1
No time limit for passing withholding tax orders In brief
In a recent decision in the case of Bhura Exports Ltd.1 (“the assessee”), the Calcutta High Court held that there is no time period for passing a withholding tax (“WHT”) order under section 201 of the Income-tax Act, 1961 (“the Act”) for years prior to 1 April, 2010 since the Act did not prescribe a time limit for passing a WHT order for the aforesaid period.
1 Bhura Exports Ltd. v. ITO [TS 507 HC 2011 (CAL)]
Facts
• The assessee, who was engaged in the business of importing and trading in pulses and edible oil, received a notice dated 6 April, 2006 from the assessing officer (“AO”) stating that it had not withheld taxes while making interest payment during the financial year 2001-02.
• Thereafter, the AO issued a show cause notice (“SCN”) dated 21 November, 2007 to the assessee regarding the non-withholding of taxes and subsequently passed orders under sections 201(1) and 201(1A) of the Act on 7 March, 2008, holding the assessee to be in default of its WHT obligations.
www.pwc.com/in
Sharing insights
News Alert
23 September, 2011
PwC News Alert September 2011
2
• In appeal before the Commissioner of Income-tax (Appeals) (“CIT(A)”), the assessee challenged the WHT orders on merit as well as on the ground that they were barred by the period of limitation. The CIT(A) rejected the assessee’s appeal and held that the time limit for initiating action for the year under consideration would be same as the maximum period available for reopening a tax assessment under the Act i.e. six years.
• On appeal, the Tribunal reduced the amount of WHT default but did not adjudicate on the question of the period of limitation.
• Aggrieved, the assessee preferred an appeal to the Calcutta High Court.
Issue before the Calcutta High Court
• Whether the AO was empowered to issue SCN/pass an order under section 201 of the Act after the expiry of a period of four years even though no such limitation period was prescribed under the section.
Assessee’s contentions
• Although there is no time limit prescribed under section 201 of the Act for the years prior to 1 April, 2010, the tax authorities at will, cannot initiate action or pass an order under the section after the expiry of a reasonable period.
• The limitation period of three years provided in erstwhile section 231 of the Act, as well as the limitation period of two years introduced in section 201 of the Act, could be held to be a reasonable period for passing a WHT order for the year under consideration. Since the AO did not pass the WHT orders in this timeframe the same were time barred.
• The time limit for passing an order under section cannot be equated with the time limit for reopening a tax assessment since there was no income escaping tax.
Revenue’s contentions
• Deletion of section 231 of the Act and reintroduction of time limit in section 201 of the Act with effect from 1 April, 2010 indicated the legislative intent to remove the limitation period for WHT orders passed in the interim period.
• Therefore action could be initiated under section 201 of the Act at any time for recovery of WHT liability including interest thereon.
Decision of the Calcutta High Court
The Calcutta High Court relied on the rulings of the Supreme Court (“SC”) in the cases of Uttam Mahale2 and Ishar Singh3 to hold that there was no time limit for passing an order under section 201 of the Act since there was no such period of limitation prescribed under the Act for the year under consideration.
In the case of Uttam Mahale (above), the SC had upheld an execution of an order passed under property laws after a period of 12 years from the date of the order on the grounds that there was no limitation period prescribed for execution of the order under the relevant legislation. In the case of Ishar Singh (above), the SC had the upheld late filing of an application under tenancy laws in the absence of a specific limitation period.
2 Mahale v. Vithal Deo & Ors (1997 AIR 2695 SC)
3 Ishar Singh v. Financial Commissioner (1984 AIR 1719 SC)
PwC News Alert September 2011
3 The Calcutta High Court also made the following key observations/findings while
arriving at the aforesaid conclusion:
• There is no scope for application of provisions of the Limitation Act, 1963 to the Act since the SC in the case of R.B.R.S.Rao4 held the Act is a self contained code with its provisions showing an intention to depart from the common rule.
• Time limits for reopening an income tax assessment cannot have any application to the current case since it is not a case of income escaping assessment but a case of a debtor not withholding taxes while making interest payment, resulting in WHT default.
• The Calcutta High Court was made aware of the Delhi High Court ruling in the case of NHK Japan Broadcasting Corporation5 wherein it was held that orders under section 201 of the Act should be passed within a reasonable period of time. However, the Calcutta High Court distinguished the decision of Delhi High Court on the grounds that the above mentioned decisions of the SC were not brought to the attention of the Delhi High Court.
Conclusion
The Calcutta High Court has concluded that there is no time limit for passing an order under section 201 and therefore limitation period cannot be impliedly read into the section.
Similar view was taken by the Punjab and Haryana High Court in the case of H.M.T Ltd6 wherein it was held that there is no time limit for passing an order under section 201 and hence order under that section can be passed any time i.e.
4 Rao Bahadur Ravulu Subba Rao & Ors. v. CIT [1956] 30 ITR 163 (SC)
5 CIT v. NHK Japan Broadcasting Corporation [2008] 305 ITR 137 (HC)
6 CIT (TDS) v. H.M.T Ltd. [TS-488-HC-2011(P&H)]
even after expiry of a period of four years from the end of the relevant assessment year.
It is very important to note that the Calcutta High Court, unlike the Punjab and Haryana High Court, has considered the favourable decision of the Delhi High Court on the issue and distinguished it on the grounds that the SC decisions in the cases of Uttam Mahale (above) and Ishar Singh (above) were not brought to the attention of the Delhi High Court.
Furthermore, the Calcutta High Court has also held that time limit for reopening tax assessments cannot be taken to be the time limit for passing an order under section 201 of the Act.
In light of these decisions, the argument that orders under section 201 of the Act should be passed within a reasonable period for years prior to 1 April, 2010 can now be validated only by the Supreme Court.
These decisions may also have serious implications in future for taxpayers defaulting on withholding taxes in respect of payment made to non-resident assessees since the limitation period incorporated in section 201 of the Act is applicable for payment made to residents.
4
Our Offices
For private circulation only Ahmedabad
President Plaza, 1st Floor Plot No 36 Opp Muktidham Derasar
Thaltej Cross Road, SG Highway Ahmedabad, Gujarat 380054 Phone +91-79 3091 7000
Bangalore
6th Floor, Millenia Tower 'D' 1 & 2, Murphy Road, Ulsoor, Bangalore 560 008 Phone +91-80 4079 7000
Bhubaneswar
IDCOL House, Sardar Patel Bhawan Block III, Ground Floor, Unit 2 Bhubaneswar 751009
Phone +91-674-253 2279 / 2296
Chennai
PwC Center, 2nd Floor 32, Khader Nawaz Khan Road Nungambakkam
Chennai 600 006 Phone +91-44 4228 5000
Hyderabad
#8-2-293/82/A/113A Road no. 36, Jubilee Hills, Hyderabad 500 034, Andhra Pradesh
Phone +91-40 6624 6600
Kolkata
South City Pinnacle, 4th Floor, Plot – XI/1, Block EP, Sector V Salt Lake Electronic Complex Bidhan Nagar
Kolkata 700 091
Phone +91-33 4404 6000 / 44048225
Mumbai
PwC House, Plot No. 18A, Guru Nanak Road - (Station Road), Bandra (West), Mumbai - 400 050 Phone +91-22 6689 1000
Gurgaon
Building No. 10, Tower - C 17th & 18th Floor, DLF Cyber City, Gurgaon Haryana -122002 Phone : +91-124-330 6000
Pune
GF-02, Tower C, Panchshil Tech Park, Don Bosco School Road, Yerwada, Pune - 411 006 Phone +91-20 4100 4444
For more information contact us at, [email protected]
The above information is a summary of recent developments and is not intended to be advice on any particular matter. PricewaterhouseCoopers expressly disclaims liability to any person in respect of anything done in reliance of the contents of these publications. Professional advice should be sought before taking action on any of the information contained in it. Without prior permission of PricewaterhouseCoopers, this Alert may not be quoted in whole or in part or otherwise referred to in any documents
©2011 PricewaterhouseCoopers. All rights reserved. "PwC", a registered trademark, refers to PricewaterhouseCoopers Private Limited (a limited company in India) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
