2022 (7) TMI 693 - AT - Income Tax

TDS u/s 195 - default u/s. 201 - Non deduction of TDS on payment made to non-resident -HELD THAT - In the instant case, Smt. Davuluri Sai Swapna has filed her return of income in response to the notice U/s. 148 of the Act for the AY 2012-13 admitting a total taxable income of Rs. 16,16,878/- and offered capital gains of Rs. 15,22,953/-. AO of the non-resident ITO, Ward-12(2), Hyderabad passed the assessment order U/s. 143(3) r.w.s 147 of the Act on 12/6/2019 accepting the return filed by the NRI Smt. Davuluri Sai Swapna. Since the non-resident has discharged her obligation with respect to payment of capital gains tax, the assessee cannot be taxed once again for non-deduction of TDS U/s. 195. It is also observed that the seller Smt. Davuluri Sai Swapna is a non-resident from the assessment order passed by AO, Ward-12(2), Hyderabad. Similarly it is also noticed that the AO erred in not adopting the SRO value as prescribed U/s. 50C of the Act while concluding the assessment of the Non-Resident. The reliance placed by the Ld. DR in ITO vs. Shri Rang Infrastructure (P) Ltd ( 2019 (9) TMI 307 - ITAT AHMEDABAD is distinguishable on the fact that the extension of the period of time limit U/s. 201(3) applies only to residents and not to NRIs and hence reliance cannot be placed for the instant case. Thus we are of the considered view that treating the assessee as an assessee in default U/s. 201 of the Act is not valid in law. We therefore are inclined to quash the order of the Ld. CIT(A). Appeal of assessee allowed.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Validity of treating the assessee as an assessee in default under Section 201(1) and 201(1A) of the Income Tax Act.
3. Time limit for initiating action under Section 201(1) and 201(1A).
4. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and the USA.
5. Double taxation and interest duplication issues.
6. Applicability of Section 50C of the Act in determining tax liability under Section 195.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of 296 days. The assessee filed a condonation petition, and the Tribunal, referring to the Supreme Court's decision in SMW(A) No.3 of 2020, excluded the period between 15/3/2020 and 28/02/2022 for calculating the delay. Consequently, the delay was condoned, and the case was adjudicated on its merits.

2. Validity of Treating the Assessee as an Assessee in Default:
The assessee purchased an immovable property from a non-resident and a resident but failed to deduct tax at source on payments made to the non-resident, as required under Section 195 of the Act. The AO treated the assessee as an assessee in default under Section 201(1) and levied interest under Section 201(1A). The Ld. CIT(A) partly allowed the assessee's appeal, but the assessee contested the decision further.

3. Time Limit for Initiating Action under Section 201(1) and 201(1A):
The Tribunal noted that there is no specific time limit provided under the Act for treating an assessee as in default concerning payments made to non-residents. However, it referred to judicial precedents, including decisions from the Delhi High Court and the Bombay High Court, which generally considered a four-year period as a reasonable time limit for initiating action under Sections 201(1) and 201(1A). The Tribunal concluded that since the AO issued the notice after five years, the action was barred by limitation.

4. Applicability of DTAA between India and the USA:
The assessee argued that under Article 26 of the DTAA between India and the USA, payments made to a national of the USA should not be subject to TDS on the transaction of purchasing a capital asset. However, this ground was withdrawn by the assessee during the proceedings.

5. Double Taxation and Interest Duplication Issues:
The Tribunal observed that the non-resident seller had already filed her income tax returns and paid the capital gains tax. Therefore, taxing the assessee again for non-deduction of TDS would amount to double taxation, which is not permissible under law. The Tribunal also noted that levying interest under Section 201(1A) when the tax was already determined in the hands of the payee would result in duplication of interest, which is not allowed.

6. Applicability of Section 50C of the Act:
The Tribunal agreed with the assessee's contention that the provisions of Section 50C, which deal with the valuation of capital assets for the purpose of calculating capital gains, do not apply to the deduction of tax under Section 195. The Tribunal cited previous decisions supporting this view.

Conclusion:
The Tribunal quashed the order of the Ld. CIT(A) and held that treating the assessee as an assessee in default under Section 201 of the Act was not valid in law. The appeal of the assessee was allowed, and the order was pronounced in the open court on 14th July 2022.