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2013 DIGILAW 500 (KAR)

IBM India (P) Ltd. v. Income Tax Officer

2013-04-10

RAM MOHAN REDDY

body2013
ORDER Ram Mohan Reddy, J.—Petitioner, an assessee has called in question the legality and validity of the order dt. 25th Feb., 2013 Annex. F of the 1st respondent on the premise of being without jurisdiction and barred by limitation and to declare the initiation of proceeding under ss. 201(1) and 201(1A) of the IT Act, 1961, in respect of returns for the financial years 2009-10, 2010-11 and 2011-12 insofar as TDS from payments made to non-residents, as without jurisdiction, while TDS from payments made to residents for the period 1st April, 2009 to 31st Dec, 2009 as barred by limitation. Petitioner engaged in the business of hardware and software is said to have made payments, to both residents and non-residents during the financial years 2009-10 to 2011-12 and having deducted tax at source under the provisions of Chapter XVII-B of the IT Act, 1961, for short 'Act;' credited it to the Central Government by filing quarterly statement of tax deduction in terms of s. 200 of the Act. According to the petitioner few expenses which did not qualify for tax deduction at source, for short TDS, since being a mere provision, without bills from the vendors, or where it could not deduct tax at the time of payment, petitioner made disallowances of the said sums and added it to the total income subsequently, under ss. 40(a)(i) and 40(a)(ia) of the Act and claimed deduction from payment in the subsequent year after due payment of TDS, to the credit of the Central Government, which included payments made to residents and non-residents in respect of which tax was required to be deducted under s. 195 of the Act. Petitioner asserts that quarterly statements in that regard when filed were duly processed and intimation issued under s. 200A of the Act. 2. The 1st respondent--ITO large taxpayer unit (LTU) is said to have issued notice dt. 30th Jan, 2013 Annex. A calling upon the petitioner to furnish its computation of income and other particulars in view of proceeding initiated under s. 201 of the Act, which was responded to at the first instance by letter dt. 8th Feb., 2013 Annex. B seeking sometime and thereafterwards by letter dt. 12th Feb., 2013 Annex. C seeking reasons for initiating proceeding under s. 201 of the Act and contending that proceedings for the financial year 2009-10 was barred by limitation, while seeking an opportunity of hearing. 8th Feb., 2013 Annex. B seeking sometime and thereafterwards by letter dt. 12th Feb., 2013 Annex. C seeking reasons for initiating proceeding under s. 201 of the Act and contending that proceedings for the financial year 2009-10 was barred by limitation, while seeking an opportunity of hearing. 3. It is the allegation of the petitioner that the 1st respondent without considering the said request, issued another notice dt. 15th Feb., 2013 Annex. D requiring the petitioner to furnish the details sought for, as also details of provision/disallowance made under s. 40(a)(i)/40(a)(ai) and the reversal of the entries after making payment of the TDS. Petitioner further asserts that the information sought for is disallowance in relation to payments made outside India or to non-residents on which tax is to be deducted at source in respect of which the 1st respondent had no jurisdiction, since specifically conferred upon the Director of IT (International Taxation) which fact was brought to the notice of the 1st respondent by letter dt. 22nd Feb, 2013 Annex. E. 4. It is the further allegation of the petitioner that without extending an opportunity of hearing, the 1st respondent overruled the objections over jurisdiction on the premise of having processed the returns in LTU, hence jurisdiction over payments made to non-residents without adverting to the objection over limitation, though two years had lapsed from the financial year 2009-10 i.e. 1st April, 2009 to 31st Dec, 2009, in terms of s. 201(3) of the Act and proposed to levy interest under ss. 201(1) and 201(1A) of the Act on the disallowances under s. 40(a)(i)/40(a)(ia) following the orders for the financial years 2005-06 to 2008-09, while directing the petitioner to file relevant information if the situation was different in the financial years 2009-10 to 2011-12 by order dt. 25th Feb., 2013 Annex. F. 5. According to the petitioner the jurisdiction of various authorities under the Act is set out in the Notification No. 263 , dt. 14th Sept., 2011 Annex. G of the CBDT investing jurisdiction in the Director of IT (International Taxation) in relation to TDS under s. 195 of the Act from payments made to non-residents and foreign companies while Notification No. 277 confers jurisdiction on the CIT(LTU) and his subordinates. 14th Sept., 2011 Annex. G of the CBDT investing jurisdiction in the Director of IT (International Taxation) in relation to TDS under s. 195 of the Act from payments made to non-residents and foreign companies while Notification No. 277 confers jurisdiction on the CIT(LTU) and his subordinates. Petitioner states that the 1st respondent on an earlier occasion, in respect of payments made to non-residents for the financial year 2010-11 declined to exercise jurisdiction to stay a demand arising therefrom Annex. J. Hence these petitions. 6. Petitions are opposed by filing statement of objections of the respondents inter alia contending that the petitioner made payments without effecting TDS for the asst. yrs. 2006-07, 2007-08, 2008-09 and 2009-10, a default, which when noticed by the AO led to show-cause notices, eliciting replies followed by orders of even date 28th Aug., 2011 Annexs. R1 to R4, invoking ss. 201(1) and 201(1A) of the Act. The orders when carried in appeals, the CIT(A) by order dt. 30th March, 2012 Annex. R5 affirmed the orders, by dismissing the appeals. 7. Petitioner preferred further appeals before Tribunal, Bangalore on grounds set out in Annexs. R6 to R9. According to the respondents, the AO having noticed similar such defaults committed by the petitioner for the asst. yrs. 2010-11, 2011-12, 2012-13 issued show-cause notices to which petitioner objected on grounds of both jurisdiction and limitation. 8. At para 3 it is stated that the Ministry of Finance constituted a single window clearance point for all matters relating to central excise, income-tax, corporate tax/service-tax, called large taxpayers unit (LTU). under a scheme Annex. R13. The notification in that regard permitted an assessee paying a certain quantum of tax to opt for utilising the services under the LTU, which option the petitioner exercised by filing the required application in Form, Annex. R10, following which the case was transferred from Range-11 by order dt. 7th Nov., 2007 Annex. R11. The notification Annex. R12 is said to be over jurisdiction of the authorities under Chapters XVII-B and XVII-BB of the Act. 9. R10, following which the case was transferred from Range-11 by order dt. 7th Nov., 2007 Annex. R11. The notification Annex. R12 is said to be over jurisdiction of the authorities under Chapters XVII-B and XVII-BB of the Act. 9. in the circumstances, it is contended that the jurisdiction over issues relating to Chapters XVII-B and XVII-BB of the Act in respect of petitioner was vested with the 1st respondent ITO(LTU), since TAN of the petitioner remained with LTU and as the statements filed in Form No. 27Q were not appearing in the system which on verification when found to be with the Director of IT (International Taxation), were transferred to LTU during May, 2012. Thereafterwards for the fourth quarter of the financial year 2011-12, in respect of Form No. 27Q rectification order was passed on 15th Oct., 2012, while in respect of Form No. 27Q for the fourth quarter of the financial year 2010-11. intimation under s. 200A of the Act, it is said, was generated on 17th Jan., 2013. Lastly it is contended that the proceeding initiated for the financial year 2009-10 is not barred by time. 10. Having heard the learned counsel for the parties, perused the pleadings and examined the order Annex. F, the following questions arise for decision making: (i) Whether in terms of the Notification No. 70 : dt. 3rd Sept., 2010 Annex. GEND the Director of IT (International Taxation) had jurisdiction to process the returns filed by the petitioner in Form No. 27Q relating to TDS from payments made to non-residents and Form No. 26Q in relating to residents? or (ii) Whether it was the ITO(LTU) invested with the jurisdiction under Notification No. 277 on the exercise of option by the petitioner in the form enclosed to the letter Annex. R10, under the scheme Annex. R13? (iii) Whether in the factual matrix the order Annex. F is invalid as contended by the petitioner on the premise that the ITO(LTU) did not have jurisdiction to initiate proceeding under s. 201(1A) of the Act for the financial years 2009-10 to 2011-12 in respect of TDS returns from payments made to non-residents? (iv) Whether the initiation of proceedings by the ITO(LTU) over returns of TDS from payments made to residents from 1st April, 2009 to 31st Dec, 2009 is barred by limitation? 11. (iv) Whether the initiation of proceedings by the ITO(LTU) over returns of TDS from payments made to residents from 1st April, 2009 to 31st Dec, 2009 is barred by limitation? 11. In order to appreciate the contentions of the learned counsel for the parties, it is useful to extract the relevant portion of the notifications Annex. G. Serial No. 5 of the Direct Tax Notification No. 263, dt. 14th Sept., 2011 [sic-2001] [S.O. 881(E)] [ (2001) 170 CTR (St) 3] issued by the CBDT invoking sub-ss. (1) and (2) of s. 120 of the Act, in supersession of such earlier notification, invested jurisdiction in the Director of IT (International Taxation), in respect of persons being non-residents including foreign companies, in the matter of TDS under ss. 194B, 195, 196A, 196B, 196C, 196D and 197 of the Act and reads thus: 12. This notification was substituted by Direct Tax Notification No. 250 which reads thus: 13. This notification was substituted by Direct Tax Notification No. 70 which reads thus: 14. The aforesaid notifications, therefore, indicate that the Director of IT (International Taxation), Bangalore is invested with all functions and powers relating to TDS under ss. 194E, 195, 196A, 196B, 196C, 196D and 197 of the Act, in respect of: (a) persons being non-residents including foreign companies within the meaning of sub-s. (23A) of s. 2 of the Act and having a PE in terms of the applicable DTAA, in the States of Karnataka, Goa and Andhra Pradesh having a business connection or having any source of income accruing or arising or deemed to be accruing or arising in the areas mentioned; (b) persons being other than companies deriving income from sources other than income from business or profession and residing in the said areas; (c) persons being other than companies deriving income from business or profession and whose principal place of business is within the aforesaid areas; (d) persons being companies registered under the Companies Act, 1956 and having registered office or principal place of business in the aforesaid areas; (e) any other person responsible for deducting tax at source under Chapter XVII or XVII-B of the Act within the aforesaid areas. Thus, the notification supra invests a jurisdiction in the officer of IT Department to assess TDS returns in respect of payments made to nonresidents with a view to centralize and monitor such returns by the officer, as submitted by the senior counsel for the petitioner. 15. Serial No. 1 of the Direct Tax Notification No. 277 issued by the CBDT exercising jurisdiction under sub-ss. (1) and (2) of s. 120 of the Act reads thus: In the notification Annex. H, the CIT(LTU) is invested with the jurisdiction to try all cases assigned under s. 127 of the Act from the jurisdiction of the Chief CIT-I, Bangalore (other than District of Tumkur) and Chief CIT-II, Bangalore (other than District of Kolar) in which consent form for opting the large taxpayer unit scheme is given and in which the payments have been made in the financial year 2004-05 or any subsequent financial years towards: (a) duties of excise in cash/current account of Rs. 5 crores or more under the Central Excise Act, 1944; or (b) Service-tax in cash/current account of Rs. 5 crores or more under the Finance Act, 1994 r/w Service-tax Rules; (c) Advance tax of Rs. 10 crores or more under the Act, 1961. 16. The scheme referred to in the notification Annex. H is said to be at Annex. R13 relating to functions, structure and procedure, the relevant portion of which at cl. (ix) reads thus: (ix) TDS returns: All companies are presently filing the quarterly TDS statements and the annual TDS returns electronically through the designated intermediary. The same system would continue after they join the LTU. However, jurisdiction over the TDS returns would shift from the local Commissionerates to the LTU. 17. The notification dt. 25th Oct., 2006 Annex. R12 states that pursuant to the Board's Notification No. 277, the CIT(LTU) exercising power under s. 120 of the Act directs the ITO(TDS) (LTU), Bangalore, to exercise powers and perform functions of an AO under Chapters XVII and XVII-B of the Act, in respect of cases assigned under s. 127 of the Act coming within his jurisdiction. 18. In terms of the scheme petitioner submitted its consent in the prescribed form enclosed to the letter dt. 30th July, 2007 Annex. R10 indicating thus: (a) IT return against PAN AAAC14403L is filed before the Addl. CIT, Range-11; (b) TAN BLR100560A and TDS returns under ss. 18. In terms of the scheme petitioner submitted its consent in the prescribed form enclosed to the letter dt. 30th July, 2007 Annex. R10 indicating thus: (a) IT return against PAN AAAC14403L is filed before the Addl. CIT, Range-11; (b) TAN BLR100560A and TDS returns under ss. 194C, 194H, 194-I, 194J and 195 are filed before Dy. CIT, Circle-16. 19. The CIT, Bangalore exercising jurisdiction under sub-s. (2) of s. 127 of the Act transferred the case of the petitioner with PAN AAAC14403L from Addl. CIT, Circle-11(4), Bangalore to Dy. CIT (LTU), Bangalore. 20. Admittedly, the Director of IT (International Taxation) assessed the TDS returns filed by the petitioner in Form No. 27Q in respect of TDS from the payments made to non-residents for the asst. yrs. 2006-07 to 2011-12 and passed an order dt. 14th Sept., 2012, exercising a jurisdiction under Notification No. 70, dt. 3rd Sept., 2010 which is not objected to by the Department and is presently subject-matter of appeal pending before the CIT(A) and therefore, it cannot be said that the order suffers from lack of jurisdiction. I say so because to a question of this Court as to how the said Director of IT (International Taxation) invoked the jurisdiction which the IT Department had permitted despite the petitioner's consent, learned counsel for the Revenue submits that there has been a mistake. If that is so, the mistake has not been corrected till date and therefore, the assessments by the Director of IT (International Taxation) cannot be said to be either illegal or one without jurisdiction. 21. Indeed, the ITO(LTU) having processed petitioner's returns for the asst. yrs. 2006-07 through to 2009-10, passed orders of even date 28th March, 2011 Annexs. R1 to R4 which are carried in appeal before the Tribunal on the premise of jurisdiction of the officer to assess the returns filed in Form No. 26Q in respect of residents and Form No. 27Q in respect of non-residents. 22. The Director of IT (International Taxation) having exercised a jurisdiction vested in him in respect of TDS returns, since not transferred under the order dt. 7th Nov., 2007, Annex. R11, the ITO-LTU was not invested with the jurisdiction to process the TDS returns filed by the petitioner in Form No. 27Q relating to non-residents. 23. Petitioner though extended its consent by filing the form prescribed, Annex. 7th Nov., 2007, Annex. R11, the ITO-LTU was not invested with the jurisdiction to process the TDS returns filed by the petitioner in Form No. 27Q relating to non-residents. 23. Petitioner though extended its consent by filing the form prescribed, Annex. R10, to be administered under the large taxpayer unit by furnishing details of the returns with registration number and TAN allotted in respect of TDS returns and statement filed with the Director of IT (International Taxation) having jurisdiction, in terms of the scheme Annex. R13, however the order dt. 7th Nov., 2007 Annex. R11 makes reference to a transfer of the case relating to PAN of the petitioner to the Dy. CIT-(LTU), Bangalore but makes no mention of TAN in respect of returns and statements of TDS from payments made to both nonresidents and residents. In the light of the notification Annex. H investing a jurisdiction in ITO(LTU) consequent upon the consent of the petitioner in terms of the scheme, Annex. R13, it is impermissible to accept the submission of the learned senior counsel that in terms of the Notification No. 70 dt. 3rd Sept., 2010 Annex. G, it is the Director of IT (International Taxation) who alone has jurisdiction over returns filed by the petitioner in Form No. 27Q relating to TDS from payments to non-residents. 24. It may be true that the Director of IT (International Taxation) has all the information relating to TDS deduction from payment made to nonresidents with a view to make cross-reference with those non-residents, since it is the case of the respondents that only in the month of May, 2012 that the statements available with the Director of IT (International Taxation) pertaining to the petitioner were transferred to the ITO(LTU). Hence, it is too far-fetched to contend that the Notification No. 70 dt. 3rd Sept., 2010 Annex. G provides for exclusion of the jurisdiction of the ITO(LTU) in respect of TDS from payments made to non-residents. The notification, Annex. H is in force without substitution, modification or reference to the notification Annex. G. In the circumstances, the submission that the jurisdiction of the ITO(LTU) stood denuded on coming into force of the Notification No. 70 dt. 3rd Sept., 2010, in respect of returns filed in Form No. 27Q over TDS from payments made to non-residents is unacceptable. 25. H is in force without substitution, modification or reference to the notification Annex. G. In the circumstances, the submission that the jurisdiction of the ITO(LTU) stood denuded on coming into force of the Notification No. 70 dt. 3rd Sept., 2010, in respect of returns filed in Form No. 27Q over TDS from payments made to non-residents is unacceptable. 25. In the view taken supra, it is but axiomatic that the Director of IT (International Taxation) having processed the returns for the years 2006-07 to 2011-12, in Form No. 27Q in respect of TDS from payments made to non-residents, and orders passed on 14th Sept., 2012 exercising jurisdiction under Notification No. 70 , dt. 3rd Sept., 2010 Annex. GEND (though said to be a mistake according to counsel for the Revenue), the ITO(LTU) did have no jurisdiction to process the very same returns. In other words, no two officers can process the returns filed by the petitioner in respect of TDS from payments made to non-residents and hence the orders, Annexs. R1 to R4 of the ITO(LTU), though not called in question in this petition, insofar as they relate to returns in Form No. 27Q pertaining to TDS from payments made to non-residents stand annulled. Sequentially the show-cause notice Annex. A issued by the ITO(LTU) calling upon the petitioner to furnish information over the returns in Form No. 27Q for the years 2009-10 to 2011-12 is one without jurisdiction. 26. The questions formulated at (i) to (iii) supra, are answered accordingly. The question No. (iv) being a mixed question of law and fact is left open for consideration by the authority concerned, regard being had to s. 201(3) of the Act. In the result, these petitions are allowed in part. The show-cause notice, Annex. A followed by the order dt. 25th Feb., 2013 Annex. F of the 1st respondent in respect of financial years 2009-10 to 2011-12 insofar as returns in Form No. 27Q over TDS from payments made to non-residents is quashed. It is hereby declared that the proceedings initiated by the 1st respondent under ss. 201(1) and 201(1A) of the Act in respect of the aforesaid returns are without jurisdiction.