Limitation period does not apply to withholding tax proceedings – Punjab & Haryana HC

Commissioner of Income Tax (TDS), Chandigarh Versus M/s H.M.T. Ltd.

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA No. 524 of 2009

Date of Decision: 14.7.2011

“i) Whether, in the facts and circumstances of the case, the ld ITAT has erred in law in allowing the appeal of the assessee by holding that four years was the reasonable period to issue show cause under section 201 by the Assessing Officer to assessee though no such limitation was provided in section 201 of the Income Tax Act, 1961?

ii) Whether, in the facts and circumstances of the case the ld. ITAT has erred in law in holding that the Assessing Officer was not empowered to issue show cause u/s 201 after a period of four years in view of Hon’ble Supreme Court order passed in the case of Padmasundra Rao & others v. State of Tamil Nadu and others, 255 ITR 147?”

2. Put shortly, the facts necessary for adjudication as narrated in the appeal are that the assessee is a Government of India Undertaking. The pay scales of the employees of the assessee were revised by the Government of India w.e.f. 1.1.1992 and the arrears of pay were paid to them between the financial years 1994-95 and 1997- 98. During the assessment years in question, the assessee had made the following payments of arrears of salary to its employees:-

Financial Year	Amount Paid
1994-95	Rs. 1,03,48,422/-
1995-96	Rs.2,56,85,573/-
1996-97	Rs.2,72,06,227/-
1997-98	Rs.2,12,06,823/-

While making the aforesaid payments, the assessee did not deduct tax at source as required under Section 192 of the Act. Accordingly, the Assessing Officer passed the orders under Sections 201(1) and 201 (1A) of the Act on 20.12.2005 for the above mentioned financial years after issuing show cause notice to the assessee. Since the assessee did not supply the details regarding TDS liability in respect of each of the employees, the demand was raised by charging tax on average rate of 20%. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] who vide order dated 22.8.2006 dismissed the appeal. On further appeal by the assessee, the Tribunal vide order dated 5.12.2008 allowed the appeal holding that the Assessing Officer was not empowered to issue a show cause notice after a period of four years from the end of the financial year. Hence, the present appeal by the revenue.

5. Learned counsel for the revenue submitted that there is no specific provision prescribing any limitation for passing the order under Sections 201(1) and 201(1A) of the Act. According to the learned counsel, in view of Apex Court judgment in M/s Hindustan Times Ltd. Vs. Union of India and others, AIR 1998 SC 688 where no limitation is prescribed, the rule that power should be exercised within reasonable time is not applicable in the facts of the present case. Reference was also made to the judgment of the Kerala High Court in Commissioner of Income-Tax v. Trichur Cooperative Bank Ltd. [2003] 266 ITR 574. It was urged that Section 231 of the Act was omitted from 1.4.1989 and there is no limitation prescribed for passing an order under Sections 201 (1) and 201 (1A) of the Act which are in the nature of effecting recovery of taxes from the assessee in default.

6. On the other hand, learned counsel for the assessee supported    the    order passed by the Tribunal and reiterated the submissions made before the Tribunal.

7. We find considerable force in the submission of learned counsel for the revenue. In M/s Hindustan Times Ltd’s case (supra), the employer had defaulted in making payment of provident fund contributions. Notice was issued by the department under The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 on 23.2.1971 complaining of delay in remitting the provident fund amount for the various periods from July 1965 to November, 1968. After certain correspondence between the defaulter and the department, order for recovery as damages and administrative charges was passed on 7.5.1980. A plea was raised on behalf of the defaulter that where no period of limitation is prescribed in a statute the same is required to be implied under law in order to be just and reasonable. The Hon’ble Supreme Court repelled the said contention holding that where the legislature has not considered appropriate to prescribe limitation, it could not be read in such a provision. The legal position has been crystalized in the following terms:-

“18. Now the Act does not contain any provision prescribing a period of limitation for assessment or recovery of damages. The monies payable into the Fund are for the ultimate benefit of the employees but there is no provision by which the employees can directly recover these amounts. The power of computation and recovery are both vested in the Regional Provident Commissioner or other officer as provided in section 14-B. Recovery is not by way of suit, initially, it was provided that the arrears could be recovered in the same manner as arrears of land revenue. But by Act 37/53 section 14-B was amended providing for a special procedure under section 8-B to 8-G. By Act 40/73 section 11 was amended by making the amount a first charge on the assets of the establishment   if the arrears of employee’s contribution were for a period of more that 6 months. By Act 33/88, the charge was extended to the employee’s share of contribution as well.

19.         In spite of all these amendments, over a period of more than thirty years, the legislature did not think fit to make any provision prescribing a period of limitation. This in our opinion is significant and it is clear that it is not the legislative intention to prescribe any period of limitation for computing and recovering the arrears. As the amounts are due to the Trust Fund and the recovery is not be suit, the provisions of the Indian Limitation Act, 1963 are not attracts. In Nityanand M. Joshi vs. Life Insurance Corporation of India [1970 (1) SCR 396], it has been held that the Limitation Act, 1963 has no application to Labour Courts and, in our view, that principle is equally applicable to recovery by the concerned authority under section 14-B. Further in Bombay Gas Co. Ltd. vs. Gopal Bhiva [1964 (3) SCR 709], it has been held that in respect of an application under section 33(c)(2) of the Industrial Disputes Act, 1974, there is no period of limitation. In that context, it was stated that the Courts could not imply a period of limitation. It was observed:

“It seems that where the legislature has made no provision   for limitation,     it would not be open to the Court to introduce any such limitation on the grounds of fairness or justice”

The above decisions  have been recently accepted in Mukri Gopalan vs. Cheppilet [1995 (5) SCC 5(at p.20-22)] to which one of us (Majmudar, J.) was a party while dealing with the applicability of section 29(2) of the Limitation Act, 1963  to Courts or Tribunals. We may also point out in this connection that several High Courts have rightly taken the view that there is no period of limitation for exercise of the power under section 14B of the Act.

20. It is true that a principle has been laid down in State of Gujarat vs. Patil Raghav Natha [1969 (2) SCC 187], while dealing with suo motu revisional jurisdiction that though there is no period of limitation prescribed for exercise of that power, still such a power must be exercised within reasonable time. The said judgment has been applied in matters relating to section 6 to the Land Acquisition Act in a large number of cases, which were all referred to recently in Ram Chand vs. Union of India [1994 (1) SCC 45]. In our view, this line of cases cannot ordinarily apply to monies withheld by a defaulter, who holds them in trust.

21. The reason is that while in the above cases decided by this Court the exercise of powers by the authority at a very belated stage was likely to result in the deprivation of property which rightly and lawfully belonged to the person concerned, the position under section 14B of the Act of an employer is totally different. The employer who has defaulted in making over the contributions to the Trust Fund had, on the other hand, the use of monies which did not belong to him at all. Such a situation cannot be compared to the above line of cases which involve prolonged suspense in regard to deprivation of property. In fact, in cases under Section 14-B if the Regional Provident Commissioner had made computations earlier and sent a demand immediately after the e amounts fell due, the defaulter would not have been able to use these monies for his own purposes or for his business. In our opinion, it does not lie in the mouth of such a person to say that by reason of delay in the exercise of powers under section 14B, he has suffered loss. On the other hand, the defaulter has obviously had the benefit of the ‘boon of delay’ which “is so dear to debtors”, as pointed out by the Privy Council in Nagendranath Dev vs. Suresh Chandra Dev [ILR 60 Cal. 1(PC)]. In that case, it was observed that equitable considerations were out of place in matters of limitation and the strict grammatical construction alone was the guide. Sir Dinshaw Mulla stated:

“Nor in such a case as this is the judgment debtor prejudiced. Be may indeed obtain the boon of delay, which is so dear to debtors and if he is virtuously inclined there is  nothing to prevent his paying what    he owes into Court.”

The position of the employer in case of default under section 14-B is no different.”

8. Applying the above noted principles to the facts in hand, it cannot be concluded that the order passed by the Assessing Officer under Sections 201(1) and 201(1A) of the Act was liable to be annulled on the ground of delay and laches.

9. In view of the above, the substantial questions of law are answered in favour of the revenue and against the assessee. The appeals are allowed and the orders are set aside. The matter is remitted to the Tribunal to decide afresh on merits in accordance with law.

July 14, 2011