Case Law Details

Case Name : CIT (TDS) Vs CJ International Hotels Pvt. Ltd. (Delhi High Court)
Appeal Number : ITA No. 57/2015, 67/2015, 68/2015
Date of Judgement/Order : 09/02/2015
Related Assessment Year :
Courts : All High Courts (3991) Delhi High Court (1250)

Issue before court:

  • Whether proceedings u/s 201 can be initiated against assessee on account of default in deducting TDS after the lapse of four years.
  • Whether provisions of section 2(22)(e) can be attracted when shareholder is either registered shareholder or beneficial shareholder.

Brief facts:

  • These appeals pertain to years 1999-00, 2000-01 & 2002-02. Ms. Harjit Kour, who is a share holder of M/s Pure Drinks Ltd. borrowed funds from CJ International Hotel Ltd.
  • AO invoked provision of section 2(22)(e) by holding that Harjit Kour had more than 10 % stake in assessee company.
  • AO also found that assessee faulted in deducting tax and initiate proceedings u/s 201.

Contention of the revenue:

  • the terms of Section 201, no limitation can be imputed and that if Parliament had so intended like other instances in the Income Tax Act, a specific period would have been engrafted.
  • It was argued next that since the shareholder was a direct beneficiary and a beneficial owner of shares of the assessee, the AO acted correctly within jurisdiction in invoking Section 2 (22) (e).

Contention of the Assessee:

  • Assessee contended and relied upon the ruling of Delhi High Court in CIT vs. NHK Japan Broadcasting Corporation (2008) 305 ITR 137 (Del) & CIT Vs. Hutchison Essar Telecom Ltd. (2010) 323 ITR 230 (Delhi) in which both the division benches held that the foundational requisite for initiation of proceedings under Section 201 is a period of four years if no limitation is prescribed.
  • On the issue of section 2 (22) (e) assessee relied upon the Division Bench ruling in Commissioner of Income Tax v. National Travel Service, (2012) 347 ITR 305 (Del) and CIT Vs. Ankitech (P) Ltd. (2012) 340 ITR 14 to say that the requirement of Section 2 (22) (e) is fulfilled only if both the pre-conditions are met with.

Held by the court:

  • Court considered the finding in the case of NHK Japan 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.
  • Parliament itself amended the section 201 by introducing sub section 201 (3) and introduced a time limit to invoke provision of section 201 (1).
  • The individual Harjit Kaur was not a shareholder of the present assessee but rather the shareholder of another concern which held shares in assessee company, hence she can be treated as beneficial share holder.
  • The Hon’ble Delhi Court have decided issues of 2(22) (e) in the case of CIT Vs. Ankitech (P) Ltd. (2012) 340 ITR 14 and held that

“The expression shareholder being a person who is the beneficial owner of shares‟ referred to in the first limb of section 2 (22) (e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder then the provision of section 2 (22) (e) will not apply. Similarly, if a person is a beneficial shareholder but not a registered shareholder then also the first limb of the provisions of section 2 (22) (e) will not apply.”

Conclusion:

In the language of Section 2 (22) (e) the term “beneficial owner of shares” includes both registered as well as beneficial share holder. So provisions of this section could be applied where assessee can be treated as both mentioned above. AO, in order to bring any particular amount to tax, is entrusted with powers to invoke provisions of section under which assessee is defaulted. In all those section time limit to invoke provisions is mentioned like in sections 143 (2), 263, 147 etc. If in a particular section parliament did not mention any time limit then it is not free for AO to invoke such provisions anytime. Section 201 when initially introduced did not provided with any time limit to treat assessee in default but later on by Finance Act No. 2/2014 w.e.f 01.10.2014 section 201 is amended and a new time limit was introduced in section.

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