The Karnataka High Court ruled in a recent Income Tax Appeal before it, that limitation on the basis of ‘Reasonable Time Limit’ under Section 201 of the Income Tax Act, 1961 applies to Non-Residents as much as it does to Residents.
The Appeal was filed by the Income Tax Department challenging an Order of the Income Tax Appellate Tribunal, Bangalore (ITAT) dated 17.01.2022. The Appeal was raised by the Department against the Income of MPhasis Ltd., an Indian company rendering information technology services to numerous clientele globally.
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The Department raised queries before the Karnataka High Court whether the ITAT had erred in concluding that orders passed under Section 201 of the Income Tax Act, 1961 were barred by limitation on the basis of “reasonable time limit” in light of the Parliament’s omission to include
“Non-Residents” under the purview of Section 201.
It was further contended by the Department that proceedings under Section 201 had been initiated by the Department against the Assessee for the Assessment Year 2008-09 in accordance with parameters laid out in Section 201 of the Income Tax Act, 1961.
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The Karnataka High Court laid reference to the decision of the Delhi High Court in Bharti Airtel Ltd. and Another vs. Union of India and Another (2016). The case was filed by the Petitioner Assessee owing to the Department’s categorization of the Petitioner as an “assessee in default” on account of their failure to deduct tax at source on payments of interconnect usage charges to non-resident operators.
The Delhi High Court in the course of pronouncing its judgment in Bharti Airtel, promulgated the Ratio Decidendi held by the same Court in Vodafone Essar Mobile Services Ltd. v. Union of India, (2016) wherein it was held that in the event that no reasonable time has been expressly provided vide statutory provisions, the given provision has to be read into in order to initiate action against Non-residents.
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In light of the judgment in Bharti Airtel, the Division Bench of the Karnataka High Court comprising Justice S.G. Pandit and Justice C.M. Poonacha proceeded to dismiss the present Appeal while reaffirming that the substantial questions of law raised in the Appeal have been answered in favour of the Assessee and against the Department.
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