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TMI Blog2022 (5) TMI 1470X X X X Extracts X X X X X X X X Extracts X X X X ..... in their respective return of income filed by them before the tax authorities; and since the said two sellers of the property having declared the sale consideration received from the appellant in their respective return of income, the appellant cannot be held as an assessee in default as per the first proviso to section 201[1] although is applicable to the resident assessee as it stood on that particular date, the said beneficial relaxations allowed to the resident payees should also be considered and be applied to the non-residents as well, which is discriminatory in nature and should be equally applied to the non-residents. As seen that the payees in the instant case having filed their return of income and disclosed the consideration in their respective returns and have duly complied with the amended provisions of section 201[1] which has been inserted in Finance [No. 2] Act, 2019. We are of the considered view that the said proviso to section 201[1] wherein the benefit has also been extended to the payments made to non-residents are meant for removal of anomaly, is required to be given with retrospective effect. In our view, the appellant assessee can not be held as an as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner of Income-tax [Appeals] vide her appellate order dated 27/11/2017, in so far as it is against the Appellant is against law, equity, facts and circumstances of the case. 2. The appellant denies itself liable to be taxed under section 201 [1] of the Act and further the appellant denies itself liable to be charged to under section 201 [1] of the Act amounting to Rs. 2,26,60,000/- and interest under section 201 [1A] of the Act amounting to Rs. 1,22,36,400/-, on the facts and circumstances of the case. 3. The order passed by the learned Commissioner of Income-tax [Appeals] is bad in law as the appellant was not afforded a reasonable and a fair opportunity of hearing, which is in grave violation of principles of natural justice, on the facts and circumstances of the case. 4. The learned authorities below failed to appreciate that the provisions of section 195 of the Act is not applicable consequently the appellant cannot be held as an assessee in default as per the provisions of section 201 [1] of the Act, on the facts and circumstances of the case. 5. The learned authorities below failed to appreciate that the provisions of section 201 of the Act does not envisage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case. 13. Without prejudice if at all any interest is leviable then the period should be considered only from the month in which the payment is made by the appellant to the payee and only till the date of filing the return of income and payment of applicable taxes by the payee, on the facts and circumstances of the case. 14. The Appellant craves leave to add, alter, substitute and delete any or all the grounds of appeal urged above. 15. For the above and other grounds to be urged during the hearing of the appeal, the Appellant prays that the appeal be allowed in the interest of equity and justice. 3. Briefly, the facts of the case as per record are that the appellant assessee has purchased an immovable property from Elrice D Souza and his wife for a consideration of ₹ 10 crores. However, the appellant did not deduct any tax on this amount of payment towards the purchase of immovable property. The AO discussed that the assessee was required to deduct tax under section 195 of the IT act. Accordingly, the AO has held the assessee in default and levied tax liability of rupees 2, 26,60,000/- under section 201(1) and interest liability of ₹ 12,236,400 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s extended to all persons, resident or non-resident, whether or not the non-resident person has- 1. a residence or place of business or business connection in India; or 2. any other presence in any manner whatsoever in India.] (2) Where the person responsible for paying any such sum chargeable under this Act (other than S6[***] 37[***] 38[***] 39]***] salary) to a nonresident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the 4 [.Assessing] Officer to determine, n[by general or special order], the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable. 42f***] 43[(3) Subject to rules 44 made under sub section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an to the 45/Assessing] Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered the same for tax in the return of Income. It placed reliance on the decision in the case of Hindustan Coca Cola Beverages (Supra). This argument is not acceptable as proviso to section 201 is applicable specifically in cases where payees are residents. The text of proviso is reproduced hereafter: 201. 48[(1) Where any person, including the principal officer of a company,- (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: 49 [Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jagran Prakash 47 Taxmann.com 82(ALL). However, this decision was rendered on 23.05.2012 and the assessment years in question were AY 09-10 and AY10-11. Wef 01.07.2012, a proviso has been added to Section 201, whereby the assessee shall not be deemed to be assessee in default if certain conditions are fulfilled including the payment of tax on the income under consideration by the payee and the person i.e. the deductor furnishes a certificate to this effect from an accountant in the prescribed form. Thus, the onus lies squarely in the deduction to prove that the payee has paid taxes on such income. The burden cannot be shifted to the Revenue by merely claiming that the taxes have been paid by the payee. This observation is only in context of the appellant s reliance on the decision in case of Jagran Prakash (Supra). The fact, however remains that proviso to section 201 is applicable only to residents whereas the appellant in question is a nonresident. (iv) Regarding the argument there is no tax liabilitu in terms of Article 26 on non-discrimination Article 26 of the concerned Indo-UK DTAA is reproduced below for ready reference: ARTICLE 26 NON-DISCRIMINATION 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be same, the circumstances should be same and the conditions should be same. The condition under section 195 requiring deduction of tax on any sum chargeable under the provisions of this Act is applicable only to payments made to non- residents and not to the residents. Therefore, the circumstances and the conditions cannot be said to be same. (v) Regarding the argument of the appellant that income component should have been considered (ground 8) The appellant argues that tire officer should have determined the income portion of the seller and only thereafter he should have quantified the taxable income. It relied on CBDT circular 3/2015 dated 12.02.2015 The circular relied upon by the appellant is in context of section 40(a)(i). Further, the appellant had the option to file an application under section 195(2) before the assessing officer to determine the appropriate portion of such sum chargeable to tax. Having faiied to do so, it is precluded from claiming that only income component should have been considered. In this context, in a recent decision in case of Google India Pvt Ltd. [IT(TP)A.1511 to 1516/Bang/2013], the jurisdictional Tribunal held as under: 125 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res, commentaries and judicial decisions run counter to the argument of the Revenue. The judgment of the Hon'ble Andhra Pradesh High Court in the case of Sanofi Pasteur Holdings (supra), was brought to our notice during the course of hearing. The Hon'ble Court has made a reference with regard to the background giving rise to tax treaties and how the treaties and domestic law co-exists for administering the taxation of any assessee. The findings of the Hon'ble Court explaining the scope and role of the DTAA is worth to note here, it read as under: Double tax treaties are international agreements, their creation and consequences determined according to the rules contained in the Vienna Convention on the Law of Treaties, 1969 (VCLT). The conclusion of a treaty/convention is preceded by negotiations. States intending to conclude a treaty are represented by the appropriate level of executive, political or diplomatic expertise according to individual practices and judgment of the participant states. There are several steps in the negotiations phase eventually leading to conclusion of the treaty. Treaties or conventions are thus instruments signaling sovereign political ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be applied automatically. Section 90(2) of the Income Tax Act mandates application of treaty and it is applicable in relation to an assessee upon whom such agreements are applicable. In the present case it is applicable in the case of payee, if at all is applicable, he has highlighted that Article-1 in all the treaties specifies the type of person to whom treaty would be applicable. The treaty would be applicable to a person who is resident of State (R) or source of income in a State(s). It does not mean that it is applicable according to the domicile. He also questioned who will make inquiry about the residential status of the payee under Article-4. He also pointed that DTAA is not a parallel Code and not a complete Code. It only allocates taxing rights. The Hon'ble Andhra Pradesh High Court has specifically observed that treaty rules do not force or allocate jurisdiction to tax to the contracting slate, nor attribute the right to tax . According to the Hon'ble Court it is recognized by public international law and constitutional law, states have the original jurisdiction to tax as an attribute of sovereignty, the rule of double taxation treaties is to establish an ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,-- (i) At one per cent for every month or part of a month on the amount of such tax from the date on Which such tax was deductible to the date on which such lax is deducted; and (ii) at one and one-half per cent for every month or part, of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200. Provided that in case any person including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account' of a resident but is not deemed to be an assessee-in-default under the first proviso to sub-section (1), the interest under clause (i) shall be payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee should have filed return and that de hors the amendment of first July 2012, the assessee would be liable to pay interest u/s 201(1A). The relevant extent from this judgment is reproduced below:- 13. The language of Section 201 is clear and unqualified. It indeed does not permit an assessee to decide for itself what the liability of the deductee assessee is or is likely to be. That is a matter for the assessing officer who assesses the returns of the deductee assessee. It is in fact not even possible for him to do so. He cannot ascertain with any degree of certainty as to the financial position of the deductee assessee. A view to the contrary would enable an assessee to prolong the matter indefinitely. If accepted, it may even entitle the assessee to contend that it is not liable to pay interest till the finalisation of the assessment of the deductee assessee. This could never have been contemplated by the Legislature. The language of Section 201 does not even suggest such an intention. 14. Even if the assessee is in a position to ascertain the tcuc liability of the deductee assessee, it would make no difference for the reasons already stated. The section does not distingu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest necessarily has to be given a meaningful interpretation. Given the fact that the interest levy is an automatic one, the determination on the ultimate liability of the payee company to pay or not to make payment being a procedural exercise has nothing to do with the liability of the ^.assessee to deduct TDS. As such, the loss return filed by the payee company cannot be treated as a circumstance to be taken in favour of the assessee company from not applying the provisions of Section 201(1A) of the Income Tax Act. On the facts herein, the only reasonable interpretation one can give to the provision under Section 201(1 A) as regards the terminal point upto which interest has to be calculated would be the date on which the return has to be filed by the payee, so that the calculation of interest under Section 201(1 A) of the Income Tax Act in such case would really be meaningful. 17. In the circumstances, conforming to the object of the provisions regarding the levy of interest under Section 201(1A) of the Income Tax Act on the failure to deduct tax in accordance with Section 195 of the Income Tax Act, the starting point for the levy of interest thus to commence from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest payment. It is only in cases where the recipients of interest is in a position to file any certificate or declaration to show that the person's total income is below the taxable limit that the tax on the interest payment made to such person is not to be deducted. In all other cases, it must be deducted as required under section 195 of the Act. 6. It is not the convenience of the assessee, and its assessment of the likely extent of the liability for payment of interest of the recipients of the interest, that determines the extent of the assessee's obligation to deduct tax at source on the interest paid by it. The provision requiring deduction of lax at source on interest payment is applicable to all persons paying such interest and it is not left to the individual assessee to decide the extent of compliance that it will make with regard to the obligation imposed by the statutory provision. 5. The counsel for the appellant, submitted that the learned authorities below failed to appreciate that the provisions of section 195 of the Act, consequently, the appellant cannot be held as an assessee in default as per the provisions of section 201 [1] of the Act, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and circumstances of the case. He contended that without prejudice, if at all any interest is leviable then the period should be considered only from the month in which the payment is made by the appellant to the payee and only till the date of filing the return of income and payment of applicable taxes by the payee, on the facts and circumstances of the case. In support, the appellant assessee has filed a written synopsis which reads as under: The brief facts of the case in the present appeal for adjudication before this Honhle Tribunal are as under: The appellant before your Honour is a Partnership Firm. During the impugned assessment year 2012-13 the appellant purchased a property from the Non-residents i.e. Mr. Erlice D Souza his wife Mrs. Yesmin Mehta D souza for a total consideration of Rs. 10 Crores on 17/09/2011. The appellant while making the payment towards purchase of the property did not deduct TDS as per the provisions of section 195 of the Act under a bonafide belief that the said sellers of the property were residents as per the Income-tax Act. Noticing the non-deduction of TDS as per section 195 of the Act, the learned assessing officer initiated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payees i.e. the two sellers of the property have disclosed the consideration received from the appellant in their respective return of income filed by them before the tax authorities. The submission and contention of the appellant are that since the said two sellers of the property having declared the sale consideration received from the appellant in their respective return of income, the appellant cannot be held as an assessee in default since as per the first proviso to section 201[1] of the Act though is applicable to the resident assessee as it stood on that particular date, the said beneficial relaxations allowed to the resident payees should also be considered and be applied to the non-residents as well, which is discriminatory in nature and should be equally applied to the non-residents. In this context it is relevant to bring to the notice of this Hon ble Tribunal that in the Finance [No. 2] Bill of 2019, the legislature in its wisdom has thought about this discrimination and has vide the Finance Act No. 2 has extended the benefit of the proviso to section 201 [ 1 ] even to the non-residents. The relevant extracts of the Memorandum to the Finance {No. 2] Bill of 2019 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts made to non-residents have to be given retrospective effect and consequently the appellant humbly pray before this Hon ble Tribunal no to hold the appellant as an assessee in default as per the proviso to section 201 [ 1 ] of the Act and delete the demand made by the learned assessing officer under section 201 [ 1 ] of the Act of Rs. 2,26,60.000/-. As regard to the interest under section 201 [1A] of the Act is concerned the A.O. has levied a sum of Rs. 1,22,36,400/-. It is humble submission of the appellant that the said property is sold by the appellant on 17/09/2011 and the return of income by the two payees have been filed on 30/07/2012. Thus, any interest under section 201 TA' of the Act has to be calculated for the period 07/10/2011 to 30/07/2012 being the return filed by the two payees. Reliance is placed on the parity of reasoning of the decision of the Hon ble Apex Court in the case of Hindustan Coca Cola Beverages (P) Ltd v. CIT 163 ITR 355 (SC) and also the Memorandum to Finance (No.2) Bill, 2019 which is placed at page 21 of compilation. The contents of which is reproduced below: Consequent to this amendment, it is also proposed to amend the proviso to sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed before him. After considering the submissions of the assessee, and amended provisions of TDS, focusing on the 2nd Proviso [that a person shall be deemed to have deducted and paid the tax on sum in question on the date of furnishing the Return of Income by the resident] and in such cases, the sum payable on which tax has not been deducted, not paid shall not be subjected to disallowance is only in context of Residents [u/s 40a(ia)]. He further noted that the benefit of proviso to section 201(1) is available subject to furnishing by the deductor a certificate from the accountant in Form 26. No such certificate was filed either before the AO or during the course of the appellate proceedings. He placed reliance on Jurisdictional Tribunal in case of Intel Tech India Pvt. Ltd. 32 SOT 227 which has dealt with the issue and held as under: 16. Section 195 provides deduction that income-tax is to be deducted at the rate in force. The rates in force are given in para 2 of the Finance Bill, 2003. In respect of any other income, the rate mentioned is 40 per cent. It is true that the entire consideration paid by the deductor may not be income in the hands of the deductee but for such a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93 taxmann.com 51 [SC] [d]. DCIT v. Ananda Marakala (2014) 48 taxmann.com 402 (Bangalore-Trib.) 10. It is seen that the payees in the instant case having filed their return of income and disclosed the consideration in their respective returns and have duly complied with the amended provisions of section 201[1] of the Act, which has been inserted in Finance [No. 2] Act, 2019. After considering the decisions as relied upon by the appellant, we are of the considered view that the said proviso to section 201[1] wherein the benefit has also been extended to the payments made to non-residents are meant for removal of anomaly, is required to be given with retrospective effect. In our view, the appellant assessee can not be held as an assessee in default as per proviso to section 201[1] of the Act, in view of the amended provisions of section 201[1] of the Act, being inserted in Finance [No. 2] Act, 2019. Accordingly, we delete the demand raised by the AO and confirmed by the CIT(A) under section 201[1] of the Act of Rs. 2,26,60.000/-. 11. The next issue is regarding the interest levied of a sum of Rs. 1,22,36,400/- under section 201[1A] of the Act. It is noted that the said prop ..... X X X X Extracts X X X X X X X X Extracts X X X X
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