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2009 (4) TMI 546 - AT - Income TaxTDS u/s 195 - assessee in default as per the provisions of section 201 1 - AO held that the deductee has paid tax on other income and has not paid tax on the transactions on which tax was to be deducted. Therefore, he treated the assessee-in-default in terms of provisions of section 201(1) and 201(1A) - CIT(A) held that tax was not required to be deducted. HELD THAT - It is seen that the credit was made on 1-4-2003 while the valuation report is dated 1-11-2003. Hence, on the date of credit, it was not known to the deductor that the amount paid will be resulting into loss. The deductor cannot make an assessment of income in the hands of the deductee. The deductee filed the return of income and since the transaction in question was between the associated concerned, therefore, as a result of transfer pricing adjustment, it was held that there was short-term capital gain. Hence, the transaction on which the deductor has not deducted tax at sources has resulted into assessment of income in the hands of the deductee. If the contention of the appellant is accepted that it was knowing that the transaction will result into loss in the hands of deductee and, hence, tax has not been deducted then every deductor may not deduct tax at source from payments like interest without collecting the appropriate declaration from the deductee that his income is below taxable limit. When the Act has provided that an assessee can make an application for no deduction or short deduction then such provision cannot be bypassed by merely stating that the deductor was aware that the transaction will result into loss. Hence, the deductor was liable to deduct tax as the transaction was to be considered for computation of income. The deductor was required to deduct the tax at source and, therefore, the deductor was an assessee-in-default since a deductee has filed the return and has disclosed the transaction in the return of income and that shows no tax was payable on such transaction. Therefore, the default will end on the date when the deductee has filed the return. Hence, the deductor will be liable to interest u/s 201(1A) up to 1-11-2004. However, there will be no deduction u/s 201 since the deductee has filed the return and has disclosed the transaction and no tax is payable as per the return on such transaction by the deductee. Hence, order of CIT(A) in cancelling the demand u/s 201 is upheld. However, it is held that the deductor will be liable to pay interest on the amount of tax to be deducted from the date of deduction till 1-11-2004. In the result, the appeal of the revenue is partly allowed.
Issues Involved:
1. Applicability of Section 195 of the Income-tax Act, 1961. 2. Requirement of Tax Deduction at Source (TDS) on payments made to non-residents. 3. Treatment of the payer as an assessee-in-default under Section 201(1). 4. Liability for interest under Section 201(1A). 5. Consideration of the deductee's tax payments and returns. Detailed Analysis: 1. Applicability of Section 195 of the Income-tax Act, 1961: The primary issue was whether Section 195, which mandates tax deduction at source (TDS) on payments to non-residents, applied to payments made by M/s. Intel Technology India Private Ltd. ('Intel') to M/s. Intel Asia Electronics Inc. USA (India Branch Office) ("Intel Asia"). The Assessing Officer (AO) argued that Section 195 was applicable because the payment was towards the sale of depreciable assets, which is chargeable to tax as short-term capital gains under Section 50. The assessee contended that Section 195 did not apply since Intel Asia was a tax resident in India and had already paid taxes. 2. Requirement of TDS on Payments Made to Non-Residents: The AO found that Intel failed to deduct tax at source when crediting Rs. 2,60,00,000 to Intel Asia's account, despite the sale proceeds being chargeable to tax. The AO cited the Supreme Court's decision in Transmission Corporation of AP Ltd. v. CIT, which held that tax must be deducted on gross sums, irrespective of whether the transaction resulted in profit or loss. The assessee argued that no TDS was required as the transaction resulted in a loss for Intel Asia and that Intel Asia had already deposited the tax. 3. Treatment of the Payer as an Assessee-in-Default under Section 201(1): The AO treated Intel as an assessee-in-default under Section 201(1) for failing to deduct tax at source. The assessee relied on the Supreme Court's decision in Hindustan Coca Cola Beverage (P.) Ltd. v. CIT, which held that no recovery could be made from the deductor if the deductee had already paid the taxes. The CIT(A) accepted this argument, noting that Intel Asia had filed its return and paid due taxes, thus fulfilling the purpose of the Act. 4. Liability for Interest under Section 201(1A): The AO imposed interest under Section 201(1A) for the belated payment of taxes. The CIT(A) held that since Intel Asia had filed its return and paid taxes, Intel could not be treated as an assessee-in-default, and thus, no interest was chargeable. However, the Tribunal held that while the demand under Section 201 was not enforceable, Intel was liable to pay interest under Section 201(1A) up to the date Intel Asia filed its return (1-11-2004). 5. Consideration of the Deductee's Tax Payments and Returns: The CIT(A) and the Tribunal both considered the fact that Intel Asia had filed its return and paid the due taxes. The CIT(A) observed that Intel Asia had shown a short-term capital loss on the transaction and paid Rs. 3,21,700 on other income. The Tribunal noted that the deductee's return showed no tax payable on the transaction, ending Intel's default on the date the return was filed. Conclusion: The Tribunal concluded that Intel was required to deduct tax at source under Section 195, as the transaction was chargeable to tax. However, since Intel Asia had filed its return and paid the due taxes, Intel could not be treated as an assessee-in-default under Section 201. Nonetheless, Intel was liable to pay interest under Section 201(1A) up to the date Intel Asia filed its return. The appeal of the revenue was partly allowed, upholding the cancellation of the demand under Section 201 but imposing interest liability on Intel.
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