2015 (7) TMI 655 - AT - Income Tax

Levy of interest u/s 201(1A) - failure to deduct TDS - AO referring to CBDT Circular dated 29/01/07 vide Circular No. 275/201/95-IT(B), dated 29/01/1997 held that charging of interest u/s 201(1A) till the date of payment of taxes by deductee is mandatory - Jurisdiction of AO to levy interst - Held that - As the present proceeding arises out of the direction of the Tribunal in the earlier round, wherein assessee s ground on jurisdictional issue was not entertained, assessee cannot again raise the issue before this forum. In the aforesaid facts and circumstances, we decline to entertain assessee s ground on jurisdiction. Applicability of section 115E to non-resident to whom assessee has made the payment - as submitted by assessee when the long term capital gain is not taxable at the hands of the recipient there is no requirement in law for the assessee to deduct tax on payment made to the non-resident - Held that - we fail to understand the rationale or logic behind such argument of ld. AR. As could be seen, in course of proceeding before AO assessee took a specific plea that on the assurance of recipient-deductee that he will file his return declaring capital gain and pay tax, assessee did not deduct tax in terms with section 195 of the Act. This statement of the assessee clearly demonstrate, from the very beginning both the assessee as well as the recipient were conscious of the fact that payment made towards sale of property was subject to capital gain tax in India. In fact, keeping with the assurance given to assessee recipient deductee has filed a return of income declaring capital gain and also paid the taxes. When the recipient has not made any claim of exemption, assessee who is only payer of the money cannot assume upon itself the burden of deciding the taxability of payment at the hands of the non-resident recipient. At least, the statutory provision does not permit assessee to do so. Even otherwise also, after careful analysis of the relevant statutory provision we find the submissions of ld. AR unacceptable. On perusal of the definition of long term capital gain as provided u/s 115C(d), it is seen that it only refers to foreign exchange assets, meaning thereby, any specified asset purchased with convertible foreign exchange. Therefore, long term capital gain referred to in section 115E(a) will only apply to certain transactions as specified under Chapter XIIA and not to a transaction of the nature entered into between present assessee and non resident. Moreover, section 9 of the Act makes it clear that any income arising and received in India is taxable under the Income Tax Act. The nonresident recipient, in our view, having correctly understood the provisions of the Act has filed his return declaring capital gain. In the aforesaid facts and circumstances, assessee s claim that capital gain is exempt from taxation at the hands of the non-resident recipient, is only a desperate attempt to escape from the rigours of section 201(1A). Whether the contention is correct that, as recipient has paid the entire tax by way of advance tax there is no loss to the revenue, hence, levy of interest u/s 201(1A) cannot be made? - Held that - This issue to be decided against assessee in view of the ratio laid down in case of Hindustan Coca Cola Beverages Pvt. Ltd. Vs. CIT (2007 (8) TMI 12 - SUPREME COURT OF INDIA) wherein held that liability to pay interest u/s 201(1A) till the date of payment of tax by deductee assessee remains unaltered. No reason to interfere with the order of ld. CIT(A)in sustaining the levy of interest u/s 201(1A). - Decided against assessee.

Summary

Issues Involved:
1. Levy of interest under section 201(1A) of the Income Tax Act.
2. Jurisdiction of the Assessing Officer (AO) in passing the order under section 201(1A).
3. Applicability of section 115E to non-resident regarding capital gains.
4. Impact of the non-resident recipient paying the tax on the capital gains on the levy of interest under section 201(1A).

Issue-wise Detailed Analysis:

1. Levy of Interest under Section 201(1A):
The primary dispute revolves around the levy of interest amounting to Rs. 19,68,283 under section 201(1A) of the Income Tax Act. The assessee purchased a property from a non-resident for Rs. 22,42,00,000 without deducting tax at source as per section 195. The assessee argued that the vendor, being treated as an Indian resident, assured to pay the tax on capital gains, which was paid before the due date of the first installment of advance tax. The AO accepted that the vendor paid the capital gains tax but held that the interest under section 201(1A) is mandatory until the date of tax payment by the deductee, as per CBDT Circular No. 275/201/95-IT(B) and the Supreme Court's decision in Hindustan Coca Cola Beverage P. Ltd. v. CIT. The CIT(A) confirmed the levy of interest, and the ITAT upheld this decision, emphasizing that the liability to pay interest remains unaltered until the tax is paid by the deductee.

2. Jurisdiction of the Assessing Officer:
The assessee challenged the jurisdiction of the AO in passing the order under section 201(1A). However, this ground was not entertained by the ITAT in the first round of litigation and was not admitted as an additional ground. The ITAT, in the present proceedings, declined to entertain the jurisdictional issue again, as it was not part of the directions given in the earlier round.

3. Applicability of Section 115E to Non-Resident:
The assessee contended that under section 115E(a)(i), the non-resident is not liable to pay tax on long-term capital gains, and hence, there was no requirement to deduct tax under section 195. The CIT(A) rejected this claim, and the ITAT upheld this rejection. The ITAT clarified that section 115E(a) applies to income from investments or specified assets and not to immovable property transactions. The ITAT noted that the non-resident recipient correctly understood the provisions and filed a return declaring the capital gains, making the assessee's claim of exemption unsustainable.

4. Impact of Non-Resident Recipient Paying the Tax:
The assessee argued that since the non-resident recipient paid the entire tax on the capital gains as advance tax, there was no loss to the revenue, and hence, interest under section 201(1A) should not be levied. The ITAT, referring to the Supreme Court's decision in Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT, held that the liability to pay interest under section 201(1A) till the date of tax payment by the deductee remains, regardless of the tax being paid by the recipient. Therefore, the ITAT found no merit in the assessee's contention and upheld the levy of interest.

Conclusion:
The ITAT dismissed the assessee's appeal, confirming the levy of interest under section 201(1A) and rejecting the claims regarding jurisdiction and applicability of section 115E. The decision emphasized the mandatory nature of interest under section 201(1A) until the tax is paid by the deductee and clarified the inapplicability of section 115E to the transaction in question.