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2022 (8) TMI 1360 - AT - Income TaxTDS u/s 195 - demand u/s 201(1) and 201(1 A) - period of limitation - assessee is a wholly owned subsidiary of Google International LLC, US - assessee is appointed as a non-exclusive authorized distributor of Adword Programs to the advertisers in India - distribution fees payable to GIL be regarded as royalty under the Act and consequently proceeded for withholding of tax deduction at source - HELD THAT - We notice that show cause notice to initiate proceedings u/s. 201(1) is issued on 20.11.2012 which is beyond four years with respect to assessment years 2007-08 2008-09 As the period of four years from the end of the financial year in which payment is made or credit is given, expires on 31.03.2012 whereas the notice is issued by the AO on 20.11.2012. Therefore we hold that the orders of the AO passed u/s. 201(1) 201(1A) of the Act are barred by limitation and hence quashed. Decided in favour of assessee.
Issues Involved:
1. Violation of principles of natural justice. 2. Classification of payments as 'royalty' under the Income-tax Act. 3. Limitation period for passing orders under Section 201(1) and 201(1A) of the Income-tax Act. Detailed Analysis: 1. Violation of Principles of Natural Justice: The Hon'ble High Court of Karnataka observed that the Tribunal's order was violative of the principles of natural justice and fair play. The material on which the order was based was not furnished to the appellant, denying them an opportunity to rebut fresh evidence. The High Court emphasized that the details of the material were not reflected in the Tribunal's order, necessitating a remand for fresh adjudication in accordance with the law. 2. Classification of Payments as 'Royalty': The assessee, a wholly-owned subsidiary of Google International LLC, US, engaged in providing IT and ITeS to its group companies, entered into a Google Adword Program Distribution Agreement with Google Ireland Ltd. (GIL). The assessee argued that it was merely a reseller of advertising space and had no access or control over the infrastructure or process involved in rendering the Adword Program. Consequently, the sums paid were not chargeable to tax under the Double Taxation Avoidance Agreement (DTAA). However, the Assessing Officer (AO) issued a notice under Section 201(1) of the Income-tax Act, treating the distribution fees payable to GIL as 'royalty' and proceeded with withholding tax deduction under Section 195. 3. Limitation Period for Passing Orders under Section 201(1) and 201(1A): The preliminary issue of whether the orders under Sections 201(1) and 201(1A) were barred by limitation was raised. The notice issued for AYs 2007-08 and 2008-09 was beyond the time limit specified in sub-section (3) of Section 201, i.e., beyond four years from the end of the financial year in which payment was made or credit was given. The Tribunal, referencing the case of Mphasis Ltd. v. DDIT (IT), held that orders passed beyond the four-year period were barred by limitation and thus quashed. Tribunal's Findings: The Tribunal found that the show cause notice to initiate proceedings under Section 201(1) was issued on 20.11.2012, beyond the four-year limitation period. Citing the decision in Mphasis Ltd., the Tribunal held that the orders under Sections 201(1) and 201(1A) were barred by limitation and quashed them. The Tribunal also noted that since the order under Section 201(1) was void ab initio, the levy of interest under Section 201(1A) became infructuous. Conclusion: The appeals were allowed, and the orders of the AO under Sections 201(1) and 201(1A) were quashed on the grounds of being barred by limitation. The other grounds on merits were rendered infructuous and did not require separate adjudication. Pronouncement: The judgment was pronounced in the open court on the 10th day of August, 2022.
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