2018 (1) TMI 1448 - AT - Income Tax

TDS u/s 195 - Assessee-in-default by levying a tax u/s 201(1) & 201(1A) - payment to a Non- Resident, but had not deducted tax at source before making the payment - HELD THAT - The assessee has made the payment to the non-residents only. In such circumstances, the assessee is required to deduct the tax at source u/s 195 before making the payment. The assessee has clearly failed to do so and therefore, the AO has initiated the proceedings u/s 201(1) of the Act by issuance of a notice dated 19.6.2013. The contention that section 201(1) proceedings have been initiated only because the vendors have not paid the tax also is incorrect as in the case of the vendors, notices u/s 148 were issued on 14.2.2014 i.e. after initiation of the proceedings u/s 201(1) of the Act in the case of the assessee on 19.06.2013. Further, it is noticed that the order u/s 201(1) is dated 27.1.2016 i.e. after introduction of the proviso to section 201(1) of the Act, wherein it has been provided that an assessee shall not be treated as an assessee in default if the recipient has filed the return of income and has offered the receipt to tax. Therefore, we are of the opinion that the AO s recitals about the non-filing of the return and non-offering of the income by the vendors is only to demonstrate that the income of the vendors has escaped assessment. The second objection the assessee is that Article 26 of Indo-US DTAA is applicable - As regards Article 26 of Indo-US DTAA, we find that it is against discrimination of non-residents vis- -vis the residents of the contracting States under similar circumstances. The underlying principle of Article 26 is that the non-resident shall not be treated less favourably than the residents of the contracting state and the requirements connected with taxation shall not be more burdensome than they are for residents. But in the case before us, there is no discrimination against the NRI s. We are dealing with the liability of the assessee to deduct TDS and not about the liability of the non-residents. The income in the hands of the NRI s is taxable under the head capital gains and the provisions of section 195 are attracted also because they are non-residents. As rightly argued by the assessee, the assessee is required to make the TDS from credit or payments made by it and not on what the vendors are deemed to have received from the sale of their property. Therefore, as far as the liability of the assessee is concerned, we have no hesitation to hold that it shall only be on the actual consideration credited or paid by the assessee, whichever is earlier. Further, as seen from the assessment order, the assessee has already paid taxes on the LTCG accruing to the vendors on the actual payment made by him. Therefore, we are of the opinion that the assessee cannot be treated as an assessee in default u/s 201(1) of the Act, but is only liable for interest u/s 201(1A) of the Act till the date of payment of taxes by him.

Summary

Issues Involved:
1. Sustainability of the CIT(A)'s order in law and facts.
2. Treatment of the appellant as an "assessee-in-default" under Sections 201(1) and 201(1A) of the Income Tax Act, 1961.
3. Application of Section 50C for deemed consideration.
4. Applicability of Article 26 of the Indo-US Double Taxation Avoidance Agreement (DTAA).
5. Tax liability under Section 201(1) and 201(1A) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Sustainability of the CIT(A)'s Order in Law and Facts:
The assessee contended that the CIT(A)'s order confirming the AO's decision under Sections 201(1) and 201(1A) was unsustainable both in law and facts. The Tribunal found that the CIT(A) upheld the AO's order, treating the assessee as an "assessee-in-default" for failing to deduct tax at source while making payments to non-residents.

2. Treatment of the Appellant as an "Assessee-in-Default" Under Sections 201(1) and 201(1A):
The AO initiated proceedings under Section 201(1) because the assessee did not deduct TDS while purchasing property from non-residents. The AO treated the assessee as an "assessee-in-default" for a tax amount of ?6,06,711 and computed interest under Section 201(1A) at ?4,48,966, totaling ?10,55,677. The Tribunal concluded that the assessee's liability under Section 195 is independent and precedes the vendors' liability to file returns and pay taxes.

3. Application of Section 50C for Deemed Consideration:
The AO applied Section 50C, adopting the sale consideration at ?58,11,100 instead of the actual ?48,00,000. The Tribunal held that the assessee's TDS liability should be based on the actual payment made, not the deemed consideration under Section 50C. Thus, the assessee's liability should only be on the actual consideration paid.

4. Applicability of Article 26 of the Indo-US DTAA:
The assessee argued that under Article 26 of the Indo-US DTAA, they should not be treated as an "assessee-in-default." The Tribunal found that Article 26, which prevents discrimination against non-residents, was not applicable to this case. The Tribunal emphasized that the issue was the assessee's liability to deduct TDS, not the non-residents' tax liability.

5. Tax Liability Under Section 201(1) and 201(1A):
The Tribunal noted that the assessee had already paid tax on the Long Term Capital Gain (LTCG) based on the actual payment. The Tribunal held that the assessee could not be treated as an "assessee-in-default" under Section 201(1) but was liable for interest under Section 201(1A) until the date of tax payment.

Conclusion:
The Tribunal partially allowed the appeal, holding that the assessee was not an "assessee-in-default" under Section 201(1) but was liable for interest under Section 201(1A). The Tribunal rejected the additional grounds of appeal and the applicability of Article 26 of the Indo-US DTAA. The order was pronounced on January 25, 2018.