2022 (4) TMI 1077 - AT - Income Tax

Scope of amendment brought in Sec.40(a)(i) - Assessee-in-default u/s 201(1) 201(1A) for want of Tax Deduction at Source (TDS) on purchase of an immoveable property - Entitlement to benefit of second proviso to Sec.40(a)(i) which has been inserted by Finance Act, 2019 w.e.f. 01.04.2020 - HELD THAT - We find that it is undisputed fact that the assessee has not deducted TDS on purchase of property and accordingly, the assessee has been treated as assessee-in-default - assessee has sought benefit of second proviso to Sec.40(a)(i) which has been inserted by Finance Act, 2019 w.e.f. 01.04.2020. The Memorandum explaining amendment made to Section 40(a)(i) and section 201 of the Act by Finance (No.2) Bill, 2019 explains that amendment is to remove anomaly and the rationally of amendment. Second proviso to Section 40(a)(i) has been inserted w.e.f. 01.04.2020 and provide that where assessee fails to deduct the whole or any part of the tax in accordance with the provisions of chapter XVII - B on any such sum but is not deemed to be an assessee in default under the first proviso to Section 201(1) then it shall be deemed that the assessee has deducted and paid the taxes on such sum on the date of furnishing of return of income by the payee referred to in the said proviso. As per proviso to Section 201(1), a payee shall not be deemed to be an assessee in default in respect of such tax if such payee, (a) furnished its return of income under section 139, (b) has taken into account such sum for computing income in such return of income and (c) has paid the tax due on the income declared by him in such return of income and along with such payee furnishes a certificate to this effect from an accountant in the prescribed form. The aforesaid amendment is curative in nature and would have retrospective application. Our opinion draws strength from the fact that second proviso to Sec.40(a)(ia) and Sec. 40(a)(i) are evenly worded and pari-materia to each other. Both the provisions were introduced by the legislature in order to remove the anomaly / hardship and therefore, could be held to be curative in nature. In the case of section 40(a)(ia), Hon ble High Court of Bombay in the case of Pr. CIT Vs. Perfect Circle India (P.) Ltd. 2019 (1) TMI 1532 - BOMBAY HIGH COURT as well as case of CIT Vs. Ansal Land Mark Township (P) Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT have already held that these provisions are applicable retrospectively with effect from 01.04.2005. Since the amendment to Sec. 40(a)(ia) was carried out in order to remove the anomalies, similar amendment brought in Sec.40(a)(i) is also to remove the anomaly and therefore, this amendment is to be considered as curative in nature having retrospective application. Therefore, we set aside the impugned order and direct assessee to furnish requisite details / documents in support of its claim under second proviso to Sec.40(a)(i) read with proviso to Sec.201(1). The Ld. AO may compute interest, as applicable, in accordance with law.

Summary

Issues:
Assessment of the assessee as assessee-in-default under sections 201(1) and 201(1A) for not deducting TDS on the purchase of an immovable property.

Analysis:
1. The appeal by the assessee for Assessment Year (AY) 2012-13 challenged the order passed by the Commissioner of Income Tax (Appeals) regarding the treatment of the assessee as assessee-in-default under sections 201(1) & 201(1A) for not deducting TDS on the purchase of a property. The main contention was the applicability of TDS provisions on the purchase from a non-resident seller.

2. The assessee argued for the benefit of the second proviso to Section 40(a)(i) inserted by the Finance Act, 2019. The Revenue contended that the assessee failed to comply with TDS provisions, justifying the demand raised. The Tribunal had to adjudicate on the application of relevant provisions and the justification of the demand.

3. The assessment revealed that the assessee purchased a property from a non-resident without deducting TDS as required under Section 195. The AO held the assessee as assessee-in-default under sections 201(1) & 201(1A). The contention that Sec.194-IA was applicable only from 01.06.2013 was rejected due to the seller's non-resident status. A demand was raised against the assessee for interest under section 201(1A).

4. The CIT(A) noted the mistake of the AO and issued an enhancement notice to the assessee. The assessee sought the benefit of the first proviso to Sec.201(1) based on the seller's declaration of gains in the financial year 2009-10. However, the appeal was dismissed, directing the AO to compute the correct tax and interest under sections 201(1) & 201(1A).

5. Subsequently, an assessment was re-framed in the hands of the seller for AY 2012-13, and the assessee sought the benefit of relevant provisions. The Tribunal had to consider the applicability of the second proviso to Sec.40(a)(i) and the liability of the assessee for interest up to the date of actual payment by the seller.

6. The Tribunal analyzed the amendment introduced by the Finance Act, 2019, to extend relief to deductors for payments to non-residents. The Tribunal found the amendment to be curative in nature, with retrospective application, citing precedents where similar provisions were held to be applicable retrospectively. Consequently, the impugned order was set aside, directing the assessee to provide necessary details to support its claim under the amended provisions.

7. The Tribunal's decision was based on the retrospective nature of the amendment, considering it curative to remove anomalies. Citing relevant case laws, the Tribunal held that the amendment should be applied retrospectively, leading to the allowance of the appeal for statistical purposes.