Income Tax Appellate Tribunal - Chennai
L&T Thales Technology Services Private ... vs Dcit International Taxation 2(2), ... on 20 December, 2023
आयकर अपीलीय अिधकरण, 'ए' ायपीठ, चे ई
IN THE INCOME-TAX APPELLATE TRIBUNAL 'A' BENCH, CHENNAI
ी वी. दु गा राव, ाियक सद एवं ी मनोज कुमार अ वाल, ले खा सद के सम ।
Before Shri V. Durga Rao, Judicial Member &
Shri Manoj Kumar Aggarwal, Accountant Member
आयकर अपील सं./I.T.A. No.1157/Chny/2019
िनधारण वष/Assessment Year: 2010-11
M/s. L&T Thales Technology Services Vs. The Deputy Commissioner of
th
Private Limited, RR V Towers, 7 Floor, Income Tax,
33A, Developed Plots, SIDCO Industrial International Taxation - 2(2),
Estate, Guindy, Chennai 600 032. Chennai.
[PAN:AACCT4657M]
(अपीलाथ /Appellant) ( थ /Respondent)
अपीलाथ की ओर से / Appellant by : Shri Ashik Shah, CA
थ की ओर से/Respondent by : Shri AR V Sreenivasan, Addl. CIT
सु नवाई की तारीख/ Date of hearing : 13.12.2023
घोषणा की तारीख /Date of Pronouncement : 20.12.2023
आदे श /O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 16, Chennai, dated 07.02.2019 relevant to the assessment year 2010-11. The assessee has raised following legal ground:
1.1 The lower authorities have erred in finalizing an order under section 201(1)(/(1A) of the Act which is against the principles of natural justice, violative of provisions of the Act and relevant double-tax treaty, devoid of merits, without appreciating the facts involved, without appreciating the documents submitted in proper light, without conducting adequate inquiries and as such is without jurisdiction.
1.2 The lower authorities erred in treating the Appellant as Assessee-in-default within the meaning of section 201(1)/(1A) of the Act.2 I.T.A. No. 1157/Chny/19
1.3 The lower authorities failed to appreciate that proceedings initiated under section 201(1)/201(1A) of the Act is barred by the period of limitation and consequently, the proceedings are bad in law and should be quashed.
1.4 The lower authorities have erred in assumption of jurisdiction under section 201 of the Act by treating the Appellant as an "assessee-in-default" in respect of transactions undertaken during FY 2009-10, i.e., beyond a reasonable period of four years.
2. Facts are, in brief, that M/s. L&T Thales Technology Services Pvt.
Ltd., the assessee made payments to various non-residences during the period relevant to the assessment year 2010-11. The DCIT, International Taxation-2(2), Chennai, the Assessing Officer, passed an order under section 201(1)/201(1A) of the Income Tax Act, 1961 ["Act" in short] dated 31.03.2017, treating reimbursement of expenses as FTS, payments of software license as royalty and training fees as fee for technical services (FTS). Aggrieved against that order, the assessee filed an appeal before the ld. CIT(A). The ld. CIT(A) dismissed the appeal.
3. On being aggrieved, the assessee carried the matter in appeal before the Tribunal. The preliminary objection of the ld. Counsel for the assessee before the Tribunal is that the Assessing Officer has initiated the proceedings under section 201(1)(/201(1A) of the Act belatedly and therefore the same is bad in law. He further submitted that various judicial pronouncement shows that where statute had not provide specific time limit to pass an order under section 201(1)/201(1A) of the Act, 4 years 3 I.T.A. No. 1157/Chny/19 time is a reasonable time. In this case, the Assessing Officer has passed the order dated 31.03.2017 (which is 7 years from the ends of the relevant financial year) and accordingly, the order has to be construed as barred by limitation as no time limit has been prescribed to pass such an order. The ld. Counsel for the assessee has relied on the judgement Hon'ble Bharati Airtel Ltd. v. Union of India 291 CTR 254 (Del). He also relied on the decision of the Bangalore Bench of the Tribunal in the case of Mphasis Ltd. v. DDIT [2022] 136 taxmann.com 160 (Bangalore - Trib).
4. On the other hand, the ld. DR strongly relied on the orders of the authorities below.
5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The issue before us for consideration is that the assessee has paid professional charges to non-residences, which, as per Revenue should have been subjected to tax deduction at source. However, the substantial plea raised before us is that the order should have been passed within a reasonable time of say 4 years as against the fact that the order has been passed by the Assessing Officer on 31.03.2017 (which is in 7 years from the end of relevant financial year) and accordingly, the order should be construed to 4 I.T.A. No. 1157/Chny/19 be barred by limitation since no time limit has been prescribed under the Act to pass such an order.
6. We find that the time limit of 4 years from end of financial year has been introduced under section 201(3) of the Act w.e.f. 01.04.2010 to pass such an order and that too, in case the payment has been made by the assessee to a person resident in India and not a payment made to a non-
resident. In other words, still no time limit has been prescribed to pass such an order in case the payment is made to a non-resident. In our considered opinion, when statute do not prescribe any time limit to pass an order, the same should have been passed within a reasonable time otherwise the same would not withstand the legal scrutiny being violative of principle of natural justice and reasonableness.
6.1 In the case of Bharati Airtel Ltd v. Union of India (supra), the Hon'ble Delhi High Court has held that where revenue authorities issued notice under section 201 of the Act to assessee in respect of payments made to non-residents after expiry of four years from end of relevant assessment years, it was to be dismissed being barred by limitation.
6.1 In the case of Mphasis Ltd.v. DDIT (supra), the Bangalore Bench of the Tribunal has observed and held as under:
5 I.T.A. No. 1157/Chny/1920. Firstly, it can be held that as held in judicial precedents, absence of limitation period to pass an order u/s.201(1) of the Act where the payee is a non-
resident, will not empower the Assessing Officer to pass an order under section 201 of the Act at any time at his sweet will. The Hon'ble Courts have held that, even, in the absence of limitation period prescribed under a particular provision, the order has to be passed within a reasonable period. In the context of section 201 of the Act itself, the Hon'ble Delhi High court in NHK Japan Broadcasting Corpn. (supra) approving the decision of the Tribunal has held that a period of four years would be reasonable period of time for initiation of proceeding under section 201 of the Act. The aforesaid decision of the Hon'ble Delhi High Court has been approved and followed in subsequent decisions of the Hon'ble Delhi High Court in case of Vodafone Essar Mobile Services Ltd. v. Union of India [2016] 67 taxmann.com 124/238 Taxman 625/385 ITR 436 and in CIT v. C.J. International Hotels (P.) Ltd. [2015] 56 taxmann.com 458/231 Taxman 818/372 ITR 684. The Hon'ble Tech Mahindra Ltd. Jurisdictional High Court in DIT (International Taxation) v. Mahindra & Mahindra Ltd. [2014] 48 taxmann.com 150/225 Taxman 306/365 ITR 560 (Bom.) also followed the decision in NHK Japan Broadcasting Corprn. (supra). The Hon'ble Karnataka High Court in the case of Bharat Hotels Ltd. (supra) also took the view that period of limitation prior to the insertion of sec. 201(3) of the Act, w.e.f. 1-4-2010 would be 4 years from the end of the relevant AY. The payees in these cases were also non-resident. The amendment to sec. 201(3) of the Act by the Finance Act, 2009, Finance Act, 2012 and Finance Act, 2014 does not deal with the payments to non-resident and therefore the lay as down in the aforesaid judicial precedents still continue to apply to cases where the payee is a non-resident and therefore in view of the legal principal laid down in the decisions referred to above, the impugned order passed under section 201(1)/201(1A) of the Act is clearly barred by limitation as the order impugned has been passed on 29-7-2013 much after the expiry of period of limitation of 4 years from the end of the relevant AY.
6.2 Similar issue was subject matter in appeal in the case of M/s.
Ambattur Developer (P.) Ltd. v. DCIT in ITA No. 2348/Chny/2017 dated 04.01.2023 for the assessment year 2009-10 and by considering various case law, held that the order passed by the Assessing Officer after 7 years from the end of the financial year, could not be held to be legally sustainable and accordingly, quashed the order passed under section 201(1)/201(1A) of the Act. The relevant portion of the order is extracted as under:
4. We find that the time limit of 4 years from end of financial year has been introduced u/s 201(3) w.e.f. 01.04.2010 to pass such an order and that too, in case 6 I.T.A. No. 1157/Chny/19 the payment has been made by the assessee to a person resident in India and not a payment made to a non-resident. In other words, still no time limit has been prescribed to pass such an order in case the payment is made to a non-resident. In our considered opinion, when statute do not prescribe any time limit to pass an order, the same should have been passed within a reasonable time otherwise the same would not withstand the legal scrutiny being violative of principle of natural justice and reasonableness.
5. The Hon'ble Bombay High Court in the case of DIT vs Mahindra & Mahindra Ltd. (365 ITR 560), addressing the issue of reasonableness of time limit, held that even though Section 201 do not prescribe any limitation period for assessee being declared as assessee-in-default yet revenue is required to exercise the powers in that regard within a reasonable time.
6. The Bangalore Tribunal in DCIT vs. Coffeeday Enterprises Ltd. (ITA Nos.2931/Bang/2018 & ors. order dated 16.12.2020), faced with similar situation, after considering various decision of Hon'ble High Courts, held as under: -
10.3 We have heard the rival submissions and perused the record. With regard to limitation for initiating action u/s 201 of the I.T. Act, upto assessment year 2009-10, there was no limitation provided u/s. 201(1) of the Act for initiating proceedings for failure to deduct tax at source. In the present case, the assessment year involved is 2011-12. It was only by the Finance Act, 2009 that sub-section (3) was inserted, initially providing for a period of limitation of two years from the end of the financial year in which the statement is filed; and four years from the end of the financial year in which the statement is filed; and four years from the end of the financial year in which the payment is made or credit is given. The provisions of section 201(3) amended by Finance Act, 2012 with retrospective effect from 01.04.2010 is applicable which reads as follows:
(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) six years from the end of the financial year in which payment is made or credit is given, in any other case Provided that such order for a financial year commencing on or before the 1st day of April, 2007 may be passed at any time on or before the 31st day of March, 2011.
10.4 The question whether the order passed u/s. 201(1) and 201(1A) of the Act for the assessment year 2011-12, was barred by limitation was decided against the assessee by the CIT(A), on the reason that it is observed from the provisions of section 201(3) that the time limit period of six years is applicable for the failure to deduct whole or any part of the tax from the person resident in India and in the appellant's case the deductee is not an Indian resident company and therefore the time limit period of six years 7 I.T.A. No. 1157/Chny/19 prescribed u/s. 201(3) will not apply to the present case. In view of the above, it is held that the order passed by the Assessing Officer is legally valid.
10.5 The learned DR submitted that the order passed u/s 201(1) and 201(1A) was not barred by limitation u/s 201(3) of the I.T. Act for the reason that the payee in the instant case is a non-resident, whereas, the limitation prescribed u/s 201(3) of the I.T. Act would apply only to payments made to Indian resident company. Section 201(3) and (4) was inserted by the Finance (No.2) Act, 2009 with effect from 01.04.2010 and it was later substituted by the Finance (No.2) Act, 2014 with effect from 01.10.2014. Prior to the time limit being prescribed by virtue of insertion of section 201(3), the Courts have held that when the statute does not prescribe the time limit for passing an order u/s 201(1) / 201(1A) of the I.T. Act, then reasonable time limit ought to be read into the provisions. The Special Bench of the Tribunal in the case of Mahindra & Mahindra Ltd. v. DCIT reported in [(2010) 122 ITD 216 (Mum.)] had held that order passed u/s 201(1) is akin to an order of assessment and the reasonable time limit for passing an order u/s 201(1) / 201(1A) would be same as the time limit prescribed for initiating and completion of reassessment u/s 147 of the I.T. Act. The Special Bench of the Tribunal was confirmed by the Hon'ble Bombay High Court in the case of Director of Income tax (International Taxation) v. Mahindra & Mahindra Ltd. reported in [(2014) 48 taxmann.com 150 (Bombay)]. The Special Bench order was considering payments made to non-residents. In our case also the payees are non- resident and that was the reason for the CIT(A) to hold that the time limit mentioned u/s 201(3) of the I.T. Act does not have application to this case.
10.6 When no time limit is prescribed under the statute for initiating and completion of a proceedings, the Hon'ble Kerala High Court in the case of Iswara Bhat v. Commissioner of Agricultural Income-tax [(1993) 200 ITR 238 (Ker.)] had held that the powers should be exercised within the reasonable time. The Hon'ble High Court was considering the powers of the Commissioner to exercise the revisionary jurisdiction. The Kerala Agricultural Income-tax Act, 1950 did not prescribe a time limit for initiating a suo moto revisional proceedings. However, the Hon'ble Kerala High Court held that the Commissioner has to pass an order within a reasonable time and what is a reasonable time limit depends on the facts of that particular case.
10.7 The Hon'ble Delhi High Court in the case of CIT v. NHK Japan Broadcasting Corporation reported in [(2008) 305 ITR 137 (Delhi)] had held that the order passed u/s 201 of the I.T. Act beyond four years was not reasonable and had quashed the same as barred by limitation. Similar view was taken by the Hon'ble Himachal Pradesh High Court in the case of CIT v. Satluj Jal Vidyut Nigam Ltd. reported in [(2012) 345 ITR 552 (HP)]. As mentioned earlier, the learned DR submitted that the time limit prescribed in sub-section (3) of section 201 does not have application since the payee is a non-resident. The Hon'ble Bombay High Court in the case of Director of Income-tax (International Taxation) v. Mahindra & Mahindra Ltd. (supra) had held even if there is no time limit prescribed under the statute 8 I.T.A. No. 1157/Chny/19 for passing an order u/s 201(1) / 201(1A) of the I.T. Act, a reasonable time limit should be read into the provision. The Hon'ble Bombay High Court had confirmed the Special Bench order of the Tribunal, wherein the time limit prescribed for initiating and completion of reassessment u/s 147 of the I.T. Act was upheld to be correct. The Hon'ble High Court was considering the following substantial question of law:-
"(1) Whether the Tribunal was justified in prescribing the time limit for initiation and completion of proceedings under sub-sections (1) and (1A) of Section 201 of the Income-tax Act, 1961 in the absence of any time-limit provided under the said Act? (2) Whether the Tribunal was justified in prescribing the time limit statutorily provided for initiation and completion of reassessment proceedings under Section 147 of the Income-tax Act, 1961 for the purposes of sub- sections (1) and (1A) of Section 201 of the said Act?"
In deciding the above question, the Hon'ble High Court confirmed the Special Bench order of the Tribunal by following the judgment of the Hon'ble Delhi High Court in the case of CIT v. NHK Japan Broadcasting Corporation (supra).
10.8 In the instant case, the financial year concerned is 2010-11 and notice for initiating proceedings u/s 201(1) / 201(1A) was issued on 19.03.2018. The orders u/s 201(1) / 201(1A) of the I.T. Act was finally passed on 31.03.2018, which is seven years from the end of the financial year. Therefore, it cannot be stated in facts of this case, the order u/s 201(1) / 201(1A) was passed within a reasonable time, going by the dictum laid down by the judicial pronouncement mentioned supra and the prescription of limitation mentioned u/s 201(3) and (4) of the I.T.Act. Similar view was taken by the Co-ordinate Bench, Cochin, vide order dated 10.04.2018 in ITA No.122/Coch/2017 for assessment year 2007-2008 in the case of M/s. U.S. Technology Resources (P) Ltd., wherein the present Accountant Member was the co-author of the said order. In view of the aforesaid reasoning, we hold that the order passed u/s 201(1)/ 201(1A) of the I.T. Act was barred by limitation in the facts and circumstances of the case. It is ordered accordingly.
We find that similar facts exist before us in the present case and the above adjudication of Tribunal would squarely apply. Respectfully following the same, the order passed in 7th year from end of relevant financial year could not be held to be legally sustainable. We order so. The order is held to be bad in law and accordingly, quashed.
7. The appeal stands allowed in terms of our above order.
6.3 Respectfully following the above decision of the Hon'ble Delhi High Court in the case of Bharati Airtel Ltd. v. UOI (supra) and the decision of 9 I.T.A. No. 1157/Chny/19 the Coordinate Benches of the Tribunal in the case of Ambattur Developer (P) Ltd. v. DCIT (supra), we are of the opinion that the order passed by the Assessing Officer after 7 years from the end of the relevant financial year could not be legally sustainable and accordingly, we quash the same. In view of the above decision, the order on merits is mere academic and requires no adjudication.
7. In the result, the appeal filed by the assessee is allowed.
Order pronounced on 20th December, 2023 at Chennai.
Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, 20.12.2023 Vm/- आदे श की ितिलिप अ ेिषत/Copy to: 1. अपीलाथ /Appellant, 2. थ / Respondent, 3. आयकर आयु /CIT, 4. िवभागीय ितिनिध/DR & 5. गाड फाईल/GF.