1970 (6) TMI 7 - HC - Income Tax

Technical assistance and know-how received from foreign company for the erection of the petitioner s factory in India - remittances made by petitioner with deducting TDS - whether demand made from petitioner would be covered by the time-limitations prescribed in section 34(3)of Indian Income-tax Act, 1922

Summary

Issues:
1. Demand for tax in respect of past remittances to Japan.
2. Applicability of sections 18(3B), 18(7), 34(3), and 46 of the Income-tax Act, 1922.
3. Recovery proceedings under section 46(7) of the Income-tax Act, 1922.

Analysis:

1. Demand for tax in respect of past remittances to Japan:
The petitioner, a company, entered into an agreement with a Japanese company for technical assistance and "know-how." The Income-tax Officer demanded tax on remittances made to Japan and shares issued to the Japanese company. The petitioner challenged this demand, arguing that orders under section 18(3B) must be made within four years, citing a Bombay High Court decision. The court held that no demand could be made on the petitioner for past remittances as the four-year limit had expired.

2. Applicability of sections 18(3B), 18(7), 34(3), and 46 of the Income-tax Act, 1922:
The petitioner contended that under section 18(7), it could only be deemed an assessee in default if tax was not deducted at the time of payment. The court agreed, emphasizing that any order directing payment must be an assessment order made within the prescribed time frame. Additionally, recovery proceedings under section 46(7) could not be initiated after one year from the demand. The court highlighted the importance of adhering to the statutory timelines for assessments and recoveries.

3. Recovery proceedings under section 46(7) of the Income-tax Act, 1922:
The department argued that no recovery proceedings had commenced, merely a demand for tax payment. The court acknowledged that recovery proceedings could be initiated by the department, but in this case, the demand for tax on past remittances was premature. The court referenced a Madras High Court decision, stating that recovery proceedings commence with actions by the income-tax department. As no recovery proceedings had begun, the demand for tax was premature and barred under the relevant provisions.

In conclusion, the court dismissed the petitioner's challenge, noting that no recovery proceedings had been initiated by the Income-tax Officer. While the demand for tax was premature, the department retained the right to pursue recovery through other legal avenues. The court clarified the distinction between demand for tax and actual recovery proceedings, emphasizing the need to adhere to statutory timelines for assessments and recoveries.