2014 (7) TMI 265 - HC - Income Tax

Period of limitation for declaring Assessee in default - time limit for proceedings u/s 201(1) and (1A) of the Act - Reassessment u/s 147 of the Act tribunal held that the order passed under Section 195 r/w 201(1) or 201(1A) of the Income Tax Act, 1961 cannot be held as barred by limitation if it is not passed within four years from the end of the relevant financial year Held that - Tribunal was rightly of the view that Section 195(1) casts duty on the person responsible for paying or crediting to the account of a nonresident any sum chargeable to tax under this Act for deducting tax at source - on failure to deduct or pay to the Government after deducting, the person responsible is treated as Assessee in default u/s 201(1) - Any such person referred to in section 201(1) extends not only the person deducting and failing to deposit the tax but also the person failing to deduct the tax at source - Where no time limit is prescribed for taking an action under the statute, the action can be taken only within a reasonable time by harmoniously considering the scheme of the Act - Tax recovery proceedings are initiated only after the passing of order u/s 201(1) and that too if the person responsible fails to comply with notice of demand u/s 156. The decision in COMMISSIONER OF INCOME-TAX Versus NHK JAPAN BROADCASTING CORPORATION 2008 (4) TMI 182 - DELHI HIGH COURT - though Section 201 does not prescribe any limitation period for the Assessee being declared as an Assessee in Default yet the Revenue will have to exercise the powers in that regard within a reasonable time - the Tribunal s order does not suffer from any error of law apparent on the face of record or perversity warranting our interference in appellate jurisdiction thus, no substantial question of law arises for consideration Decided against Revenue.

Issues Involved:
1. Jurisdiction and applicability of Section 201(1) and 201(1A) of the Income Tax Act, 1961.
2. Limitation period for passing an order under Section 201(1) and 201(1A) of the Income Tax Act, 1961.
3. Nature of services rendered by the lead managers and whether they constitute technical services under Section 9(1)(vii) of the Income Tax Act, 1961.
4. Whether the payments made to foreign lead managers were subject to tax deduction at source under Section 195 of the Income Tax Act, 1961.

Detailed Analysis:

1. Jurisdiction and Applicability of Section 201(1) and 201(1A):
The Tribunal held that Section 201(1) applies to both the person deducting and failing to deposit tax and the person failing to deduct tax at source. The Tribunal emphasized that the order under Section 201(1) is akin to an assessment order and that the assessment includes reassessment. The Tribunal concluded that the reasonable time for initiating and completing proceedings under Section 201(1) has to be at par with the time limit available for initiating and completing reassessment as the assessment includes reassessment.

2. Limitation Period for Passing an Order under Section 201(1) and 201(1A):
The Tribunal found that the issue of limitation goes to the root of the exercise of jurisdiction in this case. It held that where no time limit is prescribed for taking an action under the statute, the action can be taken only within a reasonable time by harmoniously considering the scheme of the Act. The Tribunal concluded that the maximum time limit for initiating proceedings under Section 201(1) or (1A) is the same as prescribed under Section 149, i.e., four years or six years from the end of the relevant assessment year, depending on the amount of income in respect of which the person responsible is sought to be treated as an assessee in default. The maximum time limit for passing the order under Section 201(1) or (1A) is the same as prescribed under Section 153(2), being one year from the end of the financial year in which proceedings under Section 201(1) are initiated.

3. Nature of Services Rendered by the Lead Managers:
The Assessing Officer observed that the lead managers were closely associated with all aspects of bringing out the Euro issues, including fixing the price of the issue, analyzing the accounting results and resource basis of the company, presenting them in a proper format, updating the accounting results in tune with international audit practices, putting up road shows, and marketing the issue successfully. These activities were considered to require a vast pool database of information about potential investors and global trends of investing institutions, which was a very specialized job. The Assessing Officer considered these services to be prima facie technical services covered under Section 9(1)(vii).

4. Whether Payments Made to Foreign Lead Managers Were Subject to Tax Deduction at Source:
The Assessing Officer issued a show cause notice under Section 201(1) and 201(1A) requiring the assessee to explain why it should not be treated as in default for non-deduction of tax at source from these payments. The assessee contended that the payments to foreign lead managers were on account of subscription and hence could not be considered as consideration for rendering any technical and consultancy services. The assessee argued that the services rendered by the lead managers were in the nature of financial/banking services and were not technical services. The Assessing Officer did not agree with the submissions advanced on behalf of the assessee, and the order was substantially upheld by the Commissioner of Income Tax (Appeals), resulting in the assessee approaching the Income Tax Appellate Tribunal.

Conclusion:
The High Court upheld the Tribunal's view on the point of limitation, agreeing that the Tribunal's order does not suffer from any error of law apparent on the face of the record or perversity warranting interference in appellate jurisdiction. The High Court clarified that its order shall not have any impact on the appeal filed by the assessee pending before it and expressed no opinion on the merits of the impugned deductions/claims in that regard. The appeal was dismissed without any order as to costs.

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