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TMI Blog2016 (8) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... . The common question that arises for consideration in these writ petitions concerns the validity of the action initiated by the Respondent Income Tax Department ('Department') against the Petitioners under Sections 201(1) and 201(1A) of the Income Tax Act, 1961 ('the Act') for non-deduction of tax at source ('TDS') for periods earlier than four years prior to 31st March, 2011. These petitions in turn involve the interpretation of the proviso to sub-section (3) of Section 201 of the Act, which was inserted with effect from 1st April, 2010. 2. Although the facts of these cases are more or less similar, the facts pertaining to Tata Teleservices Limited ('TTSL'), the Petitioner in WP (C) No. 8642/2011, are first discussed. TTSL is a company registered under the Companies Act, 1956, engaged in the business of providing telecommunication services across the country. TTSL has a central office in New Delhi. It provides post-paid and pre-paid telecommunication services for which it entered into agreements with various channel partners (distributors). In the pre-paid segment, TTSL sells products such as Recharge Coupon Vouchers (RCVs) and Starter Kits to channel partners. The RCVs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich introduced sub-section (3) with effect from 1st April, 2010] did not contain a provision stipulating a time limit for initiation of the proceedings thereunder. The said provision reads as under: "Consequences of failure to deduct or pay. 201. (1) Where any person, including the principal officer of a company,- (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192 , being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax. (1A)Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the AY in which income was first assessable. It also noted that the ITAT had in a series of decisions taken the view that four years would be a reasonable time for initiating action, in case where no limitation is prescribed. In CIT vs. NHK Japan Broadcasting Corporation (supra), the ITAT had applied the same aspect and reversed the decision of the CIT(A). This Court then held as under: "21. We are not inclined to disturb the time limit of four years prescribed by the Tribunal and are of the view that in terms of the decision of the Supreme Court in Bhatinda District Co-op. Milk Producers Union Ltd. [2007] 9 RC 637; 11 SCC 363 action must be initiated by the competent authority under the Income Tax Act, where no limitation is prescribed as in Section 201 of the Act within that period of four years." 9. It was further observed in CIT vs. NHK Japan Broadcasting Corporation (supra) as under: "25. We may also note that under Section 191 of the Act, the primary liability to pay tax is on the person whose income it is that is the deductee. Of course, a duty is cast upon the deductor, that is the person who is making the payment to the deductee, to deduct tax at source but if he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 201, deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax in the case of a person resident in India, at any time after the expiry of two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been filed. It further provides that in any other case such order shall not be made at any time after four years from the end of the financial year in which payment is made or credit is given. It further provides that such order for a financial year commencing on or before 1st day of April, 2007 may be passed at any time on or before the 31st day of March, 2011. The sub-clause also provides that the provisions of sub-clause (ii) of sub-section (3) of section 153 and of Explanation 1 to section 153 shall, so far as may apply to the time limit prescribed in proposed sub-section (3) of section 201." 13. There was a memorandum explaining the provisions of Finance (2) Bill, 2009, which was in the form of a circular issued by the Central Board of Direct Taxes (CBDT), which reads as under: "f. Providing time limits for passing of orders u/s 201(1) holding a person to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ault even in respect of alleged failure to deduct TDS for a period more than four years earlier to 31st March, 2011. 16. This question, after the amendment to Section 201 of the Act brought about by the Finance (No. 2) Act, 2009 with effect from 1st April, 2010 came up for consideration by this Court in ITA No.57/2015 [CIT (TDS)-I v. CJ International Hotels Pvt. Ltd.]. One of the questions addressed by the Court in the said case in its judgement dated 9th February, 2015 concerned the initiation of proceedings against the Assessee for declaring an Assessee to be an Assessee in default. The discussion in the said judgement on this issue is contained in paras 6 to 10, which read as under: "6. It is evident from the above discussion that the assessee was sought to be proceeded against Section 201 as one in default, after the period of four years. This Court is conscious that the text of the provision nowhere limits the exercise of powers. Equally, there are several provisions of enactment, i.e., Sections 143 (2), 147, 148 and 263, and even through introduction of specific provisions in Section 153 of the Act, where the time limit is specifically prescribed. At the same time, this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would depend upon the nature of the statute, rights and liabilities thereunder and other relevant factors. 18. Revisional jurisdiction, in our opinion, should ordinarily be exercised within a period of three years having regard to the purport in terms of the said Act. In any event, the same should not exceed the period of five years. The view of the High Court, thus, cannot be said to be unreasonable. Reasonable period, keeping in view the discussions made hereinbefore, must be found out from the statutory scheme. As indicated hereinbefore, maximum period of limitation provided for in Sub-section (6) of Section 11 of the Act is five years." 9. More recently in Commissioner of Income Tax-III v. Calcutta Knitwears, Ludhiana (2014) 362 ITR 673 (SC), the Supreme Court had the occasion to deal with the correct position in law as to the initiation of income tax proceedings. Although, the context of the dispute was in respect of recording of a satisfaction note as to the initiation of proceedings against third parties under erstwhile Section 158BD of the Act which did not prescribe the period of limitation and left it to the discretion of the AO to decide on being satisfied that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the learned Senior Standing Counsel for the Revenue, however, seeks to advance a different line of argument. According to him the action taken by the Department was pursuant to a decision in CIT v. Idea Cellular Ltd. (2010) 325 ITR 148 (Del) where the amounts paid to the channel partners for the pre-paid cards and other products was held to be 'commission' by the Court within the meaning of Section 194H of the Act. It is stated that it is consequent upon the said decision that the Department issued the impugned notices to these Petitioners and that this was permissible in terms of Section 153(3)(ii) of the Act. 20. The above submission of Mr. Shivpuri cannot be accepted if Section 153 is perused carefully. It reads as under: "153. Time limit for completion of assessments and reassessments ...... (3) The provisions of sub- sections (1), (1A), (1B) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, subject to the provisions of sub- section (2A), be completed at any time- ...... (ii) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be an Assessee in default for a period earlier than 31st March, 2011. 24. The Court is unable to agree with the above submission of Mr. Shivpuri. As the Court sees it, its decision in NHK Japan Broadcasting Corporation(supra) deals precisely with the situation where proceedings were sought to be initiated more than four years prior to 31st March, 2011. That law explained in NHK Japan Broadcasting Corporation (supra) has not changed by the introduction of proviso to sub-section (3) to Section 201 by the Finance (No. 2) Act, 2009. Mr. Shivpuri was unable to explain how the Circular No.5 of 2010 issued by the CBDT is not favourable to the Petitioners. With reference to the expression "pending cases", in respect of which orders have to be passed in terms of the proviso to Section 201(3) before 31st March 2011, Mr. Shivpuri sought to suggest that the Circular has to be harmoniously construed with Section 201(3) of the Act to glean an intention to permit the Department to initiate cases four years earlier than 31st March, 2011. The only requirement was that orders had to be passed by 31st March, 2011. 25. The Court is unable to agree with this approach of the Department either. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nevertheless entitled to considerable weight; it is highly persuasive." The validity of this rule was also recognised in Baleshwar Bagarti v. Bhagirathi Dass (1914) ILR 41 Cal 69 where Mookerjee, J. stated the rule in these terms: "It is a well-settled principle of interpretation that courts in construing a statute will give much weight to the interpretation put upon it, at the time of its enactment and since, by those whose duty it has been to construe, execute and apply it." and this statement of the rule was quoted with approval by this Court in Deshbandhu Gupta & Co. v. Delhi Stock Exchange Association Ltd. (1979) 3 SCR 373 It is clear from these two circulars that the Central Board of Direct Taxes, which is the highest authority entrusted with the execution of the provisions of the Act, understood sub-section (2) as limited to cases where the consideration for the transfer has been under- stated by the assessee and this must be regarded as a strong circumstance supporting the construction which we are placing on that sub-section. But the construction which is commending itself to us does not rest merely on the principle of contemporanea expositio. The two circulars of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ukerjee J. thus: 'It is a well-settled principle of construction that courts in construing a statute will give much weight to the interpretation put upon it, at the time of its enactment and since, by those whose duty it has been to construe, execute and apply it. I do not suggest for a moment that such interpretation has by any means a controlling effect upon the Courts; such interpretation may, if occasion arises, have to be disregarded for cogent and persuasive reasons, and in a clear case of error, a Court would without hesitation refuse to follow such construction." Of course, even without the aid of these two documents which contain a contemporaneous exposition of the Government's intention, we have come to the conclusion that on a plain construction of the notification the proviso permitted the closing out or liquidation of all outstanding transactions by entering into a forward contract in accordance with the rules, bye-laws and regulations of the respondent.'" 28. Circular 5 of 2010 of CBDT clarifying that the proviso to Section 201(3) of the Act was meant to expand the time limit for completing the proceedings and passing orders in relation to 'pending cases'. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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