By TIOL News Service

BANGALORE, DEC 29, 2015: THE issue before the Bench is - Whether when the law u/s 153 provides a maximum period of three years for completion of assessment and reassessment, a period of four years is to be construed as the reasonable period of limiation in such a case. YES is the answer.

Facts of the case

The assessee entered into an agreement with KKFHPL as per which a license fee was to be paid as a minimum guarantee payment to KKFHPL. On the said amount, neither any tax was deducted at source, nor the same was reflected in the return filed by the assessee under Section. The assessment of the Recipient company for the relevant assessment year 2002-03 was completed under Section 143(3) within the period prescribed under Section 153 of the Act. Besides this, the return of income of the assessee for the relevant assessment year 2002-03 was also filed and accepted by the Revenue, in which the aforesaid payments to KKFHPL were reflected. At no stage the question of deduction of tax for the payment so made by the assessee to the KKFHPL was ever raised. A survey was conducted in the premises of the assessee and thereafter the proceedings for failure to deduct tax at source (TDS) during the assessment year 2002-03 were started. Assessing Officer passed order under Section 201(1) and 201(1A) treating assessee as assessee in default in respect of non deduction of TDS of licence fees and upfront fees under sub-section (1), and the amount of interest payable under sub-section (1A) of Section 201 of the Act was quantified. Appellate Commissioner held that the order passed by the Assessing Officer was time barred. However, by subsequent order passed under Section 154, the Appellate Commissioner corrected its order and held that the impugned order passed by the Assessing Officer was within limitation. However, a finding was also recorded that the amount paid by the assessee to the Recipient was not towards rent and hence the provisions of Section 194 I of the Act were not attracted. Tribunal held that the order passed under sub-sections (1) and (1A) of Section 201, was barred by limitation. The Tribunal, even after holding that the proceedings were time barred, yet proceeded to decide the issue on merits and held that if the deductee assessee has paid advance tax after considering the licence fee then no interest u/s 201(1A) will be chargeable, as the Board Circular has mentioned that interest u/s 201(1A) is to be charged till the date of payment of tax by the deducteeassessee. Hence, the issue of computation of interest u/s 201(1A) for the asst. year 2002-03 will have to be worked again by the Assessing Officer in respect of licence fee. Since, it was held that the assessee was required to deduct tax at source from the upfront amount and therefore, the Assessing Officer was right in raising demand u/s 201 and 201(1A).

Having heard the parties, the Court held that,

A) ++ at the relevant time relating to assessment year 2002-03, there was no limitation provided for initiating proceedings under Section 201; (para 11)

++ when there is no period of limitation prescribed for taking action under any provision of law, the same should be taken within a reasonable period, which would depend upon the facts of the case and the provisions of the Act under which action has to be taken;

++ Tribunal has relied on the judgment in the case of Commissioner of Income Tax Vs NHK Japan Broadcasting Corporation 2008-TIOL-266-HC-DEL-IT and held that four years period would be a reasonable period of time for initiating action;

++ the law provides for time limit for completion of assessments and reassessments (Section 153) which is two years from the end of the assessment year (or three years from the end of the financial year). As such, if at all the proceedings for failure to deduct or pay TDS were to be initiated, it ought to have been reasonably done within the limitation provided for completion of assessment under Section 153 of the Act;

++ proviso to sub-section (3) did not legalize the cases where action had already been taken, but was meant for only such cases which were pending at the time of insertion of sub-section (3) to Section 201 of the Act;

++ Tribunal was correct in holding that the order passed under Sec 201(1) and (1A) of the Act on 28.1.2008 for the assessment year 2002-03, would be barred by limitation as the period of limitation would be four years from the end of the financial year in question;

B) ++ the provision for tax deduction at source is only a mechanism for collection of tax by the payer, even though the liability to pay tax is that of the recipient. The provision for payment of interest under sub-section (1A) of Section 201 of the Act is only of compensatory nature. It cannot be a means to penalise the payer. The provision for payment of interest would arise from the date when it ought to have been deducted i.e., from the date of payment by the payer to the recipient. The liability to pay interest would end on the date when such tax has been deposited by the recipient, either by way of advance tax or along with the return of income. Interest, herein, being compensatory in nature, cannot be thus charged for the period beyond the date when such tax has already been deposited by the recipient. As such, the liability of the assessee herein would not be for payment of interest after the period of deposit of tax by the recipient.

(See 2015-TIOL-2913-HC-KAR-IT)