2002 (11) TMI 79 - HC - Income Tax

1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the burden was on the assessee to prove by cogent and convincing evidence that the recipient had actually paid tax on the income or the income had been held to be non-assessable? - 2. Whether, on the facts and in the circumstances of the case, the Tribunal ought to have held that whatever burden lay on the assessee for not being regarded as an assessee in default under section 201 had been discharged? - 3. Whether the Tribunal erred in holding that the proceedings initiated under section 201 of the Income-tax Act, 1961, were not barred by limitation? - We do not wish to answer the questions referred to us. - No explanation has been given as to why the Inspecting Assistant Commissioner did not take appropriate steps. We, therefore, return the reference unanswered.

Summary

Issues:
1. Burden of proof on the assessee regarding tax payment by the recipient.
2. Discharge of burden by the assessee to avoid being an assessee in default under section 201.
3. Limitation on proceedings initiated under section 201 of the Income-tax Act, 1961.

Analysis:

Issue 1: Burden of proof on the assessee regarding tax payment by the recipient
The case involved the question of whether the burden was on the assessee to prove that the recipient had paid tax on the income or if the income had been held to be non-assessable. The Inspecting Assistant Commissioner treated the assessee as an assessee-in-default for non-deduction of tax at source from interest payable to non-residents. The assessee contended that the recipients had paid tax on the amount received and provided letters from recipients admitting tax payment. The Commissioner of Income-tax (Appeals) set aside the order of the Inspecting Assistant Commissioner and directed verification of whether the sums had been taxed in the hands of the recipients. The Tribunal confirmed this decision, setting aside the demand under section 156 and directing the Inspecting Assistant Commissioner to pass fresh orders after verifying tax payment by recipients.

Issue 2: Discharge of burden by the assessee to avoid being an assessee in default under section 201
The Tribunal's decision required the Inspecting Assistant Commissioner to verify if the interest income had been taxed in the hands of the recipients before raising the demand again. However, despite the directions, no such verification took place for more than 20 years. The court noted that no steps were taken to examine the correctness of the assessee's claim or provide the opportunity for the assessee to prove the tax payment by recipients. As a result, the court decided not to answer the questions referred and returned the reference unanswered, stating that the Department cannot raise the demand again after such a long period.

Issue 3: Limitation on proceedings initiated under section 201 of the Income-tax Act, 1961
The court highlighted the lack of action by the Inspecting Assistant Commissioner for more than 20 years in carrying out the directions of the Tribunal. Due to this inaction and the significant time elapsed, the court decided not to permit the Department to raise the demand again, leading to the conclusion that the proceedings under section 256(2) would not survive. The reference was returned unanswered, and the matter was disposed of without any costs being imposed.

In summary, the judgment emphasized the importance of verifying tax payment by recipients, the failure to discharge the burden of proof by the assessee, and the significant delay and inaction by the tax authorities in addressing the issues raised in the case.