Case Law Details
Brief of the Case
Delhi High Court held In the case of Vodafone Essar Mobile Services Limited that as per amendment, the time limit for initiation of proceedings for assessee in default is four years from the end of the financial year in which payment is made or credit is given. It is proposed to make these amendments effective from 1st April, 2010 i.e. there was no time limit mentioned before this amendment. In the case of CIT vs. NHK Japan Broadcasting Corporation (2008) 305 ITR 137 (Del.) the question that arose was whether the Department could seek to initiate proceedings under Sections 201(1) and 201(1A) for a period beyond four years where no time limit mentioned. The court held that ITAT correctly came to the conclusion that the proceedings against the Assessee for treating it as an Assessee in default under Section 201 were not initiated within a reasonable period of time and four year period is reasonable time for initiating action. The court further held 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 within period of four years. Accordingly initiation of proceedings beyond four years even before amendment is not valid.
Facts of the Case
Out of various petitioners, one petitioner is the Tata Teleservices Limited (TTSL) is a company registered under the Companies Act, 1956, engaged in the business of providing telecommunication services across the country. 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 are the pre-paid vouchers used for selling validity and talk time to the pre-paid subscribers. The products are sold by TTSL to the channel partners under valid tax invoices. TTSL recovers sales tax and service tax for the said transactions. The channel partner thereafter sells these products to the retailers. It is stated that there is no remuneration/consideration that flow from TTSL to the channel partners for effecting sale of such products. According to TTSL, the transaction between it and the channel partner is on a principal to principal basis.
According to TTSL, in terms of the above arrangement, Section 194H of the Act concerning deduction of TDS towards commission or brokerages does not apply to the above transaction with the channel partners. TTSL filed its TDS return/statement under Section 200 of the Act in each of the relevant Assessment Years. The common question that arises for consideration in these writ petitions concerns the validity of the action initiated by the revenue against the Petitioners under Sections 201(1) and 201(1A) for non-deduction of 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 w.e.f. 01-04-2010 which introduce time limit for initiation of proceedings in case of TDS defaults.
Contention of Appellant
The ld counsel of the appellant states that although the challenge in these petitions is also to the vires of the proviso to Section 201(3) of the Act as inserted by the Finance (No. 2) Act, 2009, the Petitioners would be satisfied if the interpretation sought to be advanced by them on the scope and ambit of proviso to sub-section (3) of Section 201 of the Act is accepted by the Court. In other words what has been canvassed on behalf of the Petitioners is that the proviso to Section 201(3) of the Act has to be read consistent with the law explained by the Court in CIT vs. NHK Japan Broadcasting Corporation (supra) and should be held not to permit the Department to initiate proceedings for declaring Assessees to be Assessees in default for a period more than four years prior to 31st March, 2011.
Contention of the Revenue
The ld counsel of 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.
Held by High Court
High Court held that Section 201 as it stood prior to the amendment [which introduced sub-section (3) with effect from 1st April, 2010] did not contain a provision stipulating a time limit for initiation of the proceedings there under. In CIT vs. NHK Japan Broadcasting Corporation (2008) 305 ITR 137 (Del.) the question that arose was whether the Department could seek to initiate proceedings under Sections 201(1) and 201(1A) of the Act for a period beyond four years after the end of the relevant AY. In that case the relevant AY was 1990-91. In December, 1999, the Assessee was asked to explain why it should not be treated as an Assessee in default. After the reply was filed by the Assessee, the AO passed an order treating the said Assessee as an Assessee in default for the purposes of Section 201 of the Act and this was upheld by the CIT (A). However, ITAT came to the conclusion that the proceedings against the Assessee for treating it as an Assessee in default under Section 201 of the Act were not initiated within a reasonable period of time. Finally court held that “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.” This decision was followed by this Court in Commissioner of Income Tax v. Hutchison Essar Telecom Ltd. [2010] 323 ITR 230 (Del.). There the Court held that proceedings under Section 201(1) and 201(1A) of the Act “can be initiated only within three years from the end of the Assessment Year or within four years from the end of the relevant Financial Year.”
The question whether proceedings for treating assessee in default even in respect of alleged failure to deduct TDS for a period more than four years earlier to 31st March, 2011, 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.]. It was held 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 Court in NHK Japan was of the opinion that the power to treat someone as assessee in default is too drastic, vague and oppressive since it is conditioned by some measure of limitation. In these circumstances, the Court had insisted that for the purpose of initiation of proceedings under Section 201, the AO has to act within four years. It appears to the Court that the above decision settles the question whether to declare an Assessee to be an Assessee in default under Section 201 of the Court could be initiated for a period earlier than four years prior to 31st March, 2011.
As the Court sees it, its decision in NHK Japan Broadcasting Corporation 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 has not changed by the introduction of proviso to sub-section (3) to Section 201 by the Finance (No. 2) Act, 2009. 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’. The said proviso cannot be interpreted, as is sought to be done by the Department, to enable it to initiate proceedings for declaring an Assessee to be an Assessee in default under Section 201 of the Act for a period earlier than four years prior to 31st March, 2011. Consequently, the notices impugned in the present petitions issued by the Department seeking to initiate proceedings against the Petitioners for declaring them to be Assessees in default under Section 201(3) of the Act are hereby quashed.
Accordingly, appeals disposed of.
