Law:

Section:

Section 201, read with sections 163 and 231 of the Income-tax Act, 1961 - Deduction of tax at source - Consequence of failure to deduct or pay - Assessment years 1958-59 to 1964-65 - Whether section 201 itself containes a deeming provision whereby person referred to in said section , in consequence of his failure to deduct and pay tax which he was liable to deduct and pay, becomes an assessee in default and no further action on part of ITO is necessary or envisaged under section to make such person an assessee in default - Held, yes - Assessee company made remittances to parent company which was non resident - As assessee had not deduct tax from amounts remitted, ITO vide order dated 1-3-1965 called upon assessee under section 201(1) to pay tax - Whether proceedings under section 201(1) were recovery proceedings and limitation prescribed in section 231 was applicable to order passed under section 201(1) - Held, yes - Whether, therefore, order passed under section 201 (1) was barred by limitation - Held, yes FACTS The assessee-company had made certain remittances to its parent company, which was a non-resident company. The ITO was of the view that the said remittances were income chargeable to tax. As the assessee had not deducted tax from the amounts remitted as required under section 195(1) the ITO by a letter dated 1-3-1965, called upon the assessee under section 201(1) to pay a sum being the amount of tax which should have been deducted and paid by the assessee. On appeal, the assessee contended that it had no obligation to deduct taxes from the remittances which, though having an element of income or profit, did not constitute chargeable income and that it, being an agent within the meaning of section 163(1), was not liable to deduct such tax or to pay the same. The AAC held that the payments were in the nature of royalty and rejected the contentions of the assessee. The AAC, however, held that the ITO should have assessed the assessee as agent of the parent company. He also found that the said order under section 201(1) was a proceeding for recovery of tax and thus had become time barred under section 231 The AAC, accordingly, cancelled the order of the…

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