In a writ petition filed by the Bharati Airtel, the division bench of the Delhi High Court quashed the show cause notices issued against the company, on ground that the notices are barred by limitation in the light of the recent amendment of section 201 of the Income Tax Act.
The petitioner, Bharati Airtel Ltd, has received show cause notices from the Income Tax Department in connection with the interconnection charges to various foreign entities without deduction of tax under Section 195 of the Act. The department found that the petitioners are “assessee-in-default” for the purpose of the Income Tax Act. The assessee challenged the notices before the Court contending that Section 201 of the Income Tax Act, 1961 would also apply to payments made to “non-residents‟ and further, the proceedings are barred by limitation. The petitioners contended that in light of a time limitation in the Section, one can be deemed to have been an assessee-in-default for non-deduction of tax, for payments made to foreign or – „non-resident‟.
The division bench comprising of Justice S. Ravindra Bhat and Justice Deepa Sharma observed that the amendment to s. 201 clearly prescribes a limitation only for residents.“Instead of actively barring the applicability of the provision on non-residents, did the Parliament choose to passively do so by remaining silent on non-residents and only amending the provision, for residents. The question is, whether the petitioner is right in contending that if the Act does not specify a time period, then a reasonable time period should be read into the Act. This contention is based on judgments which were delivered when the Legislature had not made a distinction between residents and non-residents. The question is when such a distinction exists, can one read a “reasonable time period” into the Act.”
The bench relying upon the decision in Vodafone Essar, held that “since Vodafone Essar (supra) considered the entire issue and noted that even recently a reasonable period was read into the Act, in relation to exercise of powers (although in a different context) accepting the petitioner‟s contention in the present case is based on precedent. Furthermore, the only reason cited by the respondent, i.e. administrative convenience, cannot outweigh the harsh nature of the consequence, which would expose resident payers to the onerous responsibility of maintaining books and documents for an uncertain period of time. Given these considerations, the impugned notices are quashed.”
Read the full text of the Judgment below.
