Prescribed time limit to treat payer as assessee-in-default is applicable even if the payee is NR: ITAT

Case Details: Mphasis Ltd. v. DDIT - [2022] 136 taxmann.com 160 (Bangalore - Trib.)

Judiciary and Counsel Details

• • N.V. Vasudevan, Vice President and Chandra Poojari, Accountant Member
  • Porus F. Kaka, CA for the Appellant.
  •  K.V. Arivind, Adv. for the Respondent.

Facts of the Case

Assessee-company was engaged in providing information technology solutions and services specifically tailored to meet the requirements of industries.

It had entered into a ‘Master Services agreement’ with respective overseas group companies. It made payments to its group companies for software development services but without tax deduction at source. According to the assessee, the paid sums were not chargeable to tax and the relevant double taxation avoidance agreements.

However, Assessing Officer (AO) held that said payments were in the nature of ‘fees for technical services’. Accordingly, he passed an order under sections 201(1) and 201(1A). On appeal, the assessee argued that said order was barred by limitation. However, the CIT(A) rejected contentions of the assessee. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that the limitation period was prescribed under section 201 by insertion of sub-section (3) for the first time by Finance Act, 2009 with effect from 1-4-2010. Still, those provisions were applicable only when payments were made to ‘resident in India’. Regarding payments made to non-residents, no period of limitation is laid down in the Income-tax Act.

The absence of a limitation period to pass an order under section 201(1) where the payee is a non-resident will not empower the Assessing Officer to pass an order under section 201 at any time at his sweet will.

The Delhi High Court in case of Bharti Airtel Ltd. v. Union of India [2016] 76 taxmann.com 256 has held that the limitation period provided under section 201(3) would apply even in respect of non-residents.

Thus, when the payee is a non-resident, the proviso to section 201(3) prescribing a limitation period for passing an order under section 201(1) would apply. The orders passed beyond such limitation period would have to be declared barred by time and invalid.

Case Review

• • Vodafone Essar Mobile Services Ltd. v. Union of India [2016] 67 taxmann.com 124/238 Taxman 625/385 ITR 436 (Delhi);
  • CIT v. C.J. International Hotels (P.) Ltd. [2015] 56 taxmann.com 458/231 Taxman 818/372 ITR 684 (Delhi);
  • DIT (International Taxation) v. Mahindra & Mahindra Ltd. [2014] 48 taxmann.com 150/225 Taxman 306/365 ITR 560 (Bom.);
  • CIT v. NHK Japan Broadcasting Corpn. [2008] 172 Taxman 230/305 ITR 137 (Delhi) and
  • CIT v. Bharat Hotels Ltd. [2015] 64 taxmann.com 325/[2016] 384 ITR 77 (Kar.) (para 20) followed.

List of Cases Referred to

• • Bhura Exports v. ITO [2011] 13 taxmann.com 162/202 Taxman 88/[2014] 365 ITR 548 (Kol.) (para 7)
  • Tata Teleservices Ltd. v. Union of India [2016] 66 taxmann.com 157/238 Taxman 331/385 ITR 497 (Guj.) (para 9)
  • Tech Mahindra Ltd. v. ITO (International Taxation) [2018] 96 taxmann.com 357 (Mum.) (para 9)
  • CIT v. Bharat Hotels Ltd. [2015] 64 taxmann.com 325/[2016] 384 ITR 77 (Kar.) (para 9)
  • CIT v. NHK Japan Broadcasting Corpn. [2008] 172 Taxman 230/305 ITR 137 (Delhi) (para 9)
  • Bharti Airtel Ltd. v. Union of India [2016] 76 taxmann.com 256/[2017] 245 Taxman 80 (Delhi) (para 10)
  • Mahindra & Mahindra Ltd. v. Dy. CIT [2009] 30 SOT 374 (Mum.) (SB) (para 12)
  • Vodafone Essar Mobile Services Ltd. v. Union of India [2016] 67 taxmann.com 124/238 Taxman 625/385 ITR 436 (Delhi) (para 20)
  • CIT v. C.J. International Hotels (P.) Ltd. [2015] 56 taxmann.com 458/231 Taxman 818/372 ITR 684 (Delhi) (para 20)
  • DIT (International Taxation) v. Mahindra & Mahindra Ltd. [2014] 48 taxmann.com 150/225 Taxman 306/365 ITR 560 (Bom.) (para 20).