2015 (3) TMI 682 - AT - Income Tax

Non deduction of TDS - payment for purchase of a property - CIT(A) held the assessee as an assessee in default - payment of sale consideration made to a non-resident - Held that - Order of the CIT(Appeals) can be sustained in part only i.e., with regard to the quantum of tax that needs to be deducted at source and consequential levy of interest u/s. 201(1A) of the Act. It is not in dispute that Mrs. Shyamala Vijai and Mrs. Poornima Shivaram were entitled to half share each over the property that was sold to the appellant. In fact, as we have already seen, the sale deed clearly acknowledges the receipt of sale consideration of ₹ 1.20 crore by both the vendors in equal shares. In law, Mrs. Shyamala Vijai and Mrs. Poornima Shivaram are entitled to half share each over the property. The share of each of the vendors would therefore be ₹ 60 lakhs. Mrs. Shyamala Vijai is, admittedly, a non-resident and to the extent of ₹ 60 lakhs paid to her, the provisions of section 195 are attracted and the assessee ought to have deducted tax at source while making payments to the non-resident through Mrs. Shyamala Vijai. Thus we allow the appeals of the assessee in part and hold that the assessee can be considered as an assessee in default only to the extent of ₹ 60 lakhs paid to the non-resident. Levy of consequential interest u/s. 201(1A) should be modified accordingly. - Decided partly in favour of assessee.

Summary

Issues:
Assessment of 'assessee in default' for not deducting tax at source u/s. 201(1) of the Income Tax Act, 1961 while making payment for the purchase of a property.

Analysis:
1. Facts of the Case: The appellant, an individual, purchased a property from co-owners, one of whom was a non-resident. The entire sale consideration of Rs. 1.20 crores was paid to the resident co-owner, Mrs. Shyamala Vijai, who acted as a General Power of Attorney (GPA) holder for the non-resident co-owner, Mrs. Poornima Shivaram.

2. Tax Deduction Obligation: The Income Tax Act, 1961, under section 195, mandates that tax must be deducted at source when making payments to non-residents. The appellant failed to deduct tax at source as required by law, which led to the Assessing Officer treating the appellant as an 'assessee in default.'

3. Assessing Officer's Order: The Assessing Officer calculated the tax liability under section 201(1) of the Act, amounting to Rs. 26,88,000, along with interest under section 201(1A) totaling Rs. 40,75,040 for the assessment year 2009-10.

4. Appeal before CIT(Appeals): The appellant contended that since the payment was made to a resident co-owner, tax deduction at source was not applicable. Additionally, it was argued that the non-resident co-owner had reinvested the capital gain, making it non-taxable. However, the CIT(Appeals) rejected these contentions, emphasizing that the non-resident co-owner's share was chargeable to tax in India.

5. Tribunal's Decision: The Tribunal upheld the CIT(Appeals) decision partially. It ruled that tax deduction at source was required only on the amount paid to the non-resident co-owner, i.e., Rs. 60 lakhs out of the total consideration. The Tribunal differentiated this case from a previous decision and modified the levy of interest under section 201(1A) accordingly.

6. Conclusion: The Tribunal partially allowed the appeals, holding the appellant as an 'assessee in default' only for the amount paid to the non-resident co-owner. The decision clarified the tax deduction obligation concerning payments made to non-residents under section 195 of the Income Tax Act, 1961, emphasizing the specific share of the non-resident co-owner in the transaction.