2022 (2) TMI 235 - HC - Income Tax

Default u/s 201(1) and 201(1A) - period of limitation - TDS u/s 194H - payments towards supply of manpower and non deduction of taxes on payments made to distributors towards price protection and special price clearance discounts - whether section 201(1A)(3)(i) or (ii) of the Act would apply to the case of the assessee? - HELD THAT - It is well settled in law that limitation prescribed under the Act is not a mere period of limitation but the same imposes a fetter on the power of the assessing officer to take action under the said provision. See 'S.S.GADGIL VS. LAL CO. 1964 (4) TMI 19 - SUPREME COURT and 'K.M.SHARMA VS. ITO', 2002 (4) TMI 7 - SUPREME COURT . In the instant case, admittedly, the statement referred to u/s 200 of the Act has been filed. A finding of fact in this regard has been recorded by the Commissioner of Income Tax (Appeals) as well as by the Tribunal. The limitation of 2 years as prescribed in Section 201(1A)(3) of the Act as it existed prior to its substitution by Act No.2/2014 applies to the facts of the case. The limitation to pass an order under Section 201(1A) of the Act expired prior to Finance Act No.2/2014, which came into force with effect from 01.10.2014. Thus, a right accrued to the assessee and the subsequent amendment therefore, could not have revived the period of limitation and take away the vested right accrued to the assessee. Therefore, it is evident that the order passed under Section 201 of the Act dated 30.03.2016 is clearly barred by limitation. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 194H regarding tax deduction on payments made by the assessee.
2. Determination of the limitation period under Section 201 for passing orders related to tax deduction at source.
3. Application of the amended Section 201(1A)(3) of the Income Tax Act, 1961.

Issue 1: Interpretation of Section 194H
The appeal involved a dispute regarding the applicability of Section 194H of the Income Tax Act, 1961 to the assessee's payments for supply of manpower and to distributors for price protection and special price clearance discounts. The assessing authority held the assessee liable to deduct tax under Section 194H, but the Tribunal disagreed. The court analyzed the facts and found that the assessee had filed the necessary statement under Section 200 of the Act, impacting the limitation period for tax deduction. The court concluded that the order passed by the Assessing Officer was barred by limitation, thereby ruling in favor of the assessee on this issue.

Issue 2: Determination of Limitation Period under Section 201
The case involved a challenge to the order passed under Section 201 of the Act due to the limitation period for initiating proceedings. The Assessing Officer contended that the limitation period was seven years, while the assessee argued for a two-year limitation based on the existing law before an amendment in 2014. The court examined the relevant provisions and held that the limitation period of two years applied to the case, as the statement required under Section 200 had been filed by the assessee. Consequently, the court found that the order passed by the Assessing Officer in 2016 was time-barred, ruling in favor of the assessee on this issue as well.

Issue 3: Application of Amended Section 201(1A)(3)
The court considered the impact of the amendment to Section 201(1A)(3) of the Act, which altered the limitation period for deeming a person in default for tax deduction failures. The court clarified that the limitation period in force before the amendment applied to the present case, as the assessee had fulfilled the necessary requirements under the previous law. The court emphasized that the amendment could not retroactively affect the limitation period or negate the vested rights of the assessee. Consequently, the court dismissed the appeal, ruling in favor of the assessee on all substantial questions of law raised in the case.

In conclusion, the Karnataka High Court, in a judgment delivered by Hon'ble Mr. Justice Alok Aradhe and Hon'ble Mr. Justice Suraj Govindaraj, dismissed the appeal filed by the revenue under Section 260-A of the Income Tax Act, 1961. The court ruled in favor of the assessee on the issues related to the interpretation of Section 194H, determination of the limitation period under Section 201, and the application of the amended Section 201(1A)(3) of the Act. The court held that the orders passed by the Assessing Officer were time-barred and that the assessee was not liable for tax deductions as claimed by the revenue.