2022 (10) TMI 277 - AT - Income Tax

TDS u/s 195 - assessee during the year under consideration has purchased 0.68 acres land from four non-resident Indians for total consideration - interest u/s. 201 and 201(1A) - 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. 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. 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) of the Act 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 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. Applicability of Section 201(1) and 201(1A) for non-deduction of TDS.
3. Jurisdiction and limitation period for passing the assessment order.
4. 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:
The primary issue revolves around the assessee's failure to deduct tax at source while purchasing land from four Non-Resident Indians (NRIs) for Rs. 2,00,76,000/-. The Assessing Officer (AO) deemed the assessee in default under Section 201(1) for not complying with Section 195, which mandates TDS on payments to NRIs. The assessee argued ignorance of Section 195, but this explanation was rejected by the AO, who held the assessee liable for the capital gains tax on the sale.

2. Applicability of Section 201(1) and 201(1A) for non-deduction of TDS:
The AO levied interest under Section 201(1A) for the non-deduction of TDS. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this decision, stating that Section 195(1) clearly mandates TDS deduction, making the assessee liable under Sections 201(1) and 201(1A). However, the CIT(A) also noted that if the payee had paid the tax, the assessee would not be deemed in default, as per the proviso added by the Finance Act, 2012. This proviso, however, applies only to residents, not NRIs.

3. Jurisdiction and limitation period for passing the assessment order:
The assessee contended that the assessment was barred by limitation and void-ab-initio, as it was passed beyond the period specified under Section 201(3). The CIT(A) did not find merit in this argument and upheld the AO's jurisdiction and the validity of the assessment order.

4. 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 apply once the recipient has paid the tax. They claimed that levying interest would result in double taxation. The CIT(A) acknowledged that the primary liability ceases once the recipient pays the tax, but still upheld the interest levy, as the assessee did not deduct TDS initially.

Tribunal's Decision:
The Tribunal found that the CIT(A) erred in applying the proviso to Section 201(1) retroactively to the assessment year 2009-10. They emphasized that the amendment effective from 01.07.2012 does not apply to the impugned year. Consequently, the Tribunal reversed the CIT(A)'s order, holding the assessee liable under Sections 201(1) and 201(1A) without considering the proviso. The Tribunal dismissed the grounds raised by the assessee regarding jurisdiction, limitation, and double taxation, thereby allowing the revenue's appeal and dismissing the assessee's appeals.

Conclusion:
The Tribunal upheld the AO's decision to treat the assessee as in default for non-deduction of TDS under Section 195 and levied interest under Section 201(1A). The appeals by the assessee were dismissed, and the revenue's appeal was allowed, reinforcing the strict application of TDS provisions on payments to NRIs.