Bangalore Water supply & Sewerage Board, Bangalore V. ITO, Bangalore

ITA 1063/BANG/2008

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1649 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-12-2010
• Assessment Year: 1998-1999
• Appeal Filed On: 01-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREETI GARG CITIII
• Assessee Lawyers: P DINESH
• Keywords: Recovery proceedings; Business income; Period of limitation; Permanent establishment; Time period of passing order
• Section: 201(1)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH A, BANGALORE BEFORE SMT P. MADHAVI DEVI, JM AND SHRI A. MOHAN ALANKAMONY, AM I.T.A. NOS.1063 TO 1067 & 1071 TO 1075(BANG.)/2008 (ASSESSMENT YEARS : 1998-99 TO 2000-01 & 2002-03 TO 2004-05) M/S BANGALORE WATER SUPPLY & SEWERAGE BOARD, 7 TH FLOOR, KAVERI BHAVAN, K.G.ROAD, BANGALORE-560 009 APPELLANT VS THE INCOME-TAX OFFICER, WARD-19(1), INTERNATIONAL TAXATION, BANGALORE RESPONDEN T APPELLANT BY : SHRI P.DINESH, ADVOCATE RESPONDENT BY : SMT. PREETI GARG, CIT-III O R D E R PER BENCH; ALL THESE ARE ASSESSEES APPEALS FOR THE ASSESSMENT YEARS : 1998-99 TO 2000-01 & 2002-03 TO 2004-05 AGAINST THE ORDERS OF CIT(A) IN CONFIRMING THE LEVY OF INTEREST U/S 201(1 ) AND 201(1)(A) OF THE IT ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A GOVERNMENT OF KARNATAKA UNDERTAKING. IT IS ENGAGED IN PROVIDING WATER AND SANITATION IN BANGALORE METROPO LITAN AREA. ITA.NOS.1063 TO 1067 & 1071 TO 1075(B)/08 2 DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE A ND M/S PACIFIC CONSULTANTS INTERNATIONAL (PCI), A COMPANY ORGANIZED AND ESTABLISHED UNDER THE LAWS OF JAPAN, ENTERED IN TO AN AGREEMENT, FOR CONSULTANCY SERVICES VIDE AGREEMENT DATED 29- 11-1996 IN CONSORTIUM WITH M/S MOTT MACDONALD LTD., (UK) AND M/S TATA CONSULTING ENGINEERS OF INDIA FOR IMPL EMENTATION OF CAUVERY STAGE-IV TO DRAW 730 MN. LITRES OF WATER PER DAY FROM CAUVERY RIVER. THE ASSESSEE BY VIRTUE OF A MEM ORANDUM OF UNDERSTANDING (MOU) DATED 26-05-1995 ENTERED INT O AN AGREEMENT WITH THE OVERSEAS ECONOMIC COOPERATION F UND OF JAPAN (OECF) WHEREBY THE GOVERNMENT OF INDIA OBTAIN ED A LOAN VIDE LOAN AGREEMENT N.ID-P109 DATED 26-05-1996 FROM OECF FOR THE IMPLEMENTATION OF THE WATER SUPPLY AND SEWE RAGE PROJECT IN QUESTION. PURSUANT TO THESE AGREEMENTS, THE ASSESSEE HAD TO MAKE PAYMENTS TO THESE FOREIGN ENTI TIES. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3), THE A O OBSERVED THAT THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE TO THE FOREIGN COMPANY AND THE AS SESSEE HAD DEDUCTED ONLY 20% FROM ALL THE PAYMENTS MADE UP TO JULY, 2004 AND LATER ON, REALIZING SHORT REMITTANCE OF TA X DEDUCTED AN ADDITIONAL 10% ON 31-07-2004. HE HELD THAT THE AS SESSEE WAS ITA.NOS.1063 TO 1067 & 1071 TO 1075(B)/08 3 SUPPOSED TO DEDUCT TAX AT SOURCE AT 40% TO 48%, WHE REAS IT DEDUCTED THE TAX AT SOURCE AT 30% AND PAID THE SAME AND THIS HAS RESULTED IN SHORT REMITTANCE OF TAX ATTRACTING THE PROVISIONS OF SECTIO201(1) WHICH PROVIDE FOR RECOVERY OF TAX A LONGWITH INTEREST. ACCORDINGLY, THE AO DECLARED THE ASSESSEE TO BE ASSESSEE IN DEFAULT U/S 201(1) AND ALSO LEVIED THE INTEREST U/S 201(1A) OF THE IT ACT. 3. AGGRIEVED BY THE SAME, THE ASSESSEE PREFERRED A PPEALS BEFORE THE CIT(A) FOR ALL THE RELEVANT ASSESSMENT Y EARS AND THE CIT(A) BY A COMMON AND CONSOLIDATED ORDER DATED 13- 12-2006 DISMISSED THE SAME UPHOLDING THE ORDERS OF THE AO. 4. AGGRIEVED BY THE SAME, THE ASSESSEE IS IN SECON D APPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI P. DI NESH, SUBMITTED THAT THIS TRIBUNAL HAD ALREADY CONSIDERED THE ISSUE ON MERITS AND HAD SET ASIDE THE SAME TO THE FILE OF CIT(A) FOR RE- CONSIDERATION FOR THE SUBSEQUENT ASSESSMENT YEARS. AS REGARDS THE APPEALS FOR THE ASSESSMENT YEARS 1998-99 TO 200 2-03 ARE CONCERNED, LEARNED COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE ASSESSEE HAS RAISED THE ADDITIONAL GROUNDS OF APPEA L RELATING TO ITA.NOS.1063 TO 1067 & 1071 TO 1075(B)/08 4 THE ISSUE OF LIMITATION AND THEREFORE, THESE APPEAL S ARE PENDING BEFORE THE TRIBUNAL. GOING THROUGH THE FILES, WE FIND THAT THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL; 1. THE ORDERS IN RESPECT OF 201 PASSED FOR THE FYS: 1998-99, 1999-2000. 2000-01 & 2001-02 HAVE BECOME TIME BARRED BY LIMITATION AS ORDERS FOR THESE YEARS WERE PASSED BEYOND FOUR YEARS FROM THE END OF THE RELEVANT FINANCIAL YEARS. 2. THE LOWER AUTHORITIES ERRED IN NOT APPRECIATING THAT MERELY BECAUSE THE CHARGEABILITY OF THE INCOMES OF PCI IS SHIFTED TO ARTICLE 7 INSTEAD OF ARTICLE-12, THE NATURE OF THE INCOME (FTS) DOES NOT CHANGE TO BUSINESS INCOME AND THE INCOME SHOULD BE TAXED AT THE RATES PRESCRIBED UNDER PROVISO OF SEC.44D R.W.S.115A OF THE ACT AND/OR AS PER ARTICLE 12, WHICHEVER IS MORE BENEFICIAL. 3. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN CONCLUDING THAT THE INCOME OF THE RECIPIENT TO BE ASSESSED AT 48% (TILL AY: 2001-02) AND AT 40% (FROM AY: 2002-03 TO 2005-06) AND HENCE, THE APPELLANT SHOULD HAVE DEDUCTED TAX @48% AND 40% RESPECTIVELY, AND ON FAILURE TO DO ITA.NOS.1063 TO 1067 & 1071 TO 1075(B)/08 5 SO, ERRED IN CONFIRMING THE PENAL CONSEQUENCES UNDER SEC.201. 4. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN HOLDING THAT THE PAYMENT WHICH IS IN THE NATURE OF FEES FOR TECHNICAL SERVICESBECOME BUSINESS INCOME FOR THE RECIPIENT, ONCE IT FALLS UNDER ARTICLE 7 INSTEAD OF ARTICLE 12 OF DOUBLE TAX AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND JAPAN, SINCE THE RECIPIENT PACIFIC CONSULTANTS INTERNATIONAL (PCI) HAS A PERMANENT ESTABLISHMENT IN INDIA. ON THE ISSUE OF THE ADDITIONAL GROUNDS OF APPEA L RELATING TO THE LIMITATION, THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS NHK JAPAN BROADCASTING CORPN REP ORTED IN 305 ITR 137, WHEREIN IT HAS BEEN HELD THAT WHERE TH E LIMITATION WAS PRESCRIBED IN THE ACT, FOR INITIATING PENALTY P ROCEEDINGS, THE PENALTY PROCEEDINGS MUST BE INITIATED WITHIN REASON ABLE TIME AND FOR INITIATING THE PROCEEDINGS U/S 201(1) FOR N ON-DEDUCTION OF TAX AT SOURCE, A PERIOD OF FOUR YEARS IS A REASO NABLE TIME. THE LEARNED COUNSEL ALSO PLACED RELIANCE UPON THE D ECISION OF THE TRIBUNAL AT BANGALORE BENCH IN THE CASE OF TRO VS M/S BHARAT HOTELS LTD., WHEREIN THE TRIBUNAL AFTER CONS IDERING THE ITA.NOS.1063 TO 1067 & 1071 TO 1075(B)/08 6 DECISION OF THE DELHI HIGH COURT AND ALSO THE DECIS ION OF THE KERALA HIGH COURT IN THE CASE OF SECRETARY, SULTA N BATTERY CO- OPERATIVE HOUSING SOCIETY LTD., CIT VS REPORTED IN 261 ITR 364 (WHEREIN IT WAS HELD THAT THE DEMAND RAISED U/S 201 & 201(1A) IS NOT BARRED BY LIMITATION) AND HELD THAT THE HON BLE KERALA HIGH COURT HAS NOT CONSIDERED THE DECISION OF THE A PEX COURT IN THE CASE OF BHATINDA DISTRICT CO-OPERATIVE MILK PRO DUCERS UNION LTD., AND THEREFORE, THE DECISION OF THE HON BLE DELHI HIGH COURT IS APPLICABLE AND THE AO COULD NOT HAVE INITIATED THE PROCEEDINGS AFTER THE END OF 4 YEARS FROM THE R ELEVANT FINANCIAL YEAR. 6. THE LEARNED DR ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ISSUE IS NOW COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S MAHINDRA & MAHINDRA LTD ., VS DCIT REPORTED IN 122 TTJ(MUM.)(SB), 577 WHEREIN AFT ER CONSIDERING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF NHK JAPAN BROADCASTING COPN.(2008) HAS HELD THAT THE PROCEEDINGS U/S 201(1) CAN BE INITIATED IN THE EXTE NDED PERIOD OF 6 YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR , IF THE INCOME BY VIRTUE OF SUM PAID WITHOUT DEDUCTION OF T AX AT SOURCE ITA.NOS.1063 TO 1067 & 1071 TO 1075(B)/08 7 BY THE PAYER CHARGEABLE TO TAX IN THE HANDS OF THE PAYEE IS EQUAL TO OR MORETHAN ONE LAKH RUPEES. IF, ON THE O THER HAND, SUCH AMOUNT IS LESS THAN 1.00 LAKH THEN THE LOWER P ERIOD OF 4 YEARS AS PRESCRIBED U/S 149(1)(A) FROM THE END OF T HE RELEVANT ASSESSMENT YEAR IS AVAILABLE FOR INITIATION OF PROC EEDINGS U/S 201(1). AS REGARDS THE ARGUMENT THAT THERE WAS NO LIMITATION PERIOD PRESCRIBED IN THE ACT FOR INITIATING THE PRO CEEDINGS U/S 201(1) & 201(1A), SHE PLACED RELIANCE UPON THE FOLL OWING DECISIONS; 1. CIT VS TRICHUR CO-OPERATIVE BANK LTD., 184 CTR 400(KER.) 2003 2. THAI AIRWAYS INTERNATIONAL PUBLIC CO., LTD., VS ACIT, 2SOT 389(MUM.) 2005. IN THE REJOINDER, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SPECIAL BENCH OF THE ITAT IN THE CASE OF M/S MAHINDRA & MAHINDRA LTD., CONSIDERED THE FOLLOWING QUESTION IN THE APPEAL BEFORE IT; WHETHER ON THE FACTS AND THE CIRCUMSTANCES AND I N LAW AN ORDER U/S 195 READ WITH SEC.201 OF THE IT ACT, 1 961 IS BARRED BY LIMITATION WITHIN FOUR YEARS FROM THE END OF THE RELEVANT FINANCIAL YEAR IN THE ABSENCE OF ANY EXPRESS PROVIS ION IN THE ACT 7. HE SUBMITTED THAT THE ISSUE OF LIMITATION WITH RESPECT TO INITIATION OF PROCEEDINGS DOES NOT SEEM TO BE TH E ISSUE ITA.NOS.1063 TO 1067 & 1071 TO 1075(B)/08 8 REFERRED BY THE SPECIAL BENCH BY ITS PROCEEDINGS AN D THEREFORE, ANY CONCLUSION DRAWN BY THE SPECIAL BENCH WOULD AT BEST BE IN THE NATURE OF OBITER DICTA NOT BINDING ON ANY OTH ER ASSESSEE. 8. HE SUBMITTED THAT EVEN IF THERE IS ANY CONFLICT BETWEEN THE DECISION OF THE SPECIAL BENCH AND THE DELHI HIG H COURT IN THE CASE OF NHK JAPAN BROADCASTING CORPN., IT IS TH E DECISION OF THE HONBLE HIGH COURT WHICH SHOULD PREVAIL AND HAS TO BE FOLLOWED. THUS, ACCORDING TO HIM, THE APPEALS ARE TO BE ALLO WED AND THE ORDERS U/S 201(1) AND 201(1A) ARE TO BE QUASHED AS BARRED BY LIMITATION. ANOTHER POINT RAISED BY THE ASSESSEE IS ALSO THAT PROVISION OF SEC. 201(1) IS FOR FAILURE TO DEDUCT O R PAY BUT IN THE CASE OF ASSESSEE, THE ASSESSEE HAS DEDUCTED THE TAX AT SOURCE AT 30% AND THEREFORE, THE ASSESSEE CANNOT BE SET TO BE THE ASSESSEE IN DEFAULT. 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS, WE FIND THAT U/S 201(1), WHE RE ANY PERSON DOES NOT DEDUCT OR DOES NOT PAY OR AFTER SO DEDUCTING FAILS TO PAY THE WHOLE OR ANY PART OF THE TAX WHICH HE IS REQUIRED TO DEDUCT IN ACCORDANCE WITH THE PROVISION S OF THE ACT, EVEN SUCH PERSON SHALL DEEMED TO BE THE ASSESSEE I N DEFAULT ITA.NOS.1063 TO 1067 & 1071 TO 1075(B)/08 9 RESPECT OF SUCH TAX. IN THE CASE BEFORE US, THE AS SESSEE HAS DEDUCTED THE TAX AT SOURCE AT 30% INSTEAD OF 40% TO 48% OF THE PAYMENTS. THUS, IT HAS FAILED TO DEDUCT PART OF TH E TAX AS REQUIRED BY OR UNDER THIS ACT AND THEREFORE, HE HAS TO BE DEEMED TO BE ASSESSEE IN DEFAULT IN RESPECT OF SU CH SHORT DEDUCTION OF TAX. THE ONLY QUESTION BEFORE US IS NO W WHETHER THE INITIATION OF PROCEEDINGS U/S 201(1) AND 201(1A ) OF THE ACT ARE BARRED BY LIMITATION. 10. AFTER CONSIDERING THE VARIOUS JUDICIAL PRECEDE NTS QUOTED BY THE ASSESSEE AS WELL AS BY THE REVENUE BE FORE US, WE FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S MAHINDRA & MAHINDRA AFTER CONSIDERING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF NHK JAPAN BROADCASTING CORPORATION ONLY A HAS COME TO THE CON CLUSION THAT THE LIMITATION PERIOD FOR INITIATING PENALTY P ROCEEDINGS U/S 201(1) & 201(1A) IS 4 YEARS FROM THE END OF RELEVAN T ASSESSMENT YEAR WHERE THE TAX DEDUCTED IS LESS THAN RS.1.00 LAKH AND IF IT IS MORE THAN 1.00 LAKH, THE LIMITATI ON PERIOD WOULD BE 6 YEARS. AS THE SPECIAL BENCH HAS CONSID ERED THE DECISION OF THE HONBLE DELHI HIGH COURT AND THE OR DER OF THE TRIBUNAL IS IN CONSONANCE WITH THE DECISION OF THE DELHI HIGH ITA.NOS.1063 TO 1067 & 1071 TO 1075(B)/08 10 COURT AND IT HAS ONLY PRESCRIBED THE QUANTUM LIMITS AND THE TIME LIMIT FOR SUCH QUANTUM, WE ARE INCLINED TO FOL LOW THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL AND H OLD THAT PERIOD OF 6 YEARS IS THE TIME LIMIT FOR INITIATING PROCEEDINGS U/S 201(1) AND 201(1A) OF THE IT ACT, SUBJECT TO TH E MONETARY LIMITS PRESCRIBED BY THE SPECIAL BENCH. ACCORDINGL Y, WE DIRECT THE AO TO VERIFY THE PERIOD OF LIMITATION IN THE AB OVE CASES AND WHERE THE INITIATION OF PROCEEDINGS IS AFTER 6 YEAR S FROM THE END OF RELEVANT ASSESSMENT YEAR, IN THOSE CASES THE PRO CEEDINGS ARE HELD TO BE QUASHED. IN THE OTHER CASES, THE ISSUE ON MERITS IS REMITTE D TO THE FILE OF THE CIT(A) FOR DE NOVO CONSIDERATION. 11. IN THE RESULT, THE ASSESSEES APPEALS ARE ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE (A. MOHAN ALANKAMONY) (SMT. P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE: BANGALORE DATED: AM* ITA.NOS.1063 TO 1067 & 1071 TO 1075(B)/08 11 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF (BLORE) BY ORDER AR, ITAT, BANGALORE