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Tata Teleservices Ltd. Vs. The Assistant Commissioner Of Income Tax & Ors
March, 10th 2016
$~
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                Reserved on: March 03, 2016
                                            Date of Decision: March 09, 2016

+         W.P.(C) 8535/2011 & CM APPLS 19305/2011, 9781/2012
+         W.P.(C) 8536/2011 & CM APPLS 19307/2011, 9778/2012
+         W.P.(C) 8537/2011 & CM APPLS 19309/2011, 9776/2012

VODAFONE ESSAR MOBILE SERVICES LIMITED
(NOW KNOWN AS VODAFONE MOBILE
SERVICES LIMITED)                              ..... Petitioner
              Through: Mr. M.S. Syali, Senior Advocate with
                       Ms. Sonia Mathur, Mr. Aseem Mowar,
                       Mr. Mayank Nagi, Mr. Rakshit Thakur,
                       Ms. Husnal Syali and Mr. Tarun Singh,
                       Advocates.

                                       versus

UNION OF INDIA & ORS                                      ..... Respondents
              Through:                 Mr. Anuj Aggarwal with Mr.
                                       Subhanshu Gupta, Advocates for UOI.

                                       Mr. Dileep Shivpuri, Senior Standing
                                       Counsel and Mr Zoheb Hossain, Junior
                                       Standing Counsel for the Revenue.

+         W.P.(C) 8641/2011 & CM APPLS 19537/2011, 10666/2013
+         W.P.(C) 8642/2011 & CM APPL 19541/2011
+         W.P.(C) 8643/2011 & CM APPL 19545/2011
+         W.P.(C) 8644/2011 & CM APPL 19549/2011
+         W.P.(C) 8647/2011 & CM APPL 19557/2011

TATA TELESERVICES LTD.                        ..... Petitioner
             Through: Mr. M.S. Syali, Senior Advocate with
                       Ms. Surekha Raman, Mr. Anuj Sarma,


WP (C) Nos.8535, 8536, 8537/2011 and
8641, 8642, 8643, 8644, 8647/2011                             Page 1 of 22
                                       Mr. Mayank Nagi, Mr. Debarshi
                                       Bhuyan, and Ms. Husnal Syali,
                                       Advocates.

                                       versus

THE ASSISTANT COMMISSIONER
OF INCOME TAX & ORS                      ..... Respondents
              Through: Mr. Dileep Shivpuri, Senior Standing
                       Counsel and Mr. Zoheb Hossain, Junior
                       Standing Counsel for the Revenue.

                                       Mr Umesh      Sharma,     CGSC         for
                                       Respondent.

CORAM
JUSTICE S. MURALIDHAR
JUSTICE VIBHU BAKHRU

                                 JUDGMENT
%                                 09.03.2016

S. MURALIDHAR, J.:
1. The common question that arises for consideration in these writ
petitions concerns the validity of the action initiated by the Respondent
Income Tax Department ('Department') against the Petitioners under
Sections 201(1) and 201(1A) of the Income Tax Act, 1961 (`the Act')
for non-deduction of tax at source (`TDS') for periods earlier than four
years prior to 31st March, 2011. These petitions in turn involve the
interpretation of the proviso to sub-section (3) of Section 201 of the Act,
which was inserted with effect from 1st April, 2010.

2. Although the facts of these cases are more or less similar, the facts
pertaining to Tata Teleservices Limited (`TTSL'), the Petitioner in WP
WP (C) Nos.8535, 8536, 8537/2011 and
8641, 8642, 8643, 8644, 8647/2011                              Page 2 of 22
(C) No. 8642/2011, are first discussed. TTSL is a company registered
under the Companies Act, 1956, engaged in the business of providing
telecommunication services across the country. TTSL has a central
office    in    New       Delhi.       It   provides   post-paid   and     pre-paid
telecommunication services for which it entered into agreements with
various channel partners (distributors). In the pre-paid segment, TTSL
sells products such as Recharge Coupon Vouchers (RCVs) and Starter
Kits to channel partners. The RCVs are the pre-paid vouchers used for
selling validity and talk time to the pre-paid subscribers. The Starter
Kits are the new connections containing Removable User Identity
Module (RUIM) cards for providing telecommunication connection.

3. The products are sold by TTSL to the channel partners under valid tax
invoices. TTSL recovers sales tax and service tax for the said
transactions. The channel partner thereafter sells these products to the
retailers. It is stated that there is no remuneration/consideration that flow
from TTSL to the channel partners for effecting sale of such products.
TTSL proceeded on the basis that in terms of the above arrangement
that the retailers cannot charge to the consumer an amount exceeding the
Maximum Retail Price (`MRP'). The difference between MRP charged
from consumers and price charged to channel partners by TTSL is
nothing but the maximum amount of business income available for
channel partners and retailers taken together. Further, the amount that is
realised by channel partners or retailers separately is not known to TTSL
at any point of time.




WP (C) Nos.8535, 8536, 8537/2011 and
8641, 8642, 8643, 8644, 8647/2011                                  Page 3 of 22
4. According to TTSL, the transaction between it and the channel
partner is on a principal to principal basis. It is explained that under a
principal and agent relationship, commission is paid subsequent to the
happening of the incident, i.e. post the recovery of the MRP price, and
thus it is termed as commission. However, under a principal to principal
relationship as that is followed in the prepaid business, the discount
allowed flowing out from the MRP price, which happens before the
happening of the incident, i.e. recovery of the price from customers.

5. Accordingly to TTSL, in terms of the above arrangement, Section
194H of the Act concerning deduction of TDS towards commission or
brokerages does not apply to the above transaction with the channel
partners. TTSL filed its TDS return/statement under Section 200 of the
Act in each of the relevant Assessment Years (AYs) [for WP (C) No.
8642/2011 the relevant AY being 2001-2002]. It may be noticed at this
stage that the Karnataka High Court in a decision Bharti Airtel Ltd. Vs.
Deputy Commissioner of Income-Tax (2015) 372 ITR 33 (Kar) held
that no TDS is recoverable from the payments made by cell phone
companies to the distributors where the products sold were pre-paid
cards.

6. Section 201 as it stood prior to the amendment [which introduced
sub-section (3) with effect from 1st April, 2010] did not contain a
provision stipulating a time limit for initiation of the proceedings
thereunder. The said provision reads as under:
         "Consequences of failure to deduct or pay.
         201. (1) Where any person, including the principal officer of a
         company,--
WP (C) Nos.8535, 8536, 8537/2011 and
8641, 8642, 8643, 8644, 8647/2011                          Page 4 of 22
              (a ) who is required to deduct any sum in accordance with
              the provisions of this Act; or
             (b ) referred to in sub-section (1A) of section 192 , being an
             employer,
       does not deduct, or does not pay, or after so deducting fails to
       pay, the whole or any part of the tax, as required by or under this
       Act, then, such person, shall, without prejudice to any other
       consequences which he may incur, be deemed to be an assessee in
       default in respect of such tax:
       Provided that no penalty shall be charged under section 221 from
       such person, unless the Assessing Officer is satisfied that such
       person, without good and sufficient reasons, has failed to deduct
       and pay such tax.
       (1A)Without prejudice to the provisions of sub-section (1), if any
       such person, principal officer or company as is referred to in that
       sub-section does not deduct the whole or any part of the tax or
       after deducting fails to pay the tax as required by or under this
       Act, he or it shall be liable to pay simple interest at [one per cent
       for every month or part of a month] on the amount of such tax
       from the date on which such tax was deductible to the date on
       which such tax is actually paid and such interest shall be paid
       before furnishing the quarterly statement for each quarter in
       accordance with the provisions of sub-section (3) of section 200.

       (2) Where the tax has not been paid as aforesaid after it is
       deducted, the amount of the tax together with the amount of
       simple interest thereon referred to in subsection (1A) shall be a
       charge upon all the assets of the person, or the company, as the
       case may be, referred to in sub-section (1)."

7. In CIT vs. NHK Japan Broadcasting Corporation (2008) 305 ITR
137 (Del.) the question that arose was whether the Department could
seek to initiate proceedings under Sections 201(1) and 201(1A) of the
Act for a period beyond four years after the end of the relevant AY. In
that case the relevant AY was 1990-91. The Assessee there was a
Government Company of Japan, which was carrying on business in

WP (C) Nos.8535, 8536, 8537/2011 and
8641, 8642, 8643, 8644, 8647/2011                           Page 5 of 22
India. It paid salary in Indian Rupees to its employees in India. It also
paid `global salary' to its employees in Japan. While it deducted TDS
from the salaries paid to the employees in India, it did not deduct TDS
from the `global salary'. These facts came to light when the Department
undertook a survey on 19th November, 1998. In December, 1999, the
Assessee was asked to explain why it should not be treated as an
Assessee in default. After the reply was filed by the Assessee, the AO
passed an order treating the said Assessee as an Assessee in default for
the purposes of Section 201 of the Act and this was upheld by the
Commissioner of Income Tax (Appeals) [CIT(A)].            However, the
Income Tax Appellate Tribunal (`ITAT') came to the conclusion that
the proceedings against the Assessee for treating it as an Assessee in
default under Section 201 of the Act were not initiated within a
reasonable period of time.

8. The Court in CIT vs. NHK Japan Broadcasting Corporation (supra)
noted that there was no provision in the Act, which stipulated a time
limit regarding initiation of the proceedings under Section 201 of the
Act. It referred to Section 153(1)(a) of the Act, which required an
assessment to be completed within two years from the end of the AY in
which income was first assessable. It also noted that the ITAT had in a
series of decisions taken the view that four years would be a reasonable
time for initiating action, in case where no limitation is prescribed. In
CIT vs. NHK Japan Broadcasting Corporation (supra), the ITAT had
applied the same aspect and reversed the decision of the CIT(A). This
Court then held as under:


WP (C) Nos.8535, 8536, 8537/2011 and
8641, 8642, 8643, 8644, 8647/2011                         Page 6 of 22
       "21. We are not inclined to disturb the time limit of four years
       prescribed by the Tribunal and are of the view that in terms of the
       decision of the Supreme Court in Bhatinda District Co-op. Milk
       Producers Union Ltd. [2007] 9 RC 637; 11 SCC 363 action must
       be initiated by the competent authority under the Income Tax Act,
       where no limitation is prescribed as in Section 201 of the Act
       within that period of four years."




9. It was further observed in CIT vs. NHK Japan Broadcasting
Corporation (supra) as under:
       "25. We may also note that under Section 191 of the Act, the
       primary liability to pay tax is on the person whose income it is
       that is the deductee. Of course, a duty is cast upon the deductor,
       that is the person who is making the payment to the deductee, to
       deduct tax at source but if he fails to do so, it does not wash away
       the liability of the deductee. It is still the liability of the deductee
       to pay the tax. In that sense, the liability of the deductor is a
       vicarious liability and, therefore, he cannot be put in a situation
       which would prejudice him to such an extent that the liability
       would remain hanging on his head for all times to come in the
       event the Income Tax Department decides not to take any action
       to recover the tax either by passing an order under Section 201 of
       the Act or through making an assessment of the income of the
       deductee."

10. The decision in CIT vs. NHK Japan Broadcasting Corporation
(supra) was followed by this Court in Commissioner of Income Tax v.
Hutchison Essar Telecom Ltd. [2010] 323 ITR 230 (Del.). There the
Court held that proceedings under Section 201(1) and 201(1A) of the
Act "can be initiated only within three years from the end of the
Assessment Year or within four years from the end of the relevant
Financial Year."




WP (C) Nos.8535, 8536, 8537/2011 and
8641, 8642, 8643, 8644, 8647/2011                              Page 7 of 22
11. In the meanwhile, by way of Finance (No. 2) Act, 2009 with effect
from 1st April, 2010 sub-sections (3) & (4) along with provisos were
inserted, the relevant extract of which read as under:
         "(3) No order shall be made under sub-section (1) deeming a
         person "to be an assessee in default for failure to deduct the whole
         or any part of the tax from a person resident in India, at any time
         after the expiry of-

               (i) two years from the end of the financial year in which the
               statement is filed in a case where the statement referred to
               in section 200 has been filed;

               (ii) four years from the end of the financial year in which
               payment is made or credit is given, in any other case:
         Provided that such order for a financial year commencing on or
         before the 1st day of April, 2007 may be passed at any time on or
         before the 31st day of March, 2011.

         (4) The provisions of sub-clause (ii) of sub-section (3) of section
         153 and of Explanation 1 to section 153 shall, so far as may,
         apply 'to the time limit prescribed in sub-section (3)."

12. The Statement of Objects and Reasons of the Finance (No. 2) Bill,
2009 in relation to the amendment to Section 201 of the Act read as
under:
         "Sub-clause (b) of clause 65 seeks to provide time limit for
         passing of order under sub-section (1) of section 201 in case of
         resident tax payers. It provides that no order shall be made under
         sub-section (1) of section 201, deeming a person to be an assessee
         in default for failure to deduct the whole or any part of the tax in
         the case of a person resident in India, at any time after the expiry
         of two years from the end of the financial year in which the
         statement is filed in a case where the statement referred to in
         section 200 has been filed. It further provides that in any other
         case such order shall not be made at any time after four years
         from the end of the financial year in which payment is made or
WP (C) Nos.8535, 8536, 8537/2011 and
8641, 8642, 8643, 8644, 8647/2011                             Page 8 of 22
       credit is given. It further provides that such order for a financial
       year commencing on or before 1st day of April, 2007 may be
       passed at any time on or before the 31st day of March, 2011. The
       sub-clause also provides that the provisions of sub-clause (ii) of
       sub-section (3) of section 153 and of Explanation 1 to section 153
       shall, so far as may apply to the time limit prescribed in proposed
       sub-section (3) of section 201."

13. There was a memorandum explaining the provisions of Finance (2)
Bill, 2009, which was in the form of a circular issued by the Central
Board of Direct Taxes (CBDT), which reads as under:
       "f. Providing time limits for passing of orders u/s 201(1)
       holding a person to be an assessee in default
       Currently, the Income Tax Act does not provide for any limitation
       of time for passing an order u/s 201(1) holding a person to be an
       assessee in default. In the absence of such a time limit, disputes
       arise when these proceedings are taken up or completed after
       substantial time has elapsed.

       In order to bring certainty on this issue, it is proposed to provide
       for express time limits in the Act within which specified order u/s
       201(1) will be passed.

       It is proposed that an order u/s 201(1) for failure to deduct the
       whole or any part of the tax as required under this Act, if the
       deductee is a resident taxpayer shall be passed within two years
       from the end of the financial year in which the statement of tax
       deduction at source is filed by the deductor. Where no such
       statement is filed, such order can be passed up till four years from
       the end of the financial year in which the payment is made or
       credit is given. To provide sufficient time for pending cases, it is
       proposed to provide that such proceedings for a financial year
       beginning from 1st April, 2007 and earlier years can be completed
       by the 31st March, 2011.

       However, no time-limits have been prescribed for order under
       sub-section(1) of section 201 where--

WP (C) Nos.8535, 8536, 8537/2011 and
8641, 8642, 8643, 8644, 8647/2011                           Page 9 of 22
               (a) the deductor has deducted but not deposited the tax
               deducted at source, as this would be a case of defalcation of
               government dues,

               (b) the employer has failed to pay the tax wholly or partly,
               under sub-section (1A) of section 192, as the employee
               would not have paid tax on such perquisites,

               (c) the deductee is a non-resident as it may not be
               administratively possible to recover the tax from the non-
               resident.

        It is proposed to make these amendments effective from 1st April,
        2010. Accordingly it will apply to such orders passed on or after
        the 1st April, 2010."

14. It is claimed that, therefore, as far as the Department was concerned
it understood the insertion of the proviso to Section 201(3) as providing
"sufficient time for pending cases" in respect of which the proceedings
were to be completed by 31st March, 2011.

15. However, it appears that contrary to the above understanding by the
Department itself depicted in the above circular issued by the CBDT,
the Department understood the above amendment as permitting it to
initiate proceedings under Section 201 of the Act for treating an
Assessee as an Assessee in default even in respect of alleged failure to
deduct TDS for a period more than four years earlier to 31st March,
2011.

16. This question, after the amendment to Section 201 of the Act
brought about by the Finance (No. 2) Act, 2009 with effect from 1st
April, 2010 came up for consideration by this Court in ITA No.57/2015

WP (C) Nos.8535, 8536, 8537/2011 and
8641, 8642, 8643, 8644, 8647/2011                            Page 10 of 22
[CIT (TDS)-I v. CJ International Hotels Pvt. Ltd.].             One of the
questions addressed by the Court in the said case in its judgement dated
9th February, 2015 concerned the initiation of proceedings against the
Assessee for declaring an Assessee to be an Assessee in default. The
discussion in the said judgement on this issue is contained in paras 6 to
10, which read as under:
       "6. It is evident from the above discussion that the assessee was
       sought to be proceeded against Section 201 as one in default, after
       the period of four years. This Court is conscious that the text of
       the provision nowhere limits the exercise of powers. Equally,
       there are several provisions of enactment, i.e., Sections 143 (2),
       147, 148 and 263, and even through introduction of specific
       provisions in Section 153 of the Act, where the time limit is
       specifically prescribed. At the same time, this Court in NHK
       Japan (supra) was of the opinion that the power to treat someone
       as assessee in default is too drastic, vague and oppressive since it
       is conditioned by some measure of limitation. In these
       circumstances, the Court had insisted that for the purpose of
       initiation of proceedings under Section 201, the AO has to act
       within four years. In NHK Japan, the Court did take note of the
       judgment in State of Punjab v. Bhatinda District Co-op Milk
       Producers Union Ltd. (2007) 9 RC 637.

       7. The judgment in NHK Japan to a certain extent was limited by
       the amendment to Section 201 by substitution of Section 201 (3)
       w.e.f. 1.4.2010 by Finance Act No.2/2009. This substitution was
       in turn amended w.e.f. 1.10.2014 ­ by Finance Act No.2/2014. As
       a result, the provision which exists as on date is as follows: -

               "201. (3) No order shall be made under sub -section (1)
               deeming a person to be an assessee in default for failure to
               deduct the whole or any part of the tax from a person
               resident in India, at any time after the expiry of seven years
               from the end of the financial year in which payment is
               made or credit is given."


WP (C) Nos.8535, 8536, 8537/2011 and
8641, 8642, 8643, 8644, 8647/2011                            Page 11 of 22
       8. Secondly, Section 201 itself was amended by introduction of
       sub-section 1 (A) - with retrospective effect, from 1.4.1966. The
       provision underwent legislative changes on different occasions.
       The decision in NHK Japan was rendered on 23.04.2008. The
       Revenue's appeal was rejected on 3.7.2014. Although, the
       Supreme Court had granted special leave and has apparently
       stated in its final order rejecting the Revenue's appeal that the
       question is left open, the mere circumstance that the Parliament
       did not spell out any time limit before it did eventually in 2009 -
       and subsequently in 2014 ­ would not lead to the sequitur that this
       Court's ruling in NHK Japan requires consideration. In that
       judgment, the Division Bench had given various reasons,
       including the application of the rationale in Bhatinda District
       (supra). In NHK Japan, the Court had noticed that the facts in
       Bhatinda District (supra) judgment concern exercise of
       jurisdiction by a statutory authority in the absence of specific
       period of limitation. The Court in Bhatinda District (supra) held
       as follows:

               "17. It is trite that if no period of limitatio n has been
               prescribed, statutory authority must exercise its jurisdiction
               within a reasonable period. What, however, shall be the
               reasonable period would depend upon the nature of the
               statute, rights and liabilities thereunder and other relevant
               factors.

               18. Revisional jurisdiction, in our opinion, should
               ordinarily be exercised within a period of three years
               having regard to the purport in terms of the said Act. In any
               event, the same should not exceed the period of five years.
               The view of the High Court, thus, cannot be said to be
               unreasonable. Reasonable period, keeping in view the
               discussions made hereinbefore, must be found out from the
               statutory scheme. As indicated hereinbefore, maximum
               period of limitation provided for in Sub-section (6) of
               Section 11 of the Act is five years."

       9. More recently in Commissioner of Income Tax-III v. Calcutta
       Knitwears, Ludhiana (2014) 362 ITR 673 (SC), the Supreme

WP (C) Nos.8535, 8536, 8537/2011 and
8641, 8642, 8643, 8644, 8647/2011                            Page 12 of 22
       Court had the occasion to deal with the correct position in law as
       to the initiation of income tax proceedings. Although, the context
       of the dispute was in respect of recording of a satisfaction note as
       to the initiation of proceedings against third parties under
       erstwhile Section 158BD of the Act which did not prescribe the
       period of limitation and left it to the discretion of the AO to
       decide on being satisfied that such proceedings were required to
       be initiated, the Court limited such discretion in the following
       terms:

               "44. In the result, we hold that for the purpose of Section
               158BD of the Act a satisfaction note is sine qua non and
               must be prepared by the assessing officer before he
               transmits the records to the other assessing officer who has
               jurisdiction over such other person. The satisfaction note
               could be prepared at either of the following stages: (a) at
               the time of or along with the initiation of proceedings
               against the searched person under Section 158BC of the
               Act; (b) along with the assessment proceedings under
               Section 158BC of the Act; and (c) immediately after the
               assessment proceedings are completed under Section
               158BC of the Act of the searched person."

       10. An added reason why the submission of the Revenue is
       unacceptable is that had the Parliament indeed intended to
       overrule or set aside the reasoning in NHK Japan (supra), it
       would have, like other instances and more specifically in the case
       of Section 201 (1A), brought in a retrospective amendment,
       nullifying the precedent itself. That it chose to bring Section 201
       (3) in the first instance in 2010 and later in 2014 fortifies the
       reasoning of the Court. Accordingly, the issue is answered against
       the Revenue."

17. It appears to the Court that the above decision settles the question
whether to declare an Assessee to be an Assessee in default under
Section 201 of the Court could be initiated for a period earlier than four
years prior to 31st March, 2011.

WP (C) Nos.8535, 8536, 8537/2011 and
8641, 8642, 8643, 8644, 8647/2011                           Page 13 of 22
18. Mr. M.S. Syali, the learned Senior Advocate for the Petitioners
states that although the challenge in these petitions is also to the vires of
the proviso to Section 201(3) of the Act as inserted by the Finance (No.
2) Act, 2009, the Petitioners would be satisfied if the interpretation
sought to be advanced by them on the scope and ambit of proviso to
sub-section (3) of Section 201 of the Act is accepted by the Court. In
other words what has been canvassed on behalf of the Petitioners is that
the proviso to Section 201(3) of the Act has to be read consistent with
the law explained by the Court in CIT vs. NHK Japan Broadcasting
Corporation (supra) and should be held not to permit the Department to
initiate proceedings for declaring Assessees to be Assessees in default
for a period more than four years prior to 31st March, 2011.

19. Mr. Dileep Shivpuri, the learned Senior Standing Counsel for the
Revenue, however, seeks to advance a different line of argument.
According to him the action taken by the Department was pursuant to a
decision in CIT v. Idea Cellular Ltd. (2010) 325 ITR 148 (Del) where
the amounts paid to the channel partners for the pre-paid cards and other
products was held to be `commission' by the Court within the meaning
of Section 194H of the Act. It is stated that it is consequent upon the
said decision that the Department issued the impugned notices to these
Petitioners and that this was permissible in terms of Section 153(3)(ii) of
the Act.

20. The above submission of Mr. Shivpuri cannot be accepted if Section
153 is perused carefully. It reads as under:

WP (C) Nos.8535, 8536, 8537/2011 and
8641, 8642, 8643, 8644, 8647/2011                            Page 14 of 22
       "153. Time limit for completion of assessments and reassessments
       ......
       (3) The provisions of sub- sections (1), (1A), (1B) and (2) shall
       not apply to the following classes of assessments, reassessments
       and recomputations which may, subject to the provisions of sub-
       section (2A), be completed at any time-
       ......
       (ii) where the assessment, reassessment or recomputation is made
       on the assessee or any person in consequence of or to give effect
       to any finding or direction contained in an order under section
       250, 254, 260, 262, 263 or 264 or in an order of any court in a
       proceeding otherwise than by way of appeal or reference under
       this Act."

21. In the first place, what the said provision does is to not apply the
time limit of two years for completing the assessment from the end of
the financial year "where the assessment, reassessment or recomputation
is made on the assessee or any person in consequence of or to give
effect to any finding or direction contained in an order........ or in an
order of any court in a proceeding otherwise than by way of appeal or
reference under this Act." This can apply only to the Assessee in whose
case such an order is made by a Court. For instance, if the above
decision was qua Idea Cellular Ltd. then it certainly cannot form the
basis for initiating proceedings qua other Assessees.

22. Secondly there has to be a finding or directions as regards the issue
in question viz., the non-deduction of TDS resulting in an Assessee
having to be declared an Assessee in default under Section 201 of the
Act. In Rajender Nath v. CIT (1979) 120 ITR 14 (SC), it was held that
the existence of an order disposing of a case qua an Assessee containing
specific directions of the Court was a sine qua non for invoking the

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powers under Section 153(3)(ii) of the Act. Even in the case relied upon
by Mr. Shivpuri, i.e., CIT v. Idea Cellular Ltd. (supra), there is no such
finding or direction to the Department by the Court requiring it to
initiate proceedings for declaring the Assessee to be an Assessee in
default. The Court is, therefore, of the view that the reliance by the
Department on Section 153(3)(ii) of the Act and the decision in CIT v.
Idea Cellular Ltd. (supra) to justify initiation of the proceedings in the
present case against the Petitioner is misconceived.

23. It was then contended by Mr. Shivpuri, that the decision in CIT vs.
NHK Japan Broadcasting Corporation (supra) would not hold good
after 1st April, 2010 and that the decision of this Court in CIT (TDS)-I v.
CJ International Hotels Pvt. Ltd. (supra) was not correctly understood
by the Petitioners herein. In his reading of the decision in CIT (TDS)-I
v. CJ International Hotels Pvt. Ltd. (supra), the Court did not
categorically state therein that the Department was prohibited from
initiating proceedings in declaring an Assessee to be an Assessee in
default for a period earlier than 31st March, 2011.

24. The Court is unable to agree with the above submission of Mr.
Shivpuri. As the Court sees it, its decision in NHK Japan Broadcasting
Corporation(supra) deals precisely with the situation where proceedings
were sought to be initiated more than four years prior to 31 st March,
2011. That law explained in NHK Japan Broadcasting Corporation
(supra) has not changed by the introduction of proviso to sub-section (3)
to Section 201 by the Finance (No. 2) Act, 2009. Mr. Shivpuri was
unable to explain how the Circular No.5 of 2010 issued by the CBDT is

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not favourable to the Petitioners. With reference to the expression
"pending cases", in respect of which orders have to be passed in terms
of the proviso to Section 201(3) before 31st March 2011, Mr. Shivpuri
sought to suggest that the Circular has to be harmoniously construed
with Section 201(3) of the Act to glean an intention to permit the
Department to initiate cases four years earlier than 31st March, 2011.
The only requirement was that orders had to be passed by 31st March,
2011.

25. The Court is unable to agree with this approach of the Department
either. There is no question of 'harmonious construction' of a CBDT
Circular issued by the CBDT. At best, it is an external aid of
construction of Section 201(3) and the proviso thereto. The Circular also
gives an instance of contrary understanding of the legal position by the
Department itself. It is well settled that if a Circular issued by the
Department favours an Assessee then it should be so done even where
such interpretation goes contrary to the legislative intent.

26. In this regard reference may be made to the decision in K.P.
Verghese v. Income Tax Officer AIR 1981 SC 1922. There the
Supreme Court was considering the correctness of the stand of the
Department that for the purpose of Section 52 (2) of the Act it was not
necessary that the Assessee should have under-stated the sale
consideration and that to attract Section 52 (2) it was sufficient if, as on
the date of the transfer, the fair market value of the property exceeded
the full value of the consideration declared by the Assessee by an
amount of not less than 15% of the      value so declared. The Supreme

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Court held in favour of the Assessee, and in doing so referred to the fact
that there were two CBDT circulars on the interpretation of Section 52
(2) of the Act that supported the case of the Assessee. The Court
observed:
       "These two circulars of the Central Board of Direct Taxes are, as
       we shall presently point out, binding on the Tax Department in
       administering or executing the provision enacted in sub-section
       (2), but quite apart from their binding character, they are clearly
       in the nature of contemporanea expositio furnishing legitimate aid
       in the construction of sub-section (2). The rule of construction by
       reference to contemporanea expositio is a well established rule for
       interpreting a statute by reference to the exposition it has received
       from contemporary authority, though it must give way where the
       language of the statute is plain and unambiguous. This rule has
       been succinctly and felicitously expressed in Crawford on
       Statutory Construction (1940 ed) where it is stated in paragraph
       219 that "administrative construction (i. e. contemporaneous
       construction placed by administrative or executive officers
       charged with executing a statute) generally should be clearly
       wrong before it is overturned; such a construction, commonly
       referred to as practical construction, although non-controlling, is
       nevertheless entitled to considerable weight; it is highly
       persuasive." The validity of this rule was also recognised in
       Baleshwar Bagarti v. Bhagirathi Dass (1914) ILR 41 Cal 69
       where Mookerjee, J. stated the rule in these terms:
              "It is a well-settled principle of interpretation that courts in
              construing a statute will give much weight to the
              interpretation put upon it, at the time of its enactment and
              since, by those whose duty it has been to construe, execute
              and apply it."
       and this statement of the rule was quoted with approval by this
       Court in Deshbandhu Gupta & Co. v. Delhi Stock Exchange
       Association Ltd. (1979) 3 SCR 373 It is clear from these two
       circulars that the Central Board of Direct Taxes, which is the
       highest authority entrusted with the execution of the provisions of
       the Act, understood sub-section (2) as limited to cases where the
       consideration for the transfer has been under- stated by the

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       assessee and this must be regarded as a strong circumstance
       supporting the construction which we are placing on that sub-
       section.

       But the construction which is commending itself to us does not
       rest merely on the principle of contemporanea expositio. The two
       circulars of the Central Board of Direct Taxes to which we have
       just referred are legally binding on the Revenue and this binding
       character attaches to the two circulars even if they be found not in
       accordance with the correct interpretation of subsection (2) and
       they depart or deviate from such construction. It is now well-
       settled as a result of two decisions of this Court, one in Navnitlal
       C. Jhaveri v. K. K. Sen AIR 1965 SC 1922 and the other in
       Ellerman Lines Ltd. v. Commissioner of Income-tax, West
       Bengal AIR 1972 SC 524 that circulars issued by the Central
       Board of Direct Taxes under section 119 of the Act are binding on
       all officers and persons employed in the execution of the Act even
       if they deviate from the provisions of the Act."





27. Recently in a decision in Spentex Industries Ltd. v. Commissioner
of Central Excise (2016) 1 SCC 780, the Supreme Court explained the
maxim contemporanea expositio.         In the said decision, the Court
referred to its earlier decision in Desh Bandhu Gupta & Co. And Ors.
v. Delhi Stock Exchange Association Ltd. (1979) 4 SCC 565 in which
it was observed as under:
       "It may be stated that it was not disputed before us that these
       two documents which came into existence almost simultaneously
       with the issuance of the notification could be looked at for finding
       out the true intention of the Government in issuing the
       notification in question, particularly in regard to the manner    in
       which outstanding transactions were to be closed or liquidated.
       The principle of contemporanea expositio (interpreting a statute
       or any other document by reference to the exposition it has
       received from contemporary authority) can be invoked though the
       same will not always be decisive of the question of construction.

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       (Maxwell 12th Edn. p.268).           In Crawford on Statutory
       Construction (1940 Edn.) in para 219 (at pp. 393-395) it has been
       stated that administrative construction (i.e. contemporaneous
       construction placed by administrative or executive officers
       charged with executing a statute) generally should be clearly
       wrong before it is overturned; such a construction, commonly
       referred to as practical construction, although not controlling, is
       nevertheless entitled to considerable weight; it is highly
       persuasive. In Baleshwar Bagarti v. Bhagirathi Dass (supra) the
       principle, which was reiterated in Mathura Mohan Saha y. Ram
       Kumar Saha 35 Ind Cas 305 has been stated by Mukerjee J. thus:

               `It is a well-settled principle of construction that courts in
               construing a statute will give much weight to the
               interpretation put upon it, at the time of its enactment and
               since, by those whose duty it has been to construe, execute
               and apply it. I do not suggest for a moment that such
               interpretation has by any means a controlling effect upon
               the Courts; such interpretation may, if occasion arises, have
               to be disregarded for cogent and persuasive reasons, and in
               a clear case of error, a Court would without hesitation
               refuse to follow such construction."

               Of course, even without the aid of these two documents
               which contain a contemporaneous exposition of the
               Government's intention, we have come to the conclusion
               that on a plain construction of the notification the proviso
               permitted the closing out or liquidation of all outstanding
               transactions by entering into a forward contract in
               accordance with the rules, bye-laws and regulations of the
               respondent.'"

28. Circular 5 of 2010 of CBDT clarifying that the proviso to Section
201(3) of the Act was meant to expand the time limit for completing the
proceedings and passing orders in relation to `pending cases'. The said
proviso cannot be interpreted, as is sought to be done by the
Department, to enable it to initiate proceedings for declaring an

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Assessee to be an Assessee in default under Section 201 of the Act for a
period earlier than four years prior to 31st March, 2011.

29. With respect to Vodafone Essar Mobile Services Limited (VEMSL),
Mr. Shivpuri sought to contend that in these cases the initiation of the
proceedings was triggered by the order dated 12th August 2010 passed
by the Supreme Court in Civil Appeal No. 6692 of 2010 which
pertained to the AY 2002-2003.

30. As rightly pointed out by Mr. Syali while the Supreme Court had
sent the matter back for further proceedings for AY 2002-2003, as far as
the orders under challenge in these writ petitions are concerned, they
pertain to AYs 2003-2004, 2004-2005 and 2005-2006 in respect of
which no orders have been passed by the Supreme Court. These notices,
therefore, sought to initiate proceedings for declaring VEMSL to be an
Assessee in default earlier than four years prior to 31st March, 2011.

31. The Court agrees that the notices issued to VEMSL for the
aforementioned AYs are not covered by the order of the Supreme Court
for AY 2002-2003. Accordingly, insofar as the notices for AYs 2003-
2004, 2004-2005 and 2005-2006 are concerned, they are held to be
unsustainable in law on the interpretation of Section 201(3) of the Act
by the Court.

32. In view of the above conclusion, the Court does not consider it
necessary to address the question of constitutional validity of Section
201(3) of the Act or the proviso thereto. In any event, the Petitioners


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also did not press for that relief in view of the acceptance of their
submission on the interpretation of the said provision by the Court.

33. Consequently, the notices impugned in the present petitions issued
by the Department seeking to initiate proceedings against the Petitioners
for declaring them to be Assessees in default under Section 201(3) of
the Act are hereby quashed.

34. The writ petitions are allowed but in the circumstances no orders as
to costs. All pending applications also stand disposed of.



                                                  S.MURALIDHAR, J.



                                                  VIBHU BAKHRU, J.
MARCH 09, 2016
b'nesh




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