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1969 (2) TMI 59 - HC - Income TaxAssessee is a resident-company - failure to deduct tax from the payment made to a non-resident - order u/s 18(7) passeddeeming the assessee to be an assessee in default - person who is to deduct the tax at the time of making payment to a non-resident is not an agent and is not deemed to be an assessee for all the purposes of IT Act - such order cannot be treated as assessment order - period of limitation prescribed u/s 34(3) not applicable to impugned order
Issues Involved:
1. Whether the order of the Income-tax Officer under section 18(7) of the Indian Income-tax Act, 1922, was barred by limitation under the provisions of section 34(3) of that Act. Detailed Analysis: 1. Nature of the Payment and Tax Deduction: The assessee, a resident company, paid Rs. 32,500 to a non-resident U.K. company for renting space at the Indian Industries Fair in 1955. The Income-tax Officer deemed the assessee to be in default under section 18(7) of the Indian Income-tax Act, 1922, for not deducting income-tax and super-tax from this payment. The Appellate Assistant Commissioner annulled this order, reasoning that the payment was rental income and not taxable trading receipts. However, the Tribunal upheld the annulment on the grounds of limitation, not on the nature of the income. 2. Limitation Under Section 34(3): The core issue was whether the order under section 18(7) was barred by limitation under section 34(3), which prescribes a four-year period for making an assessment or reassessment. The Tribunal dismissed the departmental appeal, stating that the order, made on July 17, 1961, was beyond the four-year limit from the end of the assessment year 1956-57. 3. Legal Fiction and Assessment: Counsel for the assessee argued that an order under section 18(7) is a composite order involving the computation of income and determination of tax, thus constituting an assessment. The argument relied on legal fictions and precedents, suggesting that if a person is deemed an assessee in default, it implies an assessment has been made. 4. Purpose and Scope of Section 18(7): The court emphasized that legal fictions should be limited to their specific purposes. The purpose of section 18(7) is to recover tax from a person responsible for deducting it under section 18(3B). The court noted that liability to pay tax under section 18(7) arises from the order itself, not from a statutory charge, distinguishing it from an assessment. 5. Supreme Court Precedents: The court referred to Supreme Court judgments to clarify that not all orders involving tax computation are assessments. Orders under sections like 18A(1) and 35(9) involve tax liability but are not assessments. The liability under section 18(7) arises from the Income-tax Officer's order, not a statutory charge, thus it is not an assessment. 6. Comparison with 1961 Act: The court noted that section 201 of the 1961 Act, similar to section 18(7) of the 1922 Act, also uses the term "deemed to be an assessee in default." However, section 246(1) of the 1961 Act explicitly provides for appeals against orders under section 201, indicating that such orders are not considered assessments. 7. Appeal Provisions: The court discussed the limited right of appeal under section 30(1A) of the 1922 Act for those denying liability to deduct tax. The existence of an appeal process does not transform an order under section 18(7) into an assessment. 8. Contextual Interpretation: The court emphasized the need to interpret section 18(7) within its context, distinguishing it from assessment provisions under sections like 42. The duty to deduct tax under section 18(3B) does not equate to an assessment. 9. Supreme Court Observations: The court cited the Supreme Court's observations in cases like Aggarwal Chamber of Commerce Ltd. and Kalawati Devi Harlalka, which differentiate between tax deduction obligations and assessments. Conclusion: The court concluded that an order under section 18(7) is not an order of assessment. Consequently, the limitation period under section 34(3) does not apply. The answer to the referred question was in the negative, meaning the Tribunal was correct in holding that the order was not barred by limitation. Question answered in the negative.
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