2006 (11) TMI 238 - AT - Income Tax

Summary

Issues:
1. Tax withholding demand under sections 201 and 201(1A) of the IT Act, 1961 for non-deduction of tax at source from payment made towards purchase of land owned by non-residents based in the UK.
2. Appeal against the penalty levied under section 271C(1) of the Act for alleged failure to deduct tax at source.

Analysis:
1. The key issue in the first appeal (ITA No. 752/Mum/2009) was whether the assessee should be treated as an assessee in default under sections 201 and 201(1A) read with section 195 of the IT Act for not deducting tax at source from payment made towards purchasing land owned by non-residents based in the UK. The Assessing Officer (AO) held the assessee in default as no tax was deducted at source from the payment made to an Indian resident holding power of attorney for the non-resident co-owners of the land. The AO relied on the Supreme Court judgment and raised a tax liability of Rs. 4,41,680 along with interest. The CIT(A) upheld the demand, considering the payment as made to non-residents. However, the ITAT Chandigarh-A, after analyzing the legal position and facts, concluded that the payment made to the Indian resident was not covered under section 195 of the Act as the resident had the right to sell the land and was not merely an agent. Referring to relevant case laws, the ITAT quashed the tax withholding demand, providing relief to the assessee.

2. The second appeal (ITA No. 753/Mum/2009) focused on the penalty levied under section 271C(1) of the Act for the alleged failure to deduct tax at source from the payment made for land purchase. Since the ITAT had already ruled in the first appeal that the assessee was not in default under sections 201 and 201(1A) with respect to section 195, the cause of action for the penalty no longer existed. Consequently, the ITAT allowed the appeal, leading to the deletion of the penalty levied under section 271C(1) of the Act.

In conclusion, both appeals were allowed by the ITAT Chandigarh-A, providing relief to the assessee by quashing the tax withholding demand and deleting the penalty levied under section 271C(1) of the IT Act in light of the legal interpretations and factual circumstances presented during the proceedings.