M/S BANGALORE WATER SUPPLY AND SEWERAGE BOARD vs. THE INCOME TAX OFFICER

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ITA/148/2011HC KarnatakaKAHC01039827201124 August 2020Bench: ALOK ARADHE,H.T. NARENDRA PRASAD13 pages
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What did the High Court hold?

The High Court held that the seminal issue is the reasonable period of limitation for initiating proceedings under Section 201(1) and 201(1A) of the Act. It noted that for the relevant assessment years (2000-01 to 2002-03), proceedings were initiated after a period of four years. The Court referred to the Supreme Court's decision in State of Punjab vs. Bhatinda District Cooperative Milk Producers Union Ltd., which indicated that three years is a reasonable period for completing assessments under Section 153, and acknowledged that the ITAT has taken the view that four years is a reasonable period for initiating action where no limitation is prescribed. Following this, the High Court held that a reasonable period for initiation of proceedings, in the absence of a prescribed limitation, is four years. Since the proceedings in this case were initiated after four years, they cannot be sustained. The substantial questions of law were answered against the revenue and in favour of the assessee. The impugned order of the Tribunal pertaining to assessment years 2000-01 to 2002-03 was quashed.

What were the facts?

The appeals by the revenue (ITA No. 166/2011) and the assessee (ITA No. 148/2011) arise from a common order of the Income Tax Appellate Tribunal (ITAT) dated January 4, 2011. The assessee, Bangalore Water Supply and Sewerage Board, engaged international consultants for the Cauvery Stage-IV water supply project. For assessment years 2000-01 to 2002-03, the assessee remitted TDS at 30% on consultancy fees. The Assessing Officer (AO) held that the consultant had a permanent establishment in India, requiring tax at 40% (or 48% for AY 2002-03), resulting in short remittance. The AO raised demands under Section 201(1) and interest under Section 201(1A) for short deduction (Rs. 3,81,21,797) and interest (Rs. 2,92,92,842). The Commissioner (Appeals) dismissed the assessee's appeal. The ITAT held that proceedings under Section 201(1) and 201(1A) are time-barred if initiated beyond four years (for tax deducted < Rs. 1 Lakh) or six years (for tax deducted > Rs. 1 Lakh) from the end of the assessment year.

What were the issues?

1. Whether the Tribunal was correct in holding that initiation of proceedings under Section 201(1) and 201(1A) of the Act is barred by limitation, specifically if the short deduction exceeds Rs. 1 Lakh and proceedings are initiated beyond six years from the end of the relevant assessment year, relying on M/s Mahendra & Mahendra and CIT vs. NHK Japan Broadcasting Corporation. (Revenue's contention: No time limit can be prescribed where the statute does not provide one; in any case, it should be six years). 2. Whether the Tribunal was correct in laying down a period of limitation for initiation of proceedings under Section 201(1) when the legislation had omitted such a period, considering Section 201(3) proviso. (Revenue's contention: Same as above). 3. What is the reasonable time within which proceedings have to be initiated under Section 201(1) of the Income Tax Act, as the statute did not prescribe any period of limitation during the relevant period. (Assessee's contention: The issue of limitation for proceedings under Section 201(1) and 201(1A) is res integra and relies on multiple High Court and Supreme Court decisions including State of Punjab vs. Bhatinda District Cooperative Milk Producers Union Ltd., CIT vs. Bharat Hotels Ltd., CIT vs. NHK Japan Broadcasting Corporation, Bharti Airtel Ltd vs. UOI, CIT vs. CJ International Hotels (P) Ltd, CIT v. UB Electronic Instruments Ltd, DIT vs. Mahindra and Mahindra, and CIT V Satluj Jal Vidyut Nigam Ltd).

Which sections of the Income-tax Act were involved?

Section 201(1),Section 201(1A),Section 201(3),Section 153,Section 147,Section 148

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 24TH DAY OF AUGUST 2020

PRESENT

THE HON’BLE MR. JUSTICE ALOK ARADHE

AND

THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD

I.T.A. NO.166 OF 2011 C/W I.T.A. NO.148 OF 2011

I.T.A. NO.166 OF 2011 BETWEEN:

1.

THE DIRECTOR OF INCOME-TAX

INTERNATIONAL TAXATION

RASHTROTHANA BHAVAN

NRUPATHUNGA ROAD

BANGALORE.

2.

THE INCOME-TAX OFFICER

INTERNATIONAL TAXATION, WARD1(1)

RASHTROTHANA BHAVAN

NRUPATHUNGA ROAD, BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,)

AND:

THE EXECUTIVE ENGINEER NO.1, CAUVERY DIVISION M/S. BANGALORE WATER SUPPLY AND SEWERAGE BOARD NO.720, 46TH CROSS, 8TH BLOCK JAYANAGAR, BANGALORE-560070. ... RESPONDENT

(BY SRI. A. SHANKAR, SR. COUNSEL, A/W SRI. B.S. BALACHANDRAN AND SRI. ANKUR PAI, ADVS.) - - -

THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961, ARISING OUT F ORDER DATED 04.01.2011 PASSED IN ITA NO.1067/BANG/2008, FOR THE ASSESSMENT YEAR 2000-01, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (I) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.1067/BANG/2008 DATED 04-01-2011 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER, INTERNATIONAL TAXATION, WARD-1(1), BANGALORE IN THE INTEREST OF JUSTICE AND EQUITY.

I.T.A. NO.148 OF 2011

BETWEEN:

M/S. BANGALORE WATER SUPPLY AND SEWERAGE BOARD 1ST FLOOR, KAVERI BHAVAN KEMPE GOWDA ROAD, BANGALORE-560009 REP. BY ITS FA AND CAO SRI. C.V. PRASAD, MAJOR S/O SRI. LATE CHITTETY A. ... APPELLANT (BY SRI. A. SHANKAR, SR. COUNSEL, A/W SRI. B.S. BALACHANDRAN AND SRI. ANKUR PAI, ADVS.)

AND:

THE INCOME TAX OFFICER INTERNATIONAL TAXATION WARD 19(1), No.14/3, R.P. BHAVAN NRUPATUNGA ROAD, BANGALORE-560001. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) - - -

THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961, ARISING OUT F ORDER DATED 04.01.2011 PASSED IN ITA NOs.1065 TO 1067/BANG/2008 FOR THE ASSESSMENT YEAR

2000-01 TO 2002-03, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (I) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE APPELLATE TRIBUNAL DATED 04-01-2011 IN ITA NOs.1065 TO 1067/BANG/2008, IN THE INTEREST OF JUSTICE AND EQUITY.

THESE ITAs COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:

COMMON JUDGMENT

I.T.A.No.166/2011 under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’ for short) has been preferred by the revenue, whereas, I.T.A.No.148/2011 has been preferred by the assessee. Since, both the appeals arise out of common order passed by the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’, for short) and on account of similarity of substantial questions of law involved in these appeals, they were heard together and are being decided by this common judgment. I.T.A.No.148/2011 pertains to the Assessment years 2000-01 to 2002-03, whereas, I.T.A.No.166/2011 pertains to Assessment year 2000-01.

2.

I.T.A.No.166/2011 was admitted by a bench of this Court vide order dated 30.01.2012 on the following substantial questions of law:

(i) Whether the Tribunal was right in holding that initiation of proceedings under Section 201(1) and 201(1A) of the Act is beyond the period of six years of the short deduction is above one lakh as in this case, then the same would be barred by limitation as held in the case of M/S MAHENDRA & MAHENDRA, (2002) 122 TTJ (MUM) (SB) 577 and the decision of the Delhi High Court in the case of CIT VS. NHK JAPAN BROADCASTING CORPORATION, (2008) 305 ITR 137?

(ii) Whether the Tribunal was correct in proceeding to lay down the period of limitation for initiation of proceedings under Section 201(1) of the Act when the legislation has specifically omitted such period prescribed under the earlier Section 231 of the Act and Section 201(3) of the Act proviso clearly provide that in respect of any financial year

commencing on or before 1.04.2007 can be passed on or before 31.03.2011?

3.

I.T.A.No.148/2011 was admitted by a bench of this court vide order dated 29.08.2011 on the following substantial question of law:

(i) What is the reasonable time within which the proceedings have to be initiated under Section 201(1) of the Income Tax Act, as during the relevant period, the statute did not prescribe any period of limitation?

4.

Facts leading to filing of these appeals briefly stated are that assessee is a Government of Karnataka undertaking, which is constituted under the Bangalore Water Supply and Sewerage Act, 1964 to make provision for supply, sewerage and the sewage deposited in Bangalore Metropolitan Area and matters connected therewith. The assessee implemented and commissioned Cauvery Stage – I, II and III water supply projects and in order to meet the growing demand for water, the assessee envisaged a project

called ‘Cauvery Stage – IV’ to draw 270 litres of water per day from Cauvery River. In order to get the benefit of consultancy services of International Standards, the assessee floated global tenders and contract for Stage – I project was awarded to a Consortium, consisting of two companies and an agreement was executed on 29.11.1996 as per which maximum charges payable for consultancy services were Rs.19,64,71,161/-. Thereafter, a supplementary agreement was executed on 29.03.2002 for enhanced charges. For the Assessment years 1998-99 to 2005-06, the assessee remitted the tax deducted at source at the rate of 30% as the amount paid was in the nature of fee for technical services payable by the State Government in pursuance of an agreement.

5.

The Assessing Officer by an order dated 21.11.2006 for all the years under dispute held that the assessee was required to remit tax at the rate of 48% for the financial years upto 2001-2002 (Assessment

years 2002-03) and at the rate of 40% for the subsequent years on the ground that the consultant had a permanent establishment in India and therefore, the payment would be subject to tax at the maximum rate of 40% applicable to any foreign company and the assessee action in remitting tax at the rate of 40% had resulted in short remittance. The assessee was held as an assessee in default in terms of Section 201(1) of the Act and a demand was also made for interest as per Section 201(1A) of the Act. Accordingly, a sum of Rs.3,81,21,797/- was demanded towards short deduction and a demand for a sum of Rs.2,92,92,842/- was made on account of interest for all the years. Being aggrieved, the assessee filed an appeal.

6.

The Commissioner of Income Tax (Appeals) by an order dated 13.11.2007 dismissed the appeal. The assessee thereupon approached the Income Tax Appellate Tribunal. The Tribunal by an order dated 04.01.2011 inter alia held that period of limitation for

initiating proceedings under Section 201(1) and 201(1A) of the Act is four years from the end of relevant Assessment years, where the tax deducted is less than Rs.1 Lakh and if it is more than Rs.1 Lakh the period of limitation would be six years. The Tribunal accordingly directed the Assessing Officer to verify the period of limitation in the aforesaid case and where the limitation of the proceeding is after six years from the end of relevant Assessment years, the said proceedings were held to be quashed. In the aforesaid factual background, the assessee as well as revenue have approached this court by filing these appeals.

7.

Learned counsel for the revenue submitted that no time limit can be prescribed for initiation of a proceeding where the statute does not provide the same. It is further submitted that in any case, it should be held to be six years. On the other hand, learned Senior counsel for the assessee has held that the issue with regard to limitation for initiation of proceeding

under Section 201(1) and 201(1A) of the Act is no longer res integra. In this connection, reliance has been placed on decision of the Supreme Court in ‘STATE OF PUNJAB V. BHATINDA DISTRICT COOPERATIVE MILK PRODUCERS UNIION LTD.’, (2007) 11 SCC 363 as well as decision of this court in ‘CIT VS. BHARAT HOTELS LTD.,’, 384 ITR 77 (KARNATAKA), decisions of Delhi High Court in ‘CIT V. NHK JAPAN BROADCASTING CORPORATION’, 305 ITR 137 (DELHI), ‘BHARTI AIRTEL LTD VS. UOI’, 245 TAXMAN 80 (DELHI), ‘CIT VS. CJ INTERNATIONAL HOTELS (P) LTD’, 372 ITR 684 (DELHI), decision of Andhra Pradesh High Court in ‘CIT V. UB ELECTRONIC INSTRUMENTS LTD’, 371 ITR 314 (ANDHRA PRADESH), decision of Bombay High Court in ‘DIT VS. MAHINDRA AND MAHINDRA’, 365 ITR 560 (BOMBAY) and decision of High Court of Himachal Pradesh in ‘CIT V SATLUJ JAL VIDYUT NIGAM LTD’, 345 ITR 552 (HIMACHAL PRADESH).

8.

We have considered the submissions made by learned counsel on both the sides and have perused the record. The seminal issue, which arises for consideration in these appeals is with regard to the reasonable period of limitation for initiation of proceeding under Section 201(1) and 201(1A) of the Act. It is not in dispute that for the relevant Assessment years i.e., 2000-01 to 2002-03, the proceedings were initiated after a period of four years. The aforesaid issue is no longer res integra. The Supreme Court in BHATINDA DISTRICT COOPERATIVE MILK PRODUCERS UNION LTD., (supra) has held as follows: 18. Insofar as the Income-Tax Act is concerned, our attention has been drawn to S.153(1)(a) thereof which prescribes the time limit for completing the assessment, which is two years from the end of the Assessment year in which the income was first assessable. It is well known that the Assessment year follows the previous year

and, therefore, the time limit would be three years from the end of the financial years. This seems to be a reasonable period as accepted under Section 153 of the Act, through for completion of assessment proceedings. The provisions of reassessment are under Sections 147 and 148 of the Act and they are on a completely differing footing and, therefore, do not merit consideration for the purpose of this case.

19.

Even though the period of three years would be a reasonable period as prescribed under Section 153 of the Act for completion of proceedings, we have been told that Income Tax Appellate Tribunal has, in a series of decisions, some of which have been mentioned in the order which is under challenge before us, taken the view that four years would be a reasonable period of time for initiating action, in a case where no limitation is prescribed.

The aforesaid decision was followed by a division bench of this court in BHARAT HOTELS LTD supra.

9.

In view of aforesaid enunciation of law, it is axiomatic that reasonable period for initiation of proceedings in respect of the Assessment years in question, at the time where no limitation was prescribed has been held to be four years. It is not in dispute that in the instant case, the proceedings under Section 201(1) and 201(1A) of the Act have been initiated after a period of four years. Therefore, the same cannot be held to be initiated within the reasonable time and consequently, the proceedings cannot be sustained in the eye of law.

In view of preceding analysis, the substantial questions of law framed in I.T.A.No.166/2011 are answered against the revenue and in favour of the assessee. The substantial question of law framed in assessee’s appeal is answered in favour of the assessee and against the revenue. The impugned order of the Tribunal insofar as it pertains to Assessment years 2000-01 to 2002-03 is hereby quashed. In the result,

I.T.A.No.148/2011 is allowed, whereas I.T.A.No.166/2011 is dismissed.

Sd/- JUDGE

Sd/- JUDGE ss

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