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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
PER SAKTIJIT DEY, J.M.
Aforesaid appeal at the instance of the assessee is directed against order dated 27th December 2017, passed by the learned Commissioner (Appeals)–60, Mumbai, for assessment year 2012–13.
Since the grounds attached to the memorandum of appeal are descriptive and argumentative, the assessee has filed the following concise grounds:–
“The Learned Commissioner of Income-Tax (Appeals) 1. ("CIT(A)") erred in holding the Appellant to be an assessee in
2 Sodexo SVC India Pvt. Ltd. default for failing to deduct tax at source under section 194C Income-Tax Act, 1961 ('the Act') though there is no obligation on the Appellant to deduct tax as the provisions of Section 194C do not apply to the facts of the present case. The Learned CIT(A) erred in not holding the Order passed 2. under Section 201/ 201(1A) of the Act to be bad in law though the same was passed beyond the time limit allowed u/s 201(3). The Learned CIT(A) erred in confirming the demand raised 3. by the DCIT (TDS) without adjudicating upon the Appellant's contention that once the payees (Affiliates) have included the receipt in their return of income and paid taxes thereon, no tax can be recovered from the Appellant. The Learned CIT(A) erred in observing that the DCIT (TDS) 4. should have calculated the amount of alleged TDS default at the rate prescribed under Section 206AA of the Act.”
In ground no.2, the assessee has challenged the order passed under section 201(1) and 201(1A) to be barred by limitation. Since, the aforesaid issue raised by the assessee is a purely legal and jurisdictional issue going to the root of the matter, we proceed to deal with it at the very outset.
Brief facts are, the assessee an Indian company is engaged in the business of issuing meal, gift vouchers, smart cards, to its clients who wish to make benefit in kind for their employees. The employees use these vouchers / smart cards at affiliates of the assessee company across India and who are engaged in different business sectors such as restaurants, eating places, caterers, super markets. For this purpose, the assessee has entered into an agreement with the affiliates who accept the vouchers / smart cards towards payment for goods or
3 Sodexo SVC India Pvt. Ltd. service provided by them. Further, the assessee also enters into agreement with its clients / customers for issuance of vouchers / cards for which it charges in addition to face value certain amounts towards service and delivery charges. The entire amount paid by client / customer is deposited in a escrow account of the assessee kept with Reserve Bank of India as per guidelines of Payment and Settlement Systems Act, 2007 and Revised Consolidated Guidelines 2014. The assessee, in turn, after deducting certain amounts as service charges and applicable taxes makes payment to affiliates as per the terms and conditions of agreement towards the cost of goods / service provided by them. To verify the TDS compliance of the assessee, a survey under section 133A(2A) was conducted in the business premises of the assessee on 21st January 2016. During the survey, the assessee was requested to furnish the details of payments made by it to affiliates. After perusing the details it was found that the assessee was deducting tax at source only in respect of payments made to caterers, whereas, no tax was deducted at source on payments made to other affiliates. Therefore, the Assessing Officer issued a notice to the assessee directing it to show cause why it should not be treated as an assessee in default under section 201(1) for non–deduction of tax at source on such payment. In response to the show cause notice, the assessee filed a detailed reply stating that the provisions of section 194C of the Act are not applicable with regard to the agreement made with the
4 Sodexo SVC India Pvt. Ltd. affiliate as the agreements with affiliates are not in the nature of contract as contemplated under section 194C of the Act. The Assessing Officer, however, did not find merit in the submissions of the assessee and ultimately held the assessee as assessee in default for having not deducted tax at source on the payments made to affiliates and accordingly passed an order under section 201(1) and 201(1A) raising demand of ` 36,97,34,000 towards tax and ` 20,09,04,420 towards interest. Being aggrieved of the order so passed, assessee preferred appeal before the first appellate authority, inter–alia, on the ground that the order passed under section 201(1) and 201(1A) is barred by limitation as per sub–section (3) of section 201 as was applicable for the relevant period. In the course of hearing of appeal before the first appellate authority, it was submitted by the assessee that as per the provisions contained in sub–section (3) of section 201 which existed prior to its amendment by Finance Act, 2014, w.e.f. 1st October 2014, in a case where the assessee has filed a statement in terms of section 200, no order under section 201(1) can be passed after expiry of two years from the end of financial year in which the statement is filed. Thus, it was contended, by the time the show cause notice under section 201 was issued to the assessee, already two years have expired from the end of relevant financial year wherein the statements were filed the proceedings are time barred. The learned Commissioner (Appeals), though, agreed that as per pre–amended provisions of sub–
5 Sodexo SVC India Pvt. Ltd. section (3) to section 201, the period of limitation prescribed for passing an order under section 201 is two years from the end of the relevant financial year wherein statements were filed, however, he held that by virtue of the amendment to sub–section (3) of section 201 brought by Finance Act, 2014, the limitation has been extended to before expiry of seven years from the end of financial year wherein payment is made. The learned Commissioner (Appeals) referring to the object behind the amendment to sub–section (3) observed that the legislature having found that there is no rationale behind limitation period of two years has amended the provision. He observed, the provisions contained under section 201 being machinery provision cannot be subjected to rigorous construction. Referring to certain judicial precedents the learned Commissioner (Appeals) ultimately held that the amendment made to sub–section (3) of section 201 by Finance Act, 2014, being clarificatory in nature will apply retrospectively. Therefore, the extended limitation period of seven years will apply to assessee’s case. Accordingly, he upheld the validity of the order passed under section 201(1) and 201(1A).
The learned Sr. Counsel, Shri J.D. Mistry, appearing for the assessee reiterated the submissions made before the first appellate authority. Drawing our attention to the pre–amended provision of sub– section (3) of section 201, he submitted that in case of the assessee
6 Sodexo SVC India Pvt. Ltd. statements in terms of section 200 having been filed, the order under section 201 has to be passed before expiry of two years from the end of relevant financial year wherein the statements were filed. He submitted, the Departmental Authorities have not disputed the fact that the assessee has filed its quarterly statement of TDS within the time prescribed under section 200 of the Act. Therefore, the assessee will be covered by clause (i) of section (3) of section 201 as it existed prior to its amendment by Finance Act, 2014. Learned Sr. Counsel submitted, by virtue of amendment to sub–section (3) of section 201 by Finance Act, 2014, the earlier provisions as contained under sub– section (3) was substituted by a new provision as per which the limitation period was extended in all cases to before expiry of seven years from the end of financial year wherein payments were made. However, he submitted, the amended sub–section (3) of section 201 of the Act was made effective from 1st October 2014. The learned Sr. Counsel submitted, by the time the amendment to sub–section (3) of section 201 was effected by Finance Act, 2014, the limitation period as per the pre–amended provisions has already expired in case of the assessee. Therefore, the Assessing Officer could not have assumed jurisdiction for issuing a notice under section 201(1) and 201(1A). The learned Sr. Counsel submitted, the impugned order of the Assessing Officer passed under section 201(1) and 201(1A) being barred by limitation has to be declared as null and void. In support of his
7 Sodexo SVC India Pvt. Ltd. contentions, the learned Sr. Counsel relied upon the following decisions:–
i) Tata Teleservice v/s Union of India and Anr., [2016] 385 ITR 497 (Guj.); ii) Troikaa Pharmaceuticals Ltd. v/s Union of India, [2016] SCC Online (Guj.) 4788; iii) CIT v/s Vatika Township Pvt. Ltd., [2014] 367 ITR 466 (SC); iv) Reliance Jute and Industries Ltd. v/s CIT, [1980] 1 SCC 139; v) CIT v/s Shah Sadiq & Sons, [1987] 3 SCC 516 (SC).
Learned Departmental Representative strongly relied upon the observations of the first appellate authority.
We have heard rival submissions and perused materials available on record in the light of the decisions cited. So far as the factual aspect of the issue is concerned, there is no dispute that in terms of section 200(3), the assessee has filed statements of TDS before the Department within the prescribed time. In fact, in the submissions made by the assessee as reproduced in Para–5.2 of the impugned order of the learned Commissioner (Appeals), the fact of filing of TDS statements by the assessee has been clearly brought out. Therefore, we have to proceed on the basis that in assessee’s case, the statements of TDS have been filed. Keeping the aforesaid factual position in view it is necessary to examine the relevant statutory provisions. Section 201 which lays down the consequences of failure to
8 Sodexo SVC India Pvt. Ltd. deduct tax at source or having deducted not remitted to the Government account, in its original form, did not provide any time limit for passing the order under sub–section (1) of section 201. Looking at the dispute arising out of proceedings being taken up and completed after lapse of substantial time in the absence of a time limit, the legislature through Finance Act, 2009, introduced sub– section (3) to section 201 providing limitation period of two years for passing the order under section 201(1) from the end of the financial year in which statement of TDS is filed by the deductor and in a case where no statement is filed the limitation was extended to before expiry of four years from the end of financial year in which the payment was made or credit given. The aforesaid amendment was made effective from 1st April 2010. Subsequently, by Finance Act, 2012, sub–section (3) of section 201 was again amended with retrospective effect from 1st April 2010. The aforesaid amended provision reads as under:–
“(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:
9 Sodexo SVC India Pvt. Ltd. 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.”
As could be seen from a reading of the aforesaid provision, the only change which was effected from the earlier provision was the limitation period of four years in case of a deductor not filing TDS statement was extended to six years from four years. Whereas, in case of a person / deductor filing TDS statement, the limitation period of two years remained unchanged. The aforesaid sub–section (3) of section 201 was again amended by Finance Act, 2014, w.e.f. 1st October 2014 by substituting the earlier provision with the following:–
“(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 seven years from the end of the financial year in which payment is made or credit is given.”
Thus, as could be seen from the aforesaid amended provision a uniform limitation period of seven years from the end of relevant financial year wherein payments made or credit given was made applicable. The issue before us is, whether the un–amended sub– section (3) which existed before introduction of amended sub–section (3) by Finance Act, 2014, will apply to assessee’s case or not. It is the case of the assessee that, since, clause (i) of sub–section (3) of section 201 is applicable to the assessee and the limitation period of two years has expired by the time the provision was amended by
10 Sodexo SVC India Pvt. Ltd. Finance Act, 2014, the extended period of limitation of seven years as per the amended provision will not apply. Whereas, it is the case of the Department that the amended sub–section (3) brought into the statute by Finance Act, 2014, will apply retrospectively, hence, the impugned order passed by the Assessing Officer within the period of seven years is valid. It is a fact on record that by the time the amended provisions of sub–section (3) was introduced by Finance Act, 2014, the limitation period of two years as per clause (i) of sub– section (3) of section 201 (the un–amended provision) has already expired. The learned Commissioner (Appeals) has applied the amended provision of sub–section (3) of section 201 by referring to the objects for making such amendment and on the reasoning that the said provision being a machinery provision will apply retrospectively. However, on a careful perusal of the objects for introduction of the amended provision of sub–section (3), we do not find any material to hold that the legislature intended to bring such amendment with retrospective effect. If the legislature intended to apply the amended provision of sub–section (3) retrospectively it would definitely have provided such retrospective effect expressing in clear terms while making such amendment. This view gets support from the fact that while amending sub–section (3) of section 201 by Finance Act, 2012, by extending the period of limitation under sub–clause (ii) to six years, the legislature has given it retrospective effect from 1st April 2010.
11 Sodexo SVC India Pvt. Ltd. Since, no such retrospective effect was given by the legislature while amending sub–section (3) by Finance Act, 2014, it has to be construed that the legislature intended the amendment made to sub–section (3) to take effect from 1st October 2014, only and not prior to that. The Hon'ble Supreme Court in Vatika Township Pvt. Ltd. (supra) while examining the principle concerning retrospectivity of an amendment brought to the statutory provisions has observed that unless a contrary intention appears, a legislation is presumed not to be intended to have retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. The Hon’ble Court observed, legislations which modified accrued rights or which impose obligations or imposes new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect. It was observed, if a provision is not for the benefit of a community, but, imposes some burden or liability the presumption would be it will apply prospectively. The rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Similar view has been expressed in the case of Reliance Jute and Industries Ltd. (supra) as well as Shah Sadiq & Sons (surpa). In case of Tata Teleservices (supra), which is
12 Sodexo SVC India Pvt. Ltd. directly on the issue of retrospective application of the amended sub– section (3) of section 201, the Hon’ble Gujarat High Court, after extensively dealing on the issue of retrospective applicability of the provisions and applying the principles laid down by the Hon'ble Supreme Court in a number of cases, held as under:–
“15.00. Considering the law laid down by the Hon'ble Supreme Court in the aforesaid decisions, to the facts of the case on hand and more particularly considering the fact that while amending section 201 by Finance Act, 2014, it has been specifically mentioned that the same shall be applicable w.e.f. 1/10/2014 and even considering the fact that proceedings for F.Y. 2007-08 and 2008-09 had become time barred and/or for the aforesaid financial years, limitation under section 201(3)(i) of the Act had already expired on 31/3/2011 and 31/3/2012, respectively, much prior to the amendment in section 201 as amended by Finance Act, 2014 and therefore, as such a right has been accrued in favour of the assessee and considering the fact that wherever legislature wanted to give retrospective effect so specifically provided while amending section 201(3) (ii) of the Act as was amended by Finance Act, 2012 with retrospective effect from 1/4/2010, it is to be held that section 201(3), as amended by Finance Act No.2 of 2014 shall not be applicable retrospectively and therefore, no order under section 201(i) of the Act can be passed for which limitation had already expired prior to amended section 201(3) as amended by Finance Act No.2 of 2014. Under the circumstances, the impugned notices / summonses cannot be sustained and the same deserve to be quashed and set aside and writ of prohibition, as prayed for, deserves to be granted.”
Following the aforesaid decision of the Hon'ble Gujarat High Court in Troykaa Pharmaceuticals Ltd. (supra) again expressed the same view.
“7. Examining the facts of the present case in the light of the principles enunciated in the above decision, the present case relates to financial year 2008-2009. The petitioner had filed statements as required under section 200 of the
13 Sodexo SVC India Pvt. Ltd. Act. The limitation for initiating proceedings under section 201(1) of the Act would, therefore, be governed by section 201(3)(i) of the Act as it stood at the relevant time which provided for a period of limitation of two years from the end of the financial year in which statement was filed in a case where the statement referred to in section 200 has been filed. The limitation for initiating action under section 201(1) of the Act, therefore, elapsed on 31st March, 2012 whereas the amendment in section 201 of the Act as amended by Finance Act No. 2 of 2014 came into force with effect from 28th May, 2012. The impugned notice, therefore, is clearly barred by limitation and, therefore, cannot be sustained. For the detailed reasons recorded in the judgment and order dated 5th February, 2016 rendered in the case of Tata Teleservices v. Union of India (supra), this petition also deserves to be allowed.”
No contrary decision has been brought to our notice by the learned Departmental Representative. Therefore, considering the principle laid down by the Hon'ble Supreme Court in the decisions as well as the ratio laid down by the Hon'ble Gujarat High Court in the decisions referred to above which are directly on the issue, we hold that the order passed under section 201(1) and 201(1A) having been passed after expiry of two years from the financial year wherein the TDS statements were filed by the assessee under section 200 of the Act, is barred by limitation, hence, has to be declared as null and void.
Before parting, we must put it on record that since we have decided the appeal on the issue of limitation, we have consciously restrained ourselves from touching upon the merits of the issue regarding applicability of section 194C of the Act which is left open to
14 Sodexo SVC India Pvt. Ltd. be decided if it arises in case of the assessee in any other assessment year.
In the result, assessee’s appeal is partly allowed. Order pronounced in the open Court on
Sd/- Sd/- N.K. PRADHAN SAKTIJIT DEY ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 28.03.2018
Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary
(Asstt. Registrar/Sr.P.S) ITAT, Mumbai