CROMPTON GREAVES LTD., MUMBAI v. D.C.I.T. (TDS) CIR.1(1), MUMBAI

ITA 2211/MUM/2000 | 1998-1999
Pronouncement Date: 24-02-2012 | Result: Allowed

Appeal Details

RSA Number 221119914 RSA 2000
Bench Mumbai
Appeal Number ITA 2211/MUM/2000
Duration Of Justice 11 year(s) 9 month(s) 26 day(s)
Appellant CROMPTON GREAVES LTD., MUMBAI
Respondent D.C.I.T. (TDS) CIR.1(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2012
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 24-02-2012
Assessment Year 1998-1999
Appeal Filed On 28-04-2000
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L MUMBAI BEFORE SHRI R.S.SYAL (A.M) & SHRI N.V.VASUDEVAN(J .M) ITA NO. 2210/MUM/2000(A.Y. 1998-99) ITA NO.2211/MUM/2000(A.Y. 1998-99) ITA NO.2212/MUM/2000(A.Y. 1998-99) CROMPTON CREAVES LTD. C.G. HOUSE TAXATION DEPT. DR. ANNIE BESANT ROAD PRABHADEVI MUMBAI 400 030 PAN: (APPELLANT) VS. THE DCIT (TDS) CIR. 1(1) AAYKAR BHAVAN MK ROAD MUMBAI 20. (RESPONDENT) APPELLANT BY : SHRI JAHANGIR D. MISTRI RESPONDENT BY : SHRI MAHESH KUMAR DATE OF HEARING : 14/02/2012 DATE OF PRONOUNCEMENT : 24/ 02/2012 ORDER PER N.V.VASUDEVAN J.M THESE ARE APPEALS FIELD BY THE ASSESSEE AGAINST T HREE ORDERS OF CIT(A) XXV MUMBAI ALL DATED 22/2/2000 RELATING TO A.Y 1998-99 . 2. THE ASSESSEE IS A PUBLIC LIMITED COMPANY. THE A SSESSEE ISSUED QUITY AND EQUITY RELATED INSTRUMENTS TO INTERNATIONAL INVESTO RS IN THE FORM OF GLOBAL DEPOSITORY RECEIPTS(GDR). GDRS ARE ESSENTIALLY US $ DENOMINATED GDR IN RESPECT OF A SPECIFIED NUMBER OF SHARES OF THE ISSU ER ISSUED FOR SUBSCRIPTION TO INTERNATIONAL INVESTORS AT A FIXED PRICE. THE ASSE SSEE APPOINTED LEAD MANAGERS WHO WERE RESPONSIBLE TO ASSIST IN OBTAINING ALL RE LEVANT PERMISSIONS ADVICE ON THE ISSUE STRUCTURING TIMING AND PRICE OF ISSUE A DVICE ON APPOINTMENT OF OTHER ADVISORS TO THE ISSUE RESPONSIBILITY FOR CO-ORDINAT ION OF THE ISSUE PREPARATION OF THE OFFERING CIRCULAR FOR THE ASSESSEES AND ALL NEC ESSARY OFFER DOCUMENTATION TO BE DISTRIBUTED TO POTENTIAL INVESTORS PREPARATION OF ROAD SHOWS PRESENTATION FORMULATING THE MARKETING STRATEGY MARKING AND DIS TRIBUTING THE ISSUE ARRANGING ITA NO. 2210/MUM/2000(A.Y. 1998-99) ITA NO.2211/MUM/2000(A.Y. 1998-99) ITA NO.2212/MUM/2000(A.Y. 1998-99) 2 FOR LISTING IN THE LONDON STOCK EXCHANGE. THE ISS UE WAS LED BY JARDINE FLEMING INTL. INC. (LEAD MANAGER) AND CITIBANK INTL. PLC. MERRILL LYNCH INTL. LTD. MORGAN STANLEY & CO. ( CO-LEADS) AND KOTAK MAHINDRA (UK) L TD. (MANAGER) (HEREIN AFTER REFERRED TO AS MANAGERS TO THE ISSUE.) FOR THE MAR KETING AND DISTRIBUTION AND PREPARATION OF THE DOCUMENTATION TO POTENTIAL INVES TORS THE ASSESSEE BY WAY OF A SUBSCRIPTION AGREEMENT DT. 21 ST JULY 1996 ENTERED INTO WITH THE MANAGERS TO THE ISSUE AGREED TO PAY 3% COMPRISING OF MANAGEMENT AND UNDERWRITING COMMISSION 1% AND SELLING COMMISSION 2% TO BE SHARE D BETWEEN THEMSELVES AS MUTUALLY AGREED BY THEM AND TO REIMBURSE THE LEAD M ANAGER FOR ITS OUT OF POCKET EXPENSES INCURRED ON THE AFORESAID ISSUE SUBJECT TO A CEILING OF US$ 3 30 000. 3. THE SUBSCRIPTION AGREEMENT ENVISAGED ISSUE OF 6 220 000 GDRS (FIRM GDRS) AND AN OPTION TO ISSUE ADDITIONAL 393750 GDRS (OPTI ONAL GDRS). THE ASSESSEE HAD A SUCCESSFUL GDR ISSUE WITH NINE TIMES OVER SUB SCRIPTION AND ALLOTTED 6 613 750 GDRS INCLUSIVE OF FIRM AND OPTIONAL GDRS BEING THE MAXIMUM ISSUE POSSIBLE AT A RATE OF US$ 7.56 PER GDR. TWO MASTE R GDRS WERE ISSUED ON 10TH JULY 1996 ONE EVIDENCING THE INTERNATIONAL MASTER GDR AND THE OTHER THE AMERICAN MASTER GDR IN FAVOUR OF THE DEPOSITORY (BA NK OF NEW YORK) TO BE HELD ON BEHALF OF THE BENEFICIAL INVESTORS. THE UNDERLYI NG SHARES TO THE GDRS WERE KEPT WITH THE CUSTODIAN IN INDIA (ICICI). THE WORK INVOLVED IN THE ISSUANCE OF GDRS TO INTERNATIONAL INVESTORS WAS CARRIED OUT OUT SIDE INDIA AND AS INDICATED ABOVE THE DISTRIBUTION AND MARKETING AS ALSO APPRO ACHING TARGET INTERNATIONAL INVESTORS ALL NECESSARILY HAD TO BE DONE OUTSIDE IN DIA. THE ISSUE PROCEEDS WERE COLLECTED BY THE LEAD MANAGER IN HIS ACCOUNT OUTSID E INDIA AND THE NET PROCEEDS AFTER DEDUCTING COMMISSIONS AND OUT OF POCKET EXPEN SES WERE DEPOSITED INTO THE ASSESSEES ACCOUNT OPENED FOR THIS PURPOSE IN NEW Y ORK. THE NET PROCEEDS WERE REMITTED INTO INDIA IN TWO TRANCHES ON JULY11 AND JULY 12 1996. THE REMITTANCE INTO INDIA WAS TRANSLATED INTO RUPEES AND THE AMOUN T SO RECEIVED AS WAS EQUIVALENT TO THE PAR VALUE OF SHARES COMPRISED IN THE ISSUE WAS CREDITED TO SHARE CAPITAL ACCOUNT AND THE BALANCE FORMING PART OF THE SHARE PREMIUM ACCOUNT. ITA NO. 2210/MUM/2000(A.Y. 1998-99) ITA NO.2211/MUM/2000(A.Y. 1998-99) ITA NO.2212/MUM/2000(A.Y. 1998-99) 3 3. THE AO PASSED AN ORDER U/S. 195 OF THE INCOME TA X ACT 1961 (THE ACT) ON 30/3/1995 HOLDING THAT THE PAYMENTS MADE BY THE ASS ESSEE TO THE NON-RESIDENT LEAD MANAGERS WAS IN THE NATURE OF FEES FOR TECHN ICAL SERVICES RENDERED AND THEREFORE THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE ON THE PAYMENTS SO MADE. CONSEQUENT TO THE ORDER PASSED UNDER SECTION 195 OF THE ACT HOLDING THAT THE ASSESSEE WAS BOUND TO DEDUCT TAX AT SOURCE ON T HE PAYMENTS MADE TO THE INTERNATIONAL LEAD MANAGERS THE AO PASSED ORDER UNDER SECTION 201(1) AND 201(1A) ON 30.3.1995 HOLDING THAT THE ASSESSEE WAS TO BE TREATED AS AN ASSESSEE IN DEFAULT IN RESPECT OF THE TAXES THAT OUGHT TO HA VE BEEN DEDUCTED AT SOURCE AND ALSO INTEREST THEREON. 4. THE AO WORKED OUT THE QUANTUM OF TAX IN RESPECT OF WHICH THE ASSESSEE WAS TO BE TREATED AS ASSESSEE IN DEFAULT AND THE QUANTU M OF INTEREST PAYABLE ON TAX NOT DEDUCTED AT SOURCE AS FOLLOWS. THE TOTAL PAYME NT INCLUDING REIMBURSEMENT OF EXPENSES FESS TO THE LEAD MANAGERS AND OTHERS THAT WAS MADE ON 10/7/96(CLOSING DATE) WAS A SUM OF RS. 7 68 62 058/ -. TDS ON THIS PAYMENT/ CREDIT OF RS. 7 68 62 058/- WITH APPLICABLE GROSSI NG UP WORKED OUT TO RS.3 29 40 882/-. FROM THE CLOSING DATE TILL MARCH 1999 THERE WERE 31 COMPLETED MONTHS. THIS TAX WAS PAYABLE ON 10/7/199 6 BUT REMAINED UNPAID TILL DATE. ACCORDINGLY INTEREST U/S. 201(1A) WAS WORKE D OUT AT A SUM OF RS. 1 27 6 4 692/-. THE ASSESSEE WAS ACCORDINGLY DIREC TED TO PAY RS. 4 57 05 474/- . 5. ALL THE ORDERS I.E. ORDER U/S.195 AND ORDER U/ S. 201(1) AND THE ORDER U/S. 201(1A) WERE ALL PASSED ON 30/3/1999. THE AS SESSEE PREFERRED THREE APPEALS BEFORE THE CIT(A) NAMELY APPEAL NO.73/99-20 00 AGAINST THE ORDER U/S. 195 OF THE I.T. ACT DATED 30/3/1999. APPEAL NO.74& 75/99-2000 WERE PREFERRED AGAINST THE ORDER U/S. 201(1) & 201(1A) OF THE I.T. ACT DT. 30.3.1995. THE ISSUE INVOLVED IN ALL THE ORDERS WAS IDENTICAL. THE CI T(A) PASSED A COMMON ORDER ITA NO. 2210/MUM/2000(A.Y. 1998-99) ITA NO.2211/MUM/2000(A.Y. 1998-99) ITA NO.2212/MUM/2000(A.Y. 1998-99) 4 DATED 22/2/2000 WHICH IS THE ORDER IMPUGNED IN ALL THESE THREE APPEALS. THE CIT(A) FRAMED THE FOLLOWING POINTS FOR CONSIDERATI ON. 1. MAINTAINABILITY OF APPEAL UNDER SECTION 201; 2. ACCRUAL OF INCOME; 3. NO PAYMENT SO NO TDS; 4. IT IS A DIRECT SALE AND HENCE NOTHING IS TAXABLE ; 5. ARE THESE SERVICES RENDERED TECHNICAL MANAGERIA L CONSULTANCY IN NATURE; 6. RE-IMBURSEMENT OF EXPENSES IS NOT TAXABLE; 7. APPLICABILITY OF THE JUDGEMENT OF TRANSMISSION C ORPN. OF A.P.(SUPRA) AND VALIDITY OF ORDER U/S 195; 8. APPLICABILITY OF DTAA 6. ON THE QUESTION OF MAINTAINABILITY OF APPEAL AG AINST AN ORDER U/S.201 THE CIT(A) HELD THAT APPEAL BY THE ASSESSEE IS MAINTAIN ABLE AGAINST AN ORDER PASSED U/S. 201(1) AND 201(1A) OF THE ACT. ON THE ISSUE O F WHETHER THERE WAS ACTUAL OF INCOME THE CIT(A) HELD THAT IRRESPECTIVE OF THE PL ACE WHERE SERVICES IS RENDERED THE AMOUNT SHOULD BE DEEMED TO HAVE ACCRUED OR ARI SEN IN INDIA BECAUSE THE SERVICES WERE UTILIZED BY THE ASSESSEE IN BUSINES S WHICH WAS CARRIED ON BY IT IN INDIA. WITH REGARD TO THE ARGUMENTS THAT SINCE THE LEAD MANAGERS APPROPRIATED THEIR COMMISSION OUT OF THE ISSUE PROCEEDS OF THE G DR AND THE ASSESSEE DID NOT MAKE TO LEAD MANAGERS AND THEREFORE THE QUESTION OF DEDUCTING TAX AT SOURCE DOES NOT ARISE FOR CONSIDERATION THE CIT(A) HELD T HAT IN EFFECT IT WAS A CONSTRUCTIVE PAYMENT BY THE ASSESSEE AND THEREFORE THERE WAS AN OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE WH ILE MAKING PAYMENTS. ON THE ARGUMENT THAT THE GDRS WERE DIRECTLY SOLD AND THAT IT WAS ONLY PART OF THE PURCHASE CONSIDERATION THAT WAS PAID TO THE LEAD MA NAGERS THE CIT(A) HELD THAT THE PAYMENT WAS FOR SERVICES RENDERED AND THAT THE AMOUNT PAID TO THEM COULD NOT BE SAID TO BE PART OF THE CONSIDERATION RECEIVE D FOR GDRS. ON THE QUESTION ITA NO. 2210/MUM/2000(A.Y. 1998-99) ITA NO.2211/MUM/2000(A.Y. 1998-99) ITA NO.2212/MUM/2000(A.Y. 1998-99) 5 WHETHER THE SERVICES RENDERED WERE TECHNICAL MANAG ERIAL CONSULTANCY ETC. IN NATURE THE CIT(A) HELD THAT THE SERVICES RENDERED BY THE LEAD MANAGERS THAT THE SAME WERE TECHNICAL AND MANAGERIAL SERVICES. ON T HE QUESTION OF TAXING REIMBURSEMENT OF EXPENSES IT WAS HELD THAT REIMBURS EMENT WAS INTEGRAL PART OF THE FEES PAID TO THE LEAD MANAGERS AND WAS THEREFO RE TAXABLE AS BEING PART AND PARCEL OF THE TOTAL FEES PAID. ON THE QUESTION OF APPLICABILITY OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TRANSMISSI ON CORPORATION OF A.P & OTHERS VS. CIT 239 ITR 587 (SC) THE CIT(A) HELD T HAT IT WAS A STATUTORY OBLIGATION OF THE PERSONS RESPONSIBLE FOR PAYING T O A NON-RESIDENT TO DEDUCT TAX AT SOURCE. IT WAS ALSO HELD THAT IF FOR WHATEVER R EASONS THE PAYER FEELS THAT THE AMOUNT WAS NOT TAXABLE UNDER THE ACT HE SHOULD FIL E AN APPLICATION BEFORE THE AO AND ASSESSEE CANNOT DECIDE ON HIS OWN WHETHER TH E INCOME IS CHARGEABLE TO TAX OR NOT. ON THE QUESTION OF APPLICABILITY OF DT AA THE CIT(A) HELD THAT SINCE THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE U/S. 195 OF THE ACT THE QUESTION OF EXAMINING THE ISSUE FROM THE DTAA ANGLE DID NOT ARI SE FOR CONSIDERATION. FOR ALL THE ABOVE REASONS THE ORDERS PASSED BY THE AO WERE UPHELD BY THE CIT(A) GIVING RISE THE PRESENT APPEALS BY THE ASSESSEE BEFORE TH E TRIBUNAL. 7. IN THE ORIGINAL GROUNDS OF APPEAL THE ASSESSEE HAS CHALLENGED THE APPLICABILITY OF THE PAYMENTS MADE BY IT TO THE LEAD MANAGERS OR NON-RESIDENT ON THE GROUND THAT THE SAME WAS NOT IN THE NATURE OF FEES FOR TEC HNICAL SERVICES EITHER UNDER THE ACT OR UNDER THE DTAA AND THEREFORE THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE TO THE LEAD MANAGERS. THE ASSESSEE HAS ALSO FILED AN APPLICATION FOR ADMISSION OF THE FOLLOWING ADDIT IONAL GROUND OF APPEAL IN ALL THE THREEAPPEALS. AS NO ACTION HAS BEEN TAKEN BY THE DEPARTMENT AG AINST THE PAYEES AND TIME FOR TAKING SUCH ACTION HAS EXPIRED NO ORDER U NDER SECTIONS 195 201(1) OR 201(1A) CAN BE PASSED. ITA NO. 2210/MUM/2000(A.Y. 1998-99) ITA NO.2211/MUM/2000(A.Y. 1998-99) ITA NO.2212/MUM/2000(A.Y. 1998-99) 6 8. IN THE APPLICATION FOR ADMISSION OF THE ADDITION AL GROUND OF APPEAL THE ASSESSEE HAS SUBMITTED THAT THE SPECIAL BENCH OF TH E MUMBAI TRIBUNAL IN THE CASE OF MAHINDRA & MAHINDRA LTD. 313 ITR 263 (MUM) (SB) (AT) HAS HELD THAT NO ORDER U/S. 195 201(1) OR 201(1A) OF THE ACT CAN BE PASSED WHERE REVENUE HAS NOT TAKEN ANY ACTION AGAINST THE PAYEE FOR MAKING ASSES SMENT OF THE RECEIPT IN THE HANDS OF THE PAYEE WITHIN THE TIME LIMIT FOR PASSIN G ORDER U/S. 147 OF THE ACT AND WHERE THE TIME LIMIT FOR INITIATING SUCH PROCEE DINGS U/S. 147 OF THE ACT HAS ALSO EXPIRED. IT HAS ALSO BEEN MENTIONED IN THE AP PLICATION THAT ADMITTEDLY NO ACTION WAS TAKEN AGAINST THE PAYEE AND THAT THE TIM E FOR TAKING SUCH ACTION AGAINST THE PAYEE UNDER THE ACT HAS ALSO EXPIRED. IT HAS ALSO BEEN SUBMITTED THAT THE QUESTION OF LIMITATION IN WHATEVER MANNER IT ARISES IS A QUESTION OF LAW AND GOES TO THE ROOT OF THE APPEAL AND JURISDICTION OF THE TRIBUNAL. IN THIS REGARD REFERENCE HAS ALSO MADE TO THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF UNION OF INDIA LTD. VS. BRITISH CORPORATION LTD. 268 ITR 481. THE ASSESSEE HAS THEREFORE PRAYED FOR ADMISSION OF THE ADDITIO NAL GROUND OF APPEAL. 9. BEFORE PROCEEDING FURTHER IT WOULD BE USEFUL TO REFER TO THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAHIN DRA & MAHINDRA (SUPRA). THE ISSUE THAT AROSE FOR CONSIDERATION IN THE AFORESAID CASE WAS THAT AS TO THE REQUIREMENT OF TAX DEDUCTION AT SOURCE ON PAYMENT S MADE TO NON-RESIDENTS BEING LEAD MANAGERS TO THE ISSUE ON ACCOUNT OF MA RKETING UNDER WRITING AND SELLING COMMISSION IN RESPECT OF GDR ISSUE OUTSIDE INDIA. FOR THE PURPOSE OF DECIDING ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE THE FOLLOWING CONCLUSION DRAWN BY THE SPECIAL BENCH ARE RELEVANT. WE SUM UP THE CONCLUSIONS AS UNDER: (I)ANY PARTY CAN RAISE ADDITIONAL GROUND ON THE QUE STION OF LIMITATION BEFORE THE TRIBUNAL FOR THE FIRST TIME AS IT IS A LEGAL G ROUND NOT REQUIRING THE INVESTIGATION OF THE FRESH FACTS. (II) SECTION 195 (1) CASTS DUTY ON THE PERSON RESPO NSIBLE FOR PAYING OR CREDITING TO THE ACCOUNT OF A NON RESIDENT ANY SUM CHARGEABLE TO TAX UNDER THIS ACT FOR DEDUCTING TAX AT SOURCE. ON FAILURE TO DEDUCT OR PAY TO THE ITA NO. 2210/MUM/2000(A.Y. 1998-99) ITA NO.2211/MUM/2000(A.Y. 1998-99) ITA NO.2212/MUM/2000(A.Y. 1998-99) 7 GOVERNMENT AFTER DEDUCTING THE PERSON RESPONSIBLE IS TREATED AS THE ASSESSEE IN DEFAULT UNDER SECTION 201(1). (III) ANY SUCH PERSON REFERRED TO IN SECTION 201( 1) EXTENDS NOT ONLY THE PERSON DEDUCTING AND FAILING TO DEPOSIT THE TAX BUT ALSO THE PERSON FAILING TO DEDUCT THE TAX AT SOURCE. (IV) WHERE NO TIME LIMIT IS PRESCRIBED FOR TAKING AN ACTION UNDER THE STATUTE THE ACTION CAN BE TAKEN ONLY WITHIN A REAS ONABLE TIME BY HARMONIOUSLY CONSIDERING THE SCHEME OF THE ACT. (V) TAX RECOVERY PROCEEDINGS ARE INITIATED ONLY AFT ER THE PASSING OF ORDER UNDER SECTION 201(1) AND THAT TOO IF THE PERSON RES PONSIBLE FAILS TO COMPLY WITH NOTICE OF DEMAND UNDER SECTION 156. (VI) THE ORDER UNDER SECTION 201(1) IS AKIN TO THE ASSESSMENT ORDER ASSESSMENT INCLUDES REASSESSMENT. (VII) THE TIME LIMIT FOR INITIATING THE PROCEEDINGS UNDER SECTION 201(1) CANNOT BE THE SAME AS THAT FOR THE PASSING OF ORDER UNDER THIS SUB-SECTION. TIME FOR INITIATION IS ALWAYS PRIOR TO THE TIME FOR COMPLETING THE PROCEEDINGS. (VIII) THE REASONABLE TIME FOR INITIATING AND COMPL ETING THE PROCEEDINGS UNDER SECTION 201(1) HAS TO BE AT PAR WITH THE TIME LIMIT AVAILABLE FOR INITIATING AND COMPLETING THE REASSESSMENT AS THE A SSESSMENT INCLUDES REASSESSMENT. (IX) THE MAXIMUM TIME LIMIT FOR INITIATING THE PROC EEDINGS UNDER SECTION 201(1) OR (IA) IS THE SAME AS PRESCRIBED UNDER SECT ION 149 I.E. FOUR YEARS OR SIX YEARS FROM THE END OF THE RELEVANT ASSESSMENT Y EAR AS THE CASE MAY BE DEPENDING UPON THE AMOUNT OF INCOME IN RESPECT OF W HICH THE PERSON RESPONSIBLE IS SOUGHT TO BE TREATED AS THE ASSESSEE IN DEFAULT. (X) THE MAXIMUM TIME LIMIT FOR PASSING THE ORDER UN DER SECTION 201(1) OR (1A) IS THE SAME AS PRESCRIBED UNDER SECTION 153(2) BEING ONE YEAR FROM THE END OF THE FINANCIAL YEAR IN WHICH PROCEEDINGS UNDER SECTION 201(1) ARE INITIATED. (XI) ANY ORDER PASSED UNDER SECTION 201(1) OR (1A) CANNOT BE HELD AS BARRED BY LIMITATION IF IT IS NOT PASSED WITHIN FOUR YEARS FROM THE END OF THE RELEVANT FINANCIAL YEAR. (XII) THE PERSON RESPONSIBLE CANNOT BE TREATED AS T HE ASSESSEE IN DEFAULT IN RESPECT OF TAX UNDER SECTION 201(1) IF THE PAYEE HA S PAID THE TAX DIRECTLY. IN ITA NO. 2210/MUM/2000(A.Y. 1998-99) ITA NO.2211/MUM/2000(A.Y. 1998-99) ITA NO.2212/MUM/2000(A.Y. 1998-99) 8 SUCH A SITUATION THE OTHER CONSEQUENCES SHALL FOLLO W SUCH AS LIABILITY TO INTEREST UNDER SECTION 201(1A). (XIII) NO ORDER UNDER SECTION 201(L) OR (1A) CAN B E PASSED WHERE THE REVENUE HAS NOT TAKEN ANY ACTION AGAINST THE PAYEE AND FURTHER THE TIME LIMIT FOR TAKING ACTION AGAINST THE PAYEE UNDER SEC TION 147 HAS ALSO EXPIRED. (XIV) PAYMENT TO OR CREDITING THE ACCOUNT OF NON- RESIDENT UNDER SECTION 195(1) ALSO COVERS RETENTION OF THE AMOUNT BY NON- RESIDENT WHERE ONLY NET AMOUNT IS REMITTED TO THE INDIAN PARTY. (XV) FEES FOR TECHNICAL SERVICES UNDER SECTION 9(1 ) (VII) READ WITH EXPLANATION 2 COVERS MANAGEMENT COMMISSION AND SELL ING COMMISSION ALLOWED TO THE NON-RESIDENT IN RESPECT OF THE GDR I SSUE. UNDERWRITING COMMISSION DOES NOT FALL WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII). REIMBURSEMENT OF EXPENSES DOES NOT HAVE THE INCOME ELEMENT AND HENCE CANNOT ASSUME THE CHARACTE R OF INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. (XVI) IF A PARTICULAR AMOUNT IS NOT TAXABLE AS PER THE PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT SUCH INCOME CA NNOT BE TAXED IN THE HANDS OF THE NON-RESIDENT NOTWITHSTANDING THE FACT THAT THE SAME IS TAXABLE UNDER THE REGULAR PROVISIONS OF THE INCOME-TAX ACT 1961. (XVII) WHERE THE TECHNICAL SERVICES ARE NOT MADE AV AILABLE TO THE INDIAN PARTY THOUGH USED BY THE NON-RESIDENT FOR ITS BENEF IT THE AMOUNT OF MANAGEMENT AND SELLING COMMISSION CANNOT BE HELD TO BE TAXABLE AS PER THE FIRST DTAA WITH THE U.K. AS CAN BE SEEN FROM THE DECISION OF THE SPECIAL BEN CH REFERRED TO ABOVE THE QUESTION OF LIMITATION IS A LEGAL GROUND AND DOES N OT REQUIRE INVESTIGATION OF FRESH FACTS AND THEREFORE CAN BE ADMITTED FOR ADJUDICATIO N BY THE TRIBUNAL EVEN IF RAISED BEFORE THE TRIBUNAL FOR THE FIRST TIME. 10. THE LD. D.R HAS HOWEVER OBJECTED TO THE ADMISSI ON OF THE ADDITION GROUND OF APPEAL. IT WAS POINTED OUT BY THE LD. D.R THAT THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SUMSUNG ELECTRONIC CO. LTD. 1 85 TAXAMAN 313 (KAR) HAS TAKEN THE VIEW THAT IN PROCEEDINGS U/S. 195 THE DET ERMINATION OF THE TAX LIABILITY OF A NON-RESIDENT CANNOT BE GONE INTO AND THEREFOR E THE ADDITIONAL GROUND WOULD ITA NO. 2210/MUM/2000(A.Y. 1998-99) ITA NO.2211/MUM/2000(A.Y. 1998-99) ITA NO.2212/MUM/2000(A.Y. 1998-99) 9 NOT ARISE FOR CONSIDERATION AT ALL. ON THIS ARGUME NT IT IS NOTICED THAT THE HONBLE SUPREME COURT IN THE CASE OF G.E. INDIA TECHNOLOGY CENTER PVT. LTD. VS. CIT 327 ITR 456 (SC) HAS SINCE REVERSED THE DECISION OF THE HONBLE KARNATAKA HIGH COURT. RESULTANTLY THE QUESTION WHETHER THE PAYME NTS MADE TO THE NON-RESIDENT WERE TAXABLE OR NOT CAN BE DECIDED IN THE PROCEEDIN GS U/S. 195 AS WELL AS 201(1) AND 201(1A) OF THE ACT. 11. AS FAR AS THE ADDITIONAL GROUND OF APPEAL RAISE D BY THE ASSESSEE IS CONCERNED WE FIND THAT HONBLE SPECIAL BENCH OF ITA T IN THE CASE OF MAHINDRA & MAHINDRA (SUPRA) HAS HELD THAT AN ORDER UNDER SECTI ON 201(1) OR 201(1A) CANNOT BE PASSED WHERE THE REVENUE HAS NOT TAKEN ANY ACTIO N AGAINST THE PAYEE AND FURTHER THE TIME LIMIT FOR TAKING ACTION AGAINST TH E PAYEE UNDER SECTION 147 OF THE ACT HAS ALSO EXPIRED. THE LD. D.R HAS NOT BEEN ABL E TO SATISFY THE BENCH AS TO WHETHER ANY ACTION HAS BEEN TAKEN AGAINST THE PAYEE WITHIN THE TIME AS CONTEMPLATED BY THE DECISION OF THE HONBLE SPECIAL BENCH. IN THE SUBMISSION DATED 21/2/2010 FILED BY THE LD. D.R IT HAS BEEN SU BMITTED AS FOLLOWS: SO IF THE ABOVE IMPLICATIONS OF THE SPECIAL BENCH DECISION ARE APPLIED TO THE FACTS OF THE CASE OF PRESENT ASSESSEE THEN IT M AY BE SEEN THAT THE DEFAULT TO DEDUCT THE TDS WAS MADE ON 10/7/96 AND T HE AMOUNT OF DEFAULT WAS 3 29 40 882/ THEREFORE AS PER THE DECISION OF S PECIAL BENCH THE PROCEEDINGS U/S 195 R/W 201 COULD BE INITIATED UPTO 4 YEARS FROM THE END OF RELEVANT AY I.E UPTO 3 1/3/2002 AND THE SAME COU LD BE COMPLETED UPTO 3 1/3/2003 WHEREAS IN THE INSTANT CASE THE ORDER U/S 195 201(1) & 201(IA) WERE INITIATED ON 26/11/98 AND COMPLETED BY PASSING ORDERS ON 30/3/99 ITSELF WHICH IS MUCH BEFORE THE LIMITATION DATE OF 3 1/3/2003 TREATING THE ASSESSEE IN DEFAULT U/S 201(1) FOR AN AMOUNT OF RS 3.29 CRORES AND U/S 201(LA) FOR AN AMOUNT OF RS 1.27 CRORES HENCE THE T IME LIMITS PRESCRIBED BY THE SPECIAL BENCH IN MAHINDRA & MAHINDRA HAVE BEEN DULY ADHERED AND SUPPORT THE CASE OF REVENUE THAT THE ORDERS ARE NOT BARRED BY LIMITATION. FROM THE ABOVE SUBMISSION OF THE LD. D.R IT IS CLEA R THAT NO ACTION HAS BEEN TAKEN AGAINST THE PAYEE WITHIN THE TIME CONTEMPLATED BY T HE HONBLE HONBLE SPECIAL BENCH. WE MUST ALSO MAKE IT CLEAR THAT D.RS SUBMI SSION THAT THE SPECIAL BENCH ITA NO. 2210/MUM/2000(A.Y. 1998-99) ITA NO.2211/MUM/2000(A.Y. 1998-99) ITA NO.2212/MUM/2000(A.Y. 1998-99) 10 CONTEMPLATES PASSING OF AN ORDER U/S. 201(1) AND 2 01(1A) WITHIN CERTAIN TIME LIMIT IS NOT CORRECT. THE SPECIAL BENCH CONTEMPLAT ES TAKING OF ACTION IN THE HANDS OF THE PAYEE WITHIN A PARTICULAR TIME. WE AL SO FIND THAT NO ASSESSMENT HAS BEEN MADE IN THE HANDS OF THE PAYEE IN RESPECT OF T HE SUMS RECEIVED FROM THE ASSESSEE IN RESPECT OF GDR ISSUES. SIMILARLY NO PRO CEEDINGS HAVE BEEN TAKEN AGAINST IT TILL DATE FOR ASSESSING SUCH INCOME. WE FURTHER FIND THAT THE TIME LIMIT FOR ISSUING NOTICE UNDER SECTION 148 HAS OBVIOUSLY COME TO AN END SINCE THE ASSESSMENT YEAR UNDER CONSIDERATION IS 1998-99. AS THE TIME LIMIT FOR TAKING ACTION AGAINST THE PAYEE UNDER SECTION 147 IS ALSO NOT AVAILABLE AND THERE IS NO COURSE LEFT TO THE REVENUE FOR MAKING THE ASSESSMEN T OF THE NON-RESIDENT EX- CONSEQUENTI NO LAWFUL ORDER CAN BE PASSED AGAINST THE ASSESSEE EITHER UNDER SECTION 201(1) OR (1A). WE THEREFORE HOLD THAT IN T HE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE THE ORDER PASSED UNDER SECTION 19 5 READ WITH SECTION 201(1) OR (1A) OF THE INCOME-TAX ACT 1961 IS INVALID. 12. WE ALSO FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. N H K JAPAN BROADCASTING CORPORATION 305 ITR 137(DEL) CONSIDERED THE FOLLOWING QUESTION OF LAW VIZ. WHETHER THE INCOME-TAX APPELL ATE TRIBUNAL WAS CORRECT IN LAW IN HOLDING THAT THE ORDERS PASSED UNDER SECTION 201(1) AND 201(1A) OF THE INCOME-TAX ACT 1961 ARE INVALID AND BARRED BY TIM E HAVING BEEN PASSED BEYOND A REASONABLE PERIOD ? THE HONBLE COURT NOTICED T HAT SECTION 201 OF THE ACT DOES NOT PRESCRIBE ANY LIMITATION PERIOD FOR THE ASSESS EE BEING DECLARED AS AN ASSESSEE IN DEFAULT. THE HONBLE COURT AGREED WITH THE CONCLUSIONS OF THE TRIBUNAL THAT THE INITIATION OF PROCEEDING AGAINST THE ASSESSEE IN TREATING IT AS IN DEFAULT WERE REQUIRED TO BE INITATED WITHIN A REA SONABLE PERIOD. THE HONBLE COURT HELD THAT A DUTY IS CAST UPON THE PERSON LIAB LE TO DEDUCT TAX AT SOURCE BUT IF HE FAILS TO DO SO IT DOES NOT WASH AWAY THE LIA BILITY OF THE PERSON LIABLE TO PAY AS THE PRIMARY LIABILITY TO PAY TAX IS ON THE PERSO N WHO EARNS THE INCOME. THE LIABILITY OF THE PERSON LIABLE TO DEDUCT TAX IS A V ICARIOUS LIABILITY AND THEREFORE HE CANNOT BE PUT IN A SITUATION WHICH WOULD PREJUDICE HIM TO SUCH AN EXTENT THAT ITA NO. 2210/MUM/2000(A.Y. 1998-99) ITA NO.2211/MUM/2000(A.Y. 1998-99) ITA NO.2212/MUM/2000(A.Y. 1998-99) 11 THE LIABILITY WOULD REMAIN HANGING ON HIS HEAD FOR ALL TIME TO COME IN THE EVENT THE INCOME-TAX DEPARTMENT DECIDES NOT TO TAKE ANY A CTION TO RECOVER THE TAX EITHER BY PASSING AN ORDER UNDER SECTION 201 OF THE INCOME-TAX ACT 1961 OR THROUGH MAKING AN ASSESSMENT OF THE INCOME OF THE P ERSON LIABLE TO PAY TAX. THE HONBLE COURT THEREAFTER FOUND THAT A PERIOD OF THR EE YEARS FOR COMPETING ASSESSMENT U/S.153 OF THE ACT WOULD BE A REASONABLE PERIOD BUT TOOK NOTE OF THE FACT THAT INCOME-TAX APPELLATE TRIBUNAL HAS IN A S ERIES OF DECISIONS TAKEN THE VIEW THAT FOUR YEARS WOULD BE A REASONABLE PERIOD OF TIME FOR INITIATING ACTION IN A CASE WHERE NO LIMITATION IS PRESCRIBED. THE HON BLE COURT OBSERVED THAT THE RATIONALE FOR HOLDING SO WAS THAT IF THERE IS A TI ME LIMIT FOR COMPLETING THE ASSESSMENT THEN THE TIME LIMIT FOR INITIATING THE PROCEEDINGS MUST BE THE SAME IF NOT LESS. NEVERTHELESS THE TRIBUNAL HAD GIVEN A G REATER PERIOD FOR COMMENCEMENT OR INITIATION OF PROCEEDINGS THE HON BLE COURT FELT THAT IT WOULD NOT DISTURB THE TIME LIMIT OF FOUR YEARS PRESCRIBED BY THE TRIBUNAL AND EXPRESSED THE VIEW THAT IN TERMS OF THE DECISION OF THE SUPR EME COURT IN BHATINDA DISTRICT CO-OP. MILK PRODUCERS UNION LTD. [2007] 9 RC 637 ; 11 SCC 363 ACTION MUST BE INITIATED BY THE COMPETENT AUTHORITY UNDER THE INC OME-TAX ACT WHERE NO LIMITATION IS PRESCRIBED AS IN SECTION 201 OF THE ACT WITHIN THAT PERIOD OF FOUR YEARS. IN VAN OORD ACZ INDIA (P) LTD. V. COMMISSION ER OF INCOME-TAX 323 ITR 130 (DEL) THE HONBLE DELHI HIGH COURT HAD APPROVED TH E VIEW EXPRESSED BY THE SPECIAL BENCH IN THE CASE OF MAHINDRA & MAHINDRA LT D. (SUPRA). 13. THE LEARNED D.R. HOWEVER PLACED RELIANCE ON TH E DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HMT LTD. ITA NO.524 OF 2009 DATED 17/7/2011 WHEREIN THE HONBLE COURT HAS TAKEN THE VIEW THAT NO PERIOD OF LIMITATION CAN BE READ INTO THE PROVISIO NS IF THERE IS NO PERIOD OF LIMITATION SPECIFIED IN THE ACT FOR TAKING ACTION U /S. 201(1) OR 201(1A) THEN NO TIME LIMIT CAN BE READ INTO THOSE PROVISIONS. SI MILAR VIEW HAS ALSO BEEN EXPRESSED BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF BHURA EXPORTS PVT. LTD. VS. ITO 202 TAXAMAN 88(CAL). WE ARE OF THE V IEW THAT THE DECISION OF THE ITA NO. 2210/MUM/2000(A.Y. 1998-99) ITA NO.2211/MUM/2000(A.Y. 1998-99) ITA NO.2212/MUM/2000(A.Y. 1998-99) 12 HONBLE DELHI HIGH COURT HAS TO BE ACCEPTED AS THE VIEW EXPRESSED THEREIN IS IN FAVOUR OF THE ASSESSEE. IN THE LIGHT OF THE ABOVE WE HOLD THAT THE ORDERS UNDER SECTION 195 201(1)& 201(1A) OF THE ACT CANNOT BE S USTAINED. ACCORDINGLY WE HOLD THAT THE ORDER PASSED UNDER SECTION 195 R.W.S. 201( 1) AND 201(1A) IS INVALID AND ALL THE ORDERS ARE SET ASIDE. APPEALS OF THE ASSES SEE ARE ACCORDINGLY ALLOWED. IN VIEW OF THE ABOVE DECISION WE DO NOT WISH TO DEAL W ITH THE QUESTION AS TO WHETHER THE AMOUNT IN QUESTION WAS IN THE NATURE OF FEES FO R TECHNICAL SERVICES WHICH CAN BE BROUGHT TO TAX AND THE OTHER SUBMISSIONS ON THE PROVISIONS OF THE RELEVANT DTAAS. 14. IN THE RESULT ALL THESE APPEALS OF THE ASSESS EE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 24 TH DAY OF FEB.2012 SD/- SD/- (R.S.SYAL) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED. 24 TH FEB. 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RD BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. ITA NO. 2210/MUM/2000(A.Y. 1998-99) ITA NO.2211/MUM/2000(A.Y. 1998-99) ITA NO.2212/MUM/2000(A.Y. 1998-99) 13 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 17/2/2012 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 20/2/2012 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER