2022 (9) TMI 1147 - AT - Income Tax

TDS u/s 195 - assessee did not deduct tax at source while making the payments to the Non- Residents - assessee in default u/s. 201(1) - HELD THAT - The word payee was substituted for resident by the Finance (No.2)Act, 2019 w.e.f. 01.09.2019. Therefore, prior to the amendment, the first proviso to section 201(1) of the Act is applicable only in respect of resident payee and not non-resident payee. Therefore, the ld.CIT(A) despite knowing the fact that the language of section 195(1) for deduction of tax by the payer is clear and unambiguous, gave relief to the assessee by relying on amendment to the proviso to section 201(1) inserted in the statute book by the Finance Act, 2012 w.e.f. 01.07.2012. In our opinion, the said amendment is not applicable to the impugned assessment year. Under these circumstances, we are of the considered opinion that the CIT(A), instead of following the settle position of law that the provisions of statute as on the date of default committed by the assessee would apply and therefore liability u/s. 201(1) arises upon such default, directed the AO to make due verification of taxes paid by the payee and to calculate levy of tax u/s. 201(1) and levy of interest u/s. 201(1A) is not correct. We, therefore, reverse the order of the ld.CIT(A) on this issue and the grounds raised by the revenue are allowed. In view of our above discussion, the grounds raised by the assessee are dismissed.

Summary

Issues Involved:
1. Non-deduction of tax at source under Section 195 of the Income Tax Act.
2. Liability under Sections 201(1) and 201(1A) for failure to deduct tax.
3. Applicability of the proviso to Section 201(1) regarding resident and non-resident payees.
4. Jurisdiction and limitation period for passing the assessment order.
5. Double taxation and compensatory nature of interest under Section 201(1A).

Detailed Analysis:

1. Non-deduction of Tax at Source under Section 195 of the Income Tax Act:

During the proceedings under Sections 201(1) and 201(1A) of the Income Tax Act, the Assessing Officer (AO) observed that the assessee purchased 0.68 acres of land from four Non-Resident Indians (NRIs) for a total consideration of Rs. 2,00,76,000/-. The assessee did not deduct tax at source while making payments to the NRIs. The assessee claimed ignorance of the provisions of Section 195, which mandates tax deduction at source for payments to NRIs. The AO did not accept this explanation and treated the assessee as a defaulter under Section 201(1) for not deducting tax at source.

2. Liability under Sections 201(1) and 201(1A) for Failure to Deduct Tax:

The AO held the assessee liable under Section 201(1) for non-deduction of tax and levied interest under Section 201(1A). The CIT(A) upheld this decision, stating that the language of Section 195(1) is clear and unambiguous, casting an obligation on the payer to deduct tax at the appropriate rates. Thus, the assessee was deemed to be in default and liable for tax and interest under Sections 201(1) and 201(1A).

3. Applicability of the Proviso to Section 201(1) Regarding Resident and Non-Resident Payees:

The CIT(A) noted that the Finance Act, 2012 introduced a proviso to Section 201(1), stating that if the payee has paid the tax, the payer who failed to deduct tax will not be deemed to be in default. However, this proviso applies only to resident payees. The CIT(A) directed the AO to verify if the non-resident payees had paid the tax and to calculate the levy of tax and interest accordingly. The Tribunal found this approach incorrect, as the amendment was effective from 01.07.2012 and not applicable to the assessment year 2009-10. Moreover, the proviso originally applied only to resident payees, not non-resident payees.

4. Jurisdiction and Limitation Period for Passing the Assessment Order:

The assessee contended that the assessment order was barred by limitation and void ab initio as it was passed beyond the specified period under Section 201(3). Additionally, the assessee argued that the Income Tax Officer (International Taxation) lacked jurisdiction. However, these arguments were not upheld by the Tribunal, which found the assessment and jurisdiction to be valid.

5. Double Taxation and Compensatory Nature of Interest under Section 201(1A):

The assessee argued that interest under Section 201(1A) is compensatory and should not be levied if the recipient has already paid the tax, as this would result in double taxation. The CIT(A) and the Tribunal did not accept this argument, stating that liability under Section 201(1) arises immediately upon default, and interest under Section 201(1A) is applicable until the tax is paid by the deductee.

Conclusion:

The Tribunal reversed the CIT(A)'s order directing the AO to verify taxes paid by the payee and calculate tax and interest accordingly. It held that the amendment to Section 201(1) was not applicable to the assessment year in question and that the assessee was liable under Sections 201(1) and 201(1A) for non-deduction of tax at source. The appeals by the assessee were dismissed, and the appeal by the revenue was allowed. The order was pronounced in the Open Court on 23rd September 2022.