2018 (4) TMI 316 - AT - Income Tax

Default u/s 201/ 201(1A) - assessee in default - non deduction of tds - whether order passed beyond the time limit allowed u/s 201(3) - Held that - Order passed under section 201(1) and 201(1A) having been passed after expiry of two years from the financial year wherein the TDS statements were filed by the assessee under section 200 of the Act, is barred by limitation, hence, has to be declared as null and void. - Decided in favour of assessee.

Issues Involved:
1. Whether the assessee was an assessee in default for failing to deduct tax at source under section 194C of the Income-Tax Act, 1961.
2. Whether the order passed under section 201/201(1A) was barred by limitation under section 201(3).
3. Whether the demand raised by the DCIT (TDS) was valid despite the payees having included the receipt in their return of income and paid taxes thereon.
4. Whether the DCIT (TDS) should have calculated the amount of alleged TDS default at the rate prescribed under Section 206AA of the Act.

Issue-wise Detailed Analysis:

1. Assessee in Default for Failing to Deduct Tax at Source under Section 194C:
The assessee, an Indian company, was engaged in issuing meal and gift vouchers and smart cards to clients for their employees' benefits. These vouchers were used at affiliates across India. A survey under section 133A(2A) revealed that the assessee deducted tax at source only for payments made to caterers, not other affiliates. The Assessing Officer issued a notice to the assessee to show cause for non-deduction of tax at source on payments made to affiliates. The assessee argued that section 194C did not apply as the agreements with affiliates were not in the nature of contracts contemplated under section 194C. However, the Assessing Officer did not accept this argument and held the assessee as an assessee in default under section 201(1) and 201(1A), raising a demand for tax and interest.

2. Order Passed under Section 201/201(1A) Barred by Limitation:
The assessee contended that the order under section 201(1) and 201(1A) was barred by limitation as per section 201(3). The pre-amended provision of section 201(3) prescribed a limitation period of two years from the end of the financial year in which the TDS statement was filed. The assessee argued that by the time the show cause notice was issued, the two-year period had expired. The Commissioner (Appeals) upheld the validity of the order, stating that the amendment to section 201(3) by Finance Act, 2014, which extended the limitation period to seven years, applied retrospectively. However, the Tribunal disagreed, noting that the amendment did not explicitly state retrospective application. Citing judicial precedents, the Tribunal held that the amended provision did not apply retrospectively and declared the order under section 201(1) and 201(1A) as null and void due to being time-barred.

3. Demand Validity despite Payees Including Receipt in Return of Income:
The assessee argued that no tax could be recovered from them since the payees (affiliates) had included the receipt in their return of income and paid taxes thereon. However, this issue was not adjudicated upon by the Commissioner (Appeals) as the decision was primarily based on the limitation aspect of the order under section 201(1) and 201(1A).

4. Calculation of TDS Default at Rate Prescribed under Section 206AA:
The Commissioner (Appeals) observed that the DCIT (TDS) should have calculated the amount of alleged TDS default at the rate prescribed under Section 206AA. However, since the Tribunal decided the appeal on the issue of limitation, it did not delve into the merits of this issue.

Conclusion:
The Tribunal concluded that the order passed under section 201(1) and 201(1A) was barred by limitation and declared it null and void. The merits of the applicability of section 194C were not addressed, leaving them open for future consideration if they arise in another assessment year. The assessee's appeal was partly allowed.

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