Mahindra & Mahindra Ltd. v. Deputy Commissioner of Income-tax, TDS Range 1(1), Mumbai

ORDER

R.S. Syal, Accountant Member. - These four appeals by the assessee emanate from the single order passed by the ld. CIT(A) on 1-3-2000 in relation to the assessment year 1998-99. At the very outset it was stated on behalf of the assessee that these appeals have been filed with identical grounds, out of which two appeals in ITA Nos. 2606/Mum./2000 and 2614/Mum./2000 are repetitive which were filed due to abundant caution and need not be separately adjudicated. We, therefore, dismiss these two appeals as infructuous. The remaining appeals have identical facts and similar grounds. These surviving appeals were stated to have been filed separately because the assessee came out with two Euro issues, viz., one in the financial year 1993 and the other in 1996 and both the authorities below have passed one order in respect thereof. In view of these facts we will dispose of these appeals by a consolidated order.

2. The factual matrix of the case is as under :—

It was gathered by the revenue authorities that the assessee came out with two Euro issues of the size of US$ 74.75 million and US$ 100 million in November 1993 and July 1996 respectively. The assessee was called upon to furnish the details in connection with the payments made to various non-resident persons who were connected with bringing out these Euro issues. From such details the Deputy Commissioner of Income-tax, TDS Circle, Mumbai-1 (hereinafter called Assessing Officer) observed that M/s. Banque Paribas was paid a sum of Rs. 8,21,00,838 as marketing and underwriting commission and selling commission. A further sum of Rs. 88,74,971 was paid as out-of-pocket expenses like travelling expenses, fee and disbursement of legal advisors, managers, telex, telephone etc. The details of these two Euro issues have been more elaborately recorded in the order passed by the Assessing Officer under section 195. As regards the first Euro issue, the company came out with an Offering Circular dated 30-11-1993 offering 87,36,559 Global Depository Receipts (GDRs) representing 87,36,559 ordinary shares at an issue price of US$ 7.44 per GDR. It was further stipulated in the terms of the Offering Circular that each GDR would be issued in respect of one ordinary share with at par value of Rs. 10 per share. The closing date in terms of the Offering Circular was fixed as 14-3-1993, by which time the delivery of GDR was stipulated to be made. M/s. Banque Paribas were appointed as lead managers. Clause 5 of the Subscription Agreement with the lead managers deals with the commission payable to the lead managers. It provides that management and underwriting commission was to be paid at 1.5 per cent of the issue price and selling commission at 2 per cent of the issue price. Such commission was to be retained by the lead managers from the issue price of GDRs. Besides that the assessee also agreed to bear and pay all expenses incidental to the performance of its obligations including the fees and expenses of its legal advisers and accountants etc., expenses in connection with the issue of the Deposited Shares etc., the cost of listing the GDRs and the Deposited Shares etc., and the cost of any advertising agreed to by the assessee in connection with the offer of GDRs. The assessee further agreed to reimburse to the lead manager for its out of pocket expenses and disbursement incurred by it subject to the limit of US$ 1,75,000.

3. The second issue of US$ 100,000,000 was of 5 per cent Convertible Notes due on 9-7-2001 convertible into GDRs. For this issue, the Subscription Agreement was entered into by the assessee with Goldman Sachs (Asia) L.L.C. These Notes were to be in the denomination of US$ 1,000 each convertible, at the option of the holder thereof, into GDRs each representing one ordinary share of the company on or after 18-8-1996 until and including 9-6-2001. The closing date for this issue was fixed on 9-7-1996. Clause 4 of this Agreement deals with the Commission and Concession. It provides that in consideration of the agreement by the Managers to manage the issue of, and to subscribe for, the Notes, the company shall pay to Goldman Sachs (Asia) LLC a combined Management and underwriting commission of 1 per cent of the aggregate principal amount of Notes and further 1.50 per cent as selling concession.

4. The Assessing Officer observed that the assessee wanted to mop up foreign currency resources from international market for upgradation of its Indian operations, which was permitted by the Government of India subject to certain conditions. After scrutinizing the material before him, the Assessing Officer proceeded to examine the applicability of section 9(1)(vii) of the Act to see if technical, managerial or consultancy services were rendered by the lead managers in both these issues by assisting, managing and underwriting. He considered the nature of services rendered by the lead managers. It was noted that the lead managers were closely associated with all the aspects of bringing out the Euro issues including the fixing of the price of the issue, analyzing the accounting results and resource basis of the company with a view to find out the strengths and weaknesses of the company, presenting them in proper format, updating the accounting results of the assessee in tune with International Audit practices, getting them printed, putting up road shows and in totality marketing the issue successfully. These activities, in the opinion of the Assessing Officer, required vast pool database of information about the potential investors, global trends of the investing institutions which was a very specialized job. He considered these services to be prima facie technical services covered under section 9(1)(vii). Show-cause notice under section 201(1) and 201(1A) was issued requiring the assessee to explain as to why it be not treated as in default for non-deduction of tax at source from these payments and the interest be, accordingly, charged. The assessee made a detailed reply which has been incorporated in the assessment order. The sum and substance of the assessee's reply is that :—

5. The Assessing Officer did not concur with the submissions advanced on behalf of the assessee due to the following reasons :—

6. In the above backdrop of the facts, the Assessing Officer held that the assessee was liable to deduct tax at source on the payments made by it to the non-resident lead managers. The closing date of the two Euro issues was held to be the date on which the tax was deductible. The total payment including reimbursement of expenses, fees to the lead managers and others was made on 14-12-1993 (closing date) in respect of first issue totalling to Rs. 9.18 crores. The amount deductible on the payment/credit was calculated at Rs. 2.29 crores. Interest under section 201(1A) was determined from the closing date till March 1999 at Rs. 1.80 crore, thereby determining the total liability of the assessee in respect of the first Euro issue at Rs. 4.10 crores. Similarly for the second issue, the tax deductible was worked out at Rs. 3.47 crores and interest under section 201(1A) from the closing date of the issue i.e., July 1996 till date was determined at Rs. 1.39 crores, thereby making the total liability in respect of the second Euro issue at Rs. 4.87 crores.

7. The assessee raised several issues before the ld. CIT(A) assailing the validity of the order. The summary of the findings of the learned first appellate authority is as under :—

8. He, therefore, upheld the view of the Assessing Officer in principle, except that of the grossing up, which issue was restored to the Assessing Officer for a fresh consideration.

9. Aggrieved by the said order the assessee filed present appeals. The following additional ground was raised on 18-5-2006 :—

"On the facts and in the circumstances of the case and in law, the order passed by the learned Assessing Officer under section 195 of the Act is void ab initio being barred by limitation."

In the mean time the revenue, vide its application dated 30-8-2006, approached the Hon'ble President of the Income-tax Appellate Tribunal for constitution for a Special Bench under section 255(3) of the Act for the consideration of the issue of limitation, which was raised by the assessee in additional ground. Acceding to the request of the revenue, the Hon'ble President constituted Special Bench under section 255(3) of the Income-tax Act, 1961 (hereinafter called the Act) for deciding the following question and also disposing of these appeals :

"Whether on the facts and the circumstances and in law an order under section 195 read with section 201 of the Income-tax Act, 1961 is barred by limitation within four years from the end of the relevant financial year in the absence of any express provision in the Act."

I. Objection to additional ground

10.1 Sh. Girish Dave, the learned D.R., at the very beginning, objected to the raising of the above additional ground and submitted that the assessee had no right to raise the question of limitation by way of additional ground. He submitted that such issue could have been taken initially before the Assessing Officer only and raising it for the first time before the Tribunal was not appropriate. He relied on the case of Hindustan Times Ltd. v. Union of India AIR 1998 SC 688 to submit that it was not open to the assessee to raise the question of limitation before the Tribunal for the first time inasmuch as this judgment lays down that defaulter must take the necessary plea in defence in the reply to the show-cause notice and must satisfy the authority concerned and if those pleas are not rejected, he cannot raise them in the High Court.

10.2 In the opposition Sh. B.K. Khare and Sh. H.P. Mahajani for the appellant and Sh. Porus Kaka for the Intervenor, M/s. Satellite Television Asia Region Ltd., (hereinafter collectively referred to as 'the ld. AR') contended that there was no bar on the taking up of the issue of limitation before the Tribunal for the first time as it is a legal issue and no separate investigation of facts was required for deciding this controversy.

10.3 We have heard the rival submissions and perused the relevant material on record. It is observed that during the course of original hearing before the Division Bench the assessee raised the question of limitation by way of additional ground. The Department approached the Hon'ble President for the constitution of the Special Bench for deciding this controversy as there were conflicting views on this aspect. Thereafter, the Special Bench was constituted for adjudicating this question. In our considered opinion it is too late in the day for the revenue to object to the legality of admission of additional ground at this stage, because the Special Bench has been constituted for disposing of this very controversy and that too at the instance of the revenue.

10.4 Be that as it may we find that the question of limitation goes to the very jurisdiction of the matter. If the proceedings are initiated or completed beyond the prescribed time then such proceedings deserve to be quashed. It is the settled legal position that there can be no embargo on any party to raise a legal ground for the first time before the Tribunal provided the relevant material for deciding that question already exists on record and no further investigation of facts is required. The Hon'ble Supreme Court in National Thermal Power Co. Ltd. v. Commissioner Of Income Tax [1998] 229 ITR 383 has held that the power of the Tribunal in dealing with the appeals is expressed in the widest possible terms and the Tribunal has jurisdiction to examine the question of law which arises from the facts before the authorities below and having a bearing on the liability on the assessee, even if such question was not raised before the authorities below. The Hon'ble Supreme Court in the case of Union of India v. British India Corpn. Ltd. [2004] 268 ITR 481/140 Taxman 357 has held that: "The question of limitation is a mandate to the forum and irrespective of the fact whether it was raised or not, the forum must consider and apply on, if there is no dispute on the fact". From these judgments of the Hon'ble Supreme Court, it transpires that it is not only the right of the parties but also the duty of the Tribunal to consider the question of limitation notwithstanding the fact that it was raised or not before it. Similar view has been taken by the Hon'ble Madhya Pradesh High Court in the case of CIT v. Mohd. Iqbal [1996] 221 ITR 481 in which the question raised before the Hon'ble High Court was whether in the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessments were barred by limitation? In this case the assessee sought the permission of the Tribunal during the course of hearing of the appeal, to raise the primary objection by way of additional ground, that the order of the ITO was barred by limitation and, hence, was a nullity. This additional plea on limitation was permitted by the Tribunal and on that count, the appeal was allowed. Subsequently, rectification application was filed under section 254(2) by the revenue, pleading that the additional ground could not have been permitted to be raised. When the matter finally travelled to the Hon'ble High Court, their Lordships held that "the question of limitation can be raised at any point of time because it goes to the root of the matter. Therefore, it is wrong to contend that the Tribunal should not have permitted to raise the additional plea for the first time". It was, therefore, held that the Tribunal has rightly taken the view in admitting this additional ground.

10.5 In view of the foregoing discussion and the overwhelming legal position settled in favour of the admission of the additional ground on the question of limitation, we are of the considered opinion that the right of the assessee to raise additional ground of limitation before the Tribunal for the first time, cannot be curtailed as it involves a question of law and no fresh investigation of facts is called for. Hence we admit this additional ground of appeal for disposal on merits.

II. TDS on payments to non-residents

11.1 Section 195(1) provides that any person responsible for paying to a non-resident not being company or to a foreign company any interest or any other sum chargeable under the provisions of this Act, not being income chargeable under the head 'Salaries', shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of cheque or draft or by any other mode, whichever is earlier, deduct Income-tax thereon at the rates in force. Sub-section (2) of section 195 states that where the person responsible for paying any such sum chargeable under this Act (other than interest on securities and salary) to a non-resident considers that whole of such sum would not be income chargeable in the case of recipient, he may make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum so chargeable and upon such determination, the tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable. The effect of sub-section (2) is that where primarily the sum paid or credited to the account of the non-resident is chargeable under the provisions of the Act but the person responsible for paying considers that the entire sum would not be income chargeable in the case of recipient, he may make application to the Assessing Officer for the determination of the appropriate proportion of such sum so chargeable and upon such determination, the tax shall be deducted on that proportion of the sum. In order to be covered within the purview of sub-section (2) it is imperative that firstly there should be a sum chargeable under the provisions of this Act which is to be paid to the non-resident and secondly the person responsible should consider that the whole of such sum would not be chargeable to income-tax in the case of the recipient. To put it in simple words if a sum of Rs. 100 is to be paid to the non-resident which is otherwise chargeable to tax, but the person responsible for paying it considers that the entire some of Rs. 100 would not be taxable in the hands of the recipient but only a sum of, say Rs. 40, will be chargeable to tax because of the availability of certain deductions against such income substantially reducing the amount of chargeable income in the hands of the non-resident, then such person responsible for paying shall apply to the Assessing Officer to make a general or special order to the effect that only a sum of Rs. 40 shall be chargeable to tax. On the determination by the Assessing Officer of such amount chargeable to tax at Rs. 40 or whatever amount, the person responsible shall deduct tax only on the amount so determined and not on Rs. 100.

11.2 Sub-section (3) to section 195 stipulates that the person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1), may, subject to rules made under sub-section (5), make an application in the prescribed form to the Assessing Officer for grant of a certificate authorizing him to receive such interest or other sum without deduction of tax and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon. At this juncture it is useful to make a simultaneous reference to section 197 also which, in turn, provides that where income-tax is required to be deducted at source and the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rate or no deduction of income-tax as the case may be, then he shall, on an application made by the assessee in this behalf, give him such certificate as may be appropriate. When sub-section (3) of section 195 is read in juxtaposition to section 197, it clearly emerges that the recipient of the income can also make application to the Assessing Officer to the effect that any sum considered as chargeable to tax under sub-section (1) of section 195 shall not justify deduction of tax at source at all or it will require deduction of tax at source at lower rate and if the Assessing Officer is satisfied, then he shall issue the appropriate certificate. As a result of this certificate, the person responsible for paying shall either not deduct tax at source or make a deduction at lower rate on the sum paid or credited to the account of the non-resident in the light of certificate issued under section 195 or 197.

11.3 In case the sum paid or credited by the person responsible to the account of the non-resident is otherwise chargeable under the provisions of this Act but neither the payer nor the recipient has got certificate from the Assessing Officer under section 195 or 197 for no deduction or lower deduction of tax at source, then it will be obligatory on such person responsible to deduct tax at source and after deducting pay it within the prescribed time to the credit of the Central Government or as the Board directs. If, however, such person responsible for paying a sum to non-resident does not deduct or after deducting fails to pay the tax as required under this Act, he or it shall subject to the provisions of Explanation to section 191, be deemed to be an assessee in default in respect of the tax. This deeming provision has been enshrined in sub-section (1) of section 201. It, therefore, shows that the failure to deduct tax at source or the failure to pay the tax after deduction, invites action under section 201(1) by which such person responsible is deemed to be an assessee in default in respect of the tax by means of an order passed under this sub-section. It is only pursuant to the passing of the order under sub-section (1) to section 201, that the person responsible is deemed to be an assessee in default and the recovery of tax is made from such assessee in default. From the above discussion it follows that section 195(1) fastens the liability on the person paying or crediting to the account of a non-resident any sum chargeable to tax under this Act, for deducting tax at source from such payment. On failure to deduct or pay to the Government after deduction, the person responsible is treated as assessee in default in respect of such tax under section 201(1) of the Act.

III. Limitation vis-a-vis jurisdiction

12.1 From the wording of the question posted for consideration by the Special Bench, it is palpable that we have to decide whether an order under section 195 read with section 201 of the Income-tax Act, 1961 is barred by limitation within four years from the end of the relevant financial year in the absence of any express provision in the Act. This question has been drafted to be adjudicated on facts and also "in law" so that the ongoing cleavage of opinion about the time limit within which such order can be passed, is settled by the Tribunal. It is trite that in every action of the authorities there are two things, viz., jurisdiction and limitation. In order to take an action, the authority must first have a valid jurisdiction over the subject, that is to say, he should have the power to decide the matter. Once it is ascertained that a valid jurisdiction vests with the authority, then the inquiry about the limitation begins. The question of limitation always arises after it is proved that all the requisite conditions for the assumption of jurisdiction stand satisfied, because in the absence of jurisdiction, the entire exercise of taking action and deciding the matter will be set to naught. So any order passed without jurisdiction is void ab initio irrespective of the fact, whether it is passed within or outside the limitation period provided for that purpose. In other words the need for going into the aspect of limitation arises only when it is established that the authority was within its jurisdiction to pass the order. In turn, the jurisdiction lies when all the conditions for exercising the power qua the action are satisfied.

12.2 The very idea of passing an order under section 201(1) stands on the foundation of the presumption that there is a default in deducting the whole or any part of tax or after deduction there is a failure to pay such tax as required by or under this Act. So the pre-condition for having jurisdiction under this section is that there should be a default as referred to in section 201(1) by which the person responsible is treated as assessee-in-default. The question of limitation for passing the order is subsequent to the question of jurisdiction. If the Assessing Officer has jurisdiction to pass an order under section 201 only then it can be decided whether such order passed is within the limitation period or not. If, however, there is no lawful jurisdiction with the Assessing Officer for proceeding under section 201(1), there cannot be any question of examining the limitation. As we have been called upon to answer the question of limitation on facts and 'in law', we will first proceed with the supposition that the Assessing Officer had jurisdiction and there was obligation on the assessee to deduct tax at source from the payment made to the non-resident and further the assessee has failed to discharge such obligation which has resulted into the passing of order under section 201(1) treating him as assessee in default. If we proceed to decide the applicability of section 195 initially and then, supposingly , come to the conclusion that this section is not attracted as there is no obligation on the payer to deduct tax at source, then the order so passed will become invalid and the question of treating the assessee as in default shall not survive. Resultantly, the question raised before this Special Bench will also remain unanswered. Thus for the time being we are presuming that there is a certain liability to deduct tax at source on the payments made to the non-residents and the assessee has failed to discharge his duty.

IV. Whether section 201(1) applies in case of non-deduction of tax at source?

13.1 The learned Counsel for the assessee submitted that the assessee had not deducted tax at source as in its opinion there was no such requirement. He pleaded that section 201(1) applies only where the person responsible for deducting tax at source deducts and fails to deposit it to the credit of the Government and not where there is no deduction of tax at source. He referred to the language of section 201(1) which opens with the words "if any such person referred to in section 200". It was, therefore, contended that section 201 will apply only to the persons referred to in section 200. Then he invited our attention towards section 200 to submit that it applies only to person who has deducted tax in accordance with the provisions of the Chapter, which enjoins upon such person deducting tax, to pay within the prescribed time the sum so deducted to the credit of the Central Government or as the Board directs. It was stated that the reference to the words "any person deducting tax" clearly showed that unless deduction of tax at source has been made, section 200 will not apply and the resultant application of section 201(1) will also fail. It was submitted that sub-section (1) of section 201 has two parts viz., the operational part and qualifying part. In his opinion unless the qualifying part i.e., "if any such person referred to in section 200" is not applicable, the latter part of the section which is operational in nature, will become redundant. Our attention was drawn towards the amendment carried to section 201(1) by the Finance Act, 2008 with retrospective effect from 1-6-2002 in which "if any such person referred to in section 200" has been substituted with "where any person". He stated that it was only with effect from 1-6-2002 that the person failing to deduct tax at source is brought within the ambit of section 201(1) as against the earlier position of roping in only the person who deducted the tax at source but did not pay to the exchequer. It was, thus stated that the revenue authorities had erred in determining the liability of the assessee by treating it as assessee in default and further charging interest under section 201(1A) of the Act inasmuch as section 201(1) itself does not at all apply to it. In the opposition the learned D.R. strongly opposed to the submission so made on behalf of the assessee and contended that section 201(1) unequivocally applies to both the categories of the persons, that is, those who have not deducted the tax at source and also those who have failed to pay the same to the Government after deduction.

13.2 We have heard the rival submissions at length and perused the relevant material on record. The main thrust of the learned A.R.'s submission is that section 201(1) is applicable only on the persons referred to in section 200 and since section 200 does not apply to the person who has not deducted tax at source, resultantly section 201(1) cannot apply. We are not convinced with this submission for the reason that the assessment year under consideration is 1998-99 and at the material time section 201 referred to only "if any such person". The latter expression "referred to in section 200" was incorporated later on and has no significance insofar as the assessment year under consideration is concerned. We have to decide the controversy in accordance with the language of section as was prevalent at the material time.

13.3 It is further noted that the Finance Act, 2008 has substituted section 201(1) with retrospective effect from 1-6-2002 by which the hitherto expression "if any such person referred to in section 200" has been substituted with "where any person". It is relevant to consider the Notes on clauses and the Memorandum explaining the provisions of the Finance Bill, 2008 on the substitution of section 201. Notes on clauses read as under in [2008] 298 ITR (St.) 167 :—

"Clause 43 seeks to amend section 201 of the Income-tax Act, which relates to consequences of failure to deduct or pay.

Sub-section (1) of the said section provides that if any person referred to in section 200 and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under the Income-tax Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee-in-default in respect of the tax.

The said sub-section thus covers in its ambit persons referred to in section 200. Section 200 in turn refers to a person deducting any sum in accordance with the provisions of Chapter XVII-B and who is required to pay within the prescribed time the sum so deducted to the credit of Central Government. Thus, this provision leaves room for an interpretation that a person required to deduct tax at source but not deducting the same will not be deemed an assessee-in-default under section 201. Such an interpretation is contrary to legislative intent.

The proposed amendment, therefore, seeks to substitute the said sub-section to clarify that where a person is required to deduct tax at source but fails to do so, he shall also be deemed to be an assessee-in-default under section 201."

13.4 The Memorandum explains the amendment in the following words at pages 224 of 298 ITR (St.) :—

"Consequence of non-deduction of tax at source :

Under section 201 a person is deemed to be an assessee-in-default if there is a failure to deduct tax at source or for failure to deposit the tax deducted at source or for failure to deposit the tax deducted at source after such tax has been deducted. The persons covered under the ambit of section 201 are :—

Sub-section (1) of section 200 provides that any person deducting any tax at source on payments other than salary shall pay the sum so deducted to the Central Government or as the Board directs within the prescribed time. A view has been expressed that the provisions of sub-section (1) of section 201 do not cover failure to deduct tax at source. Such an interpretation is contrary to the intent of the Legislature. The amendment, therefore, seeks to substitute sub-section (1) of section 201 to clarify that where a person, including the principal officer of a company,—

The amendment to substitute sub-section (1) of section 201 shall take effect retrospectively from 1st June, 2002." [Emphasis supplied].

13.5 On going through the above Notes on clauses and Memorandum explaining the provisions of the Finance Bill, 2008, it is clearly borne out that section 201(1), even prior to the amendment was applicable not only to the person who is required to deduct tax at source but also not deducting the same. It has further been made clear in the Memorandum that the interpretation, as similar to the one suggested by the learned A.R. in the present case "is contrary to the intent of the Legislature" and the amendment was made "to clarify" that a person who is required to deduct any sum in accordance with the provisions of Act does not deduct or after so deducting fails to pay, the whole or any part of the tax, he shall be deemed to be an assessee in default under section 201(1). It is, thus, obvious from the amendment to section 201(1) by the Finance Act, 2008 that the intention of the Legislature from the very beginning was, not only to restrict the operation of this sub-section to the person who has deducted tax at source but also who fails to deduct the tax at source in accordance with the provisions of the Act.

13.6 Be that as it may we have noted above that the assessment year under consideration is 1998-99 and at the relevant time there was no reference to any such person 'referred to in section 200'. It was only later on that these words were incorporated in the section which are not material for our consideration. Now we have to consider the meaning of "if any such person" as employed in section 201 at the relevant time. The learned A.R. has suggested that any such person should be considered as the one who is referred to in section 200 meaning thereby the person deducting tax at source but not depositing with the Government. We observe that ordinarily the word "such" in the later part of section refers to the thing or person indicated in the earlier part of the same section. For example section 2(1A) defines "agricultural income" to mean (a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes. Then clause (b) states that any income derived from such land by - agriculture etc. . . .The reference to 'such land' in clause (b) is to the land which is used for agricultural purposes as is stated in clause (a). Thus the word 'such' in the latter part of the section refers to a thing or person as stated in the former part of the section. We are concerned with section 201(1) in which the words "such person" have been used in the opening part of the section. Under these circumstances the words "such person" cannot have any reference to the person used in the earlier part of the section. Under these circumstances the words "such person" have to be interpreted by considering the language of section as a whole.

13.7 Before proceeding further it would be relevant to note the relevant portion of section 201(1) as applicable at the relevant time, which runs as under :—

"If any such person and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax."

A cursory look at the section manifests that 'any such person' referred to in the opening part of the section has connection with the latter part of the section who "does not deduct or after deducting fails to pay the tax as required by or under this Act". In order to appreciate the meaning of 'such person' in the context of section 201(1) it is relevant to briefly note down the scheme of Chapter XVII, in which this section falls. Under sections 192 to 195 a duty has been cast upon any person responsible for paying or crediting any income under the respective sections to make a deduction of tax at source at the prescribed rates. Again similar duty has been placed under sections 196A to 196D on the person responsible for making payment. Section 197 deals with certificate for deduction at lower rate. Section 198 states that the tax deducted is income received. Section 199 stipulates the year in which the credit for tax deducted shall be given. Then section 200 provides that any person deducting tax in accordance with 'the foregoing provisions of this Chapter' (that is the sections i.e. 192 to 196D) shall pay the sum so deducted to the credit of the Central Government within the prescribed time. So the person referred to in section 200 is the person responsible for deducting the tax at source. The duty of the person who is deducting tax at source under section 200 is confined to the making of the payment of the sum so deducted to the credit of the Central Government. By no stretch of imagination 'such person' referred to in section 201 can be construed as only the person who has deducted the tax at source within the meaning of section 200. It clearly refers to the person responsible for deducting the tax at source notwithstanding whether he has failed to deduct tax at source or after deducting failed to deposit the same with the Central Government. When the scheme of Chapter XVII is considered in entirety the only logical conclusion that can follow is that the "such person" referred to in section 201(1) is the person responsible for deducting tax at source. When we further view the latter part of sub-section (1) of section 201, it becomes abundantly clear that it also refers to the person who does not deduct tax at source because of the employment of the expression "does not deduct or after deducting fails to pay tax as required by or under this Act". In our considered opinion the interpretation suggested by the learned A.R. for restricting "any such person" to only the person deducting tax at source and thereafter failing to pay the tax with the Central Government and allowing the person not deducting tax at source to go scotfree, is completely against the spirit of the section. If we read it in the way in which the learned A.R. wants, then the latter part of sub-section (1) of section 201 will also necessitate modification as the words "does not deduct" would require obliteration. By harmoniously considering the scheme of this Chapter in which section 201 falls, the only conclusion which follows is that 'any such person' as used in this section cannot be construed as only the person deducting and failing to deposit the tax with the Government but also encompasses within its ambit the person failing to deduct the tax at source. Our view is fortified by the judgment of the Hon'ble Kerala High Court in the case of Traco Cable Co. Ltd. v. CIT [1987] 166 ITR 278/33 Taxman 282 in which it has been held that "sections 195, 200 and 201 deal with a liability which is at no time ambulatory but which is attracted immediately upon the happening of an event, namely, payment and failure to deduct under section 195 or failure to credit the sum deducted as required by section 200." In the light of the foregoing discussion we hold that the view canvassed by the learned A.R., on this aspect of the matter, is sans merit.

IV. Whether any time limit can be prescribed for passing of order under section 201(1)

14.1 The learned D.R. stated that the Legislature in its wisdom has chosen not to prescribe any time limit for passing order under section 201(1) or 201(1A). He stated that any attempt on the part of Courts or the Tribunal to lay down any particular time limit would be disastrous and amount to legislation by the judiciary. He referred to certain judgments including Hindustan Times Ltd.'s case (supra) to contend that when no provision for limitation has been incorporated in the statute, then the Courts cannot introduce such limitation. He further referred to another judgment of the Hon'ble Apex Court in Bombay Gas Co. Ltd. v. Gopal Bhiva [1963] (SC2)-GJX-0154-SC for the same proposition that it was not permissible for the Courts to introduce any such time limit. He also relied on certain other judgments for the same proposition. Per contra the learned Counsel for the assessee submitted that where no time limit has been prescribed for the exercise of power under a particular section of the statute, then it should be exercised within a reasonable time. He referred to the judgment of the Hon'ble Supreme Court in the case of Government of India v. Citadel Fine Pharmaceuticals [1990] 184 ITR 467 to support his argument that in the absence of any period of limitation, every authority is bound to exercise the power within a reasonable time. He further referred to the judgment of the Hon'ble Madras High Court in the case of M. Srinivasa Rao v. Asstt. Cit [2007] 295 ITR 136/[2008] 167 Taxman 53 in support of his proposition that even though no time limit is prescribed, the proceedings must be commenced within the reasonable time. He relied on certain other judgments for the same proposition.

14.2 After considering the rival submissions in the light of the material placed before us and the precedents relied upon it is obvious that sub-sections (1) and (1A) of section 201 do not prescribe any time limit for the initiation of the proceedings or the passing of the order. We find that for the most of the actions under the Act, the particular time limit has been given for the commencement and completion of the proceedings. For example time limit for issuing of notice for the purposes of making assessment is laid down in section 143(2). Similarly time for issuing notice of reassessment has been set in section 149. Section 153 deals with the time provided for the completion of assessment and reassessments. Similarly time limit for rectification of order is given in section 154; for passing revising order under section 263 etc. etc. In such a scenario the question arises that if no time limit is provided, then can any time limit be artificially imported by the authorities. The ld. DR has contended that the Tribunal is not competent to lay down any time limit. If this contention is brought to the logical conclusion it will mean that the unlimited time will be available to the Departmental authorities at their sweet-will for taking action under this section. In our considered opinion this contention raised on behalf of the revenue is bereft of any force for the simple reason that certainty is the hallmark of any proceedings. It is beyond our comprehension that how, in the absence of any time limitation provided in the section, the action can be taken in indefinite period. It is wholly impermissible to argue that unlimited time limit be granted to the revenue for taking action under this section. The sword of taxing authorities cannot be allowed to hang, forever, over the head of the tax payers. If this proposition of the learned D.R. is accepted that will give license to the authorities to take action even after 30, 40 or 50 years. The canons of limitation are ordinarily provided expressly in the Act and in their absence, they are to be impliedly inferred by taking into consideration the scheme of the relevant provisions. The ld. DR has relied on some cases for suggesting that no time limit be laid down by the Tribunal for the purposes of passing order under section 201(1) or (1A). In our opinion before applying the ratio of any judgment, it is imperative to look into text and the context in which it is rendered. It is equally important to bear in mind the relevant provision in the background of which such judgment was rendered. It is not permissible to pick up a case from one enactment and insist for the application of the ratiodecidendi of that case to an altogether different legislation, which has no resemblance with the former. The Hon'ble Rajasthan High Court in Arihant Tiles & Marbles (P.) Ltd. v. ITO [2007] 295 ITR 148/166 Taxman 274 has held that the interpretation of any expression used in the context of one statute is not be automatically imported while interpreting similar expression in another statute. Similar view has been earlier expressed by the Hon'ble Supreme Court in CIT v. Venkateswara Hatcheries (P.) Ltd. [1999] 237 ITR 174/103 Taxman 503 .

14.3 The ld. DR has mainly focused on the case of Hindustan Times Ltd. (supra) to argue that in the absence of any time limit provided in the Act, no time can be prescribed for taking action under section 201(1). On examination of the facts of that case it is found that the appellant was an employer and there was delay in payment of the provident fund contribution. A demand notice was issued on 7-5-1980 in respect of alleged belated payment for the period from 1965 to 1968. It was contended by the appellant that the relevant Act did not contain any provision prescribing a period of limitation for assessment or recovery of damages and, hence, the action of the authorities be annulled. Repelling this contention, the Hon'ble Supreme Court observed that the money payable into the fund was for the ultimate benefit of employees and there was no provision by which the employees can directly recover this amount. That was the reason which weighed with the Hon'ble Supreme Court to hold that if there is no period of limitation for the exercise of the power under section 14A of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, then no limitation can be prescribed. It is quite logical that if the employer who has deducted the provident fund contributions from the salary of its employees and fails to deposit the same in the provident fund account, he cannot be allowed to go without such deposit. If a particular time limit is prescribed in such a situation, then the employers intending to play fraud with the employees' contribution, will somehow manage to cross such time limit without payment, and then will claim immunity from the deposit of such amount by arguing that the time limit within which the action could have been taken against them has elapsed.

14.4 If we look at the scheme of section 201(1) it is found that a duty has been cast upon the person responsible to make deduction of tax at source from any payment made on which tax is deductible. The failure to deduct or payment after deduction enables the authorities to treat him as assessee in default. This deduction of tax at source is only one mode of recovery. The deductee always remains responsible for the payment of tax on the amount which is paid to him with or without deduction of tax at source. Hence, we do not find any match between the facts of the case of Hindustan Times Ltd. (supra) and others on similar lines, relied upon by the learned D.R. vis-a-vis the facts under consideration. On the contrary so many authorities have been cited on behalf of the assessee, some of which have been referred to above in which it has been categorically held that the statutory power should be exercised within a reasonable time even if no time limit is prescribed. The same opinion has been expressed by the Hon'ble Supreme Court in the case of Mohamad Kavi Mohamad Amin v. Fatmabai Ibrahim [1997] 6 SCC 71. In view of the foregoing discussion we are of the considered opinion that there is no merit in the contention of the learned D.R. that in the absence of time limit specified under section 201, action can be taken at any point of time. It is naturally so for the reason that time is the core of every action under law. If the Legislature is silent in prescribing a particular time limit then the action can be taken within a reasonable time. The ld. DR., during the course of subsequent arguments, was fair enough to concede that the time limit may be specified, but requested that it should not be kept rigid at four years as has been held in the case of Raymond Woollen Mills Ltd. v. ITO [1996] 57 ITD 536 (Bom.) . Now the next question is that what can be the reasonable period for action under section 201(1). There cannot be a particular time limit say two years or five years or ten years, which can be described as reasonable for all the actions under the Act, when no time limit is prescribed. The reasonable time for taking action under a particular section largely depends on host of factors, inter alia, the nature of proceedings, the character of the order etc. In order to determine the reasonable time for taking action under section 201, it is important to have a look at such necessary factors.

V. Nature of proceedings under section 201(1)

15.1 The following steps are involved in the proceedings for deduction, payment and recovery of tax at source.

15.2 When a person pays a sum to anyone on which tax is required to be deducted, then the person responsible for paying such sum is under obligation to deduct tax at source at the time of credit of such sum to the account of payee or at the time of payment thereof in cash or by issuing of a cheque or by any other mode, whichever is earlier. When the person responsible has deducted the tax and paid it to the credit of the Central Government or as the Board directs, his duty is over insofar as the question of deduction of tax at source is concerned, of course, subject to the issuance of certificate of such deduction to the payee and the furnishing of the TDS return in time. If, however, such person who is responsible for deducting tax at source fails to deduct the whole or any part of the tax deductible or after deducting fails to pay the same to the exchequer, prima facie, he becomes the assessee in default. The very act of not deducting tax at source or failure to deposit the same makes such person an assessee in default.

15.3 When there is such a failure as is referred to in the preceding para, the proceedings are launched against the person responsible and inquiry is conducted. If at the conclusion of such proceedings, it is found that the person responsible for paying has failed to deduct tax or failed to deposit the same after deduction, he or it is deemed to be an assessee in default in respect of such tax by way of order under section 201(1) subject to the prescription of Explanation to section 191. Thus this order crystallizes the liability on the person responsible for paying tax which was deductible. Albeit the person responsible for deducting tax at source became defaulter the moment he made the payment or credited the account of the payee, whichever is earlier, without deduction of tax at source, but on the passing of the order under section 201(1), the amount of tax is determined in respect of which such person responsible is deemed to be an assessee in default.

15.4 On the passing of the order under section 201(1), a Notice of demand is issued under section 156 in the name of the such person who is deemed to be assessee in default specifying the sum so payable. If the notice of demand is complied with and the sum determined by way of order under section 201(1), is paid, the matter ends.

15.5 If, however, there is a failure to comply with the terms of Notice of demand issued under section 156, the tax recovery proceedings are initiated. Section 231, prior to its omission by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989, provided that no proceedings for the recovery of any sum payable under this Act shall be commenced after the expiration of three years from the last day of the financial year in which the demand is made or in the case of a person who is deemed to be an assessee in default under any provisions of this Act. This section thus provided that no proceedings for recovery of any sum payable under this Act shall be commenced after the expiry of three years from the last day of the financial year in which the demand was made. This means that the recovery certificate could be issued by the Assessing Officer only within the aforesaid period of three years. Simultaneous with the omission of section 231, an amendment has been carried out to section 222 by which the requirement of the issue of such certificate by an Assessing Officer has been dispensed with and the Tax Recovery Officer can now draw the statement of arrears and assume jurisdiction as soon as the assessee is in default.

15.6 The learned AR has contended that the omission of section 231 of the Act has clipped the wings of the taxing authorities inasmuch as the passing of order under section 201(1) is now construed as equivalent to the proceedings for the recovery of tax in arrears. In our considered opinion this submission is devoid of any merit for the obvious reason that the duty of section 201(1) comes to an end when the liability of the person responsible is determined by deeming him as an assessee in default. Tax recovery proceedings do not automatically follow with the passing of the order under section 201(1) because after the passing of order under this section, notice of demand has necessarily to be issued under section 156. This latter section, in turn, provides that when any tax, interest, penalty, fine or any other sum is payable in consequence of "any order passed under this Act", the Assessing Officer shall serve upon the assessee a notice of demand specifying the sum so payable. The expression "any order passed under this Act" as employed under section 156 encompasses the order passed under section 201(1) as well. Further if the notice of demand is satisfied, there cannot be any question of initiating the tax recovery proceedings. It is only when the notice of demand is not complied with, that the tax recovery proceedings are initiated.

15.7 The learned A.R. has also argued that with the omission of section 231 the Legislature has made its intention clear that the hitherto period of three years allowed to the revenue for the recovery of tax has been dispensed with and, hence, even that time limit is also no more available to the Assessing Officer. We are at loss to appreciate this submission for the reason that with the omission of section 231, necessary amendment has been simultaneously made to section 222. Whereas section 231 only contained a time limit for commencement of the recovery of any sum payable under this Act, this procedure has now been streamlined by way of amendment to section 222 by which the Tax Recovery Officer can now directly draw a statement specifying the amount of arrears due from the assessee. As against this in the earlier provision of section 231 this job was assigned to the Assessing Officer to draw up a recovery certificate. Now Tax Recovery Officer can draw the statement of arrears and assume jurisdiction as soon as the assessee is in default. Apart from that, section 226 provides that where no certificate has been drawn up under section 222, the Assessing Officer may recover the tax by any one or more of the modes provided in this section. If we further go to section 232 it is revealed that the several modes of recovery specified in this Chapter shall not affect in any way : (a) any other law for the time being in force relating to the recovery of debts due to Government; or (b) the right of the Government to institute a suit for the recovery of the arrears due from the assessee; and it shall be lawful for the Assessing Officer or the Government, as the case may be, to have recourse to any such law or suit, notwithstanding that the tax due is being recovered from the assessee by any mode specified in this Chapter. From the above discussion it is amply demonstrated that all these sections including the now omitted section 231, only deal with the recovery aspect. On the other hand section 201(1) deals with the determination of the amount in respect of tax for which the person responsible is deemed to be an assessee in default. The recovery proceedings follow only after the passing of order under this section and that too, if notice of demand is not satisfied. Therefore, to argue that section 201(1) also provides for the recovery of tax and consequentially the power of the Assessing Officer is curtailed by the omission of section 231, is not in accordance with the scheme of the Act.

VI. Type of order under section 201(1)

16.1 It was argued by the ld. DR that the assessment proceedings do not have any link whatsoever with the proceedings for deduction of tax at source. He further submitted that the assessment proceedings and TDS proceedings are two separate proceedings and one is not related to the other. Different sets of officers are dealing with these two sets of proceedings. The mere fact that the assessment of the payer has been completed, is not relevant insofar as the provisions of section 201(1A) are concerned for the obvious reason that the assessment part is dealt with by the Assessing Officer having jurisdiction over the person responsible for paying the tax who is concerned basically with the determination of the amount of income chargeable to tax in his hands whereas the TDS authorities are not concerned with the correct income chargeable to tax in the hands of such person but only with the amount of tax which ought to have been deducted and its further payment after deduction. He relied on the case of CIT v. Blackwood Hodge (India) (P.) Ltd. [1971] 81 ITR 807 (Cal.) in which it has been held that the order under section 201(1) is not the order of assessment.

16.2Per contra the learned AR contended that the Hon'ble Delhi High Court in the case of Delhi Development Authority v. ITO [1998] 230 ITR 9 has held that the order under section 201(1) is an order of assessment and the same judgment stands approved by the Hon'ble Apex Court in the case of Income Tax Officer, New Delhi v. Delhi Development Authority. [2001] 252 ITR 772/[2002] 120 Taxman 120 . In the light of this Supreme Court's judgment, the learned A.R. contended that the order under section 201(1) has to be treated as the order of assessment and the contrary view expressed by the Hon'ble Calcutta High Court in the case of Blackwood Hodge (India) (P.) Ltd. (supra) is no more a good law. He also relied on the order passed by the Tribunal in District Excise Officer v. ITO [2000] 68 TTJ (Delhi) 436 in which the judgment in the case of Delhi Development Authority (supra) has been followed in which it has been held that the order under section 201(1) constitutes an order of assessment. It was also stated that the fact that the different sets of officers deal with the assessment and TDS proceedings is not relevant, as both are carried out by the Income-tax department. It was further stated that presence or absence of coordination between these sets of authorities cannot be used to the detriment of the assessee.

16.3 We have considered the rival submissions and perused the relevant material on record. It is clear that in the case of Blackwood Hodge (India) (P.) Ltd. (supra) and certain other cases it has been held that the order under section 201(1) cannot be equated with the order of assessment and resultantly the time limit prescribed under section 153, as applicable to the completion of assessment, cannot apply to the proceedings under section 201(1). On the contrary the Hon'ble Supreme Court now in the case of Delhi Development Authority (supra) has approved the view of the Hon'ble Delhi High Court in which it was held that the order by which the respondent was held to be an assessee in default and recovery was made, was an order of assessment. At this juncture it would be relevant to consider the facts in the case of Delhi Development Authority (supra). The Delhi Development Authority (DDA) was to construct and allot flats to the buyers within the stipulated time and on its failure to do so, it was liable to pay interest. The DDA defaulted as a consequence whereof it made the payment of interest to the buyers. The ITO (TDS) came to hold that the DDA failed to deduct the Income-tax at source on payment of interest made to the buyers as provided under section 194A of the Act. The Tribunal held that the amounts credited to the account of the allottees were not in the nature of interest within the meaning of section 2(28A) and hence the orders passed by the Income-tax Authorities were quashed. The amount was refunded with interest calculated under section 244(1) to DDA. The DDA filed writ petition before the Delhi High Court raising grievance that the interest as calculated by the Income-tax Department was not correct inasmuch as the interest under section 244(1A) should have been paid for the year 1987-88 and under the provisions of section 244A for the years 1988-89 and 1989-90. The Income-tax Department did not accept the claim of DDA on the ground that the amount refunded to it was not the amount taxed nor it involved any advance tax or tax paid by the DDA so as to attract the provisions section 244A. The Hon'ble Delhi High Court negatived the plea of the Income-tax Department. When the matter was taken up before the Hon'ble Supreme Court it was argued on behalf of the Department that section 244(1A) will not be applicable since the payment was not made in pursuance of any order of assessment. While approving the view taken by the Hon'ble Delhi High Court, it was held that the order passed by the ITO determining the liability of petitioner under section 194A read with section 201 and also quantum thereof was an order of assessment and the petitioner became entitled to interest under section 244(1A)/244A on the amount of refund.

16.4 We further observe that the Hon'ble Calcutta High Court in the case of Associated Pigment Ltd. v. ITO [1971] 80 ITR 631 has held that : "if a person is to be held responsible for payment of tax on the ground that he had failed to deduct such tax without making payment to a non-resident and for that purpose must be deemed to be in default, it would obviously follow that any order directing him to pay any such amount must be an order of assessment or must be a determination which is equivalent to an order of assessment so as to entitle him to appeal against such determination."

16.5 In view of the foregoing discussion we find that whereas in some cases it has been held that the order under section 201(1) is not an order of assessment, on the other hand, the Hon'ble Supreme Court in the case of Delhi Development Authority (supra) has approved the view taken by the Hon'ble Delhi High Court holding that it is an order of assessment. As per Article 141 of the Constitution of India 'The law declared by the Supreme Court shall be binding on all courts within the territory of India.' It is more than obvious that the enunciation of law by the Apex Court is binding on all the High Courts and lower authorities. No one can dare to brush aside the verdict of the Supreme Court by a simple assertion that it does not conform to statutory provision as has been held in the case of Lt. Col. P.R Chaudhary (Retd.) v. Municipal Corpn. Of Delhi [2000] 4 SCC 577. It is, therefore, vivid that any judgment rendered by the Hon'ble Supreme Court has the binding force on all the lower Courts, Authorities or for that matter anybody else in India. It is trite law that the courts declare the law and do not legislate. Hence pronouncement of law by the courts is always retrospective and is considered as the interpretation since inception. In that view of the matter, it is manifest that once a particular view has been expressed by the Hon'ble Supreme Court on an issue, then any contrary view taken by the other High Courts has to be considered as expressly or impliedly overruled. We are thus of the considered opinion that the order under section 201(1) is to be treated as an order of assessment or at least akin to the assessment order.

VII. Reasonable time for passing order under section 201(1)

17.1 On the question of what should be the reasonable time for the passing of the order under section 201(1), the learned AR contended that the time limit for completion of assessment is provided under section 153(1) by which no order of assessment can be passed under section 143 or section 144 after the expiry of two years from the end of the assessment year in which the income is first assessable. He contended that in view of the judgment of the Hon'ble Supreme Court in the case of Delhi Development Authority (supra) the order under section 201(1) is to be construed as the order of assessment and hence such an order cannot be passed after a period of two years from the end of the assessment year. He further referred to the order passed by the Tribunal in Raymond Woollen Mills Ltd. (supra) in which it has been held that a period of four years from the end of the relevant financial year is good enough for passing order under section 201(1). He also referred to the judgment of the Hon'ble Delhi High Court in the case of CIT v. NHK Japan Broadcasting Corpn. [2008] 305 ITR 137/172 Taxman 230 (Delhi) in which it has been laid down that the initiation of proceedings under section 201 after a reasonable period of time of four years was barred by limitation. He still further referred to some of the observations of the Hon'ble Delhi High Court in this case to bolster his submission that the time limit for completion of proceedings under section 201(1) cannot be more than the time for the initiation of proceedings. In view of these submissions, it was argued that the period of four years from the end of the relevant financial year, as has been held as reasonable in the above cases, is applicable for initiation of the proceedings as well as the passing of order under section 201(1).

17.2 In the oppugnation the learned D.R. heavily relied on the judgment in the case of Blackwood Hodge (P.) Ltd. (supra) to contend that the order under section 201(1) cannot be considered as an order of assessment and hence bar of limitation prescribed under section 153 cannot be applied to it. He submitted that the Hon'ble Calcutta High Court in the aforenoted case of Blackwood Hodge (India) (P.) Ltd. (supra) upheld the order passed on 17-7-1961 in relation to the assessment year 1956-57. It was thus urged that even the period of six years has been held by the Hon'ble Calcutta High Court to be reasonable for passing of the order under section 201(1).

17.3 The learned DR stated that the Mumbai Bench of the Tribunal in Raymond Woollen Mills Ltd.'s case (supra) has held that since no period has been prescribed for taking action under section 201(1A) still the action has to be taken within the reasonable time. In this case it was held that the order passed under this section after 4 years from the end of the financial year was time barred. The learned D.R. contended that this order has been followed by several Benches of the Tribunal including Sahara Airlines Ltd. v. Dy. CIT [2002] 83 ITD 11 (Delhi) , Asstt. CIT v. Pepsi Foods Ltd. [2003] 129 Taxman 73 (Mag.) (Delhi) and Wokhardt Life Sciences Ltd. v. Dy. CIT [IT Appeal No. 3625 (Mum.) of 2002, dated 8-6-2005 (Mum. - Trib) etc. Copies of these orders were placed on record by the learned D.R. It was submitted that in all these cases one line principle as enunciated in the case of Raymond Woollen Mills Ltd. (supra), has been followed for quashing the orders passed under section 201(1) or 201(1A), that is, where such order has been passed after four years from the end of the financial year the same is illegal, void and barred by limitation. Commenting on the order in the case of Raymond Woollen Mills Ltd. (supra) the learned D.R. stated that the Tribunal has basically relied on the judgment of the Hon'ble Supreme Court rendered in the case of State of Gujarat v. Patel Raghav Natha AIR 1969 SC 1297 in which it was held that for the exercise of the suo moto power of revision, the revisionary power should be exercised within a reasonable time even in the absence of a time limit prescribed by the statute.

17.4 The learned D.R. submitted that no time limit has been prescribed under section 201(1A) but the Tribunal held that the reasonable time limit would be four years from the end of the financial year for the reason that the proceedings under section 201 are expected to be finalized before the assessment is completed. He submitted that in reaching this conclusion the Tribunal failed to note the judgment of the Hon'ble Calcutta High Court in the case of Blackwood Hodge (India) (P.) Ltd. (supra) which was available at the time of passing of the order providing that the order under section 18(7) of the 1922 Act analogous to section 201 of the Income-tax Act, 1961, did not suggest that such order was an order of assessment at all. He contended that the judgment of the Hon'ble Supreme Court in the case of Patel Raghav Natha (supra) relied on by the Tribunal was rendered in the context of Land Acquisition Act and the discussion was confined to the power of the revising authority in contrast to the power of passing the original order under section 201(1). He further contended that the judgment in the case of Patel Raghav Natha (supra) has been the subject-matter of consideration by the Hon'ble Supreme Court in several cases including Ramchand v. Union of India [1994] 1 SCC 44. While referring to this judgment the learned D.R. contended that the Hon'ble Supreme Court has held that even if there is no period of limitation yet the power must be exercised in a reasonable time and the length of the reasonable time will be considered on the facts of the case and the nature of the order. He referred to still another judgment of the Hon'ble Apex Court in the case of Uttam Namdeo Mahale v. Vithal Deo [1997] (5) JT 632 in which again the judgment of the Hon'ble Supreme Court in Patil Raghav Natha's case (supra) was considered and it was finally held that where no limitation was prescribed the order could be executed at any time. In this case, the learned D.R. stated, that the Petitioner had also unsuccessfully relied on the case of Patel Raghav Natha (supra). The learned D.R. relied on the judgment of the Hon'ble Apex Court in the case of Hindustan Times Ltd. (supra) in which the earlier case of Patel Raghav Natha (supra) was also considered and thereafter a conclusion was reached that where the Legislature had made no provision for limitation, it would not be open to the Court to introduce any such limitation. He further contended that inspite of series of orders passed by the Tribunal holding that the passing of order under section 201(1) or 201(1A) beyond the period of four years was barred by limitation, the Tribunal in some other cases has also decided this issue in revenue's favour as well. He cited the order passed by the Hyderabad Bench of the Tribunal in the case of Laxmi Gnaneswara Enterprises & Financiers v. ITO [2000] 72 ITD 295 in which it was held that the orders passed by the Assessing Officer after six years could not be treated as barred by limitation. He also referred to the order passed by the Lucknow Bench of the Tribunal in U.P. State Industrial Development Corpn. Ltd. v. ITO [2002] 81 ITD 173 in which it was held that in the absence of any time limit fixed for passing the order under section 201(1A), the delay of three or four years was not unreasonable. He submitted that the Lucknow Bench of the Tribunal also considered the order in the case of Raymond Woollen Mills Ltd. (supra). He also invited our attention towards the order passed by the Delhi Bench of the Tribunal in the case of Thai Airways International Public Co. Ltd. v. Asstt. CIT [2005] 2 SOT 389 (Delhi) in which again the order in the case of Raymond Woollen Mills Ltd. (supra) was considered and thereafter a conclusion was reached that no infallible time-limit of four years from the end of the preceding year has been prescribed for passing of order under section 201(1) and 201(1A). The ld. DR also relied on the order of the Mumbai Bench of the Tribunal in the case of Gujarat Ambuja Cements Ltd. v. Dy. CIT [2005] 2 SOT 784 , in which the view has been taken in favour of the revenue qua the limitation. Relying on some other orders on the same line the learned D.R. stated that the artificial limit of four years created by the Tribunal in certain cases for passing of orders under section 201(1) and 201(1A) was without any foundation and needed to be struck down. He referred to another judgment of the Hon'ble Supreme Court in the case of Citadel Fine Pharmaceuticals (supra) in which it was held that in the absence of any period of limitation every authority is expected to exercise the power within the reasonable time. What would be a reasonable time would depend upon the facts of each case. Based on these observations the learned Senior D.R. contended that a water tight formula allowing four years for passing of the order under section 201(1) or 201(1A) from the end of the financial year was without any basis and there was a clear need of drawing a line of demarcation between the cases where the fact of non-deduction of tax at source was in the knowledge of the Assessing Officer ab initio and in the cases where such fact came to the Departmental notice for the first time at a later stage. The earlier set of cases can comprise of the situations where order under section 195(2) is passed or certificate is issued under section 195(3) or 197 wherein it can be said that the relevant position was in the knowledge of the Assessing Officer of the recipient and some type of time limit was required. He submitted that in the other situation, such as the present one, where the assessee had neither deducted tax at source nor paid the same to the revenue and it was only subsequently that it came to the notice of the authorities concerned that tax was required to be deducted, a period of four years from the end of the financial year was too short. It was stated that in such type of cases the revenue's interest should not be ignored. The learned D.R. also distinguished the judgment of the Hon'ble Delhi High Court in the case of NHK Japan Broadcasting Corpn. (supra) by contending that it dealt only with the initiation of the proceedings under section 201 and not with the completion of the proceedings under section 201(1) albeit the question before it was about the passing of the order. He contended that the assessee in this case relied on the judgment of the Hon'ble Supreme Court in the case of State of Punjab v. Bhatinda District Coop Milk (P.) Union Ltd. [2007] 11 SCC 363 which dealt with the initiation of the proceedings and on the other hand the revenue relied on the judgment in the case of Bharat Steel Tubes Ltd. v. State of Haryana [1988] 3 SCC 478 in which it was held that no period of limitation can be prescribed for the completion of proceedings. It was argued that the Hon'ble Delhi High Court erroneously considered wrong judgment of Bhatinda District Co-operative Milk (P.) Union Ltd. (supra) which dealt with the initiation of proceedings within a reasonable time whereas the question before it was the time limit for passing of the order i.e., the completion of proceedings, which was squarely covered in revenue's favour by the judgment in the case of Bharat Steel Tubes Ltd. (supra). He stated that this judgment does not lay down the correct position of law in as much as it has not taken into consideration the relevant judgments on the point available at the time. He further stated that this judgment cannot bind the Tribunal at Mumbai because the same does not have the force of the judgment of the Hon'ble Supreme Court or that of the jurisdictional High Court. For this proposition he relied on the judgment of the Hon'ble jurisdictional High Court in Commissioner Of Income-Tax v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 (Bom.) .

17.5 It is true that the Tribunal cannot legislate. At the same time, in order to find out the time limitation for a particular action, for which no time limit is prescribed, one has to examine the scheme of the Act itself. In order to reach such conclusion it is of utmost importance to understand the framework of which the time limit is to be ascertained and then consider the relevant provisions throwing light on it. We have held above that even if no time limit is prescribed in the statute for taking any action, still such action can be taken only within a reasonable time. Now what is the reasonable time varies from the context to context. In order to appreciate the reasonable time under section 201(1), we have to examine the scheme of the Act. We have noted above the nature of proceedings and also the type of order under section 201(1) and have held that the order under this section is akin to the assessment order as has been laid down by the Hon'ble Supreme Court in the case of Delhi Development Authority (supra).

17.6 "Regular assessment" is defined under section 2(40) to mean "the assessment made under sub-section (3) of section 143 or section 144". Proviso to section 143(3) states that no notice under clause (ii) shall be served on the assessee after the expiry of 12 months (reduced to six months with effect from 1-4-2008 from the end of the month in which the return is furnished. The time limit for the completion of the assessment under section 143 or 144 has been prescribed under section 143(1) as two years from the end of the assessment year in which income was first assessable.

17.7 At this juncture it will be important to note the scope of section 147, which runs as under :—

"If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year)." [Emphasis supplied]

Explanation 2(a) to section 147 provides that "where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax" shall also be deemed to be a case where income chargeable to tax has escaped assessment. Apart from that clauses (b) and (c) of Explanation 2 further deal with the deeming cases of escapement of income where a return has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has under-stated the income or has claimed excessive loss, deduction, allowance or relief in the return and also where an assessment has been made but income chargeable to tax has been under-assessed or such income has been assessed at too low a rate or such income has been made the subject of excessive relief or excessive loss or depreciation has been computed.

17.8 From the scheme of section 147 it is abundantly clear that not only the cases where return has been furnished by the assessee but no assessment is made or where an assessment was also made but still the income chargeable to tax escaped assessment are caught within the ambit of this section, but also such cases where no return of income has been furnished at all although the total income of the assessee exceeds the maximum amount which is not chargeable to tax. Ex consequenti it can be seen that it is not only the reassessment of the income which is contemplated in this section but also the assessment of the income for the first time where income exceeds the maximum amount which is not chargeable to tax but the assessee has failed to furnish the return of income. It is further clear from the language of section 147 extracted above which also includes the word "assess" w.r.t. such income which is chargeable to tax but has escaped assessment. Thus it is clear that section 147 refers to both the making of assessment as well as re-assessment subject to the fulfilment of the other conditions. The position becomes more clear when we go through the definition of "assessment" under section 2(8) as including "reassessment". Thus it is manifest that by all standards the assessment includes reassessment.

17.9 Section 201(1) declares that where the person responsible for paying any sum chargeable to tax under the provisions of this Act fails to deduct or after deducting fails to pay the tax as per the provisions of this Act, he shall be deemed to be an assessee in default in respect of the tax. Further the Explanation to section 191, which will be discussed infra has direct impact on the liability of the person liable to deduct but failing to deduct or failing to pay after deduction of tax at source. On going through the Explanation to section 191 in juxtaposition to section 201(1) it is divulged that the person responsible for deducting or failing to pay tax deducted at source is to be deemed to be an assessee in default only if the payee of income has also failed to pay such tax directly. From the detailed discussion under the succeeding main head, we will also notice that where the payee is not liable to pay tax on the amount of income received by him without deduction of tax at source, then also the person responsible cannot be treated as assessee in default. To sum up the liability of the person responsible is dependent upon the deductee failing or otherwise to pay such tax directly. Thus the action under section 201(1) is dependent on the outcome of the assessment of the payee and the time-limit for passing order under section 201(1) has to be viewed in the light of the fate of the assessment in the hands of the recipient. Logically the person responsible for paying sum chargeable to tax can be treated as assessee in default at any time prior to the assessment of the payee or the time available for the making of the assessment of the payee. If the persons responsible is deemed to be an assessee in default after the assessment of the payee or the time available for making assessment has expired then such amount of tax will be incapable of adjustment against tax liability of the payee and would require return to such person who has been treated as assessee in default. Thus both the initiation of proceedings under section 201(1) as well as the completion of such proceedings by passing order have to be prior to the time-limit within which the tax can be determined in the hands of the payee. It cannot be beyond such period. There may be different situations in the assessment of the payee. If the payee has included the amount received from payer in his total income but the tax has not been paid in full or part then the payer can be treated as assessee in default to the extent of the non-payment of tax on the sum paid to him provided the tax is not recovered from the payee. If the payee has furnished the return of income without disclosing the sum paid by the payer on which tax was deductible as per the provisions of the Act then the, tax deductible at source can be recovered from the payer by treating him as assessee in default if the income has not been assessed in the hands of the payee. Still in another situation where the payee has not at all filed his return of income again the person responsible can be treated as assessee in default in respect of the tax on the sum paid by him in violation of the provisions of this Chapter. With this discussion there remains no difficulty in answering the question that how much time is available with the Revenue for treating the payer as assessee in default under section 201(1). The obvious answer is that the maximum time-limit available for assessment of the payee is the maximum time-limit within which the payer can be treated as assessee in default. With the expansion of the scope of section 147, also roping in the cases of assessment apart from reassessment, it is clear that the assessment of payee shall also include assessment made under section 147. Thus the maximum time-limit for initiating and completing the proceedings under section 201(1) has to be at par with the time-limit available for initiating and completing the reassessment.

17.10 Proviso to section 143(3) states that no notice under clause (ii) shall be served on the assessee after expiry of 12 months from the end of the month in which the return is furnished. The time-limit for completion of assessment under section 143 or 144 has been prescribed under section 153(1) as two years from the end of the assessment year in which the income was first assessable. The time-limit for notice of assessment or reassessment under section147 has been prescribed under section 149. This section, in turn, provides that no notice under section 147 shall be issued for the relevant assessment year if four years have elapsed from the end of the relevant assessment year unless the case falls under clause (b). Clause (b) further states that no notice under section 147 shall be issued if four years but not more than six years have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupee or more for that year. The present two-fold time-limit for issuing notice under section 149 has clear cut demarcation of its applicability in one situation or the other. Where the income chargeable to tax which has escaped assessment, by reason or under-assessment or no assessment, amounts to or is likely to amount to one lakh rupees or more for that year then the extended period of six years is available but if the amount of such income is less than Rs. 1 lakh then the shorter period of four years is provided for. Section 153(2) deals with the time-limit for the completion of assessment, reassessment or recomputation under section 147. It provides that "no order of assessment, reassessment or recomputation shall be made under section 147 after the expiry of one year from the end of the financial year in which notice under section 148 was served". As we have held above that the order under section 201(1) is akin to assessment and further the assessment includes reassessment, naturally the reasonable time-limits for initiation and completion of action under section 201(1) have to be similar to those available for assessment under section 147. Accordingly we hold that proceedings under section 201(1) can be initiated in the extended period of six years from the end of the relevant assessment year if the income by virtue of sum paid without deduction of tax at source by the payer chargeable to tax in the hands of the payee is equal to or more than one lakh rupee. If on the other hand such amount is less than Rs. 1 lakh then the lower period of four years as prescribed under section 149(1)(a) from the end of the relevant assessment year is available for initiation of proceedings under section 201(1). Going by the same logic and taking assistance from section 153(2), the completion of proceedings under section 201(1), that is the passing of the order under this sub-section, has to be within one year from the end of the financial year in which proceedings under section 201(1) were initiated. Same time-limits for initiation and passing of orders will be valid for the passing of order under section 201(1A) also. We hold accordingly.

17.11 Now we deal with the second contention raised on behalf of the assessee that the time-limit for initiation and completion of proceedings under section 201(1) is the same as has been held in the case of NHK Japan Broadcasting Corpn. (supra). On this basis it was stated by the learned A.R. that the period of four years held by the Hon'ble High Court as reasonable for initiation of proceedings should also be taken as a reasonable period for completion of proceedings under section 201(1). We are not convinced with this submission for the self-evident reason that the maximum time-limit for initiation and completion of an action cannot be the same. Every action under the Act is first initiated by way of issuance of notice etc., then proceedings take place in which the Officer confronts his point of view and explanation of the assessee is sought and thereafter completion of the proceedings takes place by passing the order in which the submissions made by the assessee are either accepted or rejected by giving reasons. We have already noted that the time-limit for issuing notice for making regular assessment under section 143(3) or 144 is given in section 143(2) and the time-limit for completion of assessment under section 153(1). Similarly for taxing the income under section 147 notice has to be issued within the time-limit prescribed under section 149 which is the initiation of the reassessment proceedings and the time-limit for completion of assessment or reassessment has been given under section 153(2). It is wholly erroneous to contend that the time-limit for initiating and completing the proceedings under section 201(1) is same. The observations of the Hon'ble High Court in NHK Japan Broadcasting Corpn. case (supra) are indicator of the fact that the time-limit for initiating the proceedings cannot be less than the time-limit for completing the assessment. It is not the other way around nor it says that the time-limit for initiation and completion of proceedings under this section is the same. It is quite natural that when a particular time-limit has been provided for completing the assessment then the time-limit for initiating such proceedings must be prior to that. In our considered opinion the learned A.R. has read more than what has been laid down in this judgment. We, therefore, reject this contention.

17.12 Now we will consider the cases in favour and against the assessee on the point in question. The leading order of the Tribunal is that of Raymond Woollen Mills Ltd. (supra). All the subsequent benches of the Tribunal have either followed or departed from it in deciding the question of limitation. Let us examine the facts of this case in which the tax was deducted at source from payments on account of interest but there was delay in the deposit of tax into the account of the Government for which order was passed under section 201(1A) for levying interest in respect of assessment years 1978-79 to 1986-87. The Tribunal considered various time-limits available for different actions under the Act. It also noted, inter alia, section 149 of the Act providing a period of four years within which the case can be reopened at the first instance by the Assessing Officer. It was in this background of the facts and on the consideration of the various time-limits available for different actions under the Act that the Tribunal held that the period of four years from the end of the financial year is sufficient. Here it is relevant to note that there is no mention of the amount of tax or amount of interest for which the order was passed under section 201. Now we come to the High Court judgments available on the point. In the case of Blackwood Hodge (India) (P.) Ltd. (supra) the period of six years in passing the order was found to be in order. On the contrary the Hon'ble Delhi High Court in the case of NHK Japan Broadcasting Corpn. (supra) has held the time period of four years as reasonable for taking action under this section. Here it is important to discuss another judgment passed by the Hon'ble Delhi High Court in the case of CIT v. Majestic Hotels Ltd. [2007] 293 ITR 185/[2006] 155 Taxman 447 in which the Tribunal, following the order passed in the case of Raymond Woollen Mills Ltd. (supra) held that the order passed after four years was beyond the limitation period. The Revenue went in appeal against the said Tribunal order and the Hon'ble High Court held that interest under section 201(1A) is payable till the date of the amount of the tax so actually paid either by the deductee or the assessee who had made the deduction. Thus the quashing of the order under section 201 by the Tribunal on the basis of Raymond Woollen Mills Ltd. (supra) was impliedly not approved and the assessee was made liable to pay interest for the requisite period. This judgment in the case of Majestic Hotels Ltd. (supra) does not find any discussion in the later judgment in NHK Japan Broadcasting Corpn. (supra). From this discussion it follows that there is no unison in the opinion of the Hon'ble High Courts or the different Benches of the Tribunal on this aspect of the matter. In such a situation to argue that a particular High Court judgment of the non-jurisdictional High Court is binding on the Tribunal is not acceptable. The Hon'ble Bombay High Court Thana Electricity Supply Ltd. (supra) has discussed the binding nature of the judicial precedents. The position has been summarized in para 17 of the case by laying down that the law declared by the Supreme Court is binding on all the Courts in India. The decision of the High Court is binding on the subordinate Courts and Authorities or Tribunals under its superintendence throughout the territories in relation to which it exercises its jurisdiction. It has further been held that the decision of the High Court does not extend beyond its territorial jurisdiction. The relevant discussion on the binding nature or otherwise of the judgment of non-jurisdictional High Court has been made in para (d) as under :—

"(d) The decision of one High Court is neither binding precedent for another High Court nor for Courts or Tribunals outside its own territorial jurisdiction. It is well settled that the decision of a High Court will have the force of binding precedent only in the State or territories in which the Court has jurisdiction. In other States or outside the territorial jurisdiction of that High Court it may, at best, have only a persuasive effect. By no amount of stretching of the doctrine of stare decisis judgments of one High Court can be given the statues of a binding precedent so far as other High Courts or Courts or Tribunals within their territorial jurisdiction are concerned. Any such attempt will go counter to the very doctrine of stare decisis and also the various decisions of the Supreme Court which have interpreted the scope and ambit thereof. The fact that there is only one decision of any one High Court on a particular point or that a number of different High Courts have taken identical views in that regard is not at all relevant for that purpose. Whatever may be conclusion, the decisions cannot have the force of binding precedent on other High Courts or on any subordinate Courts or Tribunals within their jurisdiction. That status is reserved only for the decisions of the Supreme Court which are binding on all Courts in the country by virtue of Art. 141 of the Constitution."

17.13 Similar position has been reiterated again by the Hon'ble jurisdictional High Court in the case of Consolidated Pneumatic Tool Co. (India) Ltd. v. Commissioner Of Income-Tax. [1994] 209 ITR 277/[1995] 79 Taxman 458 (Bom.) by holding that the decision of other High Court is not a binding precedent for Courts, Authorities or Tribunals outside its territorial jurisdiction. Again the Hon'ble Bombay High Court in Geoffrey Manners & Co. Ltd. v. CIT [1996] 221 ITR 695/89 Taxman 287 has followed the earlier two afore-noted judgments for holding that the decisions of a High Court are not binding precedents either for other High Courts or Tribunals outside the territorial jurisdiction of that High Court. From the above judgments of the Hon'ble jurisdictional High Court, it is apparent that only the judgments rendered by the Hon'ble Supreme Court or the jurisdictional High Court are binding on the Tribunal. The judgments of the other Hon'ble High Courts, though have persuasive value, but cannot have a binding force. Coming back to the controversy before us we find that no "reasonable time" has been prescribed for the purposes of section 201(1) either by the Hon'ble Supreme Court or the Hon'ble jurisdictional High Court. In view of varying opinions expressed by the Hon'ble Calcutta High Court and the Hon'ble Delhi High Court, we are not inclined to accept the submission made by the ld. AR that a particular judgment of another High Court, which advances his case, is binding on the Tribunal and must be strictly followed.

17.14 In the light of the above discussion, we hold that order passed under section 195 read with section 201(1) or (1A) of the Act cannot be held as barred by limitation 'in law', if it is not passed within four years from the end of the relevant financial year.

VIII. Is there any liability u/s 201 in present case

18.1 Having given our finding generally on the question as to the limitation of passing of the order under section 195 read with section 201 "in law", now we turn to the facts of the instant case for considering whether the Assessing Officer had jurisdiction to pass order under section 195 read with section 201.

18.2 The ld. AR contended that the liability under section 201(1) can be determined only if the payee is held to be chargeable to tax by way of passing an order in his case. He stated that since no order of assessment or reassessment has been passed under the Act against the recipient of income in respect of the years in question up to the date, therefore the assessee cannot be treated as assessee in default. He further stated that even no order under section 163 was passed treating the assessee or any other person as agent of the non-resident for the purposes of making the assessment of the non-resident recipient. On a query from the Bench the learned D.R. stated that the passing of the assessment order in the case of the recipient for the amounts in question was not in his knowledge. He however stated that after verifying this fact from the concerned authority, the correct position will be brought to the notice of the Bench. No material was brought on record by the ld. DR till the conclusion of hearing or the passing of this order to demonstrate that the assessment on the payee was made or even the notice under section 148 was ever issued by Department on the nonresident or his agent for the year in question. The Ld. DR, on the contrary, contended that there was nothing in the provisions of the Act, which cast obligation on the taxing authorities to make assessment on the payee, as a precondition for enforcing the liability under section 201(1). While referring to sections 115A(1), 115AC, 115BBA, 115G etc., the ld. DR stated that it has been unequivocally provided in these sections that it shall not be necessary for the non-resident to furnish his return of income under section 139(1) if his total income in respect of which he is assessable under this Act consisted only of income in respect of which tax has been deducted at source. He concluded by stating that if tax is properly deducted, there is no need to file return of income and, hence, there cannot be any question of assessment of the non-resident. He thus stated where the income is subject to deduction of tax at source, the person responsible is liable to be treated as assessee in default for non-deduction of tax at source for his failure to deduct the tax or pay after deduction, notwithstanding the fact that no assessment has been made of the non-resident.

18.3 Section 195 casts obligation on any person responsible for paying to a non-resident, not being a company, or to a foreign company, inter alia, any other sum chargeable under the provisions of this Act, to deduct income-tax at the time of credit of such sum to the account of the payee or at the time of payment thereof, whichever is earlier. In case there is a failure on the part of the person responsible for paying to a non-resident any sum which is chargeable under the provisions of this Act, without deduction of tax at source or after deducting, there is default in paying to the Central Government , then the provisions of section 201(1) follow and such person is treated as assessee in default in respect of the tax. It therefore comes to focus that where the amount is chargeable to tax under the provisions of this Act and such amount is paid to non-resident in violation of section 195, the liability will be fastened on the payer under section 201(1). We have discussed in an earlier part of this order that the person responsible for paying any such sum chargeable under this Act can apply to the Assessing Officer under section 195(2) for determination of the appropriate portion of such sum so chargeable. In the like manner the person entitled to receive any such sum is also entitled to take recourse to the provisions of sub-section (3) of section 195 and the Assessing Officer shall issue a certificate for payment of any sum without deducting tax at source or the deduction at lower rate of tax as per section 197. From, here it,follows that sub-section (2) onwards of section 195 and section 197 apply, primarily, in respect of a sum which is chargeable to tax. It is only where the sum is otherwise chargeable to tax but deduction of tax at source is not warranted on the whole or any part of it, depending upon the peculiar circumstances, that the person responsible for paying such sum or the person entitled to receive such sum can apply for no deduction or deduction at lower rate of tax. Thus the pre-requisite condition for the application of section 195 and thereafter section 201 is that the amount paid to the non-resident is otherwise chargeable to tax under the provisions of this Act.

18.4 If however the amount paid or payable to the non-resident is not chargeable to tax under the regular provisions of this Act or such amount is not taxable by virtue of the provisions Double Taxation Avoidance Agreement (hereinafter called the DTAA) entered into by India with such other country of which the non-resident is resident, in accordance with Chapter IX, then the provisions of Chapter XVII about the Collection and recovery of tax are ruled out and the person responsible for paying such sum cannot be fastened with any liability for deduction of tax at source and cannot under any circumstance be treated as assessee in default.

18.5 In order to consider the taxability of a particular sum under the provisions of this Act, it has to be seen whether such sum constitutes income chargeable to tax in the hands of the payee. If both the assessee as well as the Revenue agree that such sum is not chargeable to tax then the person responsible for paying or crediting the amount to the account of the payee without deduction etc. cannot be treated as assessee in default in respect of such tax under section 201(1). There may be another situation in which the amount paid or credited is admittedly chargeable to tax in the hands of the payee but the person responsible cannot be saddled with liability under section 201(1), being the deposit of tax by the payee in his return of income. In other words where the other person, i.e., the payee has paid the tax on his total income, including such amount on which tax was liable to be deducted but has not been deducted etc., then no liability under section 201(1) can arise on the person responsible for paying the sum and he cannot be treated as assessee in default. Explanation to section 191 has been substituted by the Finance Act, 2008 w.r.e.f. 1-6-2003, which runs as under :—

"For the removal of doubts, it is hereby declared that if any person, including the principal officer of a company,—

does not deduct , or after so deducting fails to pay, or does not pay, the whole or any part of the tax, as required by or under this Act, and where the assessee has also failed to pay such tax directly, then, such person shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default within the meaning of sub-section (1) of section 201, in respect of such tax." [Emphasis supplied]

18.6 The relevant portion of the pre-substituted Explanation for our purpose also carried the same language. The effect of this Explanation is that the person responsible for paying shall be considered as assessee in default within the meaning of section 201(1), if he has failed to deduct the tax at source or after deducting failed to pay AND also the payee has failed to pay such tax directly. The use of word 'AND' between the person responsible failing to perform his obligation and the payee also not paying the tax directly, clearly depicts that both the conditions should be cumulatively satisfied so as to treat the person responsible as the assessee in default. If only one of these two is satisfied without the other, that is, the person responsible has defaulted in his duty but the payee has paid the tax or the vice versa, then the person responsible cannot be treated as assessee in default. By the Explanation, the rigor of section 201(1) has been softened. Thus even if the sum is chargeable to tax in the hands of the recipient and the provision for deduction of tax at source also exists on such payment, still the payer cannot be treated as assessee in default if the payee has paid the due tax. It is dilution of the provisions of section 201(1). Logically also we find it a correct proposition for the obvious reason, that the purpose of treating the person responsible failing in his duty as assessee in default is to ensure that the tax is adequately recovered. But if the payee has himself paid the tax, then there cannot be any point in again treating the payer as assessee in default and repeatedly recovering the tax. The case law relied on by the ld. DR making the liability of the payer of income as absolute on his failure to deduct or pay after deducting de hors the ultimate result of the assessment of the person to whom the payment is made, are not relevant in the context of the provisions which exist now. Thus where the payee has satisfied the tax liability on his total income including the amount on which tax was deductible, then the payer cannot be treated as assessee in default. It is another matter that the payer in such circumstances shall be exposed to the levy of interest under section 201(1A) for the intervening period and also may be visited with penalty. It is austere that the amount of tax deducted at source has to be ultimately adjusted against the tax liability of the payee on the sum, which is received by him as his income chargeable to tax. If the payee has already paid the tax and once again the tax is recovered from the person responsible for paying the income, it will not make any sense as the amount of due tax already finds its place in the coffers of the taxing authority by way of direct payment by the payee. It is with this intention that the Legislature enshrined Explanation to section 191 by not treating the person responsible for paying any sum chargeable to tax as the assessee in default, when the payee has paid the tax directly.

18.7 The Hon'ble Supreme Court in Hindustan Coca Cola Beverage (P.) Ltd. v. CIT [2007] 293 ITR 226/163 Taxman 355 considered a case in which tax was already paid by the recipient of the income on the payment received from the assessee. It was held that the assessee could not be treated as in default under section 201(1). While reaching this conclusion it considered Circular No. 275/201/95-IT(B) dated 29-1-1997 issued by the CBDT as putting an end to the controversy when it declared that "any demand visualized under section 201(1) of the I.T. Act should not be enforced after the tax deductor has satisfied the Officer-in-charge of TDS that the taxes due have been paid by the deductee assessee".

18.8 Similar view has been taken in the following cases in which it has been laid-down that where the payee has admittedly paid the entire amount of tax, then there is no question of treating the payer of income as assessee as in default again either in full or part.

18.9 The common fabric running through all the above noted judgments is that the liability of the payer for the deduction of tax at source ceases if the payee has offered the income for taxation in his individual hands or the facts do not necessitate the making of any payment of tax for the reason of the total income of the payee is either not taxable or within exemption limit. The reason for deduction of tax at source is crystal clear that the payment of tax is ensured at the stage of making the payment of income so that the provisional amount of tax on such income comes with the Revenue at an early point of time. So the amount of tax realized by way of deduction at source is not the final tax liability of the payee on his income, but only tentative deduction which stands to the credit of the payee ultimately adjustable against his final tax liability the total income. For example if a sum of Rs. 50 chargeable to tax on which tax is deductible, is paid after making the deduction of tax at source at Rs. 10, the payee shall include this Rs. 50 in his total income and obtain credit for the tax deducted at source against his overall liability to tax. If he is liable to pay tax on his total income at Rs. 12, he will claim the set off of Rs. 10 which was deducted at source and pay further Rs. 2 to settle his tax liability. If however no amount of tax is payable on his total income after including Rs. 50, he will claim refund of Rs. 10 which was deducted at source at the time of making payment to him. Thus the amount of tax deducted at source is not the tax on the total income. It is ultimately adjustable against the tax liability of the payee on assessment to be made in a later assessment year and assumes the character of income-tax on income when it is actually adjusted against the tax liability of the payee and that too, to the extent to which it is so adjusted. It is naturally so for the reason that such tax deducted at source has either to be set off against the tax liability of the payee or if there is no such liability then it has to be paid back in full or in part, as the case may be. It is wrong to equate the tax deducted at source with the amount of tax on income.

18.10 The underlying principle behind the deduction of tax at source is the presumption that there will be some liability of the payee towards tax on the sum paid to him. If there is no such liability then the entire exercise of firstly getting the amount of tax collected/deducted at source and then refunding to the payee will be futile. If there is no tax liability of the payee then there cannot be any question of treating the person responsible for paying the sum without deducting tax at source as assessee in default. Thus the essence of the provisions of deduction of tax at source is that there is a presumption of liability of the payee to tax on the income. As discussed in an earlier para that if there is no or lower liability of the payee to tax on the income so received without deduction of tax at source, then the payer cannot be treated as assessee in default for the whole or that part of the amount, as the case may be. It is therefore clear that though the duty of deduction of tax at source was there at the time of making the payment or crediting the account of the payee, but its failure will not lead to adverse consequences by treating the person paying the income as assessee in default if eventually either the payee is not liable to tax on such sum or he has already paid the tax due on the amount of income so received. Thus the question of treating the person responsible for paying the income as assessee in default by way of passing the order under section 201(1) is, inter alia, tied with the tax liability of the payee on such sum. If no liability of the payee to tax exists at the time when order under section 201(1) is sought to be passed or though the income is chargeable to tax but the liability of the payee to tax has not been determined by passing any order in his hands and further the time-limit for taking action on the payee under any other provision has also passed out, in such a situation again the passing of order under section 201(1) will be mere ritual. It is so because the tax now collected from the payer of income under this order will be incapable of adjustment against the tax liability of the payee either existing or likely to arise on the income so paid to him because in the former case there is no tax liability and in the latter case, such a liability cannot be created as the time-limit for taking action having been run out. Like in an action of search under section 132 or other relevant proceedings under the Act if it comes to the notice of the Department that any income chargeable to tax has escaped assessment, the proceedings are launched against such person and notice is issued under section 148 within the time prescribed under section 149. The present outer limit provided in section 149 is six years from the end of the relevant assessment year within which a notice under section 148 can be issued. If the income so found to have been earned by the assessee and escaped taxation falls within a period of six years from the end of the relevant assessment year, notice under section 148 will be issued and the assessment shall be framed by taxing such income. If however during such proceedings it is conclusively established that the assessee had earned income not disclosed to the Revenue in period prior to the said six years from the end of the relevant assessment year, then such income will escape taxation unless it falls within section 69 or 69A or 69B or 69C and the Revenue will be restrained from recovering tax by making the assessment of such income. The logic behind providing such time-limit for taking action is that the Departmental Authorities should remain vigilant and bring the escaped income to tax at an earlier point of time and further to work against the inaction on the part of the Assessing Officers on one hand and providing certainty to the assessee that after this period no action will be taken against him. Thus it follows that if due to one reason or the other the concealed income of the assessee is unearthed for a period beyond six years from the end of the relevant assessment year, then no tax can be recovered thereon. By the same logic and turning to the point before us when the payee has paid the tax by offering such income for taxation on which tax was deductible but not deducted, then the person responsible cannot be treated as assessee in default under section 201(1). In the like manner where the payee has not offered such income for taxation and there is no remedy available with the Assessing Officer for taxing such income in the hands of the payee, i.e., the time-limit for taking action against the payee under any possible provision of the Act has expired, then also the payee cannot be charged on such income nor resultantly the person responsible for paying the income can be treated as assessee in default. We have seen above that the provisions for deduction of tax at source pre-suppose the taxability of the sum paid in the hands of the payee and the tax so deducted is finally adjusted against the tax liability of the payee. If tax is collected by way of order under section 201(1) from the person responsible failing in his duty to deduct or paying after deduction of tax at source, but such amount cannot be adjusted against the tax liability of the payee, then this collection of tax would be illegal. The CBDT vide its Circular No. 7 of 2007 dated 23-10-2007 has accepted in para 4 that 'where income has accrued but no tax is due on that income or tax is due at a lesser rate, the amount deposited to the credit of Government to that extent under section 195, cannot be said to be "tax".' From here it follows that unless there is a tax liability capable of being lawfully created and recovered from the deductee, the amount of tax collected by way of deduction of tax at source cannot be characterized as the "tax". In the same Circular, it has been directed that in such cases the refund should be made to the person making payment under section 195, that is the payer. So if tax is recovered in the first instance from the person responsible for paying by virtue of order under section 201(1) but the income cannot be taxed in the hands of the non-resident either due to such income accruing but no tax remaining due thereon or tax not leviable due to the time-limit for taking action under any provisions of the Act having been expired, in such a situation, the amount of tax shall need to be refunded to the person liable to deduct tax who is for the time being considered as assessee in default. We, therefore, hold that in order to treat the payer as assessee in default it is of the utmost importance that the income so paid or credited to the account of payee is capable of being brought within the purview of tax net and such assessment can be lawfully made on the payee.

18.11 Let us examine the contention of the ld. DR that the person responsible can be treated as assessee in default even if there is no assessment on the payee. In support of this proposition he has relied on sections 115A(5) etc. In order to appreciate this contention we shall note the language of section 115A(5) which is as under :—

"(5) It shall not be necessary for an assessee referred to in sub-section (1) to furnish under sub-section (1) of section 139 a return of his or its income if—

A bare perusal of this provision indicates that if the total income of non-resident consists only of the income as referred to in earlier part of section and tax deductible at source has been deducted from such income, then it shall not be necessary for the non-resident to furnish his return of income under section 139(1). Similar language has been used in other sections referred to by the ld. DR. All the sections provide in the like manner. Chapter XII-A contains section 115G which also states that it shall not be necessary for non-resident to furnish return under section 139(1) if his total income consists only of investment income or income by way of long-term capital gains or both AND the tax deductible at source has been deducted from such income. The object behind these sections is to relieve the non-resident from the obligation of filing return of income if tax has been deducted at source on his income, which is of the types specified in these sections. These sections further apply only if tax deductible has been deducted as is borne out from the second limb of these sub-sections starting after the word 'and'. Thus these sections can have no application when there is no deduction of tax at source and in such cases there is no immunity from filing the return by the non-resident under section 139(1). Further these sections do not override section 195, which in turn, fixes the liability on person responsible for deducting tax at source only if the sum paid or credited to the account of the non-resident is chargeable to tax. The question of deducting tax at source will arise only if the sum payable to the non-resident is chargeable to tax in India. Therefore to argue that the liability to deduct tax at source is de hors the eventual liability of the non-resident and the person responsible for paying or crediting any sum can be treated as assessee in default even without the possibility of fixing the liability to tax on the non-resident, is fallacious.

18.12 Adverting to the facts of the instant case we find that that no assessment has been made in the hands of the payee in respect of the sums received from the assessee in respect of both the Euro issues. Similarly no proceedings have been taken against him till date for assessing such income. We further find that now 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 assessment 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 the facts and circumstances of the present case, the order passed under section 195 read with section 201(1) or (1A) of the Income-tax Act, 1961 is invalid. Resultantly the impugned order, flowing out of such invalid order, will also meet with the same fate, which is hereby set aside.

IX. On merits

19.1 In the above para we have held that the impugned order is invalid for the reasons stated therein. In such a situation there is no need to dispose of the grounds raised by the assessee on merits. If, however this view adopted by us is reversed by the Hon'ble High Court, in that case the grounds will spring up requiring adjudication on merits. The following discussion will become relevant for determining the liability of the assessee under section 201 only in such eventuality.

19.2 The learned Counsel for the assessee invited our attention towards the payments made to the lead managers in respect of both the issues of GDR/FCCB being management commission, underwriting commission, selling commission and expenses reimbursed as under :—

19.3 The learned A.R. raised a preliminary objection by contending that the liability on the assessee under section 201(1) can arise only if the payment is made to the non-resident. He stated that since no amount was paid to the lead managers inasmuch they deducted their commission from the subscription monies for the GDRs and FCCBs, the assessee cannot be treated as assessee in default. In the absence of having made any payment to the non-resident, the learned A.R. contended that the provisions of section 195(1) will fail. We are not convinced with this submission for the reason that the prescription of section 195(1) extends to deducting tax at source at the time of credit of such income to the account of payee or at the time of payment thereof, whichever is earlier. Undoubtedly when the total commission was retained by the non-resident, the assessee credited their account directly or indirectly. Secondly the retention of the amount by the non-resident will tantamount to the making of payment to them. We are reminded of the celebrated judgment rendered by the Hon'ble Supreme Court in J.B. Boda & Co. (P.) Ltd. v. CBDT [1997] 223 ITR 271/[1996] 89 Taxman 311 . The facts of that case are that the assessee was engaged in the property business as re-insurance-brokers. It was to render services by arranging for the re-insurance of a portion of the risk with various re-insurance companies either directly or through foreign brokers. In respect of the insurance risk, the assessee contacted Sedgwick Offshore Resources Ltd., London, who were brokers in London for placement of re-insurance business. The said London brokers contacted various underwriters. Thereafter the Indian ceding company handed over the total premium to be paid by it to the foreign re-insurance company for onward transmission. When this amount was given to the assessee it approached the Reserve Bank of India with a statement showing amount of foreign currency payable as re-insurance premium to the foreign parties after deducting the amount due to it. The balance amount after deducting the brokerage was remitted to the London brokers. Accordingly the assessee retained its commission. It claimed deduction under section 80-O by contending that the amount of commission retained by it was a receipt of convertible foreign exchange. The revenue did not accept the claim for deduction under section 80-O. The Hon'ble Delhi High Court dismissed the petition filed by the assessee with the following observations : "the case of the Petitioners is that they had remitted about 1 million $ in consideration of certain services which they had conducted on behalf of the foreign company and by way of their fees, they retained the foreign exchange worth 6 lakhs and, therefore, they submitted it falls within the expression 'such income received in convertible foreign exchange in India'. We are afraid, we do not agree with the submission of the learned Counsel for the petitioner. To attract this section, the assessee must receive convertible foreign exchange from abroad. By retaining their fees they are not receiving any foreign exchange in India but only retaining the convertible foreign exchange. We find no merit in the petition and the same is accordingly dismissed." Reversing this judgment the Hon'ble Supreme Court held that the entire transaction effected through the media of the Reserve Bank of India was expressed in foreign exchange and in effect the retention of the fee due to the appellant was in dollars for the services rendered. It was held that the same was receipt of income in convertible foreign exchange and "two way traffic" was unnecessary. It was further observed : "To insist on a formal remittance first and thereafter to receive the commission from the foreign reinsurer, will be an empty formality and a meaningless ritual, on the facts of this case". Coming back to the facts of our case we find that the GDR and FCCB issues were approved by the Government of India. The receipt of net proceeds was also with the concurrence of RBI which impliedly meant that firstly the gross amount was receivable and then later on the commission due was payable. There is no qualitative difference in situation where firstly the gross amount is received and then the amount of commission etc., is remitted and in the situation in which only the net amount is received. In our considered opinion the assessee had not only made the payment of commission to the non-residents but also credited their account and hence the provisions of section 195(1) cannot be held to be inapplicable on such technical issue raised by the learned A.R.

19.4 On the merits of the individual items of payments to the non-resident, it was stated by the ld. AR that Indo-UK DTAA was applicable. Relying on the order passed by the Mumbai Bench of the Tribunal in Raymonds Ltd. v. Dy. CIT [2003] 86 ITD 791 , the learned A.R. contended that the Tribunal, in identical situation, has considered section 9(1)(vii) in juxtaposition to the DTAA with UK and has rendered its conclusion by which it has been held that the services rendered by the lead managers in connection with the GDR issue fall within the definition of "technical services" under section 9(1)(vii) read with Explanation 2 thereto as these services are "managerial" or "consultancy". He submitted that the Tribunal in this case has held that the management commission and selling commission paid to lead managers was deemed to accrue or arise in India and accordingly the assessee-company was liable to deduct tax under section 195(1). Further the underwriting commission was held to be not for "technical services" and the reimbursement of expenses were also considered as not taxable in India under section 9(1)(vii). By considering the provisions of DTAA with UK (1993), the learned A.R. stated that the Tribunal has held that the payments made towards management and selling commission would not require any deduction of tax at source under Article 13.4(c). He stated that in the present case also the Assessing Officer has considered DTAA with U.K. for treating the assessee in default under section 201(1) and hence the same view be considered. He further referred to the order passed in the case of Wokhardt Life Sciences Ltd. (supra) and Century Textile Mills (supra) in which the order passed by the Tribunal in Raymonds Ltd. (supra) has been followed by holding that there is no liability for deduction of tax at source in view of the provisions of DTAA.

19.5 In the opposition the learned D.R. submitted that the leading order passed by the Tribunal in Raymonds Ltd. (supra) has not been accepted by the Department and the Hon'ble Bombay High Court has admitted the appeal against it. He placed on record the copy of the judgment by the Hon'ble Bombay High Court admitting the Departmental appeal. Referring to para 18.8 of the impugned order the learned D.R. contended that the learned CIT(A) had no occasion to consider the provisions of DTAA as in his opinion the assessee by not making any application under section 195(1) or 195(3) impliedly admitted that the management commission paid was taxable. He contended that since in the instant case the learned CIT(A) had not adjudicated on the applicability of DTAA, the Tribunal should also stay away from adjudicating the issue on merits and the matter be sent back for re-examination. He further contended that the DTAA with U.K. does not apply to the payments made by the assessee to the lead managers being Banque Paribas who, in his opinion, was resident of France and the other lead manager namely, Goldman Sachs (Asia) L.L.C. was resident of Hong Kong. For arguing that M/s. Goldman Sachs (Asia) L.L.C. was resident of Hong Kong he referred to the some portion of the order passed by the Tribunal in Raymonds Ltd. (supra). His further contention was that the provisions of DTAA come into play only when the tax residency certificate of the non-resident is provided for enabling the authority to consider the relevant DTAA. He submitted that since both the Banque Paribas and Goldman Sachs (Asia) L.L.C. were not resident of U.K., hence the DTAA with U.K. cannot be considered for deciding the taxability or otherwise of the receipts by the non-resident.

19.6 After considering the rival submissions and perusing the relevant material on record we find that the Assessing Officer has undoubtedly examined the provisions of DTAA between India and U.K. for deciding the taxability or otherwise of the sums paid to the non-resident. The assessee vide its letter dated 6-2-1999, reproduced on pages 9 onwards of the assessment order, categorically stated in para 5.3 that the DTAA between India and U.K. was applicable. The Assessing Officer has also not disputed this fact. He has referred to various Articles of DTAA between India and U.K. at several places of his order viz., para 49, 50, 52, 55 etc. At no stage it has been denied by the Assessing Officer that DTAA between India and U.K. was not applicable. In such a situation it is impermissible for the learned D.R. to come out with a submission contrary to the finding of the Assessing Officer that DTAA with U.K. was not relevant as both the lead managers were residents of countries other than UK. In view of the admission of the Assessing Officer and the further elaboration of the point in the light of DTAA between India and U.K., we cannot permit the learned D.R. to take contrary stand from the one taken by the Assessing Officer. In our considered opinion the learned Departmental Representative has no jurisdiction to go beyond the order passed by the Assessing Officer. He cannot raise any point different from that considered by the Assessing Officer or CIT(A). His scope of arguments is confined to supporting or defending the impugned order. He cannot set up an altogether different case. If the learned D.R. is allowed to take up a new contention de hors the view taken by the Assessing Officer that would mean the learned A.R. stepping into the shoes of the CIT exercising jurisdiction under section 263. We, therefore, do not permit the learned D.R. to transgress the boundaries of his arguments. Similar view has been taken by the Jodhpur Bench of the Tribunal in the case of Kwal Pro Exports v. Asstt. CIT [2008] 110 ITD 59 . This contention is therefore repelled as devoid of any merit.

19.7 The DTAAs are entered into by India with other countries by virtue of the provisions of section 90 for granting relief in respect of income on which tax has been paid under this Act and also in the other country; or Income-tax chargeable under this Act and under the corresponding law in force in that country. It is also for the avoidance of double taxation under the Act and under the corresponding law in force in that other country. Sub-section (2) of section 90 provides that where the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. The country of residence has always the right to tax. The DTAA is always for restricting the taxing rights of the source country. Section 4 is a charging section and section 5 defines the scope of total income. Whereas a resident is liable to tax in India in respect of his world income, a non-resident is liable only in respect of income which is received or deemed to be received in India or which accrues or arises or is deemed to accrue or arise to him in India. Any income accruing or arising to him outside India during such year is beyond the pale of the Act. Section 9 lists certain incomes which shall be deemed to accrue or arise in India. If any item of income falls within any of the clauses of sub-section (1) of section 9, that shall be deemed to accrue or arise in India and will be taxable in the hands of the non-resident under the regular provisions of the Act.

19.8 Once it is determined that a particular income has accrued or arisen to a non-resident in India, then the next step is to examine the provisions of DTAA with the country of which such non-resident is tax resident. If the provisions of DTAA do not permit taxation on income in India, which may otherwise be taxable under the regular provisions of the Act, then the provisions of DTAA shall override the domestic law and the income of the non-resident shall not be charged to tax. Thus a non-resident is taxable in India only if the income is taxable in India as per DTAA with the respective country and is also taxable as per the domestic Income-tax Act. If one exempts the income, there cannot be any tax on such income. It is naturally so because the provisions of sections 4 and 5 are subject to the contrary provisions if any in DTAA. Further it is observed from the language of section 90(2) that the provisions of DTAA shall prevail over the Act and shall act as an exception to or modification to sections 4 and 5. This interpretation has been accepted by the CBDT vide its Circular No. 333 dated 2-4-1982 as has also been so held by the Hon'ble Supreme Court in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 Taxman 373 .

19.9 With this general background in mind we will proceed to determine the nature of payments made by the assessee to the two lead managers who are non-residents. From the details of payments noted above it is found that basically four types of payments were made. First GDR issue was brought out in April 1993 and the other one in July 1996. Here it is important to mention that the Second DTAA between India and U.K. was entered into on 26-10-1993. Article 30 of this DTAA mentions that this Convention shall enter into force on the date of the later of these notifications and shall thereupon have effect in India, in respect of income arising in any fiscal year beginning on or after the first day of April next falling the calendar year in which later of the notifications is given. Hence this DTAA shall apply in respect of income arising in the fiscal year starting from 1-4-1994. Accordingly the second FCCB issue brought out by the assessee in July 1996 will be governed by this Second DTAA between India and U.K. Insofar as the former GDR issue is concerned which was brought out in November 1993, the same will be governed by the former DTAA between India and U.K. issued by notification dated 23-11-1981 (hereinafter called as the first DTAA). We will examine the taxability or otherwise of the four types of payments made for both the Issues with reference to the relevant DTAA between India and U.K.

19.10 First we are taking the FCCB issue brought out in July 1996 which is governed by the Second DTAA between India and U.K. It is observed that the sums paid by the assessee to the non-resident have been held by the lower authorities to be falling within the definition of 'fees for technical services' under section 9(1)(vii). Here it will be relevant to reproduce the relevant part of this provision, which is as under :—

"(vii) income by way of fees for technical services payable by :—

Explanation [2].—For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries"."

19.11 On going through the said definition of income by way of fees for technical services we find that the income falls within the ambit of this section if the person paying such sum is resident. Obviously Mahindra and Mahindra Limited, the assessee in the present case, is a resident. An exception has been carved out in clause (b) under which the amount paid even by the resident shall not be income by way of fees for technical services where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India. Here again we find that there is no dispute about the fact that the assessee carried on its business within India and the services rendered by the lead managers were utilized by the assessee in its business. Explanation 2 gives the meaning of "fees for technical services" as consideration for rendering of any managerial, technical or consultancy services including the provision of services of technical personnel. The exception clause within the Explanation 2 is not applicable as it relates to 'consideration for any construction, assembling, mining or like projects undertaken by the recipient or consideration which is chargeable under the head salaries'. From here it can be seen that the scope of technical services within this clause is not confined only to the technical services but also brings within its fold the managerial or consultancy services. If the services for which the fees is paid is for rendering of either managerial or technical or consultancy services, that will come within the sweep of Explanation 2 and resultantly clause (vii) of section 9(1) will be applicable.

19.12 The word "technical" in the expression 'fees for technical services' has not been defined under section 9(1)(vii) and hence its meaning needs to be ascertained. As per the New Shorter Oxford Dictionary (Thumb Index Edition) the word 'technical' has been defined as 1. Of a person : having knowledge of or expertise in a particular art, science, or other subject. 2. pertaining to, involving, or characteristic of a particular art, science, profession, or occupation, or the applied arts and sciences generally. The word "technical" came up for consideration before the Hon'ble Supreme Court, though in the context of section 80-O. It was held that the Agreement entered into between the assessee and a foreign enterprise whereby the assessee agreed to manage and run the hotel belonging to the latter involved the rendering of technical or professional services. The Hon'ble Andhra Pradesh High Court in the case of G.V.K. Industries Ltd. (supra) had also the occasion to consider the meaning of the term "technical services". In that case also section 9(1)(vii)(b) read with Explanation 2 was involved and it was held that the fees received by the non-resident for offering its services as financial advice to the project fell in "technical services" within the ambit of section 9(1)(vii)(b). In our considered opinion the Assessing Officer was right in terming the services rendered by the lead managers as falling within the purview of managerial technical or consultancy services so as to be considered as "fees for technical services" under Explanation 2 to section 9(1)(vii).

19.13 We have considered the nature of services rendered by the non-resident in an earlier part of this order. Such services commenced prior to the bringing out FCCB issue; and continued during the period when the issue was open for subscription and continued even after its closing. A meticulous look at the nature of such services taken note of above, clearly reveals that these are in the nature of technical, managerial or consultancy services. To be more specific the "management commission" paid by the assessee to the non-resident along with the 'selling commission' is aptly brought within the scope of "fees for technical services". "Underwriting commission" is basically consideration for assuring that if the Issue is not fully subscribed then the underwriters shall take up the un-subscribed portion of the shares and in return for such undertaking, the underwriting commission is paid at a specific percentage of the amount of the total issue. Underwriting commission is only for incurring the liability of subscribing to the un-subscribed portion left over by the general public. The assurance so given for purchasing the un-subscribed shares does hot require rendering of any services by the underwriter. Thus the underwriting commission is de hors the rendering of any managerial, technical or consultancy services and hence cannot fall within the definition of fees for technical services under section 9(1)(vii). The last item is the reimbursement of expenses. The Assessing Officer has not disputed that the sum of Rs. 1.68 crores is in the nature of expenses reimbursed by the assessee to the lead managers. When a particular amount of expenditure is incurred and that sum is reimbursed as such, that cannot be considered as having any part of it in the nature of income. Any payment, in order to be brought within the scope of income by way of fees for technical services under section 9(1)(vii), should be or have at least some element of income in it. Such payment should involve some compensation for the rendering of any services, which can be described as income in the hands of the recipient. In other words the component of income must be present in the total amount of fees paid for technical services to constitute as an item falling under section 9(1)(vii). Where the expenditure incurred is reimbursed as such without having any element of income in the hands of the recipient, it cannot assume the character of income deemed to accrue or arise in India. We, therefore, hold that the amount of "Management commission' in respect of FCCB issue amounting to Rs. 1.62 crores and the 'Selling commission' of Rs. 6.07 crores fall within the scope of income by way of fees for technical services in terms of section 9(1)(vii). However, the other two amounts namely the 'Underwriting commission' at Rs. 2.43 crores and the 'expenses reimbursed' at Rs. 1.68 crores are not income by way of fees for technical services.

19.14 We have discussed above that where DTAA has been entered into by India with another country of which the non-resident is tax resident, then it has to be examined as to whether income, which is otherwise chargeable under the Act in the hands of the non-resident, can be brought to tax as per the terms of DTAA also. If the income is chargeable to tax under the regular provisions of the Act then the second question is to examine the provisions of DTAA and if the same is still taxable under DTAA then the non-resident is liable to tax in respect of such income. If however the DTAA immunes such income from tax net, then that income cannot be taxed notwithstanding the fact that the same is taxable under the general provisions of the Act. Having come to the conclusion that the management commission and selling commission are in the nature of income by way of fees for technical services under section 9(1)(vii) now it remains to be seen whether they can be taxed under the DTAA also.

19.15 We will take up the Second DTAA with U.K., which is relevant to the "FCCB" issue brought in 1996. Article 7 deals with the 'Business profits' and provides that the profits of enterprises of Contracting State shall be taxable only in that State unless the enterprises carries on business in the other contracting State through a permanent establishment situated therein. Article 5(1) defines 'Permanent establishment' for the purpose of this Convention to mean a fixed place of business through which business of an enterprise is wholly or partly carried on. Clause (2) of Article 5 gives the meaning of 'permanent establishment' in an inclusive manner. The learned A.R. has contended that since the non-residents did not have any permanent establishment in India, the commission earned by them from the assessee, which is 'business profit' was not liable to tax. We are not agreeable with this argument. There is no controversy on the legal position that the 'Business profits' under Article 7 can be charged to tax in India only if the non-resident has permanent establishment in India. There is no dearth of the judicial precedents laying down that in the absence of any permanent establishment in India the business profit of the non-resident cannot be taxed in India. But the real controversy before us is about the nature of payment made by the assessee to the non-resident which is in the nature of 'fees for technical services' for which special Article has been included in the Convention. Clause (1) of Article 13 of this DTAA provides that the royalties and fees for technical services arising in a Contracting State and paid to resident of the other Contracting State may be taxed in that other State. On a glance at this Article, it turns out that there is no pre-condition for taxing royalties and fees for technical services in India only to the extent which is attributable to the permanent establishment of the non-resident, as is there in relation to Article 7. So even in the absence of any Permanent establishment of the non-resident, Article 13 operates and royalties or fees for technical services paid to the resident of another contracting State may be taxed in that other State. 'Business profits' Article is a general Article, whereas there are certain separate Articles for treating specific incomes independently. For example income from Air transport is subject matter of Article 8. Shipping is a covered under Article 9. Interest income is specified under Article 12. In the like manner 'Royalties and fees for technical services' is a subject matter of Article 13.

19.16 It is a settled legal position that the specific provisions override the general provision. The legal maxim 'Generalia specialibus non derogant' means that the general things do not derogate from special. In other words, it implies that the special provisions override the general provision. If there are two conflicting provisions in the same section or clause, the special provision will prevail as the same is excluded from the general provision. To put it simple words, if a specific provision is made on a certain subject matter, that matter is excluded from the general provision. The Hon'ble jurisdictional High Court in the case of Forbes Forbes Campbell & Co. Ltd. v. CIT [1994] 206 ITR 495/74 Taxman 268 (Bom.) has quoted the above maxim with approval. It has also been applied by the Hon'ble Madras High Court in the case of Commissioner Of Income-Tax v. Copes Vulcan Inc. [1987] 167 ITR 884/30 Taxman 549 , in which case it was held that section 9(1)(i) is general in nature and section 9(1)(vii) refers to a particular type of income and is a special provision dealing with even for technical services rendered by the foreign company. After considering the arguments from both sides it was held that section 9(1)(vii) would apply. Recently the Hon'ble Supreme Court in the case of Britania Industries Ltd. v. CIT [2005] 278 ITR 546/148 Taxman 468 has held that the expenditure towards rent, repairs, maintenance of guest house used in connection with the business is to be disallowed under section 37(4) because this is a special provision overriding the general provision. It therefore, follows that if a specific provision is made then that matter is excluded from the general provision. Coming back to the DTAA under consideration we find that Article 13 specifically deals with the 'Royalties and fees for technical services'. In such a situation Article 7 dealing with the 'Business profits' cannot be considered for application with respect to the 'fees for technical services' which is subject-matter of Article 13 separately. We will thus ignore the general provision in Article 7 and consider the special provision as contained in Article 13 for our purpose. Clause (2) of Article 13 provides that the royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to law of that State; but if the beneficial owner of the royalties or fees for technical services is the resident of the other Contracting State, the tax so charged shall not exceed the limits set out therein. Article 13(4) defines the term "fees for technical services" to mean payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services of technical services or other personnel) which :

19.17 The case of the assessee before the Assessing Officer was that it is covered by (c) above, which fact has not been denied by the Officer. Hence to bring any payment within the parameters of fees for technical services it is of paramount importance that the technical knowledge, experience or skill etc., is made available to it. Referring to the order passed by the Tribunal in Raymonds Ltd.'s case (supra) the learned A.R. stated that the Mumbai Bench also considered the DTAA with U.K. and held that the technical services rendered by the lead managers in connection with the GDR issue must be made available so as to be covered under Article 13. He submitted that the Tribunal held that since the services were not made available hence the management and selling commission could not be taxed in the hands of the payee. He argued that the facts and circumstances considered in Raymonds Ltd. are identical to those under consideration inasmuch as in that case also GDR issue was brought out and lead managers were appointed who were paid for similar services, in the similar manner. He also referred to certain cases in which the order in the case of Raymonds Ltd. case (supra) has been followed by different benches of the Tribunal taking the similar view.

19.18 We have considered the rival submissions in the light of material placed before us and precedents relied upon. We find that clauses (1) and (2) of Article 13 in the DTAA with U.K. clearly provide that the fees for technical services is taxable in India. Now we have to consider the meaning of the term "fees for technical services" as employed in this Article. As noted above clause (4) of Article 13 defines the meaning of the term "fees for technical services". The entire quarrel is about the applicability or otherwise of sub-clause (c) of clause 4 of Article 13 as per which fees for making available of the technical knowledge, experience, skill etc., is included in the definition of this sub-clause. In other words the technical knowledge, experience or skill etc., must be made available to the assessee so as to be covered within its scope and mere providing of such services without making them available to the assessee will not serve the purpose and hence will be outside the ambit of Article. The assessee has ab initio contended before the authorities below that even if the services rendered by the lead managers were held to be technical services but those were not "made available" to the assessee. "Rendering of any technical or consultancy services" is followed by "which make available technical knowledge, experience, skill, know-how". In this context it becomes imperative to understand the meaning of the expression "make available" as used in this Article. Make available means to provide something to one, which is capable of use by the other. Such use may be for once only or on a continuous basis. In our context to make available the technical services means that such technical information or advice is transmitted by the non-resident to the assessee, which remains at its disposal for taking the benefit there from by use. Even the use of such technical services by the recipient for once only will satisfy the test of making available the technical services to the assessee. If the non-resident uses all the technical services at its own end, albeit the benefit of that directly and solely flows to the payer of the services, that cannot be characterized as the making available of the technical services to the recipient.

19.19 The meaning of the expression "make available" has been aptly considered in the case of Intertek Testing Services India (P.) Ltd., In re [2008] 307 ITR 418/175 Taxman 375 (AAR - New Delhi) as under :—

"Now, we shall proceed to analyse further clause (c) of article 13(4). Rendering of service and making use of service go together. They are two sides of the same coin. But clause (c) of article 13(4) does not stop at that. It carves out a qualification thereto by employing the words "which make available technical experience, skill, know-how or processes". Rendering technical or consultancy service is followed by a relative pronoun "which" and it has the effect of qualifying the services. That means, the technical or consultancy service rendered should be of such a nature that "make available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting the technical knowledge, etc., so that the payer of service could derive an enduring benefit and utilize the knowledge or know-how in future on his own without the aid of the service provider. By making, available the technical skills or know-how, the recipient of the service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into the terminology "make available", the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be the product of intense technological effort and a lot of technical knowledge and experience of the service provider would have gone into it. But that is not enough to fall within the description of services which make available the technical knowledge, etc. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in future without depending on the provider. Taking some examples, the training given to a commercial aircraft pilot or training the staff in particular skills such as software development would fall within the ambit of the said expression in clause (c). Supposing, a prescription and advice is given by the doctor after examining the patient and going through the clinical reports. The service rendered by the doctor cannot be said to have made available to the patient, the knowledge and expertise possessed By the doctor. On the other hand, if the same doctor teaches or trains students on the aspects of diagnosis or techniques of surgery, that will amount to making available the technical knowledge and experience of the doctor."

19.20 Similar view has been taken in the case of Raymonds Ltd. (supra). It, therefore, follows that making available the technical services to the recipient is sine qua non for treating consideration paid for it as fees for technical services under Article 13 of DTAA with U.K. Adverting to the facts of the instant case we find that the lead managers had rendered technical, managerial or consultancy services in the GDR issue, but such services were not made available to the assessee inasmuch as the assessee only derived the benefit from the technical services provided by the lead managers without getting any technical knowledge, experience or skill in its possession for use at its own. We, therefore, hold that Article 13 of DTAA with U.K. does not apply to the instant case and hence the 'management and selling commission' cannot be taxed in India. The other two items namely underwriting commission and expenses reimbursed have already been held by us to be not in the nature of fees for technical services. If the underwriting commission does not fall within Article 13 of DTAA with U.K., then that will fall within the scope of Article 7, being the 'Business profit' which is a general provision for the income earned. It is a settled legal position and also clearly borne out from the language of Article 7 that the profits of an enterprise which carries on business in the other State shall be taxed only to the extent which is attributable to its Permanent establishment. The assessee argued before the Assessing Officer that the non-resident had no permanent establishment in India, which has not been contradicted by the Assessing Officer. Nowhere from the assessment order it comes up that the Assessing Officer had treated any place as permanent establishment of the non-resident. In the absence of any permanent establishment of the non-resident in India, in our considered opinion, the 'Business profits' under Article 7 cannot be charged to tax and hence underwriting commission would also be outside the ambit of tax as per DTAA. Thus the entire amount paid by the assessee in relation to the FCCB issue, viz., management, selling and underwriting commission along with the reimbursement of expenses cannot be taxed in the hands of the non-resident and resultantly there can be no obligation on the assessee to deduct tax at source under section 195. Resultantly the assessee cannot be treated as "assessee in default" under section 201(1) of the Act.

19.21 Coming to the first GDR issue which was brought out in 1993 we have already held that the First DTAA between India and U.K. shall be applicable. Now we need to examine the provisions of this DTAA for evaluating the taxability or otherwise of the management commission, underwriting commission, selling commission and expenses reimbursed. We have held supra that the underwriting commission does not come within the purview of "fees for technical services" as it does not involve the rendering of any managerial, technical or consultancy services. In the absence of any permanent establishment of the non-residents in India, such underwriting commission cannot be taxed under the Article of 'Business profit'. Similarly the expenses reimbursed also cannot partake of the character of income which could be deemed to accrue or arise in India as there is no income element in such reimbursement. The remaining two items are the 'management commission' of Rs. 1.40 crores and 'selling commission' of Rs. 4.69 crores. We have held that these two items are covered under section 9(1)(vii) read with Explanation 2 and hence are deemed to accrue or arise in India to the non-resident. The learned A.R. fairly conceded that the definition of income by way of 'fees for technical services' under section 9(1)(vii) read with Explanation 2 has been identically incorporated in Article 13 of the First DTAA with UK. We observe that the concept of making available technical knowledge experience skill etc., as introduced in Article 13(4)(c) of the Second DTAA, is missing in the former Treaty. It is only due to the not making available of the managerial, technical or consultancy services by the lead managers to the assessee that we have held that the payments would go out of purview of Article. 13 of the Second DTAA. Since in the First Treaty with UK, there is no such requirement of making available the technical knowledge etc., and the term Royalty and fees for technical services has been defined in the same way in which it has been explained in section 9(1)(vii) as conceded by the learned A.R. also, we are of the considered opinion that the amount of 'management commission' and 'selling commission' paid to the non-residents are liable to tax in India. Resultantly the obligation for deduction of tax at source under section 195 is there and non-deduction of such tax amounts to treating the assessee in default under section 201(1) pro tanto. Be that as it may, we have already held above that in the absence of any assessment having been made on the payee and further the time limit for making assessment having expired, the non-resident cannot be charged to tax in respect of the income earned from the assessee as a result of which the assessee cannot be treated as assessee in default under section 201(1) or (1A) of the Act.

20. We sum up the conclusion as under :—

21. Before parting with these appeals, it is made clear that all the cases relied on by both the sides have been duly taken into consideration while deciding the issues. The reference to some of the cases in the order is avoided either due to their irrelevance or to relieve the order from the burden of the repetitive ratio decidendi laid down in such decisions. We place on record our appreciation for the enlightening arguments put forth by the learned ARs and the ld. Senior DR, which have enabled us to dispose of the issue raised in these appeals.

In the result the surviving two appeals are allowed.