M/S. HAMIR REAL ESTATE PVT. LTD.,DELHI vs. ITO (TDS), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”, NEW DELHI BEFORE SHRI G. D. AGRAWAL, PRESIDENT & SHRI AMIT SHUKLA, JUDICIAL MEMBER I.T.A. No.5799/DEL/2015 Assessment Year:2009-10 Hamir Real Estate Pvt. Ltd. v. ITO(TDS) 104A, Triveni Plaza Building Ward 1(2) 17A/57, WEA Karol Bagh New Delhi Delhi TAN/PAN:AABCH8828B (Applicant) (Respondent) Applicant by: Shri Ajay Vohra & Shri Gaurav Jain, Advocates Respondent by: Shri S.S. Rana,CIT (D.R.) Date of hearing: 21 08 2017 Date of pronouncement: 18 09 2017 O R D E R PER AMIT SHUKLA, J.M.: The aforesaid appeal has been filed by the assessee against the impugned order dated 20/8/2015, passed by the ld. CIT (Appeals)-43, New Delhi in relation to the order passed under section 201 of the Act for the assessment year 2009-10. 2. In the grounds of appeal, the assessee has raised the following grounds:- 1. That the Commissioner of Income Tax (Appeals) [‘CIT(A)’] erred on facts and in law in not quashing the order passed by the assessing officer under section 201 r.w.s 195 of the Income-tax Act, 1961 (“the Act”) treating the appellant to be

2 I.T.A. No.5799/DEL/2015 in default for alleged non-deduction of tax at source from payment to Mr. Surinder Singh Chahal for purchase of land at Mohali, on the ground of being initiated, and the impugned order being passed, beyond the period of limitation and was, thus, beyond jurisdiction, bad in law and void-ab-initio. 1.1 That the CIT (A) erred on facts and in law in holding that time limit for initiating proceedings under section 201 should be more than six/ seven years in cases where deductee is a non-resident (as in present case), while applying the period of limitation provided in section 201(3) of the Act, failing to appreciate that the said provisions were not applicable upon the appellant. Without prejudice 2. That the CIT(A) erred on facts and in law in upholding the action of the assessing officer in treating the appellant to be in default for alleged failure to deduct tax at source from payment made to non-resident. 3. That the CIT(A) erred on facts and in law in not holding that the appellant was not an assessee in default since the Revenue had traced, framed assessment and initiated recovery proceedings against, the non-resident recipient. 3.1 That the CIT (A) erred on facts and in law in not appreciating that the proceedings under section 201 of the Act can be initiated/ carried on against the deductor, only when the assessment could not be framed upon the payee/recipient of income. 3.2 That the CIT (A) erred on facts and in law in holding that mere framing of assessment on the non-resident did not absolve the payer from liability under section 201 of the Act.

3 I.T.A. No.5799/DEL/2015 4. That the CIT (A) erred on facts and in law in not deleting the interest of Rs.71,73,500 charged under section 201(1A) of the Act. 3. At the outset, the Ld. Sr. counsel for the assessee, Shri. Ajay Vohra submitted that initiation of proceedings under section 201 of the Act is barred by limitation, as the same has been done beyond the period of four years from the end of the relevant financial year. Therefore, in view of the judgment of the Hon'ble jurisdictional High Court in the case of CIT vs. NHK Japan Broadcasting Corpn., 305 ITR 137 (Del), which has been reiterated in a recent judgment by the Hon'ble High Court in the case of Bharti Airtel Ltd. vs. Union of India, 245 taxman 80 (Del), that the initiation of proceedings under section 201 after the expiry of 4 years from the end of the relevant assessment year is unjustified. Apart from that, catena of other judgments have also been filed for the same proposition, the list of which are as under:- l. Bharti Airtel Ltd. v. U. 0.I, 245 Taxman 80 (Del) Vodafone Essar Mobile Services Ltd. v U.O.I., 385 ITR 2. 436 (Del) CIT v. NHK Japan Broadcasting Corpn., 305 ITR 137 3. (Del) CIT v. C.J. International Hotels (P.) Ltd: 372 ITR 684 4. (Del) 5. CIT v. Bharat Hotels Ltd., 384 ITR 77 (Kar) 6 ACIT v. Catholic Relief Services, 55 SOT 405 (Del Trib.) Crompton Greaves Ltd. v. DCIT; 149 TTJ 484 (Mum 7. Trib.) -> ^/

4 I.T.A. No.5799/DEL/2015 4. Explaining the brief facts qua the preliminary issue of limitation, Mr. Vohra submitted that the assessee is a private limited company which is engaged in the business of real estate. It had purchased a land in Mohali from one, Shri Surinder Singh Chahal vide sale deed dated 27/6/2008 for a consideration of Rs.5,55,04,626/-. At the time of purchase, the assessee was under a belief that the seller was an Indian national residing in native village in Mohali and the land was situated in India and payment will also be made in India. Accordingly, there was a bona-fide belief that the payment for purchase of land was not subject to TDS under the provisions of Income Tax Act. Subsequently, the Assessing Officer initiated the proceedings under section 201 vide notice dated 17/4/2013 on the ground that Shri Surinder Singh Chahal was resident of USA and the assessee was required to deduct TDS under section 195. Before the Assessing Officer, the assessee had challenged the limitation for issuance of such notice after a lapse of four years from the end of relevant financial year and hence, the proceeding is beyond the reasonable time period and barred by limitation. The Assessing Officer, rejected the assessee’s objection on the ground that the time period for issuing notice under section 201(1)(a) of the Act as per provisions of section 201(3)(ii) applies in case where payment is made to resident of India. In any case, clause (ii) to section 201(3) read with proviso thereto prescribes time limit of six years from the end of the financial year and therefore it is within time limit. He also referred to the Explanatory note to the Finance Act, 2009, wherein the amendment in sub-section (3) to section 201 had been explained in the following manner:- “Explanatory Circular for Finance (No. 2) Act, 2009

5 I.T.A. No.5799/DEL/2015 50. Providing time limits for passing of orders u/s 201(1) holding a person to be an assessee in default 50.1 Currently, the Income Tax Act does not provide for any limitation of time for passing an order u/s 201(1) holding a person to be an assessee in default. In the absence of such a time limit, disputes arise when these proceedings are taken up or completed after substantial time has elapsed. In order to bring certainty on this issue, specific time limits is provided in the Act within which order u/s 201(1) will be passed. 50.2 It has been provided that an order u/s 201(1) for failure to deduct the whole or any part of the tax as required under this Act, if the deductee is a resident taxpayer, shall be passed within two years from the end of the financial year in which the statement of tax deduction at source is filed by the deductor. Where no such statement is filed, such order can be passed up till four years from the end of the financial year in which the payment is made or credit is given. To provide sufficient time for pending cases, it is provided that such proceedings for a financial year beginning from 1st April, 2007 and earlier years can be completed by the 31st March, 2011. 50.3 However, no time-limits have been prescribed for order under sub-section (1) of section 201 where:- (a) the deductor has deducted but not deposited the tax deducted at source, as this would be a case of defalcation of government dues, (b) the employer has failed to pay the tax wholly or partly, under sub-section (1A) of section 192, as the employee would not have paid tax on such perquisites,

6 I.T.A. No.5799/DEL/2015 (c) the deductee is a non-resident as it may not be administratively possible to recover the tax from the non-resident.” 5. Relying upon the provisions of the Act read with Explanatory notes to the Finance Act, 2009, AO held that there is no limitation period for passing an order under section 201(1) (a), when the deductee is a non-resident and, therefore, the contention of the assessee that the action is barred by limitation is devoid of any legal merits. Accordingly, AO held that the assessee was liable to deduct tax under section 195 while making payment to Shri Surinder Singh Chahal on purchase of land in Mohali and treated the assessee as assessee-in-default and levied tax and interest for the sums aggregating to Rs.1,82,09,546/-. 6. Before the ld. CIT (A), the assessee had strongly relied upon the judgment of the Hon'ble Delhi High Court in the case of CIT vs. NHK Japan Broadcasting Corpn. (Supra) and also the judgment in the case of Hutchisson Essar, reported in 323 ITR 20 (DEL). The ld. CIT (A), held that in the amendment in section 201(3), brought w.e.f. 1.4.2014, the time limit has not been prescribed with regard to the failure to deduct whole or any part of tax from a person who is not resident in India. He too relied upon the Explanatory notes in this as referred by the Assessing Officer and distinguished the judgment of the Hon'ble Delhi High Court in the case of CIT vs. NHK Japan Broadcasting Corpn. (supra) on the ground that now in the wake of amendment brought in law by the Finance Act (No.2) of 2009, amendment with regard to time limit has been prescribed for six years, which has again been enhanced to 7 years vide Finance Act, 2014 the

7 I.T.A. No.5799/DEL/2015 assessee’s plea for limitation period of 4 years will not be applicable. Accordingly, Ld. CIT (A) held that proceedings are not barred by limitation and reasonable time limit for initiation of proceedings for default in deduction of tax on payments made to non-resident, if at all, is more than six or seven years as prescribed in section 201(3) and the judgment of Hon'ble Delhi High Court referred to above will not be applicable at all. The detailed finding of the ld. CIT (A) in this regard appears from pages 6 to 16 of the appellate order. 7. Shri Ajay Vohra, Sr. Advocate, submitted that this precise issue has been answered by the Hon'ble Delhi High Court in the case of Bharti Airtel Ltd. vs. Union of India (supra), wherein the Hon’ble High Court has taken note of the amendment as well as the Explanatory notes to Finance Act, 2009 which has been referred and relied upon by the Assessing Officer as well as the ld. CIT (A). After considering the entire gamut of the provisions as well as various decisions, the Hon'ble High Court, have reiterated that notice under section 201 to the assessee in respect of payments made to non-residents after expiry of four years from the end of the relevant financial year, is clearly barred by limitation. Thus, this judgment clearly clinches the issue in favour of the assessee. 8. On the other hand, the ld. D.R. strongly relied upon the order of the ld. CIT (A) and submitted that the provisions as amended from time to time in section 201(3) laying down limitation period should be followed as the time limit is clearly 6 years from the end of the relevant financial year.

8 I.T.A. No.5799/DEL/2015 9. We have heard the rival submissions and perused the relevant finding given in the impugned order qua the issue relating to limitation as challenged by the assessee in ground No.1.1. Admittedly, here in this case the transaction of purchase of land by the assessee was conducted on 27/6/2008 [financial year 2008-09] relevant to the assessment year 2009-10. The payment for purchase of land has been made to a non-resident without deducting tax at source. The proceedings under section 201 has been initiated vide notice dated 17/4/2013 which is clearly after a lapse of four years from the end of the relevant financial year, that is, 4 years from 31/3/2009. Both the authorities, have heavily relied upon the amendment made in section 201(3) which was applicable during the relevant period when the period of limitation provided was six years from the end of the financial year in which payment is made or credit is given; which was later on was enhanced to seven years by the Finance Act, 2014, w.e.f. 1/10/2014. On this ground, it has been held that the judgment of Hon'ble Delhi High Court in the case of CIT vs. NHK Japan Broadcasting Corpn. (Supra) will not apply because at that time no such limitation was provided in the statute, as the order of the Hon'ble High Court itself is dated 23/4/2008. Now as pointed out by the ld. Counsel for the assessee, the jurisdictional High Court in the case of Bharti Airtel Ltd. vs. Union of India (supra) has decided exactly similar issue wherein they have held that period of limitation prescribed under the amended Act is only applicable for the payments made to residents of India and the Parliament has not said anything or remained silent on payments made to non- resident while amending the said provision. We find that the issue before the Hon'ble High Court was that, whether the

9 I.T.A. No.5799/DEL/2015 assessee is legally correct in contending that if the Act does not specify a time period, then a reasonable time period should be read into the Act and earlier judgment rendered on this issue was delivered when the Parliament did not made any distinction between the resident and non-resident. Therefore, the remote question will be whether such distinction exists and can one read a reasonable time period into that for the payment made to non- resident also. The Hon'ble High Court while proceeding with the writ petition clarified that the purview of adjudication by the Court was restricted to payments made to non-resident only. The Hon'ble High Court after taking note of the argument put forth by both the parties and also the amendment brought w.e.f. 1/4/2010 in section 201(1) and 201(3), held that the Parliament while amending the Act has consciously prescribed limitation only for the residents. The relevant observation and finding of the Hon'ble High Court in this regard, for the sake of ready reference, are reproduced hereunder:- 10. The Petitioner relies on NHK Japan Broadcasting Corporation (supra) and the ruling that followed it, i.e., Commissioner of Income Tax v Hutchison Essar Telecom Ltd, [2010] 323 ITR 230 (Del) to submit that proceedings under Section 201 cannot be initiated beyond the period of four years. The revenue characterises this position as untenable since the two cases did not make a distinction between payments made to residents and non- residents. The Statement of Objects and Reasons of the Finance (No. 2) Bill, 2009 in relation to the amendment to Section 201 of the Act read as follows: "Sub-clause (b) of clause 65 seeks to provide time limit for passing of order under sub-section (1) of section 201 in case of resident tax payers. It provides that no order

10 I.T.A. No.5799/DEL/2015 shall be made under sub-section (1) of section 201, deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax in the case of a person resident in India, at any time after the expiry of 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. It further provides that in any other case such order shall not be made at any time after four years from the end of the financial year in which payment is made or WP (C) Nos.8535, 8536, 8537/2011 and credit is given. It further provides that such order for a financial year commencing on or before 1st day of April, 2007 may be passed at any time on or before the 31st day of March, 2011. The sub- clause also provides that the provisions of sub-clause (ii) of sub-section (3) of section 153 and of Explanation 1 to section 153 shall, so far as may apply to the time limit prescribed in proposed sub-section (3) of section 201." 11. The memorandum explaining the provisions of Finance (2) Bill, 2009, which was in the form of a circular issued by the Central Board of Direct Taxes (CBDT), reads as under: "f. Providing time limits for passing of orders u/s 201(1) holding a person to be an assessee in default Currently, the Income Tax Act does not provide for any limitation of time for passing an order u/s 201(1) holding a person to be an assessee in default. In the absence of such a time limit, disputes arise when these proceedings are taken up or completed after substantial time has elapsed. In order to bring certainty on this issue, it is proposed to provide for express time limits in the Act within which specified order u/s 201(1) will be passed.

11 I.T.A. No.5799/DEL/2015 It is proposed that an order u/s 201(1) for failure to deduct the whole or any part of the tax as required under this Act, if the deductee is a resident taxpayer shall be passed within two years from the end of the financial year in which the statement of tax deduction at source is filed by the deductor. Where no such statement is filed, such order can be passed up till four years from the end of the financial year in which the payment is made or credit is given. To provide sufficient time for pending cases, it is proposed to provide that such proceedings for a financial year beginning from 1st April, 2007 and earlier years can be completed by the 31st March, 2011. However, no time- limits have been prescribed for order under sub-section (1) of section 201 where-- (a) the deductor has deducted but not deposited the tax deducted at source, as this would be a case of defalcation of government dues, (b) the employer has failed to pay the tax wholly or partly, under sub-section (1A) of section 192, as the employee would not have paid tax on such perquisites, (c) the deductee is a non-resident as it may not be administratively possible to recover the tax from the non- resident. It is proposed to make these amendments effective from 1st April, 2010. Accordingly it will apply to such orders passed on or after the 1st April, 2010." 12. When NHK Japan (supra) and Hutchinson (supra) were decided, the amendment was not brought about and therefore the issue of existence of a period of limitation did not arise. The court therefore, considered, on the basis of

12 I.T.A. No.5799/DEL/2015 available authority, that a four year period was "reasonable period" as the outer limit for issuance of notice under Section 201. However, in the present case, Parliament consciously amended the Act. In doing so, it prescribed a limitation only for residents. Instead of actively barring the applicability of the provision on non-residents, did the Parliament choose to passively do so by remaining silent on non-residents and only amending the provision, for residents. The question is, whether the petitioner is right in contending that if the Act does not specify a time period, then a reasonable time period should be read into the Act. This contention is based on judgments which were delivered when the Legislature had not made a distinction between residents and non-residents. The question is when such a distinction exists, can one read a "reasonable time period" into the Act. 13. The amendment ipso facto is undoubtedly silent about the application of periods of limitation to amounts deducted and payments made to non residents. It is quite possible to argue that the demarcation and distinction between payments made to residents and non-residents through the amendment, can mean that where no period of limitation for Sections 200 and 201 has been prescribed, one cannot be read into the Act. However, the legislative history here becomes instructive; in that context extrinsic material, in the form of statements of objects and reasons, become relevant. At all material times, payments made to residents and non- residents were treated alike. The revenue does not state what necessitated the distinction, made through the amendment for the first time. The only clue to be found to this silence is in that part of the circular quoted above, which states that limitation period for non resident's payment is unfeasible "as it may not be administratively possible to recover the tax from the non- resident." However, that is not the reasoning given in the statement of objects and reasons.

13 I.T.A. No.5799/DEL/2015 14. It was argued that the basis and/or reasoning of not applying the limitation in respect of deduction from non- residents on grounds of administrative convenience is arbitrary, discriminatory and violative of Article 14 and 265 of the Constitution. They have submitted that the basis of 'administrative convenience' in respect of TDS provisions had already been rejected by the Supreme Court in the case of GE India Technology Centre v. CIT 2010 (10) SCC 29. Taking their argument forward, the Petitioner submitted that the provision lacked any intelligible differentia, with no basis in law to provide for period of limitation in the case of payments made to residents and for not providing a similar period of limitation in case of payments made to non-residents. The revenues contention is that when Parliament consciously provided no period of limitation, even whilst doing so for domestic taxpayers, this court should not in effect, legislate a period of limitation. 15. This court is of opinion that the latest judgment, in Vodafone Essar Mobiles Ltd. (supra) provides a complete answer to the revenue's contentions. The Court had then ruled as follows: "9. More recently in CIT v. Calcutta Knitwears [2014] 362 ITR 673, the Supreme Court had the occasion to deal with the correct position in law as to the initiation of Income-tax proceedings. Although, the context of the dispute was in respect of recording of a satisfaction note as to the initiation of proceedings against third parties under the erstwhile section 158BD of the Act which did not prescribe the period of limitation and left it to the discretion of the Assessing Officer to decide on being satisfied that such proceedings were required to be initiated, the court limited such discretion in the following terms (page 691 of 362 ITR):

14 I.T.A. No.5799/DEL/2015 44. In the result, we hold that for the purpose of section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the Assessing Officer before he transmits the records to the other Assessing Officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act; (b) along with the assessment proceedings under section 158BC of the Act; and (c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person.' 10. An added reason why the submission of the Revenue is unacceptable is that had Parliament indeed intended to overrule or set aside the reasoning in NHK Japan (supra), it would have, like other instances and more specifically in the case of section 201(1A), brought in a retrospective amendment, nullifying the precedent itself. That it chose to bring section 201(3) in the first instance in 2010 and later in 2014 fortifies the reasoning of the court. Accordingly, the issue is answered against the Revenue." 17. It appears to the court that the above decision settles the question whether to declare an assessee to be an assessee in default under section 201 of the Act could be initiated for a period earlier than four years prior to March 31, 2011. 18. Mr. M. S. Syali, the learned senior advocate for the petitioners states that although the challenge in these petitions is also to the vires of the proviso to section 201(3) of the Act as inserted by the Finance (No. 2) Act, 2009, the petitioners would be satisfied if the

15 I.T.A. No.5799/DEL/2015 interpretation sought to be advanced by them on the scope and ambit of proviso to sub-section (3) of section 201 of the Act is accepted by the court. In other words what has been canvassed on behalf of the petitioners is that the proviso to section 201(3) of the Act has to be read consistent with the law explained by the court in CIT v. NHK Japan Broadcasting Corporation (supra) and should be held not to permit the Department to initiate proceedings for declaring the assessees to be assessees in default for a period more than four years prior to March 31, 2011. 19. Mr. Dileep Shivpuri, the learned senior standing counsel for the Revenue, however, seeks to advance a different line of argument. According to him the action taken by the Department was pursuant to a decision in CIT v. Idea Cellular Ltd. [2010] 325 ITR 148 (Delhi) where the amounts paid to the channel partners for the pre-paid cards and other products was held to be "commission" by the court within the meaning of section 194H of the Act. It is stated that it is consequent upon the said decision that the Department issued the impugned notices to these petitioners and that this was permissible in terms of section 153(3)(ii) of the Act. 20. The above submission of Mr. Shivpuri cannot be accepted if section 153 is perused carefully. It reads as under: '153. Time limit for completion of assessments and reassessments.--. . . (3) The provisions of sub-sections (1), (1A), (1B) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, subject to the provisions of sub-section (2A), be completed at any time--

16 I.T.A. No.5799/DEL/2015 (ii) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 250, 254, 260, 262, 263 or 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act." 21. In the first place, what the said provision does is to not apply the time limit of two years for completing the assessment from the end of the financial year "where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order . . . or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act". This can apply only to the assessee in whose case such an order is made by a court. For instance, if the above decision was qua Idea Cellular Ltd. then it certainly cannot form the basis for initiating proceedings qua other assessees. 22. Secondly there has to be a finding or directions as regards the issue in question, viz., the non-deduction of tax at source resulting in an assessee having to be declared an assessee in default under section 201 of the Act. In Rajinder Nath v. CIT [1979] 120 ITR 14 (SC), it was held that the existence of an order disposing of a case qua an assessee containing specific directions of the court was a sine qua non for invoking the powers under section 153(3)(ii) of the Act. Even in the case relied upon by Mr. Shivpuri, i.e., CIT v. Idea Cellular Ltd. (supra), there is no such finding or direction to the Department by the court requiring it to initiate proceedings for declaring the assessee to be an assessee in default. The court is, therefore, of the view

17 I.T.A. No.5799/DEL/2015 that the reliance by the Department on section 153(3)(ii) of the Act and the decision in CIT v. Idea Cellular Ltd. (supra) to justify initiation of the proceedings in the present case against the petitioner is misconceived." 16. The court was conscious of the absence of any limitation period in respect of payments to non-residents, for the purpose of Section 195 read with Section 201. Yet, it was held that proceedings could be initiated within reasonable time. The circular relied on by the revenue, furnishing a rationale for not providing limitation: "as it may not be administratively possible to recover the tax from the non- resident", was decisively rejected in G.E. Technologies (supra), where the Supreme Court observed as follows: "9. One more aspect needs to be highlighted. Section 195 falls in Chapter XVII which deals with collection and recovery. Chapter XVII-B deals with deduction at source by the payer. On analysis of various provisions of Chapter XVII one finds use of different expressions, however, the expression "sum chargeable under the provisions of the Act" is used only in section 195. For example, section 194C casts an obligation to deduct TAS in respect of "any sum paid to any resident". Similarly, sections 194EE and 194F, inter alia, provide for deduction of tax in respect of "any amount" referred to in the specified provisions. In none of the provisions we find the expression "sum chargeable under the provisions of the Act", which as stated above, is an expression used only in section 195(1). Therefore, this court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. Section 195(2) is not merely a provision to provide information to the Income-tax Officer (TDS). It is a provision requiring tax to be

18 I.T.A. No.5799/DEL/2015 deducted at source to be paid to the Revenue by the payer who makes payment to a non-resident. Therefore, section 195 has to be read in conformity with the charging provisions, i.e., sections 4, 5 and 9. This reasoning flows from the words "sum chargeable under the provisions of the Act" in section 195(1). The fact that the Revenue has not obtained any information per se cannot be a ground to construe section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention of the Department was accepted it would mean obliteration of the expression "sum chargeable under the provisions of the Act" from section 195(1). While interpreting a section one has to give weightage to every word used in that section. While interpreting the provisions of the Income-tax Act one cannot read the charging sections of that Act de hors the machinery sections. The Act is to be read as an integrated code. Section 195 appears in Chapter XVII which deals with collection and recovery. As held in the case of CIT v. Eli Lilly and Co. (India) (P.) Ltd. [2009] 312 ITR 225 the provisions for deduction of TAS which are in Chapter XVII dealing with collection of taxes and the charging provisions of the Income-tax Act form one single integral, inseparable code and, therefore, the provisions relating to TDS apply only to those sums which are "chargeable to tax" under the Income- tax Act. It is true that the judgment in Eli Lilly [2009] 312 ITR 225 was confined to section 192 of the Income-tax

19 I.T.A. No.5799/DEL/2015 Act. However, there is some similarity between the two. If one looks at section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income "chargeable under the head salaries". Similarly, section 195 imposes a statutory obligation on any person responsible for paying to a non-resident any sum "chargeable under the provisions of the Act", which expression, as stated above, do not find place in other sections of Chapter XVII. It is in this sense that we hold that the Income-tax Act constitutes one single integral inseparable code. Hence, the provisions relating to TDS applies only to those sums which are chargeable to tax under the Income- tax Act. If the contention of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the moneys deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the Income-tax Act by which a payer can obtain refund. Section 237 read with section 199 implies that only the recipient of the sum, i.e., the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments, the payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words "chargeable under the provisions of the Act" to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in

20 I.T.A. No.5799/DEL/2015 India, the Government would nonetheless collect tax. In our view, section 195(2) provides a remedy by which a person may seek a determination of the "appropriate proportion of such sum so chargeable" where a proportion of the sum so chargeable is liable to tax. The entire basis of the Department's contention is based on administrative convenience in support of its interpretation. According to the Department, huge seepage of revenue can take place if persons making payments to non- residents are free to deduct TAS or not to deduct TAS. It is the case of the Department that section 195(2), as interpreted by the High Court, would plug the loophole as the said interpretation requires the payer to make a declaration before the Income- tax Officer (TDS) of payments made to non- residents. In other words, according to the Department, section 195(2) is a provision by which the payer is required to inform the Department of the remittances he makes to non-residents by which the Department is able to keep track of the remittances being made to non-residents outside India. We find no merit in these contentions. As stated hereinabove, section 195(1) uses the expression "sum chargeable under the provisions of the Act." We need to give weightage to those words. Further, section 195 uses the word "payer" and not the word "assessee". The payer is not an assessee. The payer becomes an assessee- in-default only when he fails to fulfill the statutory obligation under section 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee-in-default. The abovementioned contention of the Department is based on an apprehension which is ill-founded. The payer is also an assessee under the ordinary provisions of the Income- tax Act. When the payer remits an amount to a non-

21 I.T.A. No.5799/DEL/2015 resident out of India he claims deduction or allowances under the Income-tax Act for the said sum as an "expenditure". Under section 40(a)(i), inserted, vide Finance Act, 1988, with effect from April 1, 1989, payment in respect of royalty, fees for technical services or other sums chargeable under the Income- tax Act would not get the benefit of deduction if the assessee fails to deduct TAS in respect of payments outside India which are chargeable under the Income- tax Act. This provision ensures effective compliance with section 195 of the Income-tax Act relating to tax deduction at source in respect of payments outside India in respect of royalties, fees or other sums chargeable under the Income-tax Act. In a given case where the payer is an assessee he will definitely claim deduction under the Income-tax Act for such remittance and on inquiry if the Assessing Officer finds that the sums remitted outside India come within the definition of royalty or fees for technical service or other sums chargeable under the Income-tax Act then it would be open to the Assessing Officer to disallow such claim for deduction. Similarly, vide the Finance Act, 2008, with effect from April 1, 2008, sub-section (6) has been inserted in section 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. This provision is brought into force only from April 1, 2008. It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage." 17. In this court’s view, therefore, since Vodafone Essar (supra) considered the entire issue and noted that even recently a reasonable period was read into the Act, in relation to exercise of powers (although in a different context)

22 I.T.A. No.5799/DEL/2015 accepting the petitioner’s contention in the present case is based on precedent. Furthermore, the only reason cited by the respondent, i.e. administrative convenience, cannot outweigh the harsh nature of the consequence, which would expose resident payers to the onerous responsibility of maintaining books and documents for an uncertain period of time. Given these considerations, the impugned notices are quashed. The writ petition is allowed in these terms; no costs.” 10. In view of the aforesaid binding precedent of the Hon'ble Jurisdictional High Court, we hold that the impugned proceedings under section 201 in the case of the assessee in respect of payment made to non-resident, which is admittedly after expiry of four years from the end of the relevant financial year, is barred by limitation and the provisions contained in section 201(1) and 201(3) prescribing time limit as relied upon by the Ld. CIT (A) is only for the residents and is not applicable for the non-residents. Thus, we hold that the proceedings under section 201 are barred by limitation and accordingly the same are quashed. 11. In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 18th September, 2017. Sd/- Sd/- [G.D. AGRAWAL] [AMIT SHUKLA] PRESIDENT JUDICIAL MEMBER DATED: 18th September, 2017 JJ:2908

23 I.T.A. No.5799/DEL/2015 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR Assistant Registrar

Date 1. Draft dictated on 2. Draft placed before author 3. Draft proposed & placed before the second member 4. Draft discussed/approved by Second Member. 5. Approved Draft comes to the Sr.PS/PS 6. Kept for pronouncement on 7. File sent to the Bench Clerk 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order.