2018 (4) TMI 991 - AT - Income Tax

TDS u/s. 195 - assessee in default - order passed u/s. 201(1) and 201(1A) as barred by limitation - Held that - The assessee was liable for withholding tax u/s. 195 of the Act in respect of payment made by it for managerial services fees. In the instant case the financial year concerned is 2006-2007 and notice for initiating proceedings u/s 201(1) / 201(1A) was issued on 30.04.2014 i.e. more than seven years from the end of the financial year. The orders u/s 201(1) / 201(1A) was finally passed on 30.05.2016 which is more than eight years from the end of the financial year. Therefore it cannot be stated in facts of this case the order u/s 201(1) / 201(1A) was passed within a reasonable time and the prescription of limitation mentioned u/s 201(3) and (4) - the order passed u/s 201(1)/ 201(1A) was barred by limitation in the facts and circumstances of the case. - Decided in favour of assessee

Summary

Issues:
1. Liability for tax deduction at source u/s. 195 of the I.T. Act regarding managerial services fees paid to a non-resident company.
2. Whether the order passed u/s. 201(1) and 201(1A) of the Act for the assessment year 2007-08 was barred by limitation.

Analysis:

Issue 1:
The appellant, a software development services company, paid managerial service fees to its affiliate UST Global Inc., USA without deducting tax at source under section 195 of the I.T. Act for the assessment year 2007-08. The Assessing Officer held the appellant liable for withholding tax u/s. 195 of the Act, leading to an order u/s. 201(1) and 201(1A) of the Act. The CIT(A) upheld the order, citing previous Tribunal decisions. The Tribunal concurred, holding the appellant liable for tax deduction at source u/s. 195 for the managerial services fees paid to UST Global Inc., USA.

Issue 2:
The appellant contended that the order u/s. 201(1) and 201(1A) of the Act was barred by limitation, beyond the six-year period from the transaction's financial year end. The CIT(A) disagreed, stating that the time limit under section 201(3) does not apply to non-resident payees. The Tribunal analyzed legal precedents, including the Mahindra & Mahindra case, emphasizing the need for a reasonable time limit for passing such orders. Considering the timeline of events in this case, the Tribunal held that the order u/s. 201(1)/201(1A) was indeed barred by limitation and ruled in favor of the appellant. The Stay Petition filed by the appellant was dismissed as infructuous.

In conclusion, the Tribunal allowed the appeal of the assessee, holding them not liable for withholding tax u/s. 195 for the managerial services fees paid to a non-resident company and ruling that the order u/s. 201(1)/201(1A) for the assessment year 2007-08 was barred by limitation.