Section 201 – Payments to non-residents without deduction of tax at source – Order passed u/s. 201 (1) beyond one year from the end of the financial year in which the proceedings u/s. 201 were initiated is void ab initio

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Atlas Copco (India) Limited vs. DCIT (Pune)

Members:
R.S. Syal (V.P.) and Vikas Awasthy (J.M.)

ITA Nos. 1669, 1670 &
1671/PUN/2014, 1685 to 1688/PUN/2014 and CO No. 60/PUN/2018

A.Y.s: 2008-09 to 2011-12

Dated: 5^th April,
2019

Counsel for Assessee /
Revenue: R. Murlidhar / Pankaj Garg

Section 201 – Payments to
non-residents without deduction of tax at source – Order passed u/s. 201 (1)
beyond one year from the end of the financial year in which the proceedings
u/s. 201 were initiated is void ab initio

FACTS

During the financial years 2007-08
to 2010-11, the assessee made payments to various foreign entities towards
procurement of software licence, software maintenance charges, testing charges,
website maintenance charges, personal management charges, software expenses,
reimbursement of internet charges, etc. The assessee did not deduct tax at
source from these payments. The A.O. issued show cause notice to the assessee
on 27.01.2012 u/s. 201(1) and 201(1A). After considering the submission of the
assessee, the A.O. vide order dated 06.02.2014 held that the aforesaid payments
were in the nature of royalty / fee for technical services (FTS) u/s. 9(1)(vi)
and 9(1)(vii), respectively. Hence, it was mandatory for the assessee to deduct
tax at source on such payments. For its failure, he deemed the assessee as
assessee in default and raised a demand of Rs. 1.81 crores.

Against this, the assessee filed an
appeal before the CIT(A). Except for demand raised in respect of payments for
software maintenance charges, testing charges and towards personal management
fees, the CIT(A) confirmed the A.O.’s order. Aggrieved by the order of the
CIT(A), the assessee filed appeals for assessment years 2008-09 to 2010-11 and
the Revenue filed cross appeals. On its part, Revenue filed appeal for the
assessment year 2011-12.

The assessee filed cross objections
for assessment year 2011-12. But the assessee’s cross objection was time barred
by 878 days. However, taking into consideration the facts of the case, the law
laid down by the Supreme Court in the case of Ram Nath Sao and Ram Nath
Sahu and Others vs. Gobardhan Sao and Others (2002 AIR 1201) and the
reasons furnished by the assessee, the delay of 878 days in filing of cross
objections was condoned by the Tribunal.

Before the Tribunal, the assessee
submitted that in the impugned assessment years, show cause notice u/s. 201(1)
and 201(1A) was issued on 27.01.2012. But the order u/s. 201(1) and 201(1A) for
all the impugned assessment years was passed by the A.O. on 6.02.2014. It was
contended that, as per the decision of the Special Bench of Tribunal in the
case of Mahindra & Mahindra Ltd. vs. DCIT (122 TTJ 577),
which was affirmed by the Bombay High Court (365 ITR 560), the
A.O. was required to pass the order within one year from the end of the
financial year in which the proceedings u/s. 201 were initiated, i.e., on or
before 31.03.2013. Since the order passed was beyond the period of limitation,
the same was void ab initio and the subsequent proceedings arising
therefrom were vitiated.

In reply, the Revenue contended
that as per the provisions of section 201(3), the order u/s. 201(1) could have
been passed at any time after the expiry of six years from the end of the
financial year in which payment was made or credited. According to the Revenue,
the case laws relied on by the assessee were distinguishable on facts. The
Special Bench decision was rendered in 2009, whereas the provisions of section
201(3) were inserted by the Finance Act, 2009 w.e.f. 01.04.2010.

HELD

According to the tribunal, a bare
perusal of sub-section (3) as referred to by the Revenue shows that reference
is to the payments made without deduction of tax at source to ‘person resident
in India’. The sub-section (3) is silent about the limitation period for
passing the order u/s. 201 where the payments are made without deduction of tax
at source to non-resident / overseas entities.

In the present
case, the tribunal noted that the assessee had made payments to non-residents.
Therefore, it held that the provisions of section 201(3) do not get attracted.
According to the tribunal, where the payments are made to entities / persons,
other than those specified in sub-section (3), the limitation period of one
year from the end of the financial year in which the proceedings u/s. 201 were
initiated, as laid down by the Special Bench of Tribunal and affirmed by the
Bombay High Court, would apply.