THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE LAXMI NARAYANA ALISHETTY
I.T.T.A.Nos.11, 13 and 14 of 2021
COMMON JUDGMENT: (per Hon'ble Sri Justice P.SAM KOSHY)
These three appeals are arising out of one common
order passed in bunch of five appeals in respect of the
same assessee for the different assessment years which are
under challenge in the present appeals.
2. Heard Ms. K. Mamata, learned counsel for the
appellant and Mr. Sanchith Jolly, learned counsel for the
respondent (appearing virtually).
3. For sake of convenience, the facts in I.T.T.A.No.11 of 2021 are discussed herein under.
4. The instant appeal is filed by the Revenue questioning the order passed by the Income Tax Appellate Tribunal, Hyderabad 'B' Bench, Hyderabad, (for short 'the Tribunal') in I.T.A.Nos.166, 167, 168, 169 and 170/Hyd/2019 decided on 11.03.2020.
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5. The question of law to be considered was "whether the payments made to the international telecom operators be held to be in the nature of fees for technical services or not."
6. Initially the Assessing Officer had issued a show cause notice on 25.11.2016 to which the assessee gave his explanation categorically taking a stand that the payments made by the assessee to the international telecom operators do not fall in the category of 'fees for technical services'. The Assessing Officer not being convinced with the submissions had passed an order holding that the assessee is liable to make TDS. Since the TDS was not made, the assessee was ordered to be declared as "an assessee in default" under Section 201(1) and interest under Section 201(1A) of the Income Tax Act, 1961 (for short 'the Act').
7. The assessee immediately preferred an appeal before the Commissioner of Income Tax (Appeals)-10, Hyderabad, which granted relief to the assessee relying upon the decision of the jurisdictional High Court in the case of 3 COMMISSIONER OF INCOME-TAX v. U. B. ELECTRONIC INSTRUMENTS LIMITED 1 and held that the show cause notice issued by the Assessing Officer initiating proceedings under Section 201(1) is barred by limitation. Against the said order of the Commissioner of Income Tax (Appeals), the appellant/Revenue preferred an appeal before the Tribunal. It is these rejections of the appeals by the Tribunal vide the impugned order which has led to the filing of the present appeals.
8. A plain perusal of the order passed by the Commissioner of Income Tax (Appeals) so also the Tribunal would evidently reflect that the two forums had proceeded and taken into consideration four (4) years as the prescribed period within which the proceedings under Section 201(1) and 201(1A) had to be initiated.
9. It would be relevant at this juncture to take note of the decision of this High Court itself in the case of Dr. Reddys Laboratories Limited v. The Deputy 1 [2015] 371 ITR 314 (T & AP) 4 Commissioner of Income Tax I 2 wherein the Division Bench of this High Court vide its judgment dated 21.06.2023 in paragraph Nos.26 to 31 held as under:
"26. With utmost respect, we are unable to agree with the views expressed by the Delhi High Court. As we have already seen, initially the statute did not provide for any limitation, be it a resident Indian or a non-resident Indian. Subsequently, by way of amendment, sub-section (3) was inserted in Section 201 of the Act. Presently, the limitation for passing of an order under Section 201(1) of the Act post the last amendment is seven years insofar a person resident in India is concerned. The present case covers the assessment year 2016-2017, which is well after the last of the amendments were made and when limitation period qua resident Indians is seven years.
27. We have also seen that the legislature has consciously not prescribed any time limit for an order under Section 201(1) of the Act insofar a non-resident is concerned; the reason being that if the deductee is a non-resident, it may not be administratively possible to recover the tax from the non-resident. Therefore, it would be wrong to read into Section 201(3) of the Act a period of limitation insofar non- resident is concerned; doing so would amount to legislating by the Court which is not permissible.
28. At the same time, it must also be kept in mind that even though there is no limitation prescribed by the statute, the order under Section 201(1) of the Act qua non- resident has to be passed within a reasonable period.
29. Now the question is, what is a reasonable period in the absence of any statutory limitation ? In our considered opinion, there cannot be a straight jacket answer to such a question. What is a reasonable period would depend upon the facts and circumstances of each case. Therefore, as a general principle it may not be possible as well as feasible on the part of the Court to say definitely that a period of four years or one year would be the period of limitation for passing an order under Section 201(1) or 201(1A) of the Act when the legislature has consciously not prescribed any such limitation. But one thing is very clear, that is, 2 WP 1513 of 2019 of High Court for the State of Telangana dated 21.06.2023 5 when the legislature has prescribed a period of seven years as the limitation for a resident Indian, it would not be justified to read a limitation of less than seven years in the case of a non-resident. The difficulty that would accrue to realisation of tax qua a nonresident would be much more than that of a person, who is a resident. In our view, limitation period of seven years prescribed for a resident Indian would be a useful guide to determine what would be a reasonable period in the case of a non-resident Indian.
30. In the instant case, it is seen that following a survey operation under Section 133A of the Act on 30.12.2015, it was detected that petitioner had made two payments to two foreign companies but did not deduct TDS under Section 195 of the Act. It was thereafter that the show cause notice was issued on 20.01.2016. It would be interesting to note that on the ground that the two foreign companies had filed applications before the AAR as to taxability of such transactions, petitioner had filed an application before respondent No.1 to keep the proceedings under Section 201 of the Act in abeyance. Such an action of the petitioner would run counter to its very contention that the proceedings concluded by respondent No.1 was beyond limitation.
31. Be that as it may, such a contention was rejected by respondent No.1 and insofar limitation is concerned, respondent No.1 held that though the Act did not provide for any time limit for passing an order under Section 201(1) of the Act, nonetheless principles of natural justice would require that proceedings should be completed within a reasonable time. Respondent No.1 further noted that the survey was conducted on 30.12.2015, show cause notice was issued on 20.01.2016 and the proceedings came to be concluded on 14.12.2018 which was within a reasonable time."
10. Though at the stage of admission, Sri Sanchith Jolly, learned counsel appearing for the respondent (appearing virtually) contended that the core issue involved in the case is, "as to whether the payments made to the international telecom operators be held to be in the nature of fees for 6 technical services or not" has been now laid to rest by the Department itself wherein the Joint Director of Income Tax (OSD)(LNR) New Delhi, vide its correspondence dated 21.04.2022 had decided as a matter of principle not to challenge any further the judgment of the High Court of Karnataka in an identical issue in the case of Commissioner of Income Tax TDS, Bangalore vs. Vodafone South Ltd. 3. Thus the present appeals according to the learned counsel for the respondent is left only with academic interest and prayed for rejection of the appeals.
11. However, the learned counsel for the respondent does not dispute the fact that the Division Bench of this very High Court itself recently had taken a view that there is no specific period of limitation prescribed for initiating a proceeding under Section 201(1) and 201(1A) of the Act.
12. In the given factual backdrop and the recent decision of the Division Bench of this very High Court in the case of Dr. Reddys Laboratories Limited (supra), which as a 3 2016 (72) taxmann.com 347 (Karnataka) 7 matter of judicial propriety binds this Bench also, we are inclined to endorse the view of the Division Bench of this Court. What needs to be considered is the fact that the Division Bench in the case of Dr. Reddys Laboratories Limited (supra) have also considered the decision of the High Court of Delhi and have reached to a specific conclusion that the term 'reasonable period' in the absence of any statutory limitation cannot be accepted as a straight jacket answer.
13. It was also held by the Division Bench of this Court that what is a reasonable period would depend on the facts and circumstances of each case. The Division Bench went on to quote that neither a period of four (4) years nor a period of one (1) year can be said to be the period of limitation for passing of an order under Section 201. Since the Commissioner of Income Tax (Appeals) so also the Tribunal have decided the two appeals accepting the period of limitation to be four (4) years, which in the teeth of the order of the Division Bench in the case of Dr. Reddys Laboratories Limited (supra) cannot be said to be proper, legal or justified.
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14. We are of the considered opinion that the orders therefore, are not sustainable and the same deserves to be and are ordered accordingly. The matter is further ordered to be remitted back to the Commissioner of Income Tax (Appeals) for passing of fresh orders in the light of the observations made by the Division Bench of this Court while deciding the case of Dr. Reddys Laboratries Limited (supra).
15. Accordingly, the appeals stand allowed. No order as to costs.
As a sequel, miscellaneous petitions, if any pending, shall stand closed.
___________________ P. SAM KOSHY, J ___________________________________ LAXMI NARAYANA ALISHETTY, J Date: 19.10.2023 GSD