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2020 (6) TMI 819 - AT - Income TaxTDS u/s 195 - Levy of interest u/s. 201(1) - CIT-A concluded assessee is not bound to deduct tax at source as per provisions of section 201(1) because the vendors / recipients were not liable for LTCG tax since they had claimed deduction U/s. 54F of the Act by depositing the entire sale proceeds in LTCG scheme account - if the assessee had deducted tax at source and remitted to the Government treasury then the Revenue would have been bound to refund the TDS to the vendors with interest U/s. 244A of the Act since the vendors do not have any liability towards LTCG tax by virtue of their claim of deduction U/s. 54F - CIT (A) deleted the demand raised by the DIT (IT) towards the charge U/s. 201(1) of the Act and levy of interest U/s. 201(1A) - HELD THAT - Order of the ld. CIT (A) for deleting the demand raised by the DIT (IT) towards the charge U/s. 201(1) of the Act and levy of interest U/s. 201(1A) of the Act, without verifying the compliance of the relevant provisions of section 54F of the Act by the NRI vendors, is not justifiable. Since the Ld.DCIT had categorically mentioned in his Order that the NRI vendors had not remitted the sale proceeds in the LTCG Scheme account, the CIT(A) ought to have obtained a remand report from the Ld.DCIT before coming to the conclusion that the assessee had deposited the sale proceeds in the LTCG Scheme account. Decision cited by the assessee in the case of GE India Technology CEN Pvt Ltd 2010 (9) TMI 7 - SUPREME COURT is not applicable to the case of the assessee because in that case it was well established at the time of receipts by the NR that they are not liable to tax in India with respect to the income earned out of such receipts. Similar, though not identical, are the facts with respect to the other cases cited by the Ld. AR. Accordingly, We hereby set aside the Order of the Ld.CIT(A). Assessee Company would be relieved from deducting tax at source from the NRI vendors to whom the assessee had made payment for purchase of their residential property as decided in the Cases cited by the LD.AR. Needless to mention that if the entire sale proceeds is deposited in the LTCG Scheme account, then the same would be under the control of the Revenue and the Revenue would be in a position to recover the LTCG tax arisen subsequently on the non- compliance of the other provisions of Section 54F - if the assessee Company had deducted tax and remitted to the Government Treasury then the same would be credited to the NRI s account by the Revenue as tax paid and accordingly dealt with in the relevant assessment year while computing the tax liability of the NRI vendors. Therefore, in the interest of justice, we hereby remit the matter back to the file of the Ld.DIT(International Taxation) with directions to examine whether the assessee had complied with the first proviso U/s. 201(1) of the Act and whether the recipient NRI s are not liable for LTCG tax during the relevant assessment year by virtue of their entire sale proceeds being deposited in the LTCG Scheme account within the stipulated period under the Act., during the relevant assessment year and if it is found to be in order then delete the demand raised on the assessee U/s. 201(1) and 201(1A) - Appeal of the Revenue is allowed for statistical purposes.
Issues Involved:
1. Deletion of charge levied under Section 201(1) of the Income Tax Act for non-deduction of tax under Section 195. 2. Deletion of interest levied under Section 201(1A) of the Income Tax Act for the period of default in non-deduction of tax at source under Section 195. Issue-wise Detailed Analysis: 1. Deletion of Charge Levied Under Section 201(1) of the Act: The Revenue contended that the assessee, a Private Limited Company, failed to deduct tax at source under Section 195 when making payments to non-resident Indian (NRI) vendors for the purchase of house property. The total sale consideration was Rs. 24,20,00,000, with Rs. 12,10,00,000 paid to four NRIs. The Revenue argued that the assessee should be treated as an "assessee in default" under Section 201(1) for not deducting tax at source. The assessee argued that the NRIs had availed exemptions under Section 54F by depositing the sale proceeds in the Long-Term Capital Gains (LTCG) Scheme account and filing their returns of income, thus negating the requirement for tax deduction at source. The CIT (A) sided with the assessee, noting that the NRIs had claimed exemptions and filed returns, making the assessee not liable as an "assessee in default." The CIT (A) also considered that any tax deducted would be refunded due to the exemptions claimed, rendering the deduction exercise futile. 2. Deletion of Interest Levied Under Section 201(1A) of the Act: The Revenue also challenged the deletion of interest levied under Section 201(1A) for the period of default. The CIT (A) deleted the interest, reasoning that since the NRIs claimed exemptions under Section 54F and filed returns, the assessee was not at fault for not deducting tax. Additionally, any tax deducted would have been refunded with interest, making the levy of interest under Section 201(1A) unnecessary. Tribunal's Observations and Decision: The Tribunal noted conflicting findings between the Ld. DIT (International Taxation) and the CIT (A) regarding the deposit of sale proceeds in the LTCG Scheme account. The Tribunal emphasized that the assessee was obligated to verify the residential status of the vendors and deduct tax at source. It also highlighted that the assessee should have applied under Section 195(2) if it believed the payments were not chargeable to tax. The Tribunal found that the CIT (A) should have obtained a remand report from the Ld. DCIT to verify compliance with Section 54F by the NRI vendors. It referenced a Bombay High Court decision, which held that the first proviso to Section 201(1) is curative and applies retrospectively, allowing the assessee to demonstrate compliance with the proviso. Conclusion: The Tribunal set aside the CIT (A)'s order and remitted the matter back to the Ld. DIT (International Taxation) to verify if the NRIs complied with Section 54F and deposited the sale proceeds in the LTCG Scheme account. If compliance is established, the demand under Sections 201(1) and 201(1A) should be deleted. If not, the Ld. DIT (International Taxation) may pass an appropriate order after providing the assessee an opportunity to be heard. The appeal by the Revenue was allowed for statistical purposes, with directions for the assessee to cooperate with the Revenue authorities.
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