2022 (12) TMI 419 - AT - Income Tax

TDS u/s 194IA - non deduction of tax while making payment for purchase of property - liability under Section 201(1) r.w. Section 201(1A) - whether the obligation provided u/s 194IA is qua the proper ty or qua the transferee? - HELD THAT - Relates to the obligation of the transferee and the second factor fixes obligation to deduct tax at the time of credit or payment. When read combinedly; while the first limb of Section 194IA refers to a singular expression, i.e., transferee (in distinction to transferee(s) combined), second limb provides for time of discharge of obligation which in turn, depends on the action of each transferee (in exclusion to other transferee) i.e., either credit in its accounts or actual payment. When the provision is read as a whole, it gives an infallible impression that obligation cast u/s 194IA is qua each transferee and not qua the aggregate consideration. The reasons are not far to seek. It will not be practicable to achieve the requirement of second limb if the case of the Revenue is accepted that it is qua total consideration involved and not each transferee. Obligation cast u/s 194IA arises to a particular transferee at the time of payment of consideration or at the time of credit in its own accounts. Law cannot be read to expect one transferee to deduct TDS on behalf of other transferee at the time action taken by him towards payment or credit. If the contentions of the Revenue are accepted that vicarious liability imposed u/s 194IA is linked to the value of the property, an anomalous and unintended situation will arise for deduction of TDS. The contention of the assessee that Section 194IA operates qua each transferee and not qua total consideration is in absolute congruence with the schematic interpretation of Section 194IA of the Act. On facts, the assessee in the instant case has admittedly paid Rs. 40 lakhs which is below threshold limit provided to trigger the obligation provided in Section 194IA - Hence, Section 194IA has no application where a transferee in question has neither credited nor paid consideration for transfer of immovable proper ty in excess of threshold limit of Rs. 50 lakhs. We thus find merit in the plea raised on behalf of the assessee for holding the assessee to be not an assessee in default for the purposes of Section 201/201(1A). Hence, we reverse and cancel the liability demand raised under Section 201(1) r.w. Section 201(1A) in the absence of any default committed with reference to Section 194IA of the Act - Appeal of the assessee is allowed.

Summary

Issues:
Challenge to imposition of liability under Section 201(1) r.w. Section 201(1A) for non-deduction of tax while purchasing property under Section 194IA(1) of the Income Tax Act, 1961.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) concerning the assessment order passed by the Assessing Officer for AY 2016-17. The assessee challenged the imposition of liability under Section 201(1) r.w. Section 201(1A) for not deducting tax while purchasing property under Section 194IA(1). The assessee, a joint owner of a property purchased for Rs. 55 lakhs, argued that the provision of Section 194IA(1) did not apply as the payment made was below the Rs. 50 lakhs threshold. The Revenue contended that the assessee defaulted in complying with Section 194IA(1) by not deducting TDS on the property purchase consideration exceeding Rs. 50 lakhs.

The key question was whether the legal obligation under Section 194IA arises when the consideration paid by each transferee is below the threshold limit. Section 194IA mandates a transferee to deduct 1% of the consideration for transfer of immovable property exceeding Rs. 50 lakhs. The obligation under Section 194IA is on the transferee at the time of payment or credit to the transferor. The obligation is individual to each transferee, not based on the aggregate consideration. Imposing vicarious liability based on the property value would lead to impractical TDS deduction scenarios.

The assessee paid Rs. 40 lakhs, below the threshold, triggering no application of Section 194IA. Therefore, the liability under Section 201(1) r.w. Section 201(1A) was canceled as there was no default under Section 194IA. The Tribunal held in favor of the assessee, allowing the appeal and reversing the liability demand.

This judgment clarifies that the obligation under Section 194IA is individual to each transferee based on their payment or credit, not on the aggregate consideration. It highlights the importance of interpreting tax laws in a manner that aligns with practical application and legislative intent to avoid unintended consequences.