that is, before the final assessment and this is helpful in meeting their urgent requirement for money. TDS provisions are essentially meant to ensure easier collection of taxes. The logic is that certain sums, though taxable in the hands of the payee might escape tax because of problems in enforcement machinery in the case of payees, the problem becomes more acute wh....
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....nd the laws it enacts are directed to problems which are made manifest by experience and that the elected representatives assembled in a legislature enact laws which they consider to be reasonable for the purpose for which they are enacted. Presumption is, therefore, in favour of the constitutionality of an enactment.'' ii) Bharat Petroleum Corpn. Ltd. v. Maddula Ratnavalli, (2007) 6 SCC 81 22. Parliament moreover is presumed to have enacted a reasonable statute [see Breyer, Stephen (2005): Active Liberty: Interpreting Our Democratic Constitution, Knopf (Chapter on Statutory Interpretation, p. 99 for "Reasonable Legislator Presumption"]. iii) Delhi Subordinate Services Selection Board v. Praveen Kumar, (2017) 11 SCC 283: ''Presumption of constitutionality and reasonableness ordinarily attached to legislative enactment, applies to statutory rules also. In P.V. Mani v. Union of India [P.V. Mani v. Union of India, 1985 SCC OnLine Ker 92 : AIR 1986 Ker 86] a Full Bench of the Kerala High Court observed as under: (SCC OnLine Ker para 18) iv) Orient Paper and Industries Ltd. v. State of Orissa, 1991 Supp (1) SCC 81 at page 102: "34. ... These measures ar....
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.... the Act deeming a person to be an "assessee in default" for failure to deduct tax at source in respect of payments to non-residents. Thus the limitation prescribed for passing orders under Section 201(1) of the Act deeming a person to be an "assessee in default" for failure to deduct tax at source in respect of payments to residents would constitute reasonable period in the absence of a legislative prescription of limitation for passing orders under Section 201(1) of the Act, deeming a person to be an "assessee in default" for failure to deduct tax at source in respect of payments to non-residents as well. IV. Reasonableness - not a static concept: The attempt by the petitioner to submit that reasonable period for passing orders under Section 201(1) of the Act deeming a person to be an "assessee in default" for failure to deduct tax at source in respect of payments to non-residents having been held by Courts to be four years, the same ought not to be disturbed. The above submission cannot be countenanced inasmuch as reasonableness is not a static concept but dynamic/ progressive and must keep pace with the changing times. It must be related to the adjustments necessary to solve....
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....er Section 201(1) of the Act deeming a person to be an "assessee in default" for failure to deduct tax at source in respect of payments to non-residents. V. Fiscal laws - Result of Trial and Error: Importantly, in the context of economic and tax matters judicial deference ought to be shown to legislative wisdom in view of the fact that Courts lack the expertise and familiarity with the problem, necessary for making a wise decision with respect to raising and disposing public revenue. It is trite law that fiscal legislations are a matter and result of trial and error. That the limitation for passing orders under Section 201(1) of the Act in respect of residents was amended in view of the problems manifested by experience and the Legislature's attempt/resolve to remedy/address the mischief by bringing about two amendments in quick succession after its introduction vide Finance (No. 2) of 2010 extending the period of limitation is indicative of the need for reparation / correction in prescribing the limitation at 4 years originally. Apparently, Parliament after providing the limitation at 4 years for passing orders under Section 201(1) of the Act deeming a person to be an "asse....
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.... Court must always bear in mind the constitutional proposition enunciated by the Supreme Court of the United States in Munn v. Illinois [94 US 13] , namely, "that courts do not substitute their social and economic beliefs for the judgment of legislative bodies". The Court must defer to legislative judgment in matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgment appears to be palpably arbitrary. The Court should constantly remind itself of what the Supreme Court of the United States said in Metropolis Theater Company v. City of Chicago [57 L Ed 730 : 228 US 61 (1912)] : The limitation for passing orders under Section 201(1) of the Act deeming a person to be an "assessee in default" for failure to deduct TDS on payments to residents has been extended in view of the inadequacy of the original period of limitation which was fixed at 4 years as a result of trial and error. The above legislative action providing and extending the limitation for passing orders under Section 201(1) of the Act with regard to residents as stated above is instructive and serves as a guide in determining the "reasonable period" for passing order....
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.... Tax Officer to assess a person as an agent of a foreign party under Section 43 within two years from the end of the year of assessment. But authority of the Income Tax Officer under the Act before it was amended by the Finance Act of 1956 having already come to an end, the amending provision will not assist him to commence a proceeding even though at the date when he issued the notice it is within the period provided by that amending Act..." 10.2. To similar effect is the judgment in ITO v. Induprasad Devshanker Bhatt [AIR 1969 SC 778] . The Court held: (AIR p. 783, para 6) "6. In our opinion, the principle of this decision applies in the present case and it must be held that on a proper construction of Section 297(2)(d)(ii) of the new Act, the Income Tax Officer cannot issue a notice under Section 148 in order to reopen the assessment of an assessee in a case where the right to reopen the assessment was barred under the old Act at the date when the new Act came into force. It follows therefore that the notices dated 13-11-1963 and 9-1-1964 issued by the Income Tax Officer, Ahmedabad were illegal and ultra vires and were rightly quashed by the Gujarat High Court [Induprasad ....
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....an amendment extending the period of limitation would be applicable even though the period of assessment/ re-assessment which was originally available had expired. In this regard, the following observations made in the above judgment are relevant: "25. Sub-section (2) provided that except as otherwise provided in this section, no order for any assessment year shall be made after the expiry of 4 years from the end of such year. However, after the amendment, a proviso was added to sub-section (2) under which the Commissioner of Sales Tax authorises the assessing authority to make assessment or reassessment before the expiration of 8 years from the end of such year notwithstanding that such assessment or reassessment may involve a change of opinion. The proviso came into force w.e.f. 19-2-1991. We do not think that sub-section (2) and the proviso added to it leave anyone in doubt that as on the date when the proviso came into force, the Commissioner of Sales Tax could authorise making of assessment or reassessment before the expiration of 8 years from the end of that particular assessment year. It is immaterial if a period for assessment or reassessment under sub-section (2) of Sec....