2023 (3) TMI 596 - AT - Income Tax

TDS u/s 195 - non deduction of tax at source - Residential status of payee unknown - Bonafide belief that the payee is resident of India (who is non-resident) - assessee is engaged in the business of real estate and developed a residential apartment complex - consideration paid in terms of the 'Agreement' entered into with Mr. Bhupathi as assessee sold one of the apartments in this residential complex to him - residential status of Mr. Mahesh Bhupathi - HELD THAT - As in the present case, the assessee has not brought on record any evidence to show that at that time of payment it was aware that no amount will be chargeable to tax in the hands of the payee. In fact, as also mentioned above, as per the assessment order in the case of the payee, positive income under the head capital gains has been arrived at, as against loss claimed. The seller was non-resident and he has been associated with the assessee company since 2005, though he provided Indian address for all the transactions carried by him. The claim of the assessee that he is unaware of the residential status of Shri Mahesh Bhupathi cannot be accepted as he was with the company since long time and this argument of the assessee do not come to present assessee s rescue or absolve him of the duty to do what the law required the present assessee to do. In our opinion, facts on record show that the assessee well aware of the residential status of Shri Mahesh Bhupathi and the assessee liable as per the provisions of section 195 of the Act to deduct at a specified rate from the purchase price before making payment to seller, who is being NRI. CIT(A) rightly held that assessee is required to determine the income component involved in the payment to non-resident on account of transfer of immovable property on which withholding tax liability is to be computed and the payer would be considered as being in default for non-withholding of taxes only in relation to such income component. In the present case, Ld. CIT(A) rightly held that assessee is liable to deduct TDS on the income component of Rs.1,74,47,180/- as against the income component determined by AO at Rs.1,97,27,780. Accordingly, these grounds of appeal of the assessee are dismissed. Charging of interest u/s.201 1A - The action of the A.O. in charging the assessee interest u/s 201(1A) is consequent to the quantification of tax demand u/s 201(1) r.w.s. 195 of the Act and is chargeable in respect of any person who has failed to deduct the whole or any part of tax at the rates and specified therein. We, therefore, uphold the charging of interest u/s 201(1A) of the Act. This ground of appeal of the assessee is rejected.

Issues Involved:
1. Liability of the appellant as an assessee in default under Section 201(1) for failure to deduct tax under Section 195.
2. Applicability of Section 195(1) in the context of the appellant's business transactions.
3. Consideration of the transaction year for tax deduction purposes.
4. Quantum of tax liability and interest under Section 201(1) and 201(1A).
5. Validity of the appellant's claims regarding the residential status of the payee.
6. Applicability of Section 194IA versus Section 195.
7. Impact of the payee's reported income on the appellant's liability.
8. Interest liability under Section 201(1A).

Detailed Analysis:

1. Liability as an Assessee in Default under Section 201(1):
The appellant argued against being considered an assessee in default for failing to deduct tax under Section 195, claiming unawareness of the payee's non-resident status. The CIT(A) dismissed this argument, stating that the appellant was in regular contact with the payee and should have known his residential status. The Tribunal upheld this view, emphasizing that bona fide belief does not absolve the appellant from the liability to deduct tax under Section 195.

2. Applicability of Section 195(1):
The appellant contended that the property purchase was in the ordinary course of business and thus Section 195(1) should not apply. The Tribunal rejected this argument, clarifying that Section 195 applies when payments are made to non-residents, regardless of the nature of the transaction. Both conditions for Section 195 were met: the payment was to a non-resident, and the sum was chargeable to tax.

3. Transaction Year for Tax Deduction:
The appellant argued that the transfer took place in the assessment year 2013-14, not in the year when the advance was paid. The Tribunal found that the liability to deduct tax arose in the year the payments were made (FY 2010-11), as the total consideration was known and the first installment was paid during this period. The Tribunal upheld the CIT(A)'s decision that the entire tax on the net capital gains was deductible during FY 2010-11.

4. Quantum of Tax Liability:
The appellant claimed that the tax demanded was excessive. The CIT(A) adjusted the computation by including the stamp duty paid by the payee. The Tribunal upheld this computation, noting that the AO had already excluded the cost of acquisition from the gross payment to arrive at the net capital gains amount. The appellant's argument for further reduction was dismissed.

5. Residential Status of the Payee:
The appellant claimed ignorance of the payee's non-resident status, citing the Indian address provided by the payee. The Tribunal rejected this claim, noting that the payee was associated with the appellant's company since 2005. The Tribunal held that the appellant was aware of the payee's non-resident status and was liable to deduct tax under Section 195.

6. Applicability of Section 194IA:
The appellant argued that there was no requirement to deduct tax at source for property purchases before Section 194IA was enacted. The Tribunal clarified that Section 195, which deals with payments to non-residents, was applicable in this case, not Section 194IA.

7. Impact of Payee's Reported Income:
The appellant argued that since the payee reported the transaction in his income tax return and showed a capital loss, there was no liability to deduct tax. The Tribunal dismissed this argument, stating that the appellant's obligation to deduct tax under Section 195 is independent of the payee's tax return. The Tribunal emphasized that the appellant's liability arises at the time of payment, not based on the payee's reported income.

8. Interest Liability under Section 201(1A):
The appellant contested the interest charged under Section 201(1A). The Tribunal upheld the interest liability, citing the Supreme Court's judgments in Eli Lily and Hindustan Coca Cola Beverages Pvt. Ltd., which mandate interest for failure to deduct tax at source.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s decision that the appellant was liable to deduct tax under Section 195 and was in default for failing to do so. The Tribunal also upheld the computation of tax liability and interest, rejecting the appellant's arguments on all grounds. The order emphasized the importance of compliance with tax deduction requirements, regardless of the appellant's claims of bona fide belief or the payee's reported income.

← Previous Next →