I-T Act does not prescribe any limitation on time period under Section 201
The Supreme Court has decided to look into the issue as to what would be the “reasonable time” within which the income tax department can declare an assessee-in-default. The issue assumes importance as the Income Tax Act, 1961, does not prescribe any limitation on the time period under Section 201 .
A bench headed by justice TS Thakur admitted an appeal filed by the I-T department against the Bombay High Court judgment in a case against Mahindra and Mahindra (M&M). The department has also filed another appeal against Larsen & Toubro on the issue.
Attorney General Mukul Rohatgi told the bench that the issue requires consideration because of divergent views taken by different HCs on the issue of limitation. While the Calcutta HC in the case of Bhura Export has held in department’s favour by holding that there is no time limit for passing an order under Section 201 of the Act, the Bombay HC had concurred with the Delhi HC by concluding that though the provision does not prescribe any limitation period for the assessee being declared an assessee-in-default, yet the revenue will have to exercise the powers in that regard within a “reasonable time”.
Rohatgi argued that there could not be any time limit, leave alone a period of limitation for the purpose of exercise of powers by the authority.
However, senior counsel S Ganesh, appearing for M&M, told the apex court that the nature of services were covered under tax treaty between India and the UK.
According to the department, M&M had come out with two euro issues for $74.75 million (offering 87,36,559 global depository receipts) and $100 million (5% convertible notes) in November 1993 and July 1996, respectively. While M/s Banque Paribas were appointed as lead managers for the first issue and commission was to be paid at 1.5% of the issue price and selling commission at 2% of the issue price, Goldman Sachs (Asia) was the lead manager for the second issue and was to receive total commission of 1% of the aggregate principal amount of notes and further 1.5% as the selling concession.
The assessing officer held these services to be prima facie technical services and treated M&M as an assessee-in-default for not deducting TDS on the payments made to lead managers.
While the commissioner of Income Tax (Appeals) held that the receipts were taxable in India, the Income Tax Appellate Tribunal in April 2009 ruled on the contrary. According to ITAT, any proceedings u/s 201 have to be initiated within six years from the end of the relevant assessment year if the tax liable to be deducted was in excess of R1 lakh and within four years when the same was less than R1 lakh. It further held that the reasonable time for initiating and completing the proceedings u/s 201(1) has to be at par with the time limit available for initiating and completing the reassessment as the assessment includes reassessment.