By TIOL News Service

NEW DELHI, APRIL 10, 2018: THE ISSUE IS - Whether when the limitation period u/s 201(3)(i) has already expired prior to coming into force of the amended provision vide Finance Act, 2014, a right is accrued in assessee's favour and any proceedings by Revenue will become barred by limitation. YES IS THE ANSWER’.

Facts of the case:

The Assessee-company, 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 Assessee had filed its return for the relevant AY. In the course of the relevant AY, the AO observed that the Assessee had entered into an agreement with the affiliates who accepted the vouchers/smart cards towards payment for goods or service provided by them. Further, the Assessee also entered into an agreement with its clients/customers for issuance of vouchers/cards for which it charged in addition to face value certain amounts towards service and delivery charges. The entire amount paid by client/customer was deposited in the Assessee's escrow account. In return, the Assessee, after deducting certain amounts as service charges and applicable taxes, made payment towards the cost of goods/service provided by them. A survey u/s 133A(2A) was conducted in the Assessee's business premises wherein, the Assessee was requested to furnish the payment details made by it to affiliates. Upon considering the Assessee's submissions, the AO noted that the Assessee was deducting TDS only in respect of payments made to caterers, whereas, no TDS was deducted on payments made to other affiliates. Hence, the AO issued SCN to the Assessee directing it to explain as to why it should not be treated as Assessee in default u/s 201(1) for non–deduction of TDS on such payment. In reply, the Assessee stated that the provisions of sec. 194C were not applicable towards the agreement made with the affiliate as the agreements with affiliates were not in the nature of contract as contemplated u/s 194C. However, the AO being unsatisfied, held that the Assessee was in default for not having not deducted TDS on the payments made to affiliates and accordingly passed an order under Ss 201(1) and 201(1A) raising demand of Rs. 36,97,34,000 towards tax and Rs. 20,09,04,420 towards interest.

On appeal, though, the CIT(A) agreed that as per pre–amended provisions of sec. 201(3), the period of limitation prescribed for passing an order u/s 201 is two years from the end of the relevant FY wherein statements were filed, however, the CIT(A) held that by virtue of the amendment to sec. 201(3) brought by Finance Act, 2014, the limitation was extended to before expiry of seven years from the end of FY wherein the payment was made. Further, the CIT(A) observed that the provisions contained u/s 201, being machinery provision, could not be subjected to rigorous construction. Hence, the extended limitation period of seven years will apply to Assessee's case. Accordingly, the CIT(A) upheld the validity of the order passed u/s 201(1) and 201(1A).

The Tribunal held that,

++ sec. 201 which lays down the consequences of failure to deduct TDS or having deducted not remitted to the Government account, in its original form, did not provide any time limit for passing the order u/s 201(1). 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 sec. 201(3) providing limitation period of two years for passing the order u/s 201(1) from the end of the FY 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 FY in which the payment was made or credit given. The said amendment was made effective from 1st April 2010. Subsequently, by Finance Act, 2012, sec. 201(3) was again amended with retrospective effect from 1st April 2010;

++ 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 said sec. 201(3) was again amended by Finance Act, 2014, w.e.f. 1st October 2014 by substituting the earlier provision;

++ the said amended provision a uniform limitation period of seven years from the end of relevant FY wherein, the payments made or credit given was made applicable. It is the case of the Assessee that, since, clause (i) of sub–section (3) of sec. 201 is applicable to the Assessee and the limitation period of two years has expired by the time the provision was amended by Finance Act, 2014, the extended period of limitation of seven years as per the amended provision will not apply;

++ 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 order passed by the AO 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 CIT(A) has applied the amended provision of sub–section (3) of sec. 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), there is no material found by this Tribunal 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. 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 Supreme Court in the case of Vatika Township Pvt. Ltd. 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 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. as well as Shah Sadiq & Sons. In case of Tata Teleservices, which is directly on the issue of retrospective application of the amended sec. 201(3), the Gujarat High Court, after extensively dealing on the issue of retrospective applicability of the provisions and applying the principles laid down by the Supreme Court in a number of cases. The Gujarat High Court in the case of Troykaa Pharmaceuticals Ltd. again expressed the same view;

++ no contrary decision has been brought to this Tribunal's notice by the Counsel for the Revenue. Therefore, considering the principle laid down by the Supreme Court in the decisions as well as the ratio laid down by the Gujarat High Court in the decisions referred which are directly on the issue, this Tribunal hold that the order passed u/s 201(1) and 201(1A) having been passed after expiry of two years from the FY wherein, the TDS statements were filed by the Assessee u/s 200, is barred by limitation, hence, has to be declared as null and void.

(See 2018-TIOL-520-ITAT-MUM)