S. 201 TDS: Even if the statute does not lay down a time limit, proceedings must be completed within a limited period

In the context of a GDR/ Euro issue by the assessee, the department claimed that the assessee ought to have deducted TDS u/s 195 on payment of fees to the fund managers etc. The Special Bench (122 TTJ 577) allowed the assessee’s appeal inter alia on the ground that a time limit for initiation and completion of proceedings u/s 201 (1) & (1A) had to be read into the statute. On appeal by the department to the High Court HELD dismissing the appeal:

S. 201 of the Act does not prescribe any limitation period for the assessee being declared as an assessee in default. If no period of limitation is prescribed, a statutory authority must exercise its jurisdiction within a reasonable period. What should be the reasonable period depends upon the nature of the statute, rights and liabilities thereunder and other relevant factors. Insofar as the IncomeTax Act is concerned, s. 153(1)(a) prescribes the time limit for completing the assessment, which is two years from the end of the assessment year in which the income was first assessable. It is well known that the assessment year follows the previous year and, therefore, the time limit would be three years from the end of the financial year. This seems to be a reasonable period as accepted u/s 153 of the Act, though for completion of assessment proceedings. Even though the period of three years would be a reasonable period as prescribed by s. 153 of the Act for completion of proceedings, the Income Tax Appellate Tribunal has taken the view that four years would be a reasonable period of time for initiating action, in a case where no limitation is prescribed. The rationale for this seems to be quite clear if there is a time limit for completing the assessment, then the time limit for initiating the proceedings must be the same, if not less. Nevertheless, the Tribunal has given a greater period for commencement or initiation of proceedings (NHK Japan Broadcasting Corp 305 ITR 137 (Del) & Hutchison Essar Telecom 323 ITR 230 (Del) followed; Bhura Exports (Cal HC) dissented from)