The department had initiated proceedings against Vodafone and TTSL in 2011 on the ground that the companies had allegedly failed to deduct tax deducted at source (TDS) for those assessment years.
The Delhi High Court on Wednesday set aside notices issued by the Income Tax department to Vodafone Essar Mobile Services Ltd (VEMSL) and Tata Teleservices Ltd (TTSL) to initiate proceedings to declare them as TDS defaulters for assessment years 2003-04, 2004-05 and 2005-06.
The department had initiated proceedings against Vodafone and TTSL in 2011 on the ground that the companies had allegedly failed to deduct tax deducted at source (TDS) for those assessment years.
The department was of the view that as per a 2009 amendment in the tax law, it can initiate proceedings under the Income Tax Act for treating an assessee as a defaulter even in respect of alleged failure to deduct TDS for a period more than four years earlier to March 31, 2011.
Disagreeing with the department's stand, a bench of justices S Muralidhar and Vibhu Bakhru said under the amended provisions of the Act the government cannot initiate proceedings against a company for failing to deduct TDS four years prior to March 31, 2011.
Referring to a circular issued by Central Board of Direct Taxes (CBDT) regarding the amended provision, the bench said the amendment was "meant to expand time limit for completing proceedings and passing orders in relation to pending cases".
"The said proviso (introduced by the amendment) cannot be interpreted, as is sought to be done by the department, to enable it to initiate proceedings for declaring an assessee to be an assessee in default under section 201 of the Act for a period earlier than four years prior to March 31, 2011," it said.
"Accordingly, insofar as the notices for assessment years 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.
"Consequently, the notices impugned in the present petitions issued by the Department seeking to initiate proceedings against the petitioners (Vodafone and TTSL) for declaring them to be assessees in default under Section 201(3) of the Act are hereby quashed," the bench added.
