DCIT, NEW DELHI vs. M/S. CATHOLIC RELIEF SERVICES, NEW DELHI

The ground raised

We have heard argument of both the sides and carefully perused the material placed on record before us, the Ld. DR strongly supported the action of the AO submitted that as per amendment to provision of section 201 of the Income Tax Act, 1961 (for short the Act) by the Finance Act- 2009 w.e.f. 1.4.2010, order u/s 201 for a financial year commencing on or before 01.04.2007 may be passed at any time on or before the 31st day of March, 2011. It was also contended that in view of specific provisions brought to the Act by the Legislature the stand of the assessee is nto acceptable. The Ld. DR vehemently contended that the CIT(A) was incorrect in granting relief to the assessee in view of the specific provisions brought in by the legislature.

The Ld. AR, replying to the above submissions, supported the first appellate order and contended that the issue is squarely covered in form of the assessee by the order of the ITAT, New Delhi “B” bench in assessee’s own case i.e. to 2744/Del/2011 for AY 2003-04 to 2005-06. He drawn our attention to the relevant paras of the Tribunal order (Supra) and contended that the FY 2001-02 (relevant to AY 2002-03) was ended on 31.3.2002 notice for initiation of relevant proceedings has issued on 15.11.2010 the assessee filed its reply on 23.11.2010 and the order was passed on 30.3.2011 which is clearly barred by limitation. The Ld. AR took us through relevant paras of the Tribunal Order and submitted that in the order passed by CIT(A) on 27.04.2010 u/s 201(1)/201(1A) of the AY for AY 2002-03 to 2004-05 was held as barred by limitation in the similar set of facts and circumstances then no other sustainable view is possible and the issue in the present case having similar set of facts and circumstance is squarely covered by the Tribunal order (supra).

The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT (Appeals). The ld. DR while carrying us through the impugned orders invited our attention to the relevant provisions of section 201(3) , introduced by the Finance Act, 2009 with effect from 1.4.2010 and contended that in terms of proviso to section 201(3)of the Act, order for a financial year commencing on or before 1.4.2007 can be passed at any time on or before 31st day of March, 2011. Since proceedings in this case were initiated on 16/11/2009 in consequent of search u/s 132 of the Act, apparently the order passed by the AO was within the 6 Catholic Relief Services limitation and thus, the ld. CIT (Appeals) was not justified in quashing the said order on the ground that the same was barred by limitation.

We have heard both the parties and gone through the facts of the case as also the aforesaid decisions referred to by the ld. CIT (Appeals). Indisputably, the assessee ,in the instant case, did not deduct tax at source at the time of payment or credit of salary to the aforesaid exptariates nor paid TDS to the credit of Government before the search on 11.9.2007. The impugned orders do not reveal any finding as to whether or not any statement referred to in sec. 200 of the Act was filed by the assessee nor even the date(s) of payment of salary or TDS or date of credit for such TDS to the Government account are evident .However, the assessee stated before the ld. CIT(A that no such statement was filed while adhoc payment of `97,28,267/- towards TDS was made on 24.8.2010 and that salary was credited to the accounts of expatriates in USA. Apparently, a portion of TDS liability in respect of some of the employees appears to have been deposited after the order of the AO. As is apparent from the findings in the impugned order, the ld. CIT(A) has merely decided the appeal on limitation without going in to merits of the case nor the assessee seems to have explained the issues on merits before the ld. CIT(A). The issue before us is as to whether the AO was competent to initiate proceedings u/s 201(1)/201(1A) of the Act in the year 2009 for these three financial years 2002-03 to 2004-05. While referring to proviso in the newly inserted provisions of section 201(3) introduced by Finance Act, 2009 with effect from 1.4.2010, the AO concluded that he was competent to pass such orders for the aforesaid financial years at any time on or before 31.3.2011 while the ld.CIT(A),following the decisions of the Hon’ble jurisdictional High Court in NHK Japan Broadcasting Corporation (supra) & . Hutchison Essar Telecom Ltd.(supra) held that the order dated 27.4.2010 passed by the AO was barred by limitation .Indisputably, in none of these decisions, the amended provisions of sec. 201(3) were considered. Moreover, the ld. CIT(A) observed that no SLP was filed in NHK Japan Broadcasting Corporation (supra) and therefore, the ratio of this decision has become final while in the grounds of appeal

In Bharat Steel Tubes Ltd.’s case (supra) the question that arose before the Court (and which has been stated on page 130 of the Report) is whether an order of assessment under section 11(3) of the Punjab General Sales Tax Act, 1948 or section 28(3) of the Haryana General Sales Tax Act, 1973 could now be completed or it would be barred by limitation. In that case, the assessment proceedings had been unduly delayed and the Supreme Court came to the conclusion that for completing the assessment proceedings there is no period of limitation prescribed and that would depend upon the facts of each case. Considering the facts of the case, the Supreme Court gave a direction to the assessing authority to complete all the pending assessments within a period of four months from the date of delivery of the judgment.

Insofar as Bhatinda District Co-op. Mill (P.) Union Ltd.’s case (supra) is concerned, the question that arose before the Supreme Court was regarding initiation of proceedings by exercise of jurisdiction by the statutory authority. The Supreme Court held that exercise of jurisdiction must be within a 9 Catholic Relief Services reasonable period of time and considering the provisions of the Punjab General Sales Tax Act, 1948, it was held that a reasonable period of time for initiating proceedings would be five years.

There is a qualitative difference between Bharat Steel Tubes Ltd.’s case (supra) and Bhatinda District Co-op. Mill (P.) Union of Ltd.’s case (supra ). In the former case, the question pertained to completion of proceedings, while in the latter case it pertained to initiation of proceedings. We are concerned with initiation of proceedings.

Insofar as the Income-tax Act is concerned, our attention has been drawn to section 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 year. This seems to be a reasonable period as accepted under section 153 of the Act, though for completion of assessment proceedings. The provisions of re-assessment are under sections 147 and 148 of the Act and they are on a completely different footing and ,therefore, do not merit consideration for the purposes of this case.

Even though the period of three years would be a reasonable period as prescribed by section 153 of the Act for completion of proceedings, we have been told that the 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 rationale for this seems to be quite clear - if there is a time-limit for completingthe assessment then the time-limit for initiating the proceedings must be the same if notless. Nevertheless, the Tribunal has given a greater period for commencement orinitiation of proceedings.

We are not inclined to disturb the time-limit of four years prescribed by the Tribunaland are of the view that in terms of the decision of the Supreme Court in BhatindaDistrict Co-op. Mil (P.) Union Ltd.’s case (supra) action must be initiated by the competent authority under the Income-tax Act where no limitation is prescribed as insection 201 of the Act within that period of four years.

Learned counsel for the revenue submitted that the Department came to know that the assessee was an assessee in default only in November, 1998 when a survey was conducted and it came to be known only then that when the assessee had not deducted tax at source on the global salary. We are of the opinion that the date of knowledge is not relevant for the purposes of exercising jurisdiction insofar as the provisions of the Income-tax Act are concerned. If it were so, the limitation period, as for example prescribed under section 147/148 of the Act would become meaningless if the concept of knowledge is imported into the scheme of the Act.

The second part of the argument of learned counsel for the revenue in this regard was that the question of limitation did not at all arise because the assessee had itself admitted its liability and it voluntarily paid the tax and interest on that amount. Again, we are not in agreement with learned counsel for the revenue in this regard.

It appears that the assessee paid the tax voluntarily as well as interest thereon but the acceptance of the liability by the assessee would not by itself extend the period of limitation nor would it extend the reasonable time that is postulated by the scheme of the Income-tax Act. The assessee cannot be put, in a sense, in a worse position merely because it has admitted its liability. If the assessee had denied its liability the question that would have arisen would be whether the revenue could have initiated proceedings after a lapse of four years. The answer to that would of course have to be in the negative in view of the reason that we have already indicated above. The fact that the assessee agreed to pay the tax voluntarily cannot put the assessee in a situation worse than if it had contested its liability.

We may also note that under section 191 of the Act, the primary liability to pay tax is on the person whose income it is that is the deductee. Of course, a duty is cast upon the deductor, that is the person who is making the payment to the deductee, to deduct tax at source but if he fails to do so, it does not wash away the liability of the deductee. It is still the liability of the deductee to pay the tax. In that sense, the liability of the deductor is a vicarious liability and, therefore, he cannot be put in a situation which would prejudice him to such an extent that the liability would remain hanging on his head for all times to come in the event the Income-tax Department decides not to take any action to recover the tax either by passing an order under section 201 of the Act or through making an assessment of the income of the deductee.

For the reasons given by us we are not inclined to disturb the order passed by the Tribunal and, therefore, we answer the question in the affirmative in favour of the assessee and against the revenue and hold thatthe initiation of proceedings under section 201 of the Act against the assessee in respect of the assessment year 1990-91was barred by limitation having been initiated beyond a reasonable period of time of four years. 7.3 Subsequently, the Hon’ble Apex Court in their common decision dated 20.1.2010 in civil nos.751 to 766 of 2010 & others, including on an SLP filed by the Revenue in NHK Japan Broadcasting Corporation, concluded as under: “The following substantial question of law arises for consideration in this batch of civil appeals: "Whether the Income Tax Appellate Tribunal was correct in law in holding that the orders passed under Sections 201(1) and 201(1A) of the Income Tax Act, 1961 are invalid and barred by time having been passed beyond a reasonable period." Having heard learned counsel on both sides, we are of the view that, on the facts and circumstances of these cases, the question on the point of limitation formulated by the Income Tax Appellate Tribunal in the present cases need not be gone into for the simple reason that, at the relevant time, there was a debate on the question as to whether TDS was deductible under the Income Tax Act, 1961, on foreign salary payment as a component of the total salary paid to an expatriate working in India? This controversy came to an end vide judgement of this Court in the case of Commissioner of Income Tax vs. Eli Lilly & Co. (India) Pvt. Ltd., reported in [2009] 312 I.T.R.

The question on limitation has become academic in these cases because, even assuming that the Department is right on the issue of limitation still the question would arise whether on such debatable points, the assessee(s) could be declared as assessee(s) in default under Section 192 read with Section 201 of the Income Tax Act, 1961. Further, we are informed that the assessee(s) have paid the differential tax.They have paid the interest and they further undertake not to claim refund for the amounts paid. Before concluding, we may also state that, in Eli Lilly & Co. (India) Pvt. Ltd. (supra) vide Paragraph 21, this Court has clarified that the law laid down in the said case was only applicable to the provisions of Section 192 of the Income Tax Act, 1961. Leaving the question of law open on limitation, these civil appeals filed by the Department are disposed of with no order as to costs.” 7.31 Apparently, the Hon’ble Apex Court did not advert to the question of limitation nor even the ld. CIT(A) took cognizance of the aforesaid observations of the Hon’ble Apex Court. 7.4 Following the aforesaid decision, Hon’ble jurisdictional High Court in their decision dated 15.4.2010 in Hutchison Essar Telecom Ltd.(supra), held that the proceedings under section 201/201(1A) of the Act, can be initiated only within three years from the end of the assessment year or within four years from the end of the relevant financial year .

Since proceedings in this case have been initiated after the search on 16.11.2009, as concluded by the ld. CIT(A) and the amended provisions had not come in to force on the said date , the law prevailing as on the date was pronounced in the aforesaid two decisions of the Hon’ble jurisdictional High Court. In the light of view taken in the aforesaid decisions by the Hon’ble jurisdictional High Court , we have no alternative but to uphold the findings of the ld. CIT(A).Though, the Hon’ble Punjab & Haryana High Court in their decision dated 17.07.2011 in the case of CIT(TDS) v. M/s. H.M.T. Ltd. in of 2009 and Hon’ble Calcutta High Court in their decision dated 30.08.2011 in the case of Bhura Exports Ltd. in ITA No. 118 of 2011 , have taken a contrary view, we are bound by the aforesaid decisions of the Hon’ble jurisdictional High Court, holding that in absence of any time frame in the statute, reasonable time limit was to be read into it,which was 4 years from the end of relevant financial years. In view of the foregoing, we are not inclined to accept the aforesaid contentions of the ld. DR and consequently, ground nos.1 to 3 in the appeal are dismissed.

The view of above, admittedly impugned order of the AO passed on 31.3.2011 in pursuance to the notice dated 15.11.2010 after considering the reply of the assessee dated 23.11.2010 is clearly barred by limitation. It is pertaining to mention that since proceedings for AY 2002-03 has been also initiated after search on 16.11.2009 when the amended provision did not come into existence on the said date, and the law applicable on the said date was pronounced by Hon’ble Jurisdictional High Court of Delhi in the case of Hatchison Essan Telecom Ltd. (Supra) and CIT vs. NHK Japan (Supra). As per dicta laid down by Hon’ble Jurisdictional High Court of Delhi and in the light of the same we are inclined to uphold the conclusion of the Ld. CIT(A) as in these judgments the Hon’ble High Court explicitly held that in absence of any time frame in the statue a reasonable time limit was to be read into, which was four year for the end of relevant financial year. In the present case, the relevant financial year 2001-02 was ended on 31.03.2002 and when the proceeding initiated on 15.11.2010 and order passed on 30.03.2011 u/s 201(1)/201(1A) for AY 2002-03 i.e. after approximately 9 years has to be held as time barred and thus we are of the opinion that the conclusion of the CIT(A) deserves to be confirmed and hence we uphold the same . Accordingly, ground no. 1 to 3 of the Revenue are dismissed. 8. In the result, appeal of the revenue is dismissed. Order Pronounced in the Court on 10/02/2016.