W.P.11535-37/13

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IN THE HIGH COURT OF KARNATAKA, BANGALORE

DATED THIS THE 10TH DAY OF APRIL, 2013

BEFORE

THE HON'BLE MR.JUSTICE RAM MOHAN REDDY

WRIT PETITION NOS. 11535 – 37 OF 2013 (T-IT)

BETWEEN: IBM INDIA PRIVATE LIMITED (FORMERLY IBM GLOBAL SERVICES INDIA PVT. LTD.) No.12, SUBRAMANYA ARCADE BANNERGHATTA ROAD BANGALORE – 560 029 REP.HEREIN BY ITS DIRECTOR MR. RAVIKUMAR RAMANAN

… PETITIONER

(BY SRI. K P KUMAR, SR. ADV. FOR T SURYA NARAYANA, ADVOCATE)

AND : 1 THE INCOME TAX OFFICER (TDS) LARGE TAX PAYERS UNIT JSS TOWERS, 100 FEET RING ROAD BANASHANKARI 3RD STAGE

BANGALORE – 560 085. 2 THE COMMISSIONER OF INCOME – TAX LARGE TAX PAYERS UNIT JSS TOWERS, 100 FEET RING ROAD BANASHANKARI 3RD STAGE BANGALORE – 560 085.

… RESPONDENTS (BY SRI. K V ARAVIND, ADVOCATE) THESE WRIT PETITIONS ARE FILED UNDER ARTICLE 226 OF CONSTITUTION OF INDIA PRAYING TO QUASH THE

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IMPUGNED ORDER DATED 25.2.2013 VIDE ANN-F PASSED BY THE R1 IN RESPECT OF THE FINANCIAL YEARS 2009-10 TO 2011-12 REJECTING THE PETITIONERS PRELIMINARY OBJECTION AS TO HIS JURISDICTION AND LIMITATION TO THE EXTENT QUESTIONED HEREIN; AND ETC.

THESE WRIT PETITIONS ARE COMING ON FOR PRL.HEARING IN ‘B’ GROUP THIS DAY, THE COURT MADE THE FOLLOWING:

ORDER

Petitioner an assessee has called in question the

legality and validity of the order dt. 25.2.2013

Annexure-F of the 1st respondent on the premise of

being without jurisdiction and barred by limitation and

to declare the initiation of proceeding under Section

201(1) and 201(1A) of the Income tax Act, 1961, in

respect of returns for the financial year 2009-10; 2010-

11 and 2011-12 insofar as tax deducted at source from

payments made to non-residents, as without

jurisdiction, while tax deducted at source from

payments made to residents for the period 1.4.2009 to

31.12.2009 as barred by limitation.

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2. Petitioner engaged in the business of

hardware and software is said to have made payments,

to both residents and non-residents during the financial

year 2009-10 to 2011-12 and having deducted tax at

source under the provisions of Chapter –XVII-B of the

Income tax Act, 1961, for short ‘Act;’ credited it to the

Central Government by filing quarterly statement of tax

deduction in terms of Section 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

Section 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

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required to be deducted under Section 195 of the Act.

Petitioner asserts that quarterly statements in that

regard when filed were duly processed and intimation

issued under Section 200-A of the Act.

3. The 1st respondent –Income tax Officer large

Tax Payer Unit (LTU) is said to have issued notice dt.

30.1.2013 Annexure-A calling upon the petitioner to

furnish its computation of income and other particulars

in view of proceeding initiated under Section 201 of the

Act, which was responded to at the first instance by

letter dt. 8.2.2013 Annexure-B seeking sometime and

thereafterwards by letter dt. 12.2.2013 Annexure-C

seeking reasons for initiating proceeding under Section

201 of the Act and contending that proceedings for the

financial year 2009-10 was barred by limitation, while

seeking an opportunity of hearing.

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4. It is the allegation of the petitioner that the 1st

respondent without considering the said request, issued

another notice dt. 15.02.2013 Annexure-D requiring the

petitioner to furnish the details sought for, as also

details of provision/disallowance made under Section

40(a)(i)/40(a)(ai) and the reversal of the entries after

making payment of the tax deducted at source.

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 Income tax (International Taxation) which

fact was brought to the notice of the 1st respondent by

letter dt. 22.2.2013 Annexure-E.

5. It is the further allegation of the petitioner that

without extending an opportunity of hearing, the 1st

respondent overruled the objections over jurisdiction on

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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. 1.4.2009 to 31.12.2009, in terms of Section

201(3) of the Act and proposed to levy interest under

Section 201(1) and 201(1A) of the Act on the

disallowances under Section 40(a)(i)/40(a)(ia) following

the orders for the financial year 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. 25.2.2013 Annexure-F.

6. According to the petitioner the jurisdiction of

various authorities under the Act is set out in the

notification No.263 dt. 14.9.2011 Annexure-G of the

Central Board of Direct Taxes (CBDT) investing

jurisdiction in the Director of Income tax (International

Taxation) for short ‘DIT(IT)’ in relation to TDS under

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Section 195 of the Act from payments made to non-

residents and foreign companies while notification

No.277 dt. 26.9.2006 Annexure-H confers jurisdiction

on the Commissioner of Income tax (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

Annexure-J. Hence these petitions.

7. Petitions are opposed by filing statement of

objections of the respondents inter alia contending that

the petitioner made payments without effecting TDS for

the assessment years 2006-07; 2007-08; 2008-09 and

2009-10, a default, which when noticed by the

assessing officer led to show cause notices, eliciting

replies followed by orders of even date 28.8.2011

Annexures-R1 to R4, invoking Section 201(1) and

201(1A) of the Act. The orders when carried in appeals

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the Commissioner for Income tax (Appeals) by order dt.

30.3.2012 Annexure-R5 affirmed the orders, by

dismissing the appeals.

8. Petitioner preferred further appeals before

Income Tax Appellate Tribunal, Bangalore on grounds

set out in Annexures R6 to R9. According to the

respondents, the Assessing Officer having noticed

similar such defaults committed by the petitioner for the

assessment years 2010-11, 2011-12, 2012-13 issued

show cause notices to which petitioner objected on

grounds both jurisdiction and limitation.

9. At paragraph 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 Tax Payers Unit

(LTU), under a scheme Annexure-R13. The notification

in that regard permitted an assessee paying a certain

quantum of tax to opt for utilising the services under

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the LTU, which option the petitioner exercised by filing

the required application in Form, Annexure-R10,

following which the case was transferred from Range-11

by order dated 7.11.2007 Annexure-R11. The

notification Annexure-R12 is said to be over jurisdiction

of the authorities under Chapter –XVIIB and XVIIBB of

the Act.

10. In the circumstances, it is contended that the

jurisdiction over issues relating to chapter XVIIB and

XVIIBB of the Act in respect of petitioner was vested

with the 1st respondent IT Officer (LTU), since TAN of the

petitioner remained with LTU and as the statements

filed in Form -27Q were not appearing in the system

which on verification when found to be with the

‘DIT(IT)’, were transferred to LTU during May 2012.

Thereafterwards for the fourth quarter of the financial

year 2011-12, in respect of Form -27Q rectification

order was passed on 15.10.2012, while in respect of

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Form -27Q for the fourth quarter of the financial year

2010-11, intimation under Section 200-A of the Act, it is

said, was generated on 17.1.2013. lastly it is contended

that the proceeding initiated for the financial year

2009-10 is not barred by time.

11. Having heard the learned counsel for the

parties, perused the pleadings and examined the order

Annexure-F, the following questions arise for decision

making:

i) whether in terms of the notification No.70 dated

3.9.2010 Annexure-G the DIT (IT) had jurisdiction to

process the returns filed by the petitioner in Form

27Q relating to TDS from payments made to non-

residents and Form -26Q in relating to residents ? or

ii) Whether it was the IT Officer (LTU) invested with

the jurisdiction under Notification No.277 dt

26.9.2006 Annexure-H on the exercise of option by

the petitioner in the form enclosed to the letter

Annexure-R10, under the scheme Annexure-R13 ?

iii) Whether in the factual matrix the order

Annexure-F is invalid as contended by the petitioner

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on the premise that the IT Officer (LTU) did not have

jurisdiction to initiate proceeding under Section

201(1A) of the Act for the financial year 2009-10 to

2011-12 in respect of TDS returns from payments

made to non-residents ?

iv) Whether the initiation of proceedings by the IT

Officer (LTU) over returns of TDS from payments

made to residents from 1.4.2009 to 31.12.2009 is

barred by limitation ?

12. In order to appreciate the contentions of the

learned Counsel for the parties it is useful to extract the

relevant portion of the notifications Anenxure - G.

Sl.No.5 of the Direct Tax Notification No.263 dt.

14.9.2011 (S.0.881(E)) issued by the Central Board of

Direct Taxes invoking Subsections 1 and 2 of Section

120 of the Act, in supersession of such earlier

notification, invested jurisdiction in the ‘DIT(IT)’, in

respect of persons being non-residents including foreign

companies, in the matter of tax deductions at source

under Sections 194-B, 195, 196A, 196B, 196C, 196D

and 197 of the Act and reads thus:

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5 Director of Income-tax (International Taxation), Bangalore

Bangalore, Karnataka

Area lying within the territorial limit of State of Karnataka, Goa and Andhra Pradesh

(a) Persons being non-residents including foreign companies within the meaning of sub-section (23A) of section 2 of the Income-tax Act, 1961 and having a ‘Permanent Establishment’ in terms of the applicable Double Tax avoidance Agreement, in the areas mentioned in column (4) against serial number 5 or having a ‘Business Connection’ or having any source of income accruing or arising or deemed to be accruing or arising in the areas mentioned in column (4) against serial number 5; (b) persons being other than companies deriving income from sources other than income from business or profession and residing within the territorial area mentioned in column (4) against serial number 5; (c) persons being other than companies

(a) All functions and powers including functions and powers relating to Tax Deduction at Source under Sections 194E, 195, 196A, 196B, 196C, 196D and 197 of the Income-tax Act, 1961 in respect of persons mentioned at item (a) of column (5) against serial number 5. (b) all functions and powers relating to Tax Deduction at Source under Sections 194E, 195, 196A, 196B, 196C, 196D and 197 of the Income – Tax Act, 1961 on payments made to non-residents and foreign companies in respect of persons mentioned at item (b), (c) (d) and (e) against serial number 5;

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deriving income from business or profession and whose principal place of business is within the territorial area mentioned in column (4) against serial number 5; (d) persons being companies registered under the Companies Act, 1956 and having registered office or principal place of business in the area mentioned in column (4) against serial number 5; (e) any other person responsible for deducting tax at source under Chapter XVII or Chapter XVII-B of the Income – Tax Act, 1961, within the territorial area mentioned in column (4) against serial number 5.

13. This notification was substituted by Direct

Tax Notification No.250 dt.28.9.2007 which reads thus:

5 Commissioner of Income-tax (International Taxation),

Bangalore, Karnataka

Area within the limits of :- Districts of

(a) Persons being non-residents including foreign companies within

(a) All functions and powers including functions and powers relating to

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Bangalore Bangalore within the State of Karnataka.

the meaning of sub-section (23A) of section 2 of the Income-tax Act, 1961 and having a ‘Permanent Establishment’ in terms of the applicable Double Tax Avoidance Agreement, in the areas mentioned in column (4) or having a ‘Business Connection’ or having any source of income accruing or arising or deemed to be accruing or arising in the areas mentioned in column (4); (b) persons being other than companies deriving income from sources other than income from business or profession and residing within the territorial area mentioned in column (4); (c) persons being other than companies deriving income from business or profession and whose principal place of business is within the territorial area mentioned in column (4); (d) persons being companies registered under the Companies Act, 1956 and having registered office in the area mentioned in column (4);

Tax Deduction at Source under Sections 195 and 197 of the Income-tax Act, 1961 in respect of persons mentioned at item (a) of column (5). (b) all functions and powers relating to Tax Deduction at Source under Sections 195 and 197 of the Income – Tax Act, 1961 on payments made to non-residents and foreign companies in respect of persons mentioned at item (b), (c) (d) and (e) of column (5);

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14. This notification was substituted by Direct

Tax Notification No.70 dt. 3.9.2010 which reads thus:

4 Direc tor of Income-tax (International Taxation), Bangalore

Bangalore, Karnataka

Areas lying within the territorial limit of State of Karnataka, Goa and Andhra Pradesh

(a) Persons being non-residents including foreign companies within the meaning of sub-section (23A) of section 2 of the Income-tax Act, 1961 and having a ‘Permanent Establishment’ in terms of the applicable Double Tax avoidance Agreement, in the areas mentioned in column (4) of having a ‘Business Connection’ or having any source of income accruing or arising or deemed to be accruing or arising in the areas mentioned in column (4); (b) persons being other than companies deriving income from sources other than income from business or profession and residing within the territorial area mentioned in column (4); (c) persons being other than companies deriving income from business or profession and whose principal place of business is within the territorial area mentioned in

(a) All functions and powers including functions and powers relating to Tax Deduction at Source under Sections 194E, 195, 196A, 196B, 196C, 196D and 197 of the Income-tax Act, 1961 in respect of persons mentioned at item (a) of column (5). (b) all functions and powers relating to Tax Deduction at Source under Sections 194E, 195, 196A, 196B, 196C, 196D and 197 of the Income – Tax Act, 1961 on payments made to non-residents and foreign companies in respect of persons mentioned at item (b), (c) (d) and (e) column 5;

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column (4); (d) persons being companies registered under the Companies Act, 1956 and having registered office or principal place of business in the area mentioned in column (4); (e) any other person responsible for deducting tax at source under Chapter XVII or Chapter XVII-B of the Income – Tax Act, 1961, within the territorial area mentioned in column (4)

15. The aforesaid Notifications, therefore, indicate

that the ‘DIT(IT)’, Bangalore is invested with all

functions and powers relating to tax deduction at

source under Sections 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

subsection 23(A) of Section 2 of the Act and

having a permanent establishment in terms of

the applicable Double Tax Avoidance

Agreement, in the States of Karnataka, Goa

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and Andhra Pradhesh 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 XVIIB of the

Act within the aforesaid areas.

Thus the notification supra invests a jurisdiction in the

Officer of Income tax department to assess TDS returns

in respect of payments made to non-residents with a

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view to centralize and monitor such returns by the

officer, as submitted by the senior counsel for the

petitioner.

16. Sl.No.1 of the Direct Tax Notification No.277

dt. 26.9.2006 Annexure-H issued by the Central Board

of Direct Taxes exercising jurisdiction under

Subsections 1 and 2 of Section 120 of the Act reads

thus:

Sl.No. Designation of Income –

Tax authorities

Headquarters Jurisdiction

(1) (2) (3) (4)

1 Commissioner of Income Tax (LTU) Bangalore

Bangalore All cases assigned under section 127 of the Income Tax Act, 1961 (43 of 1961) and which are presently under the jurisdiction of Chief Commissioner of Income Tax – I, Bangalore (other than revenue district of Tumkur ) and Chief Commissioner of Income Tax-II, Bangalore (other than revenue district of Kolar) in which Consent Form for opting for the Large Taxpayer Unit scheme has been given and in which following payments have been made in fianancial year 2004-05 or any subsequent financial year: (a) Duties of excise in cash/current account of Rs. Five crore or more under the Central Excise Act, 1944; or (b) Service tax in cash/current account of Rs.five crore or more under the Finance Act, 1994 read with Service Tax Rules, 1994; or (c) Advance tax of Rs.ten crore or more under the Income – Tax, 1961.

In the notification Annexure-H the Commissioner of

Income-tax (LTU) is invested with the jurisdiction to try

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all cases assigned under Section 127 of the Act from the

jurisdiction of the Chief Commissioner of Income Tax-I,

Bangalore (other than District of Tumkur) and Chief

Commissioner of Income tax-II, Bangalore (other than

District of Kolar) in which consent form for opting the

Large Tax Payer Unit Scheme is given and in which the

payments have been made in the Financial years 2004-

05 or any subsequent financial years towards:

a) duties of excise in cash/current account of

Rs. Five crore or more under the Central

Excise Act, 1944; or

b) Service tax in cash/current account of

Rs.five crore or more under the Finance Act,

1994 r/w Service Tax Rules;

c) Advance tax of Rs.10 crore or more under

the Act, 1961.

17. The scheme referred to in the notification

Annexure-H is said to be at Annexure-R13 relating to

functions, structure and procedure, the relevant portion

of which at Clause (IX) reads thus:

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“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.”

18. The notification dt. 25.10.2006 Annexure-R12

states that pursuant to the Board’s notification

No.277/06 dated 26.9.2006, the Commissioner of IT

(LTU) exercising power under Section 120 of the Act

directs the Income tax Officer (TDS) (LTU), Bangalore, to

exercise powers and perform functions of an assessing

officer under Chapter XVII and XVIIB of the Act, in

respect of cases assigned under Section 127 of the Act

coming within his jurisdiction.

19. In terms of the scheme petitioner submitted

its consent in the prescribed form enclosed to the letter

dated 30.7.2007 Annexure-R10 indicating thus:

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a) IT return against PAN No.AAAC14403L is

filed before the Addl. Commissioner of Income tax,

Range-11;

b) TAN No.BLR100560A and TDS returns

under Section 194C, 194H, 194I, 194J and 195

are filed before Deputy Commissioner, Income Tax

Circle-16.

20. The Commissioner of Income tax, Bangalore

exercising jurisdiction under Subsection (2) of Section

127 of the Act transferred the case of the petitioner with

PAN No. AAAC14403L from ACIT, Circle-11(4) Bangalore

to DCIT (LTU), Bangalore.

21. Admittedly, the ‘DIT(IT)’ assessed the TDS

returns filed by the petitioner in Form No.27Q in respect

of tax deducted at source from the payments made to

non-residents for the assessment years 2006-07 to

2011-12 and passed an order dt. 14.9.2012, exercising

a jurisdiction under notification No.70 dt. 3.9.2010

which is not objected to by the department and is

presently subject matter of appeal pending before the

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Commissioner of (Appeals) 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 DIT (IT) invoked the jurisdiction which the Income

Tax 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 ‘DIT(IT)’ cannot be said to be either

illegal or one without jurisdiction.

22. Indeed, the IT Officer, LTU having processed

petitioner’s returns for the assessment years 2006-07

through to 2009-10, passed orders of even date

28.3.2011 Annexures-R1 to R4 which are carried in

appeal before the Income tax Appellate Tribunal on the

premise of jurisdiction of the officer to assess the

returns filed in Form 26Q in respect of residents and

27Q in respect of non-residents.

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23. The ‘DIT(IT)’ having exercised a jurisdiction

vested in him in respect of TDS returns, since not

transferred, under the order dated 7.11.2007, Annexure

– R11, the IT Officer – LTU was not invested with the

jurisdiction to process the TDS returns filed by the

petitioner in Form No. 27Q relating to non-residents.

24. Petitioner though extended its consent by

filing the Form prescribed, Annexure-R10, to be

administered under the Large Tax Payer Unit by

furnishing details of the returns with registration

number and TAN allotted in respect of TDS returns and

statement filed with the DIT (IT) having jurisdiction, in

terms of the scheme Annexure-R13 however the order

dated 7.11.2007 Annexure-R11 makes reference to a

transfer of the case relating to PAN number of the

petitioner to the DCIT (LTU), Bangalore but makes no

mention of TAN number in respect of returns and

statements of TDS from payments made to both non-

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residents and residents. In the light of the notification

Annexure – H investing a jurisdiction in IT Officer (LTU)

consequent upon the consent of the petitioner in terms

of the scheme, Annexure – R13, it is impermissible to

accept the submission of the learned senior counsel

that in terms of the Notification No.70 dated 3.9.2010

Annexure-G, it is the DIT (IT) alone has jurisdiction over

returns filed by the petitioner in Form No.27Q relating

to TDS from payments to non-residents.

25. It may be true that the ‘DIT(IT)’ has all the

information relating to TDS deduction from payment

made to non-residents 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 ‘DIT(IT)’

pertaining to the petitioner was transferred to the IT

Officer (LTU). Hence it is too far fetched to contend that

the notification No.70 dated 3.9.2010 Annexure-G

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provides for exclusion of the jurisdiction of the IT Officer

(LTU) in respect of TDS from payments made to non-

residents. The notification, Annexure-H is in force

without substitution, modification or reference to the

notifications Annexure-G. In the circumstances, the

submission that the jurisdiction of the IT Officer (LTU)

stood denuded on coming into force of the notification

No.70 dated 3.9.2010, in respect of returns filed in

Form No.27Q over TDS from payments made to non-

residents is unacceptable.

26. In the view taken supra, it is but axiomatic

that the DIT (IT) having processed the returns for the

years 2006-07 to 2011-12, in From No. 27Q in respect

of TDS from payments made to non-residents, and

orders passed on 14.09.2012 exercising jurisdiction

under Notification No. 70 dated 03.09.2010 Annexure –

G (though said to be a mistake according to counsel for

the revenue), the IT Officer(LTU) did have no jurisdiction

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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, Annexures-R1 to R4 of

the IT Officer (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 stands annulled. Sequentially the show cause

notice Annexure-A issued by the IT Officer(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.

27. The questions formulated at (i) to (iii) supra,

are answered accordingly.

28. 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 Section 201(3)

of the Act.

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In the result, these petitions are allowed in part.

The show cause notice, Annexure-A followed by the

order dt. 25.2.2013 Annexure-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 proceeding initiated by the 1st respondent under

Section 201(1) and 201(1A) of the Act in respect of the

aforesaid returns are without jurisdiction.

Sd/-

JUDGE ln