2012 (4) TMI 122 - AT - Income Tax

Assessee in default - Time limitation - assessee had a successful GDR issue with nine times over subscription and allotted 6,613,750 GDRs inclusive of firm and optional GDRs being the maximum issue possible at a rate of US 7.56 per GDR - The work involved in the issuance of GDRs to international investors was carried out outside India and as indicated above, the distribution and marketing as also approaching target international investors all necessarily had to be done outside India - AO passed an order u/s. 195 of the Income Tax Act, 1961 (the Act) on 30/3/1995 holding that the payments made by the assessee to the non-resident Lead Manager s was in the nature of fees for Technical Services rendered and therefore, the assessee ought to have deducted tax at source on the payments so made - AO worked out the quantum of tax in respect of which the Assessee was to be treated as Assessee in default and the quantum of interest payable on tax not deducted at source as follows - It has also been submitted that the question of limitation in whatever manner it arises is a question of law and goes to the root of the appeal and jurisdiction of the Tribunal - The liability of the person liable to deduct tax is a vicarious liability and, therefore, he cannot be put in a situation which would prejudice him to such an extent that the liability would remain hanging on his head for all time to come in the event the Income-tax Department decides not to take any action to recover the tax either by passing an order under section 201 of the Income-tax Act, 1961, or through making an assessment of the income of the person liable to pay tax - no period of limitation can be read into the provisions if there is no period of limitation specified in the Act for taking action u/s. 201(1) or 201(1A) then no time limit can be read into those provisions - Decided in favor of the assessee

Issues Involved:
1. Maintainability of appeal under section 201.
2. Accrual of Income.
3. No payment, so no TDS.
4. Direct sale and taxability.
5. Nature of services rendered (Technical, Managerial, Consultancy).
6. Taxability of reimbursement of expenses.
7. Applicability of the judgment of Transmission Corpn. of A.P. and validity of order u/s 195.
8. Applicability of DTAA.
9. Limitation period for passing orders under sections 195, 201(1), and 201(1A).

Detailed Analysis:

1. Maintainability of Appeal under Section 201:
The CIT(A) held that an appeal by the assessee is maintainable against an order passed under sections 201(1) and 201(1A) of the Act.

2. Accrual of Income:
The CIT(A) concluded that the income should be deemed to have accrued or arisen in India irrespective of the place where services were rendered, as the services were utilized by the assessee in its business carried on in India.

3. No Payment, So No TDS:
The CIT(A) rejected the argument that no payment was made to the Lead Managers, stating that it was a constructive payment by the assessee, thereby creating an obligation to deduct tax at source.

4. Direct Sale and Taxability:
The CIT(A) determined that the payments made to the Lead Managers were for services rendered and could not be considered part of the consideration received for GDRs.

5. Nature of Services Rendered:
The CIT(A) held that the services rendered by the Lead Managers were technical and managerial in nature.

6. Taxability of Reimbursement of Expenses:
The CIT(A) ruled that reimbursement of expenses was an integral part of the fees paid to the Lead Managers and was therefore taxable.

7. Applicability of the Judgment of Transmission Corpn. of A.P. and Validity of Order u/s 195:
The CIT(A) held that it was a statutory obligation to deduct tax at source, and if the payer feels the amount is not taxable, they should file an application before the AO. The assessee cannot decide on their own whether the income is chargeable to tax.

8. Applicability of DTAA:
The CIT(A) stated that since the assessee did not deduct tax at source under section 195, the question of examining the issue from the DTAA angle did not arise.

9. Limitation Period for Passing Orders under Sections 195, 201(1), and 201(1A):
The Tribunal admitted the additional ground of appeal regarding the limitation period, referencing the Special Bench decision in Mahindra & Mahindra Ltd. The Tribunal concluded that no order under sections 195, 201(1), or 201(1A) can be passed if the revenue has not taken any action against the payee within the time limit for initiating proceedings under section 147. Since no action was taken against the payee within the prescribed time, the orders under sections 195, 201(1), and 201(1A) were deemed invalid.

Conclusion:
The Tribunal allowed the appeals of the assessee, setting aside the orders under sections 195, 201(1), and 201(1A) as invalid. Consequently, the Tribunal did not address whether the payments constituted Fees for Technical Services or other submissions related to DTAA provisions.

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