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TMI Blog2009 (4) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... 1996 and both the authorities below have passed one order in respect thereof. In view of these facts we will dispose of these appeals by a consolidated order. 2. The factual matrix of the case is as under: It was gathered by the Revenue authorities that the assessee came out with two Euro issues of the size of US $ 74.75 million and US $ 100 million in November, 1993 and July, 1996 respectively. The assessee was called upon to furnish the details in connection with the payments made to various non-resident persons who were connected with bringing out these Euro issues. From such details the Dy. CIT, TDS Circle, Mumbai-1 (hereinafter called AO) observed that M/s Banque Paribas was paid a sum of Rs. 8,21,00,838 as marketing and underwriting commission and selling commission. A further sum of Rs. 88,74,971 was paid as out-of-pocket expenses like travelling expenses, fee and disbursement of legal advisors, managers, telex, telephone etc. The details of these two Euro issues have been more elaborately recorded in the order passed by the AO under-so 195. As regards the first Euro issue, the company came out with an offering Circular dt. 30th Nov., 1993 offering 87,36,559 global depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rency resources from international market for upgradation of its Indian operations, which was permitted by the Government of India subject to certain conditions. After scrutinizing the material before him, the AO proceeded to examine the applicability of s. 9(1)(vii) of the Act to see if technical, managerial or consultancy services were rendered by the lead managers in both these issues by assisting, managing and underwriting. He considered the nature of services rendered by the lead managers. It was noted that the lead managers were closely associated with all the aspects of bringing out the Euro issues including the fixing of the price of the issue, analyzing the accounting results and resource basis of the company with a view to find out the strengths and weaknesses of the company, presenting them in proper format, updating the accounting results of the assessee in tune with international audit practices, getting them printed, putting up road shows and in totality marketing the issue successfully. These activities, in the opinion of the AO, required vast pool database of information about the potential investors, global trends of the investing institutions which was a very spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approvals given by the Government of India to the assessee were for giving management, underwriting and, selling commission together at 3.5 per cent without any further bifurcation. The lead managers were acting as advisors and consultants because of the nature of services rendered by them involving them at every stage right from the point of working out the market price of the shares to marketing of the Euro issue including road shows. GDRs were to be sold to the third parties in which the lead managers were only helping agents. Had this been a simple case of selling and buying the GDR, there was no need for the lead managers to waste their time, expertise and resources on arriving at the aggregate market price of Euro issue as well as subsequently putting up roads shows ensuring the effective sale of GDRs. They were not out to purchase the bulk of the Euro issue but were entitled to their commission although a part of it was to be purchased by them only in the exigency of it not fully subscribed. Hence it was not a case of selling and buying of GDRs. Persons from the office of the lead managers and other non-resident payees did indeed come to India in the run upto the issue of GD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per s. 9(1)(vii). The language of this section was found identical to art. 13 of the DTAA. Even the exceptions mentioned in s. 9(1)(vii) were not attracted in the instant case. The meaning of the phrase "make available" was to be appropriately considered. It was s. 9(1)(vii) and not s. 9(1)(i) which was attracted in the instant case and in the like manner art. 7 was not applicable whereas only art. 13 was to be considered as the latter article was a specific one independent of the nature of the former general article. 6. In the above backdrop of the facts, the AO held that the assessee was liable to deduct tax at source on the payments made by it to the non-resident lead managers. The closing date of the two Euro issues was held to be the date on which the tax was deductible. The total payment including reimbursement of expenses, fees to the lead managers and others was made on 14th Dec., 1993 (closing date) in respect of first issue totalling to Rs. 9.18 crores. The amount deductible on the payment/credit was calculated at Rs. 2.29 crores. Interest under s. 201(1A) was determined from the closing date till March, 1999 at Rs. 1.80 crores, thereby determining the total liability o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept that of the grossing up, which issue was restored to the AO for a fresh consideration. 9. Aggrieved by the said order the assessee filed present appeals. The following additional ground was raised on 18th May, 2006: "On the facts and in the circumstances of the case and in law, the order passed by the learned AO under s. 195 of the Act is void ab initio being barred by limitation." In the meantime the Revenue, vide its application dt. 30th Aug., 2006 approached the Hon'ble President of the Tribunal for constitution for a Special Bench under s. 255(3) of the Act for the consideration of the issue of limitation, which was raised by the assessee in additional ground. Acceding to the request of the Revenue, the Hon'ble President constituted Special Bench under s. 255(3) of the IT Act, 1961 (hereinafter called the Act) for deciding the following question and also disposing of these appeals: "Whether on the facts and the circumstances and in law an order under s. 195 r/w s. 201 of the IT Act, 1961 is barred by limitation within four years from the end of the relevant financial year in the absence of any express provision in the Act?" I. Objection to additional ground 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to raise a legal ground for the first time before the Tribunal provided the relevant material for deciding that question already exists on record and no further investigation of facts is required. The Hon'ble Supreme Court in National Thermal Power Co. Ltd. vs. CIT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC) has held that the power of the Tribunal in dealing with the appeals is expressed in the widest possible terms and the Tribunal has jurisdiction to examine the question of law which arises from the facts before the authorities below and having a bearing on the liability on the assessee even if such question was not raised before the authorities below. The Hon'ble Supreme Court in the case of Union of India Anr. vs. British India Corporation Ltd. Ors. (2004) 190 CTR (SC) 385 : (2004) 268 ITR 481 (SC) has held that: "The question of limitation is a mandate to the forum and irrespective of the fact whether it was raised or not, the forum must consider and apply on, if there is no dispute on the fact". From these judgments of the Hon'ble Summit Court, it transpires that it is not only the right of the parties but also the duty of the Tribunal to consider the question of li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in force. Sub-s. (2) of s. 195 states that where the person responsible for paying any such sum chargeable under this Act (other than interest on securities and salary) to a non-resident considers that whole of such sum would not be income chargeable in the case of recipient, he may make an application to the AO to determine, by general or special order, the appropriate proportion of sum so chargeable and upon such determination, the tax shall be deducted under sub-s. (1) only on that proportion of the sum which is so chargeable. The effect of sub-s. (2) is that where primarily the sum paid or credited to the account of 'the non-resident is chargeable under the provisions of the Act but the person responsible for paying considers that the entire sum would not be income chargeable in the case of recipient, he may make application to the AO for the determination of the appropriate proportion of such sum so chargeable and upon such determination, the tax shall be deducted on that proportion of the sum. In order to be covered within the purview of sub-s. (2) it is imperative that firstly there should be a sum chargeable under the provisions of this Act which is to be paid to the non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate and if the AO is satisfied then he shall issue the appropriate certificate. As a result of this certificate, the person responsible for paying shall either not deduct tax at source or make a deduction at lower rate on the sum paid or credited to the account of the non-resident in the light of certificate issued under s. 195 or 197. 11.3 In case the sum paid or credited by the person responsible to the account of the non-resident is otherwise chargeable under the provisions of this Act but neither the payer nor the recipient has got certificate from the AO under s. 195 or 197 for no deduction or lower deduction of tax at source, then it will be obligatory on such person responsible to deduct tax at source and after deducting pay it within the prescribed time to the credit of the Central Government or as the Board directs. If however such person responsible for paying a sum to non-resident does not deduct or after deducting fails to pay the tax as required under this Act, he or it shall subject to the provisions of Explanation to s. 191, be deemed to be an assessee in default in respect of the tax. This deeming provision has been enshrined in sub-s. (1) of s. 201. It, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty was within its jurisdiction to pass the order. In turn, the jurisdiction lies when all the conditions for exercising the power qua the action are satisfied. 12.2 The very idea of passing an order under s. 201(1) stands on the foundation of the presumption that there is a default in deducting the whole or any part of tax or after deduction there is a failure to pay such tax as required by or under this Act. So the precondition for having jurisdiction under this section is that there should be a default as referred to in s. 201(1) by which the person responsible is treated as assessee in default. The question of limitation for passing the order is subsequent to the question of jurisdiction. If the AO has jurisdiction to pass an order under s. 201 only then it can be decided whether such order passed is within the limitation period or not. If however there is no lawful jurisdiction with the AO for proceeding under s. 201(1), there cannot be any question of examining the limitation. As we have been called upon to answer the question of limitation on facts and 'in law', we will first proceed with the supposition that the AO had jurisdiction and there was obligation on the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Finance Act, 2008 with retrospective effect from 1st June, 2002 in which "if any such person referred to in s. 200" has been substituted with "where any person". He stated that it was only w.e.f. 1st June, 2002 that the person failing to deduct tax at source is brought within the ambit of s. 201 (1) as against the earlier position of roping in only the person who deducted the tax at source but did not pay to the exchequer. It was, thus stated that the Revenue authorities had erred in determining the liability of the assessee by treating it as assessee in default and further charging interest under s. 201(1A) of the Act inasmuch as s. 201(1) itself does not at all apply to it. In the opposition the learned Departmental Representative strongly opposed to the submission so made on behalf of the assessee and contended that s. 201(1) unequivocally applies to both the categories of the persons, that is, those who have not deducted the tax at source and also those who have failed to pay the same to the Government after deduction. 13.2. We have heard the rival submissions at length and perused the relevant material on record. The main thrust of the learned Authorised Representative's s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t source but fails to do so, he shall also be deemed to be an assessee in default under s. 201." 13.4. The memorandum explains the amendment in the following words at p. 224 of 298 ITR (St) : (2008) 215 CTR (St) 199. "Consequence of non-deduction of tax at source. Under s. 201, a person is deemed to be an assessee in default if there is a failure to deduct tax at source or for failure to deposit the TDS or for failure to deposit the TDS at source after such tax has been deducted. The persons covered under the ambit of s. 201 are; (i) person referred to in s. 200; (ii) the principal officer and the company of which he is the principal officer in the cases referred to in s. 194 relating to deduction of tax at source on dividends. Sub-s. (1) of s. 200 provides that any person deducting any tax at source on payments other than salary shall pay the sum so deducted to the Central Government or as the Board directs within the prescribed time. A view has been expressed that the provisions of sub-s. (1) of s. 201 do not cover failure to deduct tax at source. Such an interpretation is contrary to the intent of the legislature. The amendment, therefore, seeks to substitute sub-s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the thing or person indicated in the earlier part of the same section. For example s. 2(1A) defines "agricultural income" to mean (a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes. Then cl. (b) states that any income derived from such land by agriculture etc. ..... The reference to 'such land' in cl. (b) is to the land which is used for agricultural purposes as is stated in cl. (a). Thus the word 'such' in the latter part of the section refers to a thing or person as stated in the former part of the section. We are concerned with s. 201(1) in which the words "such person" have been used in the opening part of the section. Under these circumstances the words "such person" cannot have any reference to the person used in the earlier part of the section. Under these circumstances the words "such person" have to be interpreted by considering the language of section as a whole. 13.7. Before proceeding further it would be relevant to note the relevant portion of s. 201(1) as applicable at the relevant time, which runs as under: "If any such person and in the cases referred to in s. 194, the principal officer and the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it also refers to the person who does not deduct tax at source because of the employment of the expression "does not deduct or after deducting fails to pay tax as required by or under this Act". In our considered opinion the interpretation suggested by the learned Authorised Representative for restricting "any such person" to only the person deducting tax at source and thereafter failing to pay the tax with the Central Government and allowing the person not deducting tax at source to go scot free, is completely against the spirit of the section. If we read it in the way in which the learned Authorised Representative wants, then the latter part of sub-s. (1) of s. 201 will also necessitate modification as the words "does not deduct" would require obliteration. By harmoniously considering the scheme of this chapter in which s. 201 falls, the only conclusion which follows is that 'any such person' as used in this section cannot be construed as only the person deducting and failing to deposit the tax with the Government but also encompasses within its ambit the person failing to deduct the tax at source. Our view is fortified by the judgment of the Hon'ble Kerala High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions in the light of the material placed before us and the precedents relied upon it is obvious that sub-ss. (1) and (1A) of s. 201 do not prescribe any time-limit for the initiation of the proceedings or the passing of the order. We find that for the most of the actions under the Act, the particular time-limit has been given for the commencement and completion of the proceedings. For example time-limit for issuing of notice for the purposes of making assessment is laid down in s. 143(2). Similarly time for issuing notice of reassessment has been set in s. 149. Sec. 153 deals with the time provided for the completion of assessment and reassessments. Similarly time-limit for rectification of order is given in s. 154; for passing revising order under s. 263 etc. In such a scenario the question arises that if no time-limit is provided, then can any time-limit be artificially imported by the authorities. The learned Departmental Representative has contended that the Tribunal is not competent to lay down any time-limit. If this contention is brought to the logical conclusion it will mean that the unlimited time will be available to the Departmental authorities at their sweet will f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elay in payment of the PF contribution. A demand notice was issued on 7th May, 1980 in respect of alleged belated payment for the period from 1965 to 1968. It was contended by the appellant that the relevant Act did not contain any provision prescribing a period of limitation for assessment or recovery of damages and hence the action of the authorities be annulled. Repelling this contention, the Hon'ble Supreme Court observed that the money payable into the fund was for the ultimate benefit of employees and there was no provision by which the employees can directly recover this amount. That was the reason which weighed with the Hon'ble Supreme Court to hold that if there is no period of limitation for the exercise of the power under s. 14A of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, then no limitation can be prescribed. It is quite logical that if the employer who has deducted the PF contributions from the salary of its employees and fails to deposit the same in the PF account, he cannot be allowed to go without such deposit. If a particular time-limit is prescribed in such a situation, then the employers intending to play fraud with the employees' contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed. The reasonable time for taking action under a particular section largely depends on host of factors, inter alia, the nature of proceedings, the character of the order etc. In order to determine the reasonable time for taking action under s. 201, it is important to have a look at such necessary factors. V. Nature of proceedings under s. 201(1) 15.1 The following steps are involved in the proceedings for deduction, payment and recovery of tax at source. 15.2 When a person pays a sum to anyone on which tax, is required to be deducted, then the person responsible for paying such sum is under obligation to deduct tax at source at the time of credit of such sum to the account of payee or at the time of payment thereof in cash or by issuing of a cheque or by any other mode whichever is earlier. When the person responsible has deducted the tax and paid it to the credit of the Central Government or as the Board directs his duty is over insofar as the question of deduction of tax at source is concerned, of course, subject to the issuance of certificate of such deduction to the payee and the furnishing of the TDS return in time. If however such person who is responsible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be issued by the AO only within the aforesaid period of three years. Simultaneous with the omission of s. 231, an amendment has been carried out to s. 222 by which the requirement of the issue of such certificate by an AO has been dispensed with and the TRO can now draw the statement of arrears and assume jurisdiction as soon as the assessee is in default. 15.6 The learned Authorised Representative has contended that the omission of s. 231 of the Act has clipped the wings of the taxing authorities inasmuch as the passing of order under s. 201(1) is now construed as equivalent to the proceedings for the recovery of tax in arrears. In our considered opinion this submission is devoid of any merit for the obvious reason that the duty of s. 201(1) comes to an end when the liability of the person responsible is determined by deeming him as an assessee in default. Tax recovery proceedings do not automatically follow with the passing of the order under s. 201(1) because after the passing of order under this section, notice of demand has necessarily to be issued under s. 156. This latter section, in turn, provides that when any tax, interest, penalty, fine or any other sum is payable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he determination of the amount in respect of tax for which the person responsible is deemed to be an assessee in default. The recovery proceedings follow only after the passing of order under this section and that too, if notice of demand is not satisfied. Therefore, to argue that s. 201(1) also provides for the recovery of tax and consequentially the power of the AO is curtailed by the omission of s. 231, is not in accordance with the scheme of the Act. VI. Type of order under s. 201(1) 16.1 It was argued by the learned Departmental Representative that the assessment proceedings do not have any link whatsoever with the proceedings for deduction of tax at source. He further submitted that the assessment proceedings and TDS proceedings are two separate proceedings and one is not related to the other. Different sets of officers are dealing with these two sets of proceedings. The mere fact that the assessment of the payer has been completed, is not relevant insofar as the provisions of s. 201 (1A) are concerned for the obvious reason that the assessment part is dealt with by the AO having jurisdiction over the person responsible for paying the tax who is concerned basically wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Delhi High Court in which it was held that the order by which the respondent was held to be an assessee in default and recovery was made, was an order of assessment. At this juncture it would be relevant to consider the facts in the case of Delhi Development Authority. The Delhi Development Authority (DDA) was to construct and allot flats to the buyers within the stipulated time and on its failure to do so it was liable to pay interest. The DDA defaulted as a consequence whereof it made the payment of interest to the buyers. The ITO (TDS) came to hold that the DDA failed to deduct the income-tax at source on payment of interest made to the buyers as provided under s. 194A of the Act. The Tribunal held that the amounts credited to the account of the allottees were not in the nature of interest within the meaning of s. 2(28A) and hence the orders passed by the IT authorities were quashed. The amount was refunded with interest calculated under s. 244(1) to DDA. The DDA filed writ petition before the Delhi High Court raising grievance that the interest as calculated by the IT Department was not correct inasmuch as the interest under s. 244(1A) should have been paid for the year 1987- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered by the Hon'ble Supreme Court has the binding force on all the lower Courts, authorities or for that matter anybody else in India. It is trite law that the Courts declare the law and do not legislate. Hence pronouncement of law by the Courts is always retrospective and is considered as the interpretation since inception. In that view of the matter, it is manifest that once a particular view has been expressed by the Hon'ble Supreme Court on an issue, then any contrary view taken by the other High Courts has to be considered as expressly or impliedly overruled. We are thus of the considered opinion that the order under s. 201(1) is to be treated as an order of assessment or at least akin to the assessment order. VII. Reasonable time for passing order under s. 201(1) 17.1 On the question of what should be the reasonable time for the passing of the order under s. 201(1), the learned Authorised Representative contended that the time-limit for completion of assessment is provided under s. 153(1) by which no order of assessment can be passed under s. 143 or s. 144 after the expiry of two years from the end of the assessment year in which the income is first assessable. He co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial year was time-barred. The learned Departmental Representative contended that this order has been followed by several Benches of the Tribunal including Sahara Airlines Ltd. vs. Dy. CIT (2003) 79 TTJ (Del) 268 : (2002) 83 ITD 11 (Del), Asstt. CIT vs. Pepsi Foods Ltd. (2004) 88 TTJ (Del) 111 : (2003) 129 Taxman 73 (Del)(Mag) and Wokhardt Life Sciences Ltd. vs. Dy. CIT (2005) TIOL 178 Tribunal Mumbai etc. copies of these orders were placed on record by the learned Departmental Representative. It was submitted that in all these cases one line principle as enunciated in the case of Raymond Woollen Mills, has been followed for quashing the orders passed under s. 201(1) or 201(1A) that is where such order has been passed after four years from the end of the financial year the same is illegal, void and barred by limitation. Commenting on the order in the case of Raymond Woollen Mills Ltd. the learned Departmental Representative stated that the Tribunal has basically relied on the judgment of the Hon'ble Supreme Court rendered in the case of State of Gujarat vs. Patil Raghav Natha Ors. (1969) (SC-2) GJX-0196-SC in which it was held that for the exercise of the suo motu power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tan Times Ltd. vs. Union of India in which the earlier case of Patil Raghav Natha Ors. was also considered and thereafter a conclusion was reached that where the legislature had made no provision for limitation, it would not be open to the Court to introduce any such limitation. He further contended that in spite of series of orders passed by the Tribunal holding that the passing of order under s. 201 (1) or 201 (1A) beyond the period of four years was barred by limitation, the Tribunal in some other cases has also decided this issue in Revenue's favour as well. He cited the order passed by the Hyderabad Bench of the Tribunal in the case of Lakshmi Gnaneswara Enterprises Financiers vs. ITO (2000) 68 TTJ (Hyd) 264 : (2000) 72 ITD 295 (Hyd) in which it was held that the orders passed by the AO after six years could not be treated as barred by limitation. He also referred to the order passed by the Lucknow Bench of the Tribunal in U.P. State Industrial Development Corpn. Ltd. vs. ITO (2004) 89 TTJ (Lucknow) 669 : (2002) 81 ITD 173 (Lucknow) in which it was held that in the absence of any time-limit fixed for passing the order under s. 201(1A), the delay of three or four years was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nor paid the same to the Revenue and it was only subsequently that it came to the notice of the authorities concerned that tax was required to be deducted, a period of four years from the end of the financial year was too short. It was stated that in such type of cases the Revenue's interest should not be ignored. The learned Departmental Representative also distinguished the judgment of the Hon'ble Delhi High Court in the case of NHK Japan Broadcasting Corporation by contending that it dealt only with the initiation of the proceedings under s. 201 and not with the completion of the proceedings under s. 201(1) albeit the question before it was about the passing of the order. He contended that the assessee in this case relied on the judgment of the Hon'ble Supreme Court in the case of State of Punjab Ors. vs. Bhatinda District Co-op. Milk (P) Union Ltd. (2007) 11 SCC 363 which dealt with the initiation of the proceedings and on the other hand the Revenue relied on the judgment in the case of Bharat Steel Tubes Ltd. Anr. vs. State of Haryana Anr. (1988) 70 STC 122 in which it was held that no period of limitation can be prescribed for the completion of proceedings. It was arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143 or 144 has been prescribed under s. 153(1) as two years from the end of the assessment year in which income was first assessable. 17.7 At this juncture it will be important to note the scope of s. 147, which runs as under: "If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this section and in ss. 148 to 153 referred to as the relevant assessment year)." Explanation 2(a) to s. 147 provides that "where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax" shall also be deemed to be a case where income chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay after deduction of tax at source. On going through the Explanation to s. 191 in juxtaposition to s. 201(1) it is divulged that the person responsible for deducting or failing to pay TDS is to be deemed to be an assessee in default only if the payee of income has also failed to pay such tax directly. From the detailed discussion under the succeeding main head, we will also notice that where the payee is not liable to pay tax on the amount of income received by him without deduction of tax at source, then also the person responsible cannot be treated as assessee in default. To sum up the liability of the person responsible is dependent upon the deductee failing or otherwise to pay such tax directly. Thus the action under s. 201(1) is dependent on the outcome of the assessment of the payee and the time-limit for passing order under s. 201(1) has to be viewed in the light of the fate of the assessment in the hands of the recipient. Logically the person responsible for paying sum chargeable to tax can be treated as assessee in default at any time prior to the assessment of the payee or the time available for the making of the assessment of the payee. If the person responsible is dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The time-limit for completion of assessment under s. 143 or 144 has been prescribed under s. 153(1) as two years from the end of the assessment year in which the income was first assessable. The time-limit for notice of assessment or reassessment under s. 147 has been prescribed under s. 149, This section, in turn, provides that no notice under s. 147 shall be issued for the relevant assessment year if four years have elapsed from the end of the relevant assessment year unless the case falls under cl. (b). Clause (b) further states that no notice under s. 147 shall be issued if four years but not more than six years have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. The present two-fold time-limit for issuing notice under s. 148 has clear-cut demarcation of its applicability in one situation or the other. Where the income chargeable to tax which has escaped assessment, by reason or underassessment or no assessment, amounts to or is likely to amount to one lakh rupees or more for that year then the extended period of six years is availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by way of issuance of notice etc., then proceedings take place in which the officer confronts his point of view and explanation of the assessee is sought and thereafter completion of the proceedings takes place by passing the order in which the submissions made by the assessee are either accepted or rejected by giving reasons. We have already noted that the time-limit for issuing notice for making regular assessment under s. 143(3) or 144 is given in s. 143(2) and the time-limit for completion of assessment under s. 153(1). Similarly for taxing the income under s. 147 notice has to be issued within the time-limit prescribed under s. 149 which is the initiation of the reassessment proceedings and the time-limit for completion of assessment or reassessment has been given under s. 153(2). It is wholly erroneous to contend that the time-limit for initiating and completing the proceedings under s. 201 (1) is same. The observations of the Hon'ble High Court in NHK Japan Broadcasting Corporation are indicator of the fact that the time-limit for initiating the proceedings cannot be less than the time-limit for completing the assessment. It is not the other way around nor it says that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the said Tribunal order and the Hon'ble High Court held that interest under s. 201(1A) is payable till the date of the amount of the tax so actually paid either by the deductee or the assessee who had made the deduction. Thus the quashing of the order under s. 201 by the Tribunal on the basis of Raymond Woollen Mills Ltd. was impliedly not approved and the assessee was made liable to pay interest for the requisite period. This judgment in the case of Majestic Hotel Ltd. does not find any discussion in the later judgment in NHK Japan Broadcasting Corporation. From this discussion it follows that there is no unison in the opinion of the Hon'ble High Courts or the different Benches of the Tribunal on this aspect of the matter. In such a situation to argue that a particular High Court judgment of the non-jurisdictional High Court is binding on the Tribunal is not acceptable. The Hon'ble Bombay High Court in CIT vs. Thana Electricity Supply Ltd. has discussed the binding nature of the judicial precedents. The position has been summarized in para 17 of the case by laying down that the law declared by the Supreme Court is binding on all the Courts in India. The decision of the High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decisions of a High Court are not binding precedents either for other High Courts or Tribunals outside the territorial jurisdiction of that High Court. From the above judgments of the Hon'ble jurisdictional High Court, it is apparent that only the judgments rendered by the Hon'ble Supreme Court or the jurisdictional High Court are binding on the Tribunal. The judgments of the other Hon'ble High Courts, though have persuasive value, but cannot have a binding force. Coming back to the controversy before us we find that no "reasonable time" has been prescribed for the purposes of s. 201(1) either by the Hon'ble Supreme Court or the Hon'ble jurisdictional High Court. In view of varying opinions expressed by the Hon'ble Calcutta High Court and the Hon'ble Delhi High Court, we are not inclined to accept the submissions made by the learned Authorised Representative that a particular judgment of another High Court, which advances his case, is binding on the Tribunal and must be strictly followed. 17.14 In the light of the above discussion, we hold that order passed under s. 195 r/w s. 201 (1) or (1A) of the Act cannot be held as barred by limitation 'in law', if it is not passed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... properly deducted, there is no need to file return of income and hence there cannot be any question of assessment of the non-resident. He thus stated where the income is subject to deduction of tax at source, the person responsible is liable to be treated as assessee in default for non-deduction of tax at source for his failure to deduct the tax or pay after deduction, notwithstanding the fact that no assessment has been made of the non-resident. 18.3 Sec. 195 casts obligation on any person responsible for paying to a non-resident, not being a company, or to a foreign company, inter alia, any other sum chargeable under the provisions of this Act, to deduct income-tax at the time of credit of such sum to the account of the payee or at the time of payment thereof, whichever is earlier. In case there is a failure on the part of the person responsible for paying to a non-resident any sum which is chargeable under the provisions of this Act, without deduction of tax at source or after deducting, there is default in paying to the Central Government, then the provisions of s. 201(1) follow and such person is treated as assessee in default in respect of the tax. It therefore comes to foc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in default in respect of such tax under s. 201(1). There may be another situation in which the amount paid or credited is admittedly chargeable to tax in the hands of the payee but the person responsible cannot be saddled with liability under s. 201(1), being the deposit of tax by the payee in his return of income. In other words where the other person i.e. the payee has paid the tax on his total income, including such amount on which tax was liable to be deducted but has not been deducted etc., then no liability under s. 201(1) can arise on the person responsible for paying the sum and he cannot be treated as assessee in default. Explanation to s. 191 has been substituted by the Finance Act, 2008 with retrospective effect from 1st June, 2003, which runs as under: "For the removal of doubts, it is hereby declared that if 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-s. (1A) of s. 192, being an employer, does not deduct, or after so deducting fails to pay, or does not pay, the whole or any part of the tax, as required by or under this Act, and where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r matter that the payer in such circumstances shall be exposed to the levy of interest under s. 201 (1A) for the intervening period and also may be visited with penalty. It is austere that the amount of TDS has to be ultimately adjusted against the tax liability of the payee on the sum, which is received by him as his income chargeable to tax. If the payee has already paid the tax and once again the tax is recovered from the person responsible for paying the income, it will not make any sense as the amount of due tax already finds its place in the coffers of the taxing authority by way of direct payment by the payee. It is with this intention that the legislature enshrined Explanation to s. 191 by not treating the person responsible for paying any sum chargeable to tax as the assessee in default, when the payee has paid the tax directly. 18.7 The Hon'ble Supreme Court in Hindustan Coca Cola Beverage (P) Ltd. vs. CIT (2007) 211 CTR (SC) 545 : (2007) 293 ITR 226 (SC) considered a case in which tax was already paid by the recipient of the income on the payment received from the assessee. It was held that the assessee could not be treated as in default under s. 201(1). While reaching ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r no amount of tax is payable on his total income after including Rs. 50, he will claim refund of Rs. 10 which was deducted at source at the time of making payment to him. Thus, the amount of tax deducted at source is not the tax on the total income. It is ultimately adjustable against the tax liability of the payee on assessment to be made in a later assessment year and assumes the character of income-tax on income when it is actually adjusted against the tax liability of the payee and that too, to the extent to which it is so adjusted. It is naturally so for the reason that such TDS has either to be set off against the tax liability of the payee or if there is no such liability then it has to be paid back in full or in part, as the case may be. It is wrong to equate the TDS with the amount of tax on income. 18.10 The underlying principle behind the deduction of tax at source is the presumption that there will be some liability of the payee towards tax on the sum paid to him. If there is no such liability then the entire exercise of firstly getting the amount of tax collected/deducted at source and then refunding to the payee will be futile. If there is no tax liability of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year within which a notice under s. 148 can be issued. If the income so found to have been earned by the assessee and escaped taxation falls within a period of six years from the end of the relevant assessment year, notice under s. 148 will be issued and the assessment shall be framed by taxing such income. If however during such proceedings it is conclusively established that the assessee had earned income not disclosed to the Revenue in period prior to the said six years from the end of the relevant assessment year, then such income will escape taxation unless it falls within s. 69 or 69A or 69B or 69C and the Revenue will be restrained from recovering tax by making the assessment of such income. The logic behind providing such time-limit for taking action is that the Departmental authorities should remain vigilant and bring the escaped income to tax at an earlier point of time and further to work against the inaction on the part of the AOs on one hand and providing certainty to the assessee that after this period no action will be taken against him. Thus it follows that if due to one reason or the other the concealed income of the assessee is unearthed for a period bey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the person liable to deduct tax who is for the time being considered as assessee in default. We, therefore, hold that in order to treat the payer as assessee in default it is of the utmost importance that the income so paid or credited to the account of payee is capable of being brought within the purview of tax net and such assessment can be lawfully made on the payee. 18.11 Let us examine the contention of the learned Departmental Representative that the person responsible can be treated as assessee in default even if there is no assessment on the payee. In support of this proposition he has relied on ss. 115A(5) etc. In order to appreciate this contention we shall note the language of s. 115A(5) which is as under: "(5) It shall not be necessary for an assessee referred to in sub-s. (1) to furnish under sub-s. (1) of s. 139 a return of his or its income if- (a) his or its total income in respect of which he or it is assessable under this Act during the previous year consisted only of income referred to in cl. (a) of sub-s. (1); and (b) the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such income." A bare perusal of this prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration is 1998-99. As the time-limit for taking action against the payee under s. 147 is also not available, and there is no course 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 s. 201(1) or (1A). We therefore hold that in the facts and circumstances of the present case, the order passed under s. 195 r/w s. 201(1) or (1A) of the IT Act, 1961 is invalid. Resultantly the impugned order, flowing out of such invalid order, will also meet with the same fate; which is hereby set aside. IX. On merits 19.1 In the above para we have held that the impugned order is invalid for the reasons stated therein. In such a situation there is no need to dispose of the grounds raised by the assessee on merits. If, however this view adopted by us is reversed by the Hon'ble High Court, in that case the grounds will spring up requiring adjudication on merits. The following discussion will become relevant for determining the liability of the assessee under s. 201 only in such eventuality. 19.2 The learned counsel for the assessee invited our attention towards the payments made to the lead managers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brokers-contacted various underwriters. Thereafter the Indian ceding company handed over the total premium to be paid by it to the foreign reinsurance company for onward transmission. When this amount was given to the assessee it approached the RBI with a statement showing amount of foreign currency payable as reinsurance premium to the foreign parties after deducting the amount due to it. The balance amount after deducting the brokerage was remitted to the London brokers. Accordingly the assessee retained its commission. It claimed deduction under s. 80-O by contending that the amount of commission retained by it was a receipt of convertible foreign exchange. The Revenue did not accept the claim for deduction under s. 80-O. The Hon'ble Delhi High Court dismissed the petition filed by the assessee with the following observations: "the case of the petitioners is that they had remitted about 1 million dollars in consideration of certain services which they had conducted on behalf of the foreign company and by way of their fees, they retained the foreign exchange worth 6 lakhs and, therefore, they submitted it falls within the expression 'such income received in convertible foreign ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the definition of "technical services" under s. 9(1)(vii) r/w Expln. 2 thereto as these services are "managerial" or "consultancy". He submitted that the Tribunal in this case has held that the management commission and selling commission paid to lead managers was deemed to accrue or arise in India and accordingly the assessee company was liable to deduct tax under s. 195(1). Further the underwriting commission was held to be not for "technical services" and the reimbursement of expenses were also considered as not taxable in India under s. 9(1)(vii). By considering the provisions of DTAA with UK (1993), the learned Authorised Representative stated that the Tribunal has held that the payments made towards management and selling commission would not require any deduction of tax at source under art. 13.4(c). He stated that in the present case also the AO has considered DTAA with UK for treating the assessee in default under s. 201(1) and hence the same view be considered. He further referred to the order passed in the case of Wokhardt Life Sciences Ltd. and Century Textile Mills vs. Dy. CIT in which the order passed by the Tribunal in Raymond Ltd. has been followed by holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween India and UK at several places of his order viz. paras 49, 50, 52 and 55 etc. At no stage it has been denied by the AO that DTAA between India and UK was not applicable. In such a situation it is impermissible for the learned Departmental Representative to come out with a submission contrary to the finding of the AO that DTAA with UK was not relevant as both the lead managers were residents of countries other than UK. In view of the admission of the AO and the further elaboration of the point in the light of DTAA between India and UK, we cannot permit the learned Authorised Representative to take contrary stand from the one taken by the AO. In our considered opinion the learned Departmental Representative has no jurisdiction to go beyond the order passed by the AO. He cannot raise any point different from that considered by the AO or CIT(A). His scope of arguments is confined to supporting or defending the impugned order. He cannot set up an altogether different case. If the learned Departmental Representative is allowed to take up a new contention de hors the view taken by the AO that would mean the learned Authorised Representative (sic-Departmental Representative) stepping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may otherwise be taxable under the regular provisions of the Act, then the provisions of DTAA shall override the domestic law and the income of the non-resident shall not be charged to tax. Thus a non-resident is taxable in India only if the income is taxable in India as per DTAA with the respective country and is also taxable as per the domestic IT Act. If one exempts the income, there cannot be any tax on such income. It is naturally so because the provisions of ss. 4 and 5 are subject to the contrary provisions if any in DTAA. Further it is observed from the language of s. 90(2) that the provisions of DTAA shall prevail over the Act and shall act as an exception to or modification to ss. 4 and 5. This interpretation has been accepted by the CBDT vide its Circular No. 333, dt. 2nd April, 1982 [(1982) 81 CTR (TLT) 18] as has also been so held by the Hon'ble Supreme Court in the case of Union of India Anr. vs. Azadi Bachao Andolan Anr. (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC). 19.9 With this general background in mind we will proceed to determine the nature of payments made by the assessee to the two lead managers who are non-residents. From the details of payments n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project, undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries'." 19.11 On going through the said definition of income by way of fees for technical services we find that the income falls within the ambit of this section if the person paying such sum is resident. Obviously Mahindra Mahindra Ltd., the assessee in the present case, is a resident. An exception has been carved out in cl. (b) under which the amount paid even by the resident shall not be income by way of fees for technical services where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India. Here again we find that there is no dispute about the fact that the assessee carried on its business within India and the services rendered by the lead managers were utilized by the assessee in its business. Explanation 2 gives the meaning of "fees for technical services" as consideration for renderi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in an earlier part of this order. Such services commenced prior to the bringing out FCCS issue; and continued during the period when the issue was open for subscription and continued even after its closing. A meticulous look at the nature of such services taken note of above, clearly reveals that these are in the nature of technical, managerial or consultancy services. To be more specific the 'management commission' paid by the assessee to the non-resident along with the 'selling commission' is aptly brought within the scope of "fees for technical services". 'Underwriting commission' is basically consideration for assuring that if the issue is not fully subscribed then the underwriters shall take up the unsubscribed portion of the shares and in return for such undertaking, the underwriting commission is paid at a specific percentage of the amount of the total issue. Underwriting commission is only for incurring the liability of subscribing to the unsubscribed portion left over by the general public. The assurance so given for purchasing the unsubscribed shares does not require rendering of any services by the underwriter. Thus the underwriting commission is de hors the renderin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusion that the management commission and selling commission are in the nature of income by way of fees for technical services under s. 9(1)(vii) now it remains to be seen whether they can be taxed under the DTAA also. 19.15 We will take up the second DTAA with UK, which is relevant to the FCCB issue brought in 1996. Article 7 deals with the 'business profits' and provides that the profits of an enterprise of Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a PE situated therein. Article 5(1) defines 'PE' for the purpose of this convention to mean a fixed place of business through which business of an enterprise is wholly or partly carried on. Clause (2) of art. 5 gives the meaning of 'PE' in an inclusive manner. The learned Authorised Representative has contended that since the non-residents did not have any PE in India, the commission earned by them from the assessee which is 'business profit', was not liable to tax. We are not agreeable with this argument. There is no controversy on the legal position that the 'business profits' under art. 7 can be charged to tax in India only if the non-r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was held that s. 9(1)(i) is general in nature and s. 9(1)(vii) refers to a particular type of income and is a special provision dealing with even for technical services rendered by the foreign company. After considering the arguments from both sides it was held that s. 9(1)(vii) would apply. Recently the Hon'ble Supreme Court in the case of Britannia Industries Ltd. vs. CIT (2005) 198 CTR (SC) 313 : (2005) 278 ITR 546 (SC) has held that the expenditure towards rent, repairs, maintenance of guest house used in connection with the business is to be disallowed under s. 37(4) because this is a special provision overriding the general provision. It therefore, follows that if a specific provision is made then that matter is excluded from the general provision. Coming back to the DTAA under consideration we find that art. 13 specifically deals with the 'royalties and fees for technical services'. In such a situation art. 7 dealing with the 'business profits' cannot be considered for application with respect to the 'fees for technical services' which is subject-matter of art. 13 separately. We will thus ignore the general provision in art. 7 and consider the special provision as containe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have considered the rival submissions in the light of material placed before us and precedents relied upon. We find that cls. (1) and (2) of art. 13 in the DTAA with UK clearly provide that the fees for technical services is taxable in India. Now we have to consider the meaning of the term "fees for technical services" as employed in this article. As noted above cl. (4) of art. 13 defines the meaning of the term "fees for technical services". The entire quarrel is about the applicability or otherwise of sub-cl. (c) of cl. (4) of art. 13 as per which fees for making available of the technical knowledge, experience, skill etc. is included in the definition of this sub-clause. In other words the technical knowledge, experience or skill etc. must be made available to the assessee so as to be covered within its scope and mere providing of such services without making them available to the assessee will not serve the purpose and hence will be outside the ambit of article. The assessee has ab initio contended before the authorities below that even if the services rendered by the lead managers were held to be technical services but those were not "made available" to the assessee. "Renderin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable', the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be the product of intense technological effort and a lot of technical knowledge and experience of the service provider would have gone into it. But that is not enough to fall within the description of services which make available the technical knowledge, etc. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in future without depending on the provider. Taking some examples, the training given to a commercial aircraft pilot or training the staff in particular skills such as software development would fall within the ambit of the said expression in cl. (c). Supposing, a prescription and advice is given by the doctor after examining the patient and going through the clinical reports. The service rendered by the doctor cannot be said to have made available to the patient, the knowledge and expertise possessed by the doctor. On the other hand, if the same doctor teaches or trains students on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in default" under s. 201(1) of the Act. 19,21 Coming to the first GDR issue which was brought out in 1993, we have already held that the first DTAA between India and UK shall be applicable. Now we need to examine the provisions of this DTAA for evaluating the taxability or otherwise of the management commission, underwriting commission, selling commission and expenses reimbursed. We have held supra that the underwriting commission does not come within the purview of "fees for technical services" as it does not involve the rendering of any managerial, technical or consultancy services. In the absence of any PE of the non-residents in India, such underwriting commission cannot be taxed under the article of 'business profit'. Similarly the expenses reimbursed also cannot partake of the character of income which could be deemed to accrue or arise in India as there is no income element in such reimbursement. The remaining two items are the 'management commission' of Rs. 1.40 crores and 'selling commission' of Rs 4.69 crores. We have held that these two items are covered under s. 9(1)(vii) r/w Expln. 2 and hence are deemed to accrue or arise in India to the non-resident. The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed 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 s. 201 (1) and that too if the person responsible fails to comply with notice of demand under s. 156. (vi) The order under s. 201(1) is akin to the assessment order. "Assessment" includes 'reassessment'. (vii) The time-limit for initiating the proceedings under s. 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 s. 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 s. 201(1) or (1A) is the same as prescribed under s. 149 i.e., four years or six years from the end of the relevant assessment year, as the case may be depending upon the amount of income in respect of which the person responsible is soug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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