2022 (3) TMI 481 - HC - Income Tax

TDS u/s 195 - assessee in default as per Section 201(1) - HELD THAT - When petitioner has not made any payment and it is not respondent s case that petitioner had directly made any payment, petitioner cannot be the person responsible for deduction of tax. Respondent s assumption that petitioner being the ultimate beneficiary of the acquisition of the shares ought to have deducted the tax at source on the payments made for the acquisition of shares of THL is not correct. If we apply the logic of respondent no.1, as stated earlier also, then the ultimate beneficiary are the shareholders of petitioner and not petitioner and hence, the liability can never be fastened on petitioner. This is dehors the fact that even if petitioner is ultimate beneficiary of the transaction, then also it does not follow that petitioner was required to deduct tax at the time of acquisition of shares of THL by IMAHI. As Section 195 is applicable only to a person who is responsible for paying to deduct tax at the time of credit to the account of the payee or at the time of payment and petitioner did not make any payment to THL, there is no obligation on petitioner to deduct tax at source. Respondent s arguments that petitioner had made payment through IMAHI is also not acceptable because there is no evidence that petitioner made any payment through IMAHI. The Section is applicable to a person who is responsible for paying. Show cause notice dated 25th March 2010 as well as order dated 10th December 2013 have to be quashed and set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of respondent no.1 to issue notice under Section 201 of the Income Tax Act, 1961.
2. Applicability of Section 195 of the Income Tax Act, 1961 regarding the obligation to deduct tax at source.

Issue-wise Detailed Analysis:

1. Jurisdiction of Respondent No.1 to Issue Notice under Section 201 of the Income Tax Act, 1961:

The petitioner challenged the jurisdiction of respondent no.1 to issue a notice under Section 201 of the Income Tax Act, 1961, treating the petitioner as an assessee in default. The petitioner contended that it did not make any payment to anyone in the transaction in question and, therefore, could not be held liable under Section 195 of the Act. The court noted that the impugned notice dated 25th March 2010 and the subsequent order dated 10th December 2013 were issued based on the assumption that the petitioner made the payment through its subsidiary, IMAHI. However, there was no evidence to support this claim. The court emphasized that the petitioner was merely a guarantor in the transaction, and the guarantee was never invoked as IMAHI fulfilled its payment obligations.

2. Applicability of Section 195 of the Income Tax Act, 1961:

Section 195 mandates that any person responsible for paying to a non-resident any sum chargeable under the provisions of the Act must deduct income tax at the rates in force at the time of payment or credit. The petitioner argued that it did not make any payment and, therefore, was not liable to deduct tax under Section 195. The court examined the facts and found that the shares of Techpac Holdings Ltd. (THL) were acquired by IMAHI, a wholly-owned subsidiary of the petitioner, and not by the petitioner itself. The court noted that the petitioner was not the purchaser of the shares and had no obligation to deduct tax at source. The court also highlighted that a subsidiary company is an independent entity, and its actions cannot be attributed to the parent company. The court concluded that respondent no.1's assumption that the petitioner was required to deduct tax at source was erroneous, as there was no evidence of the petitioner making any payment or being responsible for such payment.

Conclusion:

The court quashed and set aside the show cause notice dated 25th March 2010 and the order dated 10th December 2013. The court held that Section 195 of the Act was not applicable to the petitioner as it did not make any payment to THL. Consequently, the petitioner was not liable to deduct tax at source, and respondent no.1 had no jurisdiction to treat the petitioner as an assessee in default under Section 201 of the Act. The petition was allowed, and the impugned notice and order were quashed and set aside.