Swiftrans International Pvt. Ltd. Vs ITO (Delhi High Court)
In a significant ruling, the Delhi High Court has set aside an order issued by the Income Tax Department that sought to treat Swiftrans International Pvt. Ltd. as an “assessee-in-default” for non-deduction of Tax Deducted at Source (TDS) for the Assessment Year (AY) 2016-17. The High Court’s decision primarily hinged on the order being passed beyond the statutory period of limitation, clarifying that previous court orders did not grant an indefinite extension.
The case, Swiftrans International Pvt. Ltd. Vs. ITO, involved a challenge by the petitioner against an order dated February 13, 2025 (corrected on February 20, 2025), passed under Sections 201(1) and 201(1A) of the Income Tax Act, 1961, along with a corresponding demand notice. Swiftrans International Pvt. Ltd., a real estate developer, had made payments or booked liabilities for External Development Charges (EDC) to the Haryana Urban Development Authority (HUDA) during the financial year 2015-16 (AY 2016-17) without deducting TDS. The company’s stance was that EDC payments to HUDA were essentially payments to the State Government for external development and not subject to TDS under a contractual arrangement, thus negating the requirement for TDS deduction.
Background of the Dispute:
The Assessing Officer (AO) initiated proceedings by issuing show-cause notices to Swiftrans International Pvt. Ltd., proposing to treat the company as an assessee-in-default for not deducting TDS under Section 194-I of the Act, which pertains to TDS on rent. Despite the company’s detailed responses disputing this liability, the AO proceeded to pass an order on March 16, 2023, for AY 2016-17, holding the petitioner to be an “assessee-in-default.” Subsequently, a penalty order under Section 271C was issued on October 31, 2023.
During this period, crucial judicial developments unfolded. The Delhi High Court, in the case of M/s DLF Panchkula Homes Pvt. Ltd. v. ACIT (W.P.(C) 56540/2022 and Other Connected Matters: Neutral Citation 2023:DHC:2401-DB), had set aside similar notices and orders. The Court in the DLF Panchkula case specifically ruled that EDC payments could not be construed as ‘rent’, thereby making Section 194-I inapplicable. The High Court also dismissed the Revenue’s argument that merely a wrong section was mentioned, emphasizing that the show-cause notices and orders were fundamentally based on an erroneous understanding of EDC payments as lease rent. The Supreme Court later dismissed the Revenue’s Special Leave Petition against the DLF Panchkula Homes Pvt. Ltd. decision on February 23, 2024, solidifying this legal position.
Despite these judicial pronouncements, the AO issued the penalty order under Section 271C. Aggrieved, Swiftrans International Pvt. Ltd. filed a writ petition (W.P.(C) 1615/2024) before the Delhi High Court, challenging both the March 16, 2023 order (under Section 201) and the October 31, 2023 penalty order. The High Court allowed this petition on March 21, 2024, setting aside the impugned orders. However, the Court also granted liberty to the respondents (Income Tax Department) “to proceed further in accordance with law and the observations as rendered in Puri Constructions Private Limited v. Additional Commissioner of Income Tax and Ors.: 2024 SCC OnLine Del 939.”
Following this, the AO issued a fresh notice on June 25, 2024, this time seeking explanations as to why the petitioner should not be treated as an assessee-in-default for failure to deduct TDS under Section 194C of the Act (TDS on payments to contractors) for FY 2015-16 (AY 2016-17). Swiftrans International Pvt. Ltd. argued that this notice was beyond the period of limitation. The AO, however, rejected this contention, asserting that the limitation prescribed under Section 201(3) of the Act was inapplicable due to Section 153(6)(i) of the Act, as the impugned order was being passed to give effect to the Delhi High Court’s order dated March 21, 2024.
The Limitation Question:
The core issue before the Delhi High Court was whether the new order, passed on February 13, 2025, was barred by limitation under Section 201(3) of the Act. Section 201(3) stipulates that no order deeming a person to be an assessee-in-default for failure to deduct TDS shall be made after the expiry of seven years from the end of the financial year in which the payment was made or credit was given. In the present case, the payments of EDC were made in FY 2015-16. Therefore, the seven-year limitation period expired on March 31, 2023. The impugned order, passed nearly two years later on February 13, 2025, was thus prima facie beyond this period.
The Revenue countered this by invoking Section 153(6)(i) of the Act. This section provides an exception to general time limits for assessments, reassessments, and recomputations made “in consequence of or to give effect to any finding or direction contained in an order under section 250, section 254, section 260, section 262, section 263, or section 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act,” allowing such proceedings to be completed within twelve months from the end of the month in which the order is received or passed. The Revenue argued that the High Court’s order of March 21, 2024, in Swiftrans International Pvt. Ltd.’s own writ petition, constituted such a “finding or direction,” thereby extending the limitation.
High Court’s Analysis and Conclusion:
The Delhi High Court meticulously examined the operative part of its own order dated March 21, 2024, which stated: “while we set aside the impugned orders dated 16 March 2023 and 31 October 2023, we leave it open to the respondents to proceed further in accordance with law and the observations as rendered in Puri Constructions Private Limited.”
The High Court noted that its previous order explicitly set aside the earlier orders passed under Section 201(1)/(1A) and Section 271C. While it did grant liberty to the Revenue to “proceed further,” this liberty was explicitly qualified by the phrase “in accordance with law.”
Referring to its judgment in Puri Constructions Private Limited v. Additional Commissioner of Income Tax and Ors. (2024 SCC OnLine Del 939), the Court reiterated that it had indeed held payers liable to deduct TDS under Section 194C in respect of EDC payments to HUDA. Therefore, it was open for the Revenue to initiate proceedings against Swiftrans International Pvt. Ltd. under Section 194C. However, the crucial qualifier remained that such proceedings must be “in accordance with law.”
The High Court concluded that nothing in its March 21, 2024 order could be construed as absolving the AO from adhering to the limitations prescribed under Section 201(3) of the Act. The Court emphasized that the previous order did not contain any “finding or direction” that would allow for the indefinite extension of the limitation period as per Section 153(6)(i). The liberty granted was to proceed within the bounds of the law, which necessarily includes respecting statutory limitation periods.
In light of this analysis, the Delhi High Court held that the impugned order dated February 13, 2025, and the corresponding demand notice were clearly barred by limitation under Section 201(3) of the Act. The Court set aside both the impugned order and the notice, allowing the petition.
This ruling clarifies that a general liberty granted by a court to “proceed in accordance with law” does not override specific statutory limitation periods unless there is a clear and explicit “finding or direction” to that effect, which was not the case here. It reinforces the importance of adhering to procedural timelines prescribed by the Income Tax Act, even when fresh proceedings are initiated after a prior order has been set aside.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
