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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Per GEORGE GEORGE K.,JUDICIAL MEMBER:
This appeal at the instance of the assessee is directed against the order of the
CIT(A) dated 28/02/2017. The assessee has also filed Stay Petition in S.P.
No.27/Coch/2017. The relevant assessment year is 2007-08.
The brief facts of the case are as follows:
The assessee is a company engaged in providing software development
services towards customers based in India. The assessee-company had been
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paying managerial service fees to its affiliate UST Global Inc., USA (USTG) from
the assessment year 2007-08 to 2013-14 under the Managerial Services
Agreement (MSA). For the assessment year 2007-08, the assessee had paid a
total sum of Rs.82,11,622/- to USTG without deducting tax at source under
section 195 of the I.T. Act. The Assistant Commissioner of Income-tax
(international Taxation), Trivandrum (Assessing Officer) was of the view that
these payments made by the assessee to non-resident company, namely USTG
Inc, USA requires withholding of tax u/s. 195 of the I.T. Act. Therefore, the
Assessing Officer passed an order u/s. 201(1) and 201(1A) of the I.T. Act,
making the assessee liable for a total sum of Rs.16,82,683/- which includes
interest u/s. 201(1A) of the Act amounting to Rs. 8,24,160/-.
Aggrieved by the order passed u/s. 201(1) and 201(1A) of the Act, the
assessee preferred an appeal to the first appellate authority. It was contended
before the first appellate authority that the assessee is not liable for deduction of
tax at source u/s. 195 of the I.T. Act with regard to the managerial services fees
paid to UST Global Inc, USA. It was further contended by the assessee that the
order passed u/s. 201(1) and 201(1A) of the Act is barred by limitation. The
CIT(A) following the order of the Tribunal in assessee’s own case in I.T.A. No.
222/Coch/2013 (order dated 27/09/2013) held that the assessee is liable for tax
deduction at source u/s. 195 of the Act with regard to payment made by it for
managerial services fees to UST Global Inc, USA. The plea of the assessee that
3 ITA No.122/Coch/2017 & S.P. No.27/Coch/2017
the order passed u/s. 201(1) and 201(1A) of the Act was barred by limitation
was also rejected by the CIT(A).
Aggrieved by the order of the CIT(A), the assessee has filed the present
appeal before the Tribunal. The Ld. Counsel for the assessee fairly admitted
that the issue on merits is covered against the assessee by the order of the
Tribunal in ITA Nos. 99-104/Coch/2017 for the assessment years 2008-09 to
2013-14 (order dated 29/01/2018) and also ITAT order in ITA No.
222/Coch/2013 (order dated 27/09/2013). However the Ld. Counsel for the
assessee argued that the order passed u/s. 201(1) and 201(1A) of the Act is
barred by limitation, since it was passed beyond the period of six years from the
end of the financial year in which the transaction was made. The ld. Counsel for
the assessee strongly relied on the judgment of the Hon’ble Bombay High Court
in the case of Director of Income-tax (International Taxation) vs. Mahindra &
Mahindra Ltd. reported in 365 ITR 560.
The Ld. DR on the other hand strongly supported the orders of the Assessing
Officer and the CIT(A).
We have heard the rival submissions and perused the material on record.
As regards the issue on merits, it was fairly admitted by the Ld. Counsel for the
assessee that the matter is covered in favour of the Revenue by the orders of
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the Tribunal in ITA No. 222/Coch/2013 (supra) and in ITA Nos.99-
104/Coch/2017 (supra). In ITA No. 222/Coch/2013 (supra), the Tribunal held
that the assessee is liable for tax deduction at source u/s. 195 of the Act with
regard to the managerial services fees paid by the assessee to UST Global Inc,
USA and therefore the Tribunal concluded that the said expenditure was rightly
disallowed by the Assessing Officer, by invoking the provisions of sec. 40(a)(ia)
of the I.T. Act. In ITA No. 99-104/Coch/2017, the Tribunal upheld the order
passed u/s. 201(1) and 201(1A) of the Act for the assessment years 2008-09 to
2013-14. In view of the above orders of the Tribunal, on merits, we hold that
the assessee was liable for withholding tax u/s. 195 of the Act in respect of
payment made by it for managerial services fees.
6.1 The question whether the order passed u/s. 201(1) and 201(1A) of the Act
for the assessment year 2007-08, was barred by limitation was decided against
the assessee by the CIT(A), by observing as under:
“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 UST Global Inc USA is a resident of United States of America and not an Indian resident company and therefore the time limit period of six years 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.”
6.2 The CIT(A) held 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)
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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.
6.3 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.)]
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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 fcts
of that particular case.
6.4 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 CIT
had held 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 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
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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).
6.5 In the instant case, the financial year concerned is 2006-2007 and notice
for initiating proceedings u/s 201(1) / 201(1A) was issued on 30.04.2014, i.e.
more than seven years from the end of the financial year. The orders u/s 201(1)
/ 201(1A) of the I.T. Act was finally passed on 30.05.2016, which is more than
eight 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. In view of the aforesaid reasoning, we hold that the order passed
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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.
S.P. No. 27/Coch/2017
Since we have disposed of the appeal of the assessee, the Stay Petition
filed by the assessee has become infructuous and the same is dismissed as
infructuous
In the result, the appeal of the assessee is allowed and the Stay Petition filed
by the assessee is dismissed. Pronounced in the open court on 10th April, 2018
sd/- sd/- (CHANDRA POOJARI) (GEORGE GEORGE K.) ACCOUNTANT MEMBER JUDICIAL MEMBER
Place: Kochi Dated: 10th April, 2018 GJ Copy to: 1. M/s. US Technology Resources Private Limited, 721, Nila, Technopark Campus, Kariyavattom,Trivandrum-695 581. 2. The Assistant Commissioner of Income-tax (International Taxation), Trivandrum. 3. The Commissioner of Income-tax(Appeals)-III, Kochi. 4. The Pr. Commissioner of Income-tax, Trivandrum. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order
(ASSISTANT REGISTRAR) I.T.A.T., Cochin
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