TDS Default Order Time-Barred as Limitation Must Be Computed Quarter-Wise, Not Annually

CIT (TDS) Vs Vodafone Cellular Ltd. (Bombay High Court)

The Bombay High Court held that limitation under Section 201(3) for passing an order under Section 201(1) is to be computed from the end of the financial year in which the TDS statement under Section 200 is filed. Since, under Rule 31A, TDS statements are required to be filed quarterly, the limitation must necessarily be computed quarter-wise and not on a cumulative annual basis. Accordingly, where TDS statements for the first three quarters were filed in FY 2008-09, the order passed on 15 March 2012 was beyond the prescribed limitation of two years from the end of that financial year and hence time-barred, whereas the order relating to the fourth quarter was within limitation, the TDS statement having been filed in FY 2009-10. Revenue’s contention that limitation should be computed on an annual basis was rejected.

Issue involved:- The issue before the Court was whether the order passed under Section 201(1) declaring the assessee as an assessee-in-default was barred by limitation under Section 201(3) of the Income Tax Act, 1961, and specifically whether limitation should be computed quarter-wise based on the filing of TDS statements or cumulatively on an annual basis.

Facts of the case The assessee filed quarterly TDS statements for FY 2008-09 as follows:

The order under Section 201(1) declaring the assessee as an assessee in default was passed on 15 March 2012.

Before the Tribunal, the assessee argued that:

(i) For first three quarters, TDS statements were filed in FY 2008-09, therefore limitation expired two years from the end of FY 2008-09 (i.e., 31.03.2011).

(ii) Hence the order passed in March 2012 was time-barred.

For the fourth quarter, since the TDS return was filed on 15 June 2009 (FY 2009-10), limitation would expire 31.03.2012, therefore the order was within limitation.

The Tribunal accepted this contention.

Statutory Provisions Involved

1. Section 201(1) – Consequence of failure to deduct or pay TDS Section 201(1) of the Income Tax Act provides that:

Where any person, who is required to deduct tax at source under the provisions of the Act, does not deduct or after deducting fails to pay the tax, such person shall be deemed to be an assessee in default in respect of such tax.

Thus, if the deductor fails to deduct or deposit TDS, the Assessing Officer can pass an order declaring him assessee in default.

2. Section 201(1A) – Interest on failure to deduct or pay TDS -Section 201(1A) provides for mandatory interest:

(a) 1% per month from the date tax was deductible till the date it is actually deducted.

(b) 1.5% per month from the date of deduction till the date of payment to the Government.

This interest is compensatory in nature.

3. Section 201(3) – Limitation for passing order u/s 201(1)-At the relevant time, Section 201(3) provided:

No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India at any time after the expiry of:

(i) Two years from the end of the financial year in which the statement of TDS under section 200 is filed, where such statement has been filed.

(ii) Six years from the end of the financial year in which payment is made or credit is given, in cases where the statement has not been filed.

Thus, the starting point of limitation is linked with the filing of the TDS statement.

4. Section 200 – Duty of person deducting tax :-Section 200 requires every deductor to:

Deposit the TDS with the Central Government, and File TDS statements in the prescribed form and manner.

5. Rule 31A of the Income Tax Rules, 1962- Rule 31A prescribes the manner and due dates for filing TDS statements.

TDS statements must be filed quarterly, generally as follows:

Thus, the statutory scheme treats each quarter as a separate compliance period

Revenue’s argument The Revenue contended that:

(i) TDS liability should be considered cumulatively for the whole financial year, not quarter-wise.

(ii) Therefore limitation should not be calculated separately for each quarter.

 Decision of the Court :- The Bombay High Court held that:

(i) Limitation under Section 201(3) begins from the end of the financial year in which the quarterly TDS statement is filed.

(ii) Since TDS statements are filed quarter-wise under Rule 31A, the limitation must also be computed quarter-wise.

(iii) The Act does not permit annual or cumulative computation of limitation.

(iv) Limitation provisions in tax statutes must be strictly construed.

Key reasoning of the Court

(i) Limitation begins from filing of TDS statement

Section 201(3) clearly provides that: No order shall be passed after two years from the end of the financial year in which the TDS statement is filed.

Thus, the starting point of limitation is the filing of the TDS statement.

(ii) TDS compliance is quarter-wise

Under Rule 31A, TDS statements are mandatorily filed quarterly, each with a separate due date. Therefore:

(i) Each quarterly TDS statement constitutes an independent compliance event.

(ii) Consequently, limitation must be computed quarter-wise.

(iii) Annual computation of limitation not permissible- The Court held that:

(i) The Act does not provide for cumulative or annual computation of limitation.

(ii) Revenue’s argument of annual computation is contrary to the statutory scheme.

(iv) Limitation provisions must be strictly construed:- The Court reiterated that:

(i) Limitation provisions in tax laws must be strictly interpreted.

(ii) The delay of the department cannot prejudice the assessee.

Result:- Orders for Q1, Q2, Q3: Time-barred under Section 201(3). & Order for Q4: Within limitation.

Revenue’s appeal was dismissed.

Key legal principle Limitation under Section 201(3) is linked to the financial year in which the quarterly TDS statement is filed; therefore limitation must be computed quarter-wise and not on a cumulative annual basis.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. The present Appeal is filed against the order dated 12^th March 2018 passed by the Income Tax Appellate Tribunal, Pune, whereby the Tribunal held that the proceedings initiated by the Assessing Officer under Section 201(1) of the Income Tax Act, 1961 for the first three quarters of Assessment Year 2009–10 are barred by limitation.

2. The Assessee/Respondent filed its TDS Returns for Financial Year 2008–09 as under:

3. The order under Section 201(1) of the Act declaring the assessee to be in default was passed on 15^th March 2012. Before the Tribunal, it was contended that insofar as the first three quarters are concerned, the limitation prescribed under Section 201(3) had expired. In respect of the fourth quarter, since the TDS Return was filed on 15^th June 2009, i.e. in the subsequent financial year, the limitation would have to be computed from the end of that financial year. The Tribunal accepted this contention and held that the proceedings for the first three quarters was held to be time-barred, while those relating to the fourth quarter was held to be within limitation. This finding of limitation for the first three quarters is assailed in the present Appeal.

4. Mr. A.K. Saxena, the learned counsel for the Appellant sub­mitted that the Tribunal committed an error of law. According to him, though TDS Returns are filed quarterly, the liability is to be considered on an annual and cumulative basis and limitation ought not to be computed quarter-wise.

5. On the other hand, Mr. Jitendra Singh, the learned counsel for the Respondent supported the impugned order and relied upon Sections 201(3), 201(1A), 139 of the Act and Rule 31A of the Income Tax Rules to submit that the TDS Returns for each quarter are to be filed as per the due date mentioned in Rule 31A. The TDS Return for the fourth quarter is to be filed in the following financial year. Since the TDS Returns for the first three quarters were filed in financial year 2008–09, the order dated 15^th March 2012 was beyond two years from the end of that financial year. However, the Return for the fourth quarter was filed on 15^th June 2009, i.e. in financial year 2009–10 and the order dated 15^th March 2012 was within two years from the end of that financial year.

6. We have heard the learned counsel for the parties and perused the material on record. We find no infirmity in the impugned order. Section 201(3), as it stood at the relevant time reads as under:

“201(3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India at any time after the expiry of –

(i) two years from the end of the financial year in which the statement is filed in a case where the statement referred to in Section 200 has been filed;

(ii) …………… ”

7. The said provision stipulates that no order under Section 201(1) shall be passed after the expiry of two years from the end of the financial year in which the TDS statement is filed. The commencement of limitation is thus linked to the filing of the TDS Return. Since, under Rule 31A, TDS statements are mandatorily filed on a quarterly basis, the computation of limitation must necessarily operate quarter-wise. In the present case, the TDS Returns for the first three quarters were filed in financial year 2008–09. The order under Section 201(3), having been passed on 15^th June 2012, was beyond two years from the end of that financial year. The Tribunal was therefore justified in directing deletion of the demand pertaining to those quarters. As regards the fourth quarter, the TDS Return was filed in financial year 2009–10 and the order dated 15^th March 2012 was within two years from the end of that financial year; the demand for that quarter was rightly sustained. The language of the statute does not prescribe of cumulative or annual computation of limitation as is sought to be argued by the Appellant. The scheme of TDS compliance under the Act and the Rules treats each quarter as a separate compliance period, with distinct due dates and independent statements. Each filing consequently furnishes a separate starting point for limitation under Section 201(3). The Appellant’s contention that limitation must be computed on an annual basis is contrary to both the text and structure of the statutory framework. An assessee cannot be prejudiced by the Assessing Officer’s failure to pass orders within the prescribed period. It is well settled that limitation provisions in taxing statutes must be strictly construed and cannot be extended by implication.

8. We find no perversity in the impugned order. For all these reasons, Appeal no.2438 of 2018 is dismissed.