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2018 (8) TMI 678 - AT - Income TaxTDS liability u/s 195 - transfer of immovable property by the non-residents to resident - all the three non-residents have filed their return of income in India for the relevant assessment year declaring nil capital gains from the transfer of immovable property to the assessee - Held that - In respect of the nonresidents, the deduction of tax at source is more stringent since the person who receives the payment would be leaving the country and the recovery of tax is impossible or remotely possible. There is a clear distinction between the residents and the non residents. That is the reason why section 195(2) allows the assessee to furnish non deduction certificate and the Board has come up with instruction No.2/2014. Proviso to Section 201 also allows exceptions on sums paid to residents in different situations not to treat the assessee default for the principal amount in the specific situations whereas the said concessions are not extended to the nonresidents. AO has rightly held the as assessee in default for non deduction of tax at source u/s 201(1) of the Act - Decided against the assessee. Since the assessees have filed the returns of income, the assessments must be completed u/s 143(3) or have been accepted u/s 143(1) and determined the tax liability. Therefore, we direct the AO/ITO international Taxation to treat the assessee in default to the extent of actual tax liability instead of estimation. Accordingly, the appeal of the assessee is partly allowed.
Issues Involved:
1. Non-deduction of tax at source under section 195 of the Income Tax Act, 1961. 2. Treatment of the assessee as 'assessee in default' under section 201(1) and 201(1A) of the Act. 3. Computation of long-term capital gains without reference to comparable cases. 4. Application of CBDT Instruction No.2/2014 in determining tax liability. Issue-wise Detailed Analysis: 1. Non-deduction of tax at source under section 195 of the Income Tax Act, 1961: The assessee purchased property from five sellers, three of whom were non-residents. The Assessing Officer (AO) noted that the assessee failed to deduct tax at source as required under section 195 of the Act. Consequently, the AO raised a demand of ?9,83,538 under section 201(1) and levied interest of ?5,21,275 under section 201(1A) of the Act. 2. Treatment of the assessee as 'assessee in default' under section 201(1) and 201(1A) of the Act: The assessee argued that as per section 201(2), they should not be treated as 'assessee in default' for the principal amount if tax was not deducted, but only liable for interest under section 201(1A). The Tribunal, however, clarified that section 201(1) deems an assessee in default in both situations: non-deduction and non-remittance of tax. The Tribunal also noted that the provisions for exceptions under section 201(1) for residents are not extended to non-residents under section 195. Therefore, the assessee was correctly treated as 'assessee in default' for both the principal amount and interest. 3. Computation of long-term capital gains without reference to comparable cases: This ground was not pressed by the assessee during the appeal hearing and was thus dismissed. 4. Application of CBDT Instruction No.2/2014 in determining tax liability: The CIT(A) directed the AO to ascertain the actual tax liability of the non-residents as per CBDT Instruction No.2/2014 and treat the assessee as 'assessee in default' only to the extent of the actual tax liability. The Tribunal found that the AO estimated the tax liability instead of verifying the actual tax liability from the returns filed by the non-residents. The Tribunal directed the AO/ITO International Taxation to treat the assessee in default to the extent of the actual tax liability determined through assessments under section 143(3) or accepted under section 143(1). Conclusion: The appeal of the assessee was partly allowed for statistical purposes, with directions to the AO to ascertain the actual tax liability of the non-residents and treat the assessee in default accordingly. The Tribunal upheld the treatment of the assessee as 'assessee in default' for non-deduction of tax at source under section 195 and dismissed the appeal on this ground. The Tribunal emphasized the distinction between provisions applicable to residents and non-residents, reinforcing the stringent requirements under section 195 for non-residents.
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