India: Proceedings Against Bharti Airtel For Non- Deduction Of Tax Barred By Limitation

Last Updated: 12 January 2017
Article by Afaan Arshad and Ashish Sodhani
  • In the absence of any limitation period prescribed in the statute, a reasonable period should be applicable for proceedings against non-deduction of tax for payments made to non-residents.
  • Considering that the limitation period prescribed under s. 201(3) of the ITA was not brought about by way of a retrospective amendment, it did not overrule the ratio in NHK Japan, which prescribed a limitation period of 4 years for resident and non-resident deductees.
  • An unending limitation period with respect to initiating proceedings against non-deduction of taxes would operate harshly on non-residents. Such a limitation period cannot be justified on the basis of easing administrative and revenue collection burdens on the Revenue.

Recently, the Delhi High Court in the case of Bharti Airtel Ltd. and Anr. v. Union of India and Anr.1 held that proceedings in relation to non-deduction of tax at source on payments made to non-resident entities is barred by limitation which should be set at 4 years.


Bharti Airtel Limited ("Taxpayer"), a resident Indian entity, had engaged non-resident entities for providing services in relation to inter-connections. In doing so, some charges were accrued - which were paid by the Taxpayer to those foreign entities. The Taxpayer did not withhold taxes while making such payment. Accordingly, show cause notices were issued to the Taxpayer from the Revenue Department asking it to show cause as to why it should not be deemed to be an assessee-in-default as it made payments on account of interconnection charges to various foreign entities without deduction of tax under the Income Tax Act, 1961 ("ITA"). The show-cause notices were issued to the Taxpayer after considerable time had passed i.e. a notice on March 31, 2011 was issued for the financial years 2002 to 2011 and another notice on March 5, 2012 for the financial years 2002 to 2007.


The Taxpayer challenged these show-cause notices by way of a writ petition in the High Court of Delhi. The issue to be decided by the Court was whether the issuance of the show cause notice by the Revenue Department is barred by limitation.

In this context, it should be noted that prior to 2010, there was no limitation period under the ITA for issuance of show cause notice for non-deduction of taxes. In light of no express time limitation, the Delhi High Court in the case of Commissioner of Income Tax v. NHK-Japan Broadcasting Ltd2 and Commissioner of Income Tax v. Hutchison Essar Telecom Ltd3 had set the limitation period at four years. The Finance Act 2009, however, amended the ITA to provide for a limitation period for residents ("Amended Provision") leading to an ambiguity on whether it would also be applicable to non-residents as well. Further, the statement of objects and reasons also did not provide for any explanation in respect of non-residents being left out from the limitation period that was prescribed. However, a circular issued by the Central Board of Direct Taxes stated that no time limit has been prescribed for non-residents "as it may not be administratively possible to recover the tax from the non- resident".


The Taxpayer argued that in the absence of a prescribed time limit under the Amended Provision for non-resident deductees, the ratio in the case of NHK- Japan (Supra) should apply and initiation of proceeding for non-deduction of tax should be within a reasonable period of time. The Court in this case had come to this conclusion on the basis that the period of limitation for initiating proceedings must be the same as the period for completion of assessment as prescribed under the ITA.4 The Taxpayer also argued that the legislature consciously did not provide a limitation period for non-residents as it chose to not disturb the law laid down by the Court in the case of NHK- Japan (Supra).

The revenue, however, relied on Bharat Steel Tubes Ltd. v. State of Haryana5 and stated that the absence of any period of limitation in respect of non-resident remitters meant that the legislature made a conscious distinction between resident and non-resident beneficiaries, based on good reasons. It argued that there is sound rationale for such distinction because in the case of remittances to non-residents, the true nature of the transaction and whether deductions are to be made within the country or not cannot be easily gathered and therefore the legislature did not prescribe any time limit for exercise of powers in respect of such transactions. Further, it argued that NHK- Japan (Supra) was decided before the Amended Provision came into effect and therefore the decision did not examine the true import of the amended provisions.


The Court ruling in favour of the Taxpayer concluded that proceedings for non-deduction of withholding tax under the ITA should be initiated within a reasonable time period. While reaching this conclusion, the Court relied on its earlier decision in the case of Vodafone Essar Mobiles Ltd.6 The Court in the case of Vodafone had held that limitation period of four years as ruled in the case of NHK Japan (Supra) would continue to apply even after the amendment was brought into place. This is because if the intent of the legislature was to nullify the effect of the judgment it would have made the amendment retroactive in nature but since the amendment was prospective in nature the reasonable period of 4 years should continue to apply.

Further, the Court noted that the circular relied on by the Revenue which stated that no limitation has been provided for non-residents as it may not be administratively possible to recover the tax from the non- resident was outrightly rejected by the Court following the decision in the Supreme Court decision of G.E. Technologies,7 wherein the Court had held that administrative convenience (for not imposing a time limit) cannot outweigh the harsh nature of the consequences of unlimited period of time within which a proceeding for non-deduction of tax could be initiated. Accordingly, the Court upheld the decision in the cases mentioned above and held that a reasonable period of 4 years should continue to apply in respect of initiation of proceedings for non-deduction of tax under the ITA.


Needless to say that the judgment is welcomed so much so that it upholds the decision in the earlier cases on a long standing issue which has been debated time and again. In fact, considering that there are precedents on both sides, by dwelling into the Amended Provisions it provides more clarity to the issue. It needs to be considered that if a payment was made by a resident to a non-resident, there should be some certainty to such resident on the proceedings that may be initiated by the Revenue Department for non-deduction of tax. By not having a time limitation on such proceedings, the fear of proceedings will always loom over the resident taxpayer which will tend to create a regressive environment. Additionally, the question that will also need to be answered is for how long should the resident deductor continue to maintain relevant documents i.e. tax returns, books of accounts etc. in relation to the transaction if no time limitation is specified. This again would cause undue hassle and stress to the resident deductor.

The taxpayers of the country have been rooting for a trust based taxation system. It is imperative that certainty, fairness and stability should continue to serve as guiding principles and not the amount of tax that can be collected. It is necessary to guarantee and enforce internationally recognized taxpayer rights and safeguards to counter excessive discretion and corruption. In that sense, keeping the doors open for scrutiny and not providing for a period of limitation in such cases compromises on the certainty and trust sought by taxpayers.


1 W.P.(C) 2166/2012

2 2008 (305) ITR 137 (Del)

3 [2010] 323 ITR 230 (Delhi)

4 Section 147/148 and 153 of the Income Tax Act.

5 70 STC 122 (SC)

6 (385) ITR 436 (Del).

7 2010 (10) SCC 29.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Afaan Arshad
Ashish Sodhani
In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions