The Delhi High Court has quashed notices issued by the Income Tax department to Vodafone Essar Mobile Services Ltd (VEMSL) and Tata Teleservices Ltd (TTSL) to initiate proceedings to declare them as TDS defaulters.
The common question that arises for consideration in the writ petitions [VODAFONE ESSAR MOBILE SERVICES LIMITED & ORS vs UNION OF INDIA & ORS – W.P.(C) 8535/2011] concerns the validity of the action initiated by the Respondent Income Tax Department (‘Department’) against the Petitioners under Sections 201(1) and 201(1A) of the Income Tax Act, 1961 (‘the Act’) for non-deduction of tax at source (‘TDS’) for periods earlier than four years prior to 31st March 2011. These petitions, in turn, involve the interpretation of the proviso to sub-section (3) of Section 201 of the Act, which was inserted with effect from 1 st April 2010.
The department had initiated proceedings against Vodafone and TTSL in 2011 on the ground that the companies had allegedly failed to deduct tax deducted at source (TDS) for those assessment years.
The department was of the view that as per a 2009 amendment in the tax law, it can initiate proceedings under the Income Tax Act for treating an assessee as a defaulter even in respect of alleged failure to deduct TDS for a period more than four years earlier to March 31, 2011.
Despite the department’s stand, a bench comprising of Justice S Muralidhar and Justice Vibhu Bakhru said, under the amended provisions of the Act the government cannot initiate proceedings against a company for failing to deduct TDS four years prior to March 31, 2011.
The Court refused to agree with the approach of the Department either.
The court further said that “There is no question of ‘harmonious construction’ of a CBDT Circular issued by the CBDT. At best, it is an external aid of the construction of Section 201(3) and the proviso thereto. The Circular also gives an instance of contrary understanding of the legal position by the Department itself. It is well settled that if a Circular issued by the Department favors an Assessee then it should be so done even where such interpretation goes contrary to the legislative intent”.
“Circular 5 of 2010 of CBDT clarifying that the proviso to Section 201(3) of the Act was meant to expand the time limit for completing the proceedings and passing orders in relation to ‘pending cases’. The said proviso cannot be interpreted, as is sought to be done by the Department, to enable it to initiate proceedings for declaring an Assessee to be an Assessee in default under Section 201 of the Act for a period earlier than four years prior to 31st March, 2011”.
The Court agrees that the notices issued to VEMSL for the aforementioned AYs are not covered by the order of the Supreme Court for AY 2002-2003. Accordingly, insofar as the notices for AYs 2003- 2004, 2004-2005 and 2005-2006 are concerned, they are held to be unsustainable in law on the interpretation of Section 201(3) of the Act by the Court.
Read the Judgment here.
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