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TMI Blog2016 (12) TMI 1601X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner’s contention in the present case is based on precedent. Furthermore, the only reason cited by the respondent, i.e. administrative convenience, cannot outweigh the harsh nature of the consequence, which would expose resident payers to the onerous responsibility of maintaining books and documents for an uncertain period of time. Given these considerations, the impugned notices are quashed. The writ petition is allowed in these terms - W.P.(C) 2166/2012 - - - Dated:- 19-12-2016 - MR. S. RAVINDRA BHAT MS. DEEPA SHARMA JJ. Petitioner Through: Sh. Ajay Vohra, Sr. Advocate with Sh. Somnath Shukla, Advocate. Respondents Through: Sh. Rahul Chaudhary, Sr. Standing Counsel with Sh. Raghvendra Singh, Jr. Standing Counsel and Sh. Anup Kumar Kesari, Advocate. MR. S. RAVINDRA BHAT 1. The Petitioner, a telecommunications service provider, engaged the services of both domestic (resident) and foreign (non-resident) entities for providing interconnections to its users. The purview of this petition is restricted to the payments made to non-residents . In engaging the nonresident entities for interconnections, some charges were accrued - which were paid by the Petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 201 (3) did not prescribe a period of limitation, in respect of payments made to both domestic and foreign entities, recourse to the provision by issuing Show Cause Notice could be made within reasonable time. Similar judgments, reported as Commissioner of Income tax v C.J International Hotel (P) Ltd [2015] 372 ITR 684 (Del) and Vodafone Essar Mobile Services Ltd. v Union of India 2016 (385) ITR 436 (Del) are relied upon. 5. Mr. Vohra, learned senior counsel, argued that the decisions of this court, made a clear distinction between the period of limitation for initiation of proceedings on the one hand and limitation for completion of proceedings. The Court, after scrutinizing various limitation periods prescribed under Sections 147/148 and 153 of the Act, concluded that if there is a time limit for completing the assessment, then the time limit for initiating the proceedings must be the same. It was submitted that the reasoning in those decisions has not been disturbed and the amendment made in 2010 only reiterated that the power to issue Show Cause Notice is to be exercised within a defined time limit. Therefore, the fact that the amendment was made after the decisions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not less. Nevertheless, the Tribunal has given a greater period for commencement or initiation of proceedings. 8. The revenue relied on Bharat Steel Tubes Ltd. v. State of Haryana 70 STC 122 (SC) and stated that the absence of any period of limitation in respect of non-resident remitters meant that Parliament made a conscious distinction between resident and non-resident beneficiaries, based on good reasons. It was submitted that there is sound rationale for such distinction because in the case of remittances to non-residents, the true nature of the transaction and whether deductions are to be made because income arises within the country or not cannot be easily gathered. The remitters often times resident entities are not always forthcoming in disclosing particulars, the details of which or the true picture of which may be discernable later. Advisedly, Parliament did not prescribe any time limit for exercise of powers in respect of such transactions. It was argued that besides, NHK Broadcasting (supra) was decided in relation to cases after 1st April, 2010 and that the decision of this Court in CJ International (supra) did not examine the true import of the amended prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra) and the ruling that followed it, i.e. Commissioner of Income Tax v Hutchison Essar Telecom Ltd, [2010] 323 ITR 230 (Del) to submit that proceedings under Section 201 cannot be initiated beyond the period of four years. The revenue characterises this position as untenable since the two cases did not make a distinction between payments made to residents and non-residents. The Statement of Objects and Reasons of the Finance (No. 2) Bill, 2009 in relation to the amendment to Section 201 of the Act read as follows: Sub-clause (b) of clause 65 seeks to provide time limit for passing of order under sub-section (1) of section 201 in case of resident tax payers. It provides that no order shall be made under sub-section (1) of section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tratively possible to recover the tax from the non- resident. It is proposed to make these amendments effective from 1st April, 2010. Accordingly it will apply to such orders passed on or after the 1st April, 2010. 12. When NHK Japan (supra) and Hutchinson (supra) were decided, the amendment was not brought about and therefore the issue of existence of a period of limitation, did not arise. The court therefore, considered, on the basis of available authority, that a four year period was reasonable period as the outer limit for issuance of notice under Section 201. However, in the present case, Parliament consciously amended the Act. In doing so, it prescribed a limitation only for residents. Instead of actively barring the applicability of the provision on non-residents, did the Parliament choose to passively do so by remaining silent on non-residents and only amending the provision, for residents. The question is, whether the petitioner is right in contending that if the Act does not specify a time period, then a reasonable time period should be read into the Act. This contention is based on judgements which were delivered when the Legislature had not made a distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s contentions. The Court had then ruled as follows: 9. More recently in CIT v. Calcutta Knitwears [2014] 362 ITR 673 , 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 the erst while section 158BD of the Act which did not prescribe the period of limitation and left it to the discretion of the Assessing Officer to decide on being satisfied that such proceedings were required to be initiated, the court limited such discretion in the following terms (page 691 of 362 ITR): 44. In the result, we hold that for the purpose of section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the Assessing Officer before he transmits the records to the other Assessing Officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages : (a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act ; (b) along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 finding or direction contained in an order under section 250, 254, 260, 262, 263 or 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act. 21. In the first place, what the said provision does is to not apply the time limit of two years for completing the assessment from the end of the financial year where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , provide for deduction of tax in respect of any amount referred to in the specified provisions. In none of the provisions we find the expression sum chargeable under the provisions of the Act , which as stated above, is an expression used only in section 195(1). Therefore, this court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. Section 195(2) is not merely a provision to provide information to the Income-tax Officer (TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a non-resident. Therefore, section 195 has to be read in conformity with the charging provisions, i.e., sections 4, 5 and 9. This reasoning flows from the words sum chargeable under the provisions of the Act in section 195(1). The fact that the Revenue has not obtained any information per se cannot be a ground to construe section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read section 195, as suggested by the Department, na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sum, i.e., the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments, the payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words chargeable under the provisions of the Act to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, section 195(2) provides a remedy by which a person may seek a determination of the appropriate proportion of such sum so chargeable where a proportion of the sum so chargeable is liable to tax. The entire basis of the Department's contention is based on administrative convenience in support of its interpretation. According to the Department, huge seepage of revenue can take place if persons making payments to nonres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it would be open to the Assessing Officer to disallow such claim for deduction. Similarly, vide the Finance Act, 2008, with effect from April 1, 2008, sub-section (6) has been inserted in section 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. This provision is brought into force only from April 1, 2008. It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage. 17. In this court s view, therefore, since Vodafone Essar (supra) considered the entire issue and noted that even recently a reasonable period was read into the Act, in relation to exercise of powers (although in a different context) accepting the petitioner s contention in the present case is based on precedent. Furthermore, the only reason cited by the respondent, i.e. administrative convenience, cannot outweigh the harsh nature of the consequence, which would expose resident payers to the onerous responsibility of maintaining books and documents for an uncertain period of time. Given these ..... X X X X Extracts X X X X X X X X Extracts X X X X
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