TaxTMI 
TaxTMI 
2023 (3) TMI 867
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.... in relation to payments made to a non-resident 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, ....
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.... Consultancy Agreement and Representative Office Agreement under which legal advice, 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 Mahin....
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.... at source in respect of payments to non-residents. The impugned orders having been passed beyond four years from the end of the Financial 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 F....
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....ly, another amendment was brought in vide Finance (No.2) Act, 2014, whereby limitation was further extended from six years to seven years in sub-section (3) to Section 201 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. 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 insofa....
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....bed in other provisions in that statute, where relevant. (emphasis supplied) 8. It is thus clear that 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, 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 peri....
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....eason, that these writ petitions are entertained albeit for the limited purpose of examining the question as to what would constitute reasonable period for the purpose of passing order 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. 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 o....
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....ption by the legislature and what would constitute a reasonable period ought to be decided on the facts of each case in the following judgments: a. Mass Awash (P) Ltd. v. CIT, (2017) 397 ITR 305 (Allahabad) b. Bhura Exports Ltd. v. Income-tax, (2014) 365 ITR 548 (Calcutta) c. Income Tax v. H.M.T. Ltd., (2012) 340 ITR 219 (Punjab and Haryana) 9.3.Both sets 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 re....
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....reby providing limitation of 4 years for passing an order 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 resident. Thus, the limitation of 4 years which was determined judicially to constitute a reasonable period for deeming a person to be an "assessee in default" for failure to deduct tax at source in respect 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 ....
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....rtel case is relevant in this regard: i) Order of Assessment: "3. Hence, the reasonable time period as of now is seven years from the end of the financial year in which the payment is made to non-residents as well for the purpose of passing order u/s 201 (1) of the Act, even though the Act does not prescribe any time limit for initiationof such action in relation to non-residents'' at Page 3 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 ens....
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....re enact laws which they consider to be reasonable for the purpose for which they are enacted. In this regard, it may be relevant to refer to the following judgments: i) Hamdard Dawakhana v. Union of India (AIR 1960 SC 554): ''Another principle which has to be borne in mind in examining the constitutionality of a statute is that it must be assumed that the legislature understands and appreciates the need of the people and 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, (201....
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.... an "assessee in default" for failure to deduct tax at source in respect of payments to residents. The legislature having prescribed the limitation for passing order 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, the above prescription of limitation is instructive and would serve as a guide to the Courts in determining what would constitute a reasonable period 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. 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....
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....n is indicative of the need to revisit the question as to what would constitute reasonable period for deeming a person to be an "assessee in default" for failure to deduct tax at source in respect of payments to non-residents and to provide for a longer period. In the circumstances, I am of the view that it is imperative to adopt the period of limitation prescribed by the legislature for passing order under Section 201(1) of the Act as constituting 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 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 p....
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....cate upon such an economic issue. The Court cannot possibly assess or evaluate what would be the impact of a particular immunity or exemption and whether it would serve the purpose in view or not. There are so many imponderables that would enter into the determination that it would be wise for the Court not to hazard an opinion where even economists may differ. The Court must while examining the constitutional validity of a legislation of this kind, "be resilient, not rigid, forward looking, not static, liberal, not verbal" and the 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 p....
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....with one proviso super added which is that the claim made under the amended provision should not itself have been a dead claim in the sense that it was time-barred before an amending Act with a larger period of limitation comes into force. A number of judgments of this Court have recognised the aforesaid proposition: 10.1. Thus, in S.S. Gadgil v. Lal and Co. [AIR 1965 SC 171] , this Court stated: (AIR p. 177, para 13) "13. .... It is true that under the amending Act by Section 18 of the Finance Act, 1956, authority was conferred upon the Income 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 principl....
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....eld to be a procedural law, there are exceptions to this principle. Generally the law of limitation which is in vogue on the date of the commencement of the action governs it. But there are certain exceptions to this principle. The new law of limitation providing a longer period cannot revive a dead remedy. Nor can it suddenly extinguish vested right of action by providing for a shorter period of limitation." In the case of Additional Commissioner vs. Jyothi Traders reported in (1999) 2 SCC 77 while dealing with provisions wherein limitation was provided with reference to passing of orders, it was held that 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 ....