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2012 (10) TMI 293 - AT - Income TaxNon deduction of TDS - payment for purchase of three bedroom residential flat in the land at a multistoried residential complex - assessee in default u/s 201(1) - Held that - From a plain reading of section 195(1) it is clear that the assessee was liable to deduct tax at source at the specified rates (i.e. 20% plus surcharge 10% and education cess 2%) from out of the sale consideration paid by him to the seller of the said flat purchased by him as she was an NRI. If the assessee (i.e. the person responsible for paying such sum to the NRI seller) was of the view that the whole or part of such sum viz. the sale consideration, would not be income chargeable in the hands of the recipient (i.e. in this case the seller, an NRI), Section 195(2) required him to make an application to the Assessing Officer under section 197 r.w.s. 195(2) to determine the amount chargeable and upon such determination deduct tax on such sum so determined. A plain reading of the provisions of section 201 of the Act clearly indicate that it is consequential and gets activated the moment an assessee liable to deduct tax under the Act fails to either deduct or pay the same at source - As decided in CIT Versus Samsung Electronics Co. Ltd. 2009 (9) TMI 526 - KARNATAKA HIGH COURT the Assessing Officer is competent to quantify and raise demand under section 201 and issue notice of demand under section 156 the moment the assessee failed to deduct tax at source at the specified rate from the sale consideration before making payment of the same to the seller who is an NRI in the relevant period. The action of the AO in charging the assessee, interest under section 201(1A) is consequent to the quantification of tax demand under section 201(1) r.w.s. 195 and is chargeable in respect of any person who has failed to deduct the whole or part of any tax at the rates and period specified therein. Therefore, uphold the Assessing Officer s action of charging of interest under section 201(1A). The CIT (Appeals) has already addressed issue of quantification of interest in which he has directed the Assessing Officer to verify the assessee s claim of payment of taxes to the extent of ₹ 2,61,764 on 24.10.2009 out of demand of ₹ 13,82,820 and rework the interest chargeable under section 201(1A) of the Act. As no submissions have been made with regard to any error by the learned CIT (Appeals) in his order, the assessee s grounds on this issue are dismissed as infructuous - appeal decided against assessee.
Issues Involved:
1. Applicability of Section 195 of the Income Tax Act, 1961. 2. Determination of the assessee's default under Section 201(1) of the Act. 3. Basis for quantifying tax deduction at source (TDS). 4. Competence of the Assessing Officer to raise demand under Section 201(1). 5. Charging of interest under Section 201(1A). Issue-wise Detailed Analysis: 1. Applicability of Section 195 of the Income Tax Act, 1961: The primary issue was whether the assessee was liable to deduct tax at source under Section 195 of the Act for the purchase of a residential flat from an NRI. The assessee contended that he was under the impression that the seller was a resident of India and hence did not deduct tax. However, the Tribunal noted that the sale deed clearly indicated the seller's address in Hong Kong, establishing her NRI status. The Tribunal held that the assessee was liable to deduct tax at source at the specified rates (20% plus surcharge and education cess) from the sale consideration of Rs. 61,62,500 before making payment to the seller. This decision was supported by the precedent set in the case of Meena S Patil v. ACIT. 2. Determination of the Assessee's Default under Section 201(1) of the Act: The Tribunal upheld the findings of the Assessing Officer and the CIT (Appeals) that the assessee was in default under Section 201(1) for failing to deduct tax at source as required by Section 195. The Tribunal emphasized that the assessee's lack of awareness of the provisions of Section 195 did not absolve him of his statutory obligations. 3. Basis for Quantifying Tax Deduction at Source (TDS): The assessee argued that TDS should have been calculated on the capital gains of Rs. 9,29,753 rather than the entire sale consideration. However, the Tribunal clarified that under Section 195(1), tax must be deducted on the entire sum chargeable under the provisions of the Act. The Tribunal pointed out that the assessee did not apply to the Assessing Officer under Section 197 for lower or no deduction of tax. Consequently, the assessee was statutorily obligated to deduct tax on the entire sale consideration. The Tribunal cited the Supreme Court's decision in Transmission Corporation of A.P. Ltd. to support this view. 4. Competence of the Assessing Officer to Raise Demand under Section 201(1): The assessee contended that the Assessing Officer should have quantified the demand under Section 221 of the Act rather than Section 201(1). The Tribunal disagreed, citing the Karnataka High Court's decision in CIT v. Samsung Electronics, which clarified that the Assessing Officer is competent to raise a demand under Section 201(1) when an assessee fails to deduct tax at source. The Tribunal held that the Assessing Officer correctly raised the demand under Section 201(1) and issued a notice under Section 156. 5. Charging of Interest under Section 201(1A): The assessee challenged the levying of interest under Section 201(1A). The Tribunal upheld the Assessing Officer's action, noting that interest under Section 201(1A) is consequential to the quantification of tax demand under Section 201(1). The Tribunal found that the CIT (Appeals) had already addressed the issue by directing the Assessing Officer to verify the payment of taxes and rework the interest chargeable. As no errors were pointed out in the CIT (Appeals)'s order, the Tribunal dismissed the assessee's grounds as infructuous. Conclusion: The Tribunal dismissed both appeals filed by the assessee, upholding the findings of the Assessing Officer and the CIT (Appeals) regarding the applicability of Section 195, the determination of default under Section 201(1), the basis for quantifying TDS, the competence of the Assessing Officer to raise demand, and the charging of interest under Section 201(1A).
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