2021 (4) TMI 1173 - HC - Income Tax

Default u/s 201(1) and 201(1A) - Petitioners submits that impugned order is misconceived, untenable and grossly delayed and is barred by limitation - HELD THAT - As respondents submits that insofar as GIA US is concerned, while the tribunal had held that GIA US has no permanent establishment in India and the Revenue has preferred an appeal in these writs and the same is pending. With regard to the submission on behalf of the Petitioners about limitation, he submits that the limitation for passing order under Section 201 is governed by Section 201(3) therefore, submits that the notice dated 08.03.2021 is within the prescribed period of limitation of seven years as above. As submitted on behalf of the petitioners that the Respondents have not been able to show, as to how this provision would hold the present facts and circumstances when reference herein is to payment to non-residents and not to residents as contemplated in the said sub-section. In view of aforesaid, prima facie, there appears to be some substance in the Petitioners submissions. Hence, rule. Rule is made returnable early. Put up the matters for hearing in the 2nd week of July, 2021. In the meanwhile, there shall be no coercive action pursuant to impugned order/notices.

Summary

Issues:
1. Impugned order dated 31.03.2021 alleged non-deduction of tax by Petitioners for financial year 2014-15.
2. Delay in passing the order and limitation period for such orders.
3. Interpretation of Section 201(3) of the Income Tax Act regarding the limitation for deeming a person to be an assessee in default.
4. Dispute regarding the presence of a permanent establishment of GIA US in India.

Analysis:

1. The Petitioners argued that the impugned order dated 31.03.2021 was misconceived, untenable, and grossly delayed. They highlighted that show cause notices were issued in 2015, responded to promptly, and subsequent notices were also addressed. The Petitioners emphasized that they had no default under Section 201 of the Income Tax Act, as confirmed by the tribunal's findings. They also pointed out the lack of assessment orders against them and requested a personal hearing, which was not granted before the order was passed.

2. The Petitioners contended that the delay in passing the order, despite responses submitted in 2015, was unreasonable. They referred to the decision in DIT v. Mahindra and Mahindra Ltd., which emphasized the completion of proceedings under Section 201(1) within a year from the initiation of proceedings. The Petitioners argued that even though Section 201 does not specify a time limit, actions must be taken within a reasonable time, as endorsed by previous court decisions.

3. The Respondents argued that the limitation for passing orders under Section 201 is governed by Section 201(3) of the Income Tax Act, which sets a time limit of seven years from the end of the financial year in which the payment is made. However, the Petitioners questioned the applicability of this provision to their case, as it pertains to payments to non-residents, not residents.

4. Regarding the dispute over the presence of a permanent establishment of GIA US in India, the tribunal had previously held that GIA US had no permanent establishment in India. However, the Revenue had appealed this decision, and the matter was pending. The Respondents argued that the notice dated 08.03.2021 fell within the prescribed period of limitation of seven years.

In light of the arguments presented, the Court found merit in the Petitioners' submissions and issued a rule, making the matter returnable early for further hearing in July 2021. Additionally, the Court ordered that no coercive action be taken pursuant to the impugned order or notices until the matter was resolved.