1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 24TH DAY OF AUGUST 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.166 OF 2011 C/W I.T.A. NO.148 OF 2011 I.T.A. NO.166 OF 2011 BETWEEN: 1. DIRECTOR OF INCOME-TAX INTERNATIONAL TAXATION RASHTROTHANA BHAVAN NRUPATHUNGA ROAD BANGALORE. 2. INCOME-TAX OFFICER INTERNATIONAL TAXATION, WARD1(1) RASHTROTHANA BHAVAN NRUPATHUNGA ROAD, BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: EXECUTIVE ENGINEER NO.1, CAUVERY DIVISION M/S. BANGALORE WATER SUPPLY AND SEWERAGE BOARD NO.720, 46TH CROSS, 8TH BLOCK JAYANAGAR, BANGALORE-560070. ... RESPONDENT 2 (BY SRI. A. SHANKAR, SR. COUNSEL, A/W SRI. B.S. BALACHANDRAN AND SRI. ANKUR PAI, ADVS.) --- THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961, ARISING OUT F ORDER DATED 04.01.2011 PASSED IN ITA NO.1067/BANG/2008, FOR ASSESSMENT YEAR 2000-01, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: (I) FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (I) ALLOW APPEAL AND SET ASIDE ORDERS PASSED BY ITAT, BANGALORE IN ITA NO.1067/BANG/2008 DATED 04-01-2011 AND CONFIRM ORDER OF APPELLATE COMMISSIONER CONFIRMING ORDER PASSED BY INCOME TAX OFFICER, INTERNATIONAL TAXATION, WARD-1(1), BANGALORE IN INTEREST OF JUSTICE AND EQUITY. I.T.A. NO.148 OF 2011 BETWEEN: M/S. BANGALORE WATER SUPPLY AND SEWERAGE BOARD 1ST FLOOR, KAVERI BHAVAN KEMPE GOWDA ROAD, BANGALORE-560009 REP. BY ITS FA AND CAO SRI. C.V. PRASAD, MAJOR S/O SRI. LATE CHITTETY A. ... APPELLANT (BY SRI. A. SHANKAR, SR. COUNSEL, A/W SRI. B.S. BALACHANDRAN AND SRI. ANKUR PAI, ADVS.) AND: INCOME TAX OFFICER INTERNATIONAL TAXATION WARD 19(1), No.14/3, R.P. BHAVAN NRUPATUNGA ROAD, BANGALORE-560001. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) --- THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961, ARISING OUT F ORDER DATED 04.01.2011 PASSED IN ITA NOs.1065 TO 1067/BANG/2008 FOR ASSESSMENT YEAR 3 2000-01 TO 2002-03, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: (I) FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (I) ALLOW APPEAL AND SET ASIDE ORDER OF APPELLATE TRIBUNAL DATED 04-01-2011 IN ITA NOs.1065 TO 1067/BANG/2008, IN INTEREST OF JUSTICE AND EQUITY. THESE ITAs COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: COMMON JUDGMENT I.T.A.No.166/2011 under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) has been preferred by revenue, whereas, I.T.A.No.148/2011 has been preferred by assessee. Since, both appeals arise out of common order passed by Income Tax Appellate Tribunal (hereinafter referred to as Tribunal , for short) and on account of similarity of substantial questions of law involved in these appeals, they were heard together and are being decided by this common judgment. I.T.A.No.148/2011 pertains to Assessment years 2000-01 to 2002-03, whereas, I.T.A.No.166/2011 pertains to Assessment year 2000-01. 4 2. I.T.A.No.166/2011 was admitted by bench of this Court vide order dated 30.01.2012 on following substantial questions of law: (i) Whether Tribunal was right in holding that initiation of proceedings under Section 201(1) and 201(1A) of Act is beyond period of six years of short deduction is above one lakh as in this case, then same would be barred by limitation as held in case of M/S MAHENDRA & MAHENDRA, (2002) 122 TTJ (MUM) (SB) 577 and decision of Delhi High Court in case of CIT VS. NHK JAPAN BROADCASTING CORPORATION, (2008) 305 ITR 137? (ii) Whether Tribunal was correct in proceeding to lay down period of limitation for initiation of proceedings under Section 201(1) of Act when legislation has specifically omitted such period prescribed under earlier Section 231 of Act and Section 201(3) of Act proviso clearly provide that in respect of any financial year 5 commencing on or before 1.04.2007 can be passed on or before 31.03.2011? 3. I.T.A.No.148/2011 was admitted by bench of this court vide order dated 29.08.2011 on following substantial question of law: (i) What is reasonable time within which proceedings have to be initiated under Section 201(1) of Income Tax Act, as during relevant period, statute did not prescribe any period of limitation? 4. Facts leading to filing of these appeals briefly stated are that assessee is Government of Karnataka undertaking, which is constituted under Bangalore Water Supply and Sewerage Act, 1964 to make provision for supply, sewerage and sewage deposited in Bangalore Metropolitan Area and matters connected therewith. assessee implemented and commissioned Cauvery Stage I, II and III water supply projects and in order to meet growing demand for water, assessee envisaged project 6 called Cauvery Stage IV to draw 270 litres of water per day from Cauvery River. In order to get benefit of consultancy services of International Standards, assessee floated global tenders and contract for Stage I project was awarded to Consortium, consisting of two companies and agreement was executed on 29.11.1996 as per which maximum charges payable for consultancy services were Rs.19,64,71,161/-. Thereafter, supplementary agreement was executed on 29.03.2002 for enhanced charges. For Assessment years 1998-99 to 2005-06, assessee remitted tax deducted at source at rate of 30% as amount paid was in nature of fee for technical services payable by State Government in pursuance of agreement. 5. Assessing Officer by order dated 21.11.2006 for all years under dispute held that assessee was required to remit tax at rate of 48% for financial years upto 2001-2002 (Assessment 7 years 2002-03) and at rate of 40% for subsequent years on ground that consultant had permanent establishment in India and therefore, payment would be subject to tax at maximum rate of 40% applicable to any foreign company and assessee action in remitting tax at rate of 40% had resulted in short remittance. assessee was held as assessee in default in terms of Section 201(1) of Act and demand was also made for interest as per Section 201(1A) of Act. Accordingly, sum of Rs.3,81,21,797/- was demanded towards short deduction and demand for sum of Rs.2,92,92,842/- was made on account of interest for all years. Being aggrieved, assessee filed appeal. 6. Commissioner of Income Tax (Appeals) by order dated 13.11.2007 dismissed appeal. assessee thereupon approached Income Tax Appellate Tribunal. Tribunal by order dated 04.01.2011 inter alia held that period of limitation for 8 initiating proceedings under Section 201(1) and 201(1A) of Act is four years from end of relevant Assessment years, where tax deducted is less than Rs.1 Lakh and if it is more than Rs.1 Lakh period of limitation would be six years. Tribunal accordingly directed Assessing Officer to verify period of limitation in aforesaid case and where limitation of proceeding is after six years from end of relevant Assessment years, said proceedings were held to be quashed. In aforesaid factual background, assessee as well as revenue have approached this court by filing these appeals. 7. Learned counsel for revenue submitted that no time limit can be prescribed for initiation of proceeding where statute does not provide same. It is further submitted that in any case, it should be held to be six years. On other hand, learned Senior counsel for assessee has held that issue with regard to limitation for initiation of proceeding 9 under Section 201(1) and 201(1A) of Act is no longer res integra. In this connection, reliance has been placed on decision of Supreme Court in STATE OF PUNJAB V. BHATINDA DISTRICT COOPERATIVE MILK PRODUCERS UNIION LTD. , (2007) 11 SCC 363 as well as decision of this court in CIT VS. BHARAT HOTELS LTD., , 384 ITR 77 (KARNATAKA), decisions of Delhi High Court in CIT V. NHK JAPAN BROADCASTING CORPORATION , 305 ITR 137 (DELHI), BHARTI AIRTEL LTD VS. UOI , 245 TAXMAN 80 (DELHI), CIT VS. CJ INTERNATIONAL HOTELS (P) LTD , 372 ITR 684 (DELHI), decision of Andhra Pradesh High Court in CIT V. UB ELECTRONIC INSTRUMENTS LTD , 371 ITR 314 (ANDHRA PRADESH), decision of Bombay High Court in DIT VS. MAHINDRA AND MAHINDRA , 365 ITR 560 (BOMBAY) and decision of High Court of Himachal Pradesh in CIT V SATLUJ JAL VIDYUT NIGAM LTD , 345 ITR 552 (HIMACHAL PRADESH). 10 8. We have considered submissions made by learned counsel on both sides and have perused record. seminal issue, which arises for consideration in these appeals is with regard to reasonable period of limitation for initiation of proceeding under Section 201(1) and 201(1A) of Act. It is not in dispute that for relevant Assessment years i.e., 2000-01 to 2002-03, proceedings were initiated after period of four years. aforesaid issue is no longer res integra. Supreme Court in BHATINDA DISTRICT COOPERATIVE MILK PRODUCERS UNION LTD., (supra) has held as follows: 18. Insofar as Income-Tax Act is concerned, our attention has been drawn to S.153(1)(a) thereof which prescribes time limit for completing assessment, which is two years from end of Assessment year in which income was first assessable. It is well known that Assessment year follows previous year 11 and, therefore, time limit would be three years from end of financial years. This seems to be reasonable period as accepted under Section 153 of Act, through for completion of assessment proceedings. provisions of reassessment are under Sections 147 and 148 of Act and they are on completely differing footing and, therefore, do not merit consideration for purpose of this case. 19. Even though period of three years would be reasonable period as prescribed under Section 153 of Act for completion of proceedings, we have been told that Income Tax Appellate Tribunal has, in series of decisions, some of which have been mentioned in order which is under challenge before us, taken view that four years would be reasonable period of time for initiating action, in case where no limitation is prescribed. aforesaid decision was followed by division bench of this court in BHARAT HOTELS LTD supra. 12 9. In view of aforesaid enunciation of law, it is axiomatic that reasonable period for initiation of proceedings in respect of Assessment years in question, at time where no limitation was prescribed has been held to be four years. It is not in dispute that in instant case, proceedings under Section 201(1) and 201(1A) of Act have been initiated after period of four years. Therefore, same cannot be held to be initiated within reasonable time and consequently, proceedings cannot be sustained in eye of law. In view of preceding analysis, substantial questions of law framed in I.T.A.No.166/2011 are answered against revenue and in favour of assessee. substantial question of law framed in assessee s appeal is answered in favour of assessee and against revenue. impugned order of Tribunal insofar as it pertains to Assessment years 2000-01 to 2002-03 is hereby quashed. In result, 13 I.T.A.No.148/2011 is allowed, whereas I.T.A.No.166/2011 is dismissed. Sd/- JUDGE Sd/- JUDGE ss Director of Income-tax International Taxation, Bangalore / Income-tax Officer International Taxation, Ward-1(1), Bangalore v. Executive Engineer