Passing of order u/s. 201(1) and 201(1A) beyond four year held as barred by limitation: Karnataka HC

Nilgiri Dairy Farm Private Limited Vs ITO (Karnataka High Court)

Karnataka High Court held that passing of order under section 201(1) and 201(1A) of the Income Tax Act beyond period of four year is barred by limitation. Accordingly, impugned order set aside.

Facts- The assessee company is engaged in the business of dairy products has made certain payments towards consultancy charges to a Singapore based company. Under letter dated 31.1.2014 appellant was asked to explain as to why payment made to the Singapore based company i.e., MJR Consultancy Pvt. Ltd., during the above stated financial years should not be treated as fees for technical services as per the provisions of Section 9(1)(vii) of the Income Tax Act, 1961. Order dated 6.3.2014 was passed u/s. 201(1) and 201(1A) of the Act and a demand of Rs. 50,48,098/- u/s. 156 of the Act was issued.

Appeal were dismissed by both CIT(A) and ITAT. Being aggrieved, the present appeal is filed by the assessee.

Conclusion- This Court passed in the case of Commissioner of Income-tax, TDS v. Bharat Hotels Ltd., reported in (2015) 64 taxmann.com 325 (Karnataka) and in the case of The Director of Income Tax International Taxation & Anr., v. The Execution Engineer, M/s. Bangalore Water Supply and Sewerage Board (ITA No.166/2011 c/w ITA No.148/2011, disposed of on 24.8.2020) held that to pass order under Section 201(1) and 201(1A) of the Act, four years would be the limitation or reasonable time.

Held that admittedly, the transaction or payment made to MJR Consultancy Pvt. Ltd., based in Singapore relates to financial years 2006-07, 2007-08, 2008-09. Admittedly, under letter dated 31.1.2014 the appellant is asked to explain as to why the consultancy charges paid to foreign company shall not be treated as fees for technical service as per the provisions of Section 9(1)(vii) of the Act. In pursuance to the said letter/show cause notice, order dated 6.3.2014 was passed u/s. 201(1) and 201(1A) of the Act. The initiation of proceedings under letter dated 31.1.2014 or order passed on 6.3.2014 is clearly beyond four years.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

This appeal by the assessee questioning the legality and correctness of order dated 12.8.2016 passed in IT(IT)A Nos.11 to 13/Bang/2015 by the Income Tax Appellate Tribunal, ‘A’ Bench, Bangalore (for short the ‘Tribunal’) for assessment years 2007-08 to 2009-10 (Annexure-A).

2. This appeal was admitted on 5.12.2017 to examine the following substantial questions of law:

“1) Whether the Tribunal was justified in law in not holding that the order passed under section 201(1) and 201(1A) of the Income Tax Act, 1961 for all the three Assessment years 2007-09, 2008-09 and 2009-10 are barred by limitation on the facts and circumstance of the case?

2) Whether the Tribunal was right in holding that payment made by the Appellant are fees for technical services and hence the Appellant should have deducted tax at source under section 195 of the Act, even though nothing has been made available to the Appellant from the consultant?

3) Whether the Tribunal was justified in law in not holding that the payment made to the person abroad are for independent business and in the absence of permanent establishment in India the same is not chargeable to tax in India and consequently not liable for tax deducted at source on the facts and circumstance of the case?”

3. Heard Sri A Shankar, learned Senior Counsel for the appellant – assessee and learned counsel Sri E.I.Sanmathi, learned counsel for the respondent – revenue. Perused the appeal papers.

4. Learned Senior Counsel for the appellant would submit that the appeal relates to the financial years 2006-07, 2007-08 and 2008-09. The assessee company is engaged in the business of dairy products and during the financial years stated above it had made certain payments towards consultancy charges to a Singapore based company. Under letter dated 31.1.2014 appellant was asked to explain as to why payment made to the Singapore based company i.e., MJR Consultancy Pvt. Ltd., during the above stated financial years should not be treated as fees for technical services as per the provisions of Section 9(1)(vii) of the Income Tax Act, 1961 (for short the ‘Act’). The appellant is said to have submitted its reply. Thereafter, order dated 6.3.2014 was passed under Section 201(1) and 201(1A) of the Act (Annexure-B) and a demand of `50,48,098/- under Section 156 of the Act was issued. Questioning the same, the assessee filed appeal before the Commissioner of Income Tax (Appeals)-12, Bengaluru. The appeal stood dismissed under order dated 15.12.2014. Against which, appeals before the Income Tax Appellate Tribunal ‘A’ Bench, Bangalore (for short ‘ITAT’) were filed in appeal IT(IT)A Nos.11 to 13/Bang/2015. The appeals came to be dismissed under impugned order dated 12.8.2016. Challenging the said order, the assessee is before this Court.

5. Learned Senior Counsel would submit that the order passed under Section 201(1) and 201(1A) of the Act is barred by limitation. Learned Senior Counsel would submit that though the Section would specifically not prescribe any limitation for non residents or payment made to foreign firm/company towards consultancy fees, the judgments of this Court passed in the case of Commissioner of Income-tax, TDS v. Bharat Hotels Ltd., reported in (2015) 64 taxmann.com 325 (Karnataka) and in the case of The Director of Income Tax International Taxation & Anr., v. The Execution Engineer, M/s. Bangalore Water Supply and Sewerage Board (ITA No.166/2011 c/w ITA No.148/2011, disposed of on 24.8.2020) would state that to pass order under Section 201(1) and 201(1A) of the Act, four years would be the limitation or reasonable time. Learned Senior Counsel points out that the order passed on 6.3.2014 under Section 201(1) and 201(1A) of the Act relates to financial years 2006-07 to 2008-09. Thus, he submits that order passed on 6.3.2014 is beyond four years from 31.3.2009 i.e., the end of financial year of 2008-09. Thus, learned Senior Counsel would submit that if this Court accepts the contention of the appellant on the question of limitation, in respect of which substantial question of law No.1 is framed, it need not go into other substantial questions of law. Thus, he prays for allowing the appeal.

6. Learned counsel Sri E.I.Sanmathi, for the revenue would contend that no time limit is prescribed under the Act in respect of payment made to Non Resident Indian or to foreign company towards consultancy charges. Thus, he supports the order passed by the Tribunal as well as the authorities.

7. The first substantial question of law raised by the appellant on which the appeal is admitted is as to, whether the order passed under Section 201(1) and 201(1A) of the Act is barred by limitation on the facts and circumstances of the present case. Admittedly, the transaction or payment made to MJR Consultancy Pvt. Ltd., based in Singapore relates to financial years 2006-07, 2007-08, 2008-09. Admittedly, under letter dated 31.1.2014 the appellant is asked to explain as to why the consultancy charges paid to foreign company shall not be treated as fees for technical service as per the provisions of Section 9(1)(vii) of the Act. In pursuance to the said letter/show cause notice, order dated 6.3.2014 was passed under Section 201(1) and 201(1A) of the Act. The initiation of proceedings under letter dated 31.1.2014 or order passed on 6.3.2014 is clearly beyond four years. Therefore, following the decisions of the coordinate Benches of this Court in Bharat Hotels Ltd., and The Execution Engineer, M/s. Bangalore Water Supply and Sewerage Board (supra), we answer the first substantial question of law in favour of the assessee and against the revenue.

8. In view of the above finding, the question of answering the other two substantial questions of law would not arise.

9. Accordingly, the following:

ORDER

I) The appeal is allowed;

II) The order dated 6.3.2014 passed by the Income Tax Officer, International Taxation, Bangalore; order dated 15.12.2014 passed by the Commissioner of Income Tax (Appeals) 12, Bangalore; and order dated 12.8.2016 passed in IT(IT)A Nos.11 to 13/Bang/2015, are set aside.