The Supreme Court on Monday agreed to examine the Income Tax Department’s challenge to a Madras High Court judgment that had granted partial relief to Vedanta in a dispute over the alleged failure to deduct tax at source on payments made to an overseas group company.
A Bench of Justices K V Viswanathan and Vijay Bishnoi condoned a delay of 151 days in filing the special leave petition by the tax department and issued notice in the matter.
The controversy stems from payments made by Vedanta between assessment years 2009-10 and 2014-15 to Vedanta Resources Public Limited Company, a non-resident entity, under consultancy and representative office agreements. The Income Tax Department alleged that the company failed to deduct tax at source on those remittances.
Subsequently, the department treated Vedanta as an assessee in default and issued show-cause notices along with tax demands covering assessment years 2010-11 to 2015-16.
Vedanta challenged the proceedings before the Madras High Court. A single judge, in a February 24, 2023 ruling, held that such proceedings could be initiated within a “reasonable period” and treated seven years as the applicable benchmark.
The company later filed writ appeals contending that the proceedings were barred by limitation and arguing that several judicial precedents had recognised four years as the reasonable outer limit in comparable cases.
On August 29, 2025, a Division Bench of the High Court partly accepted Vedanta’s challenge and held that the tax authorities could not mechanically apply a uniform seven-year limitation standard across all assessment years.
The High Court observed that “seven years cannot be the reasonable for all the subject assessment years” and that a “‘one-size-fits-all’ approach ill-fits the facts on hand.”
While declining to prescribe a rigid limitation period, the Division Bench treated six years as the appropriate benchmark in the facts of the case. It accordingly quashed proceedings for assessment years 2010-11 and 2012-13 to 2015-16, while sustaining the proceedings relating to assessment year 2011-12.
