9911796707
TMI Blog2012 (4) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... sessees and all necessary offer documentation to be distributed to potential investors, preparation of road shows, presentation, formulating the marketing strategy, marking and distributing the issue, arranging for listing in the London stock exchange. The issue was led by Jardine Fleming Intl. Inc. (Lead Manager) and Citibank Intl. plc. ,Merrill Lynch Intl. Ltd., Morgan Stanley & Co. ( Co-Leads) and Kotak Mahindra (UK) Ltd. (Manager) (herein after referred to as Manager's to the issue.) For the marketing and distribution and preparation of the documentation to potential investors, the assessee by way of a Subscription Agreement dt. 21st July, 1996, entered into with the Managers' to the issue agreed to pay 3% comprising of Management and Underwriting Commission 1% and Selling Commission 2% to be shared between themselves as mutually agreed by them and to reimburse the Lead Manager for its out of pocket expenses incurred on the aforesaid issue subject to a ceiling of US$ 3,30,000. 2.1 The Subscription Agreement envisaged issue of 6,220,000 GDRs (firm GDRs) and an option to issue additional 393750 GDRs (optional GDRs). The assessee had a successful GDR issue with nine times over su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th applicable grossing up, worked out to Rs. 3,29,40,882/-. From the closing date till March, 1999 there were 31 completed months. This tax was payable on 10/7/1996 but remained unpaid till date. Accordingly, interest u/s. 201(1A) was worked out at a sum of Rs. 1,27,6,4,692/-. The Assessee was accordingly directed to pay Rs. 4,57,05,474/- . 5. All the orders i.e. order u/s.195 and order u/s. 201(1) and the order u/s. 201(1A) were all passed on 30/3/1999. The assessee preferred three appeals before the CIT(A) namely Appeal No.73/99-2000 against the order u/s. 195 of the I.T. Act dated 30/3/1999. Appeal No.74& 75/99-2000 were preferred against the order u/s. 201(1) & 201(1A) of the I.T. Act dt. 30.3.1995. The issue involved in all the orders was identical. The CIT(A) passed a common order dated 22/2/2000, which is the order impugned in all these three appeals. The CIT(A) framed the following points for consideration. 1. Maintainability of appeal under section 201; 2. Accrual of Income; 3. No payment So no TDS; 4. It is a direct sale and hence nothing is taxable; 5. Are these services rendered Technical, Managerial, Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the income is chargeable to tax or not. On the question of applicability of DTAA, the CIT(A) held that since the assessee did not deduct tax at source u/s. 195 of the Act the question of examining the issue from the DTAA angle did not arise for consideration. For all the above reasons the orders passed by the AO were upheld by the CIT(A), giving rise the present appeals by the assessee before the Tribunal. 7. In the original grounds of appeal the assessee has challenged the applicability of the payments made by it to the Lead Managers or non-resident on the ground that the same was not in the nature of fees for technical services either under the Act or under the DTAA and, therefore, there was no obligation to deduct tax at source on the payments made to the Lead Managers. The assessee has also filed an application for admission of the following additional ground of appeal in all the three appeals. "As no action has been taken by the Department against the payees and time for taking such action has expired, no order under sections 195, 201(1) or 201(1A) can be passed." 8. In the application for admission of the additional ground of appeal the assessee has submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person failing to deduct the tax at source. (iv) Where no time limit is prescribed for taking an action under the statute, the action can be taken only within a reasonable time by harmoniously considering the scheme of the Act. (v) Tax recovery proceedings are initiated only after the passing of order under section 201(1) and that too if the person responsible fails to comply with notice of demand under section 156. (vi) The order under section 201(1) is akin to the assessment order, "Assessment" includes reassessment. (vii) The time limit for initiating the proceedings under section 201(1) cannot be the same as that for the passing of order under this sub-section. Time for initiation is always prior to the time for completing the proceedings. (viii) The reasonable time for initiating and completing the proceedings under section 201(1) has to be at par with the time limit available for initiating and completing the reassessment as the assessment includes reassessment. (ix) The maximum time limit for initiating the proceedings under section 201(1) or (IA) is the same as prescribed under section 149 i.e. four years or six years from the end of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd and does not require investigation of fresh facts and therefore can be admitted for adjudication by the Tribunal, even if raised before the Tribunal for the first time. 10. The ld. D.R has however objected to the admission of the addition ground of appeal. It was pointed out by the ld. D.R that the Hon'ble Karnataka High Court in the case of CIT v. Samsung Electronic Co. Ltd. [2009] 185 Taxman 313 has taken the view that in proceedings u/s. 195 the determination of the tax liability of a non-resident cannot be gone into and, therefore, the additional ground would not arise for consideration at all. On this argument it is noticed that the Hon'ble Supreme Court in the case of GE India Technology Cen. (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234 has since reversed the decision of the Hon'ble Karnataka High Court. Resultantly, the question whether the payments made to the non-resident were taxable or not can be decided in the proceedings u/s. 195 as well as 201(1) and 201(1A) of the Act. 11. As far as the additional ground of appeal raised by the assessee is concerned we find that Hon'ble Special Bench of ITAT in the case of Mahindra & Mahindra Ltd. (supra) has held that an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... left to the Revenue for making the assessment of the non-resident, ex-consequenti, no lawful order can be passed against the assessee either under section 201(1) or (1A). We therefore hold that in the facts and circumstances of the present case, the order passed under section 195 read with section 201(1) or (1A) of the Income-tax Act,1961, is invalid. 12. We also find that the Hon'ble Delhi High Court in the case of CIT v. N H K Japan Broadcasting Corpn. [2008] 305 ITR 137/172 Taxman 230 considered the following question of law viz., Whether the Income-tax Appellate Tribunal was correct in law in holding that the orders passed under section 201(1) and 201(1A) of the Income-tax Act, 1961, are invalid and barred by time having been passed beyond a reasonable period ? The Hon'ble Court noticed that section 201 of the Act does not prescribe any limitation period for the assessee being declared as an assessee in default. The Hon'ble Court agreed with the conclusions of the Tribunal that the initiation of proceeding against the assessee in treating it as in default, were required to be initated within a reasonable period. The Hon'ble Court held that a duty is cast upon the person liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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