2014 (3) TMI 106 - AT - Income Tax

Tribunal remits issue to Assessing Officer for fresh consideration. Appeals allowed for statistical purposes.

The Tribunal remitted the entire issue back to the Assessing Officer for fresh consideration and determination of the income chargeable to tax. The ... Withholding TDS u/s 195 of the Act - Gross sale consideration paid to foreign nationals – Assessee in default u/s 201(1) of the Act - Held that:- The reason for fastening the obligation to deduct tax at source of the payment to non-resident is only in a situation where such payment was chargeable to tax in India was that it was not the intention of law to fasten an absolute liability on the remitter to deduct tax at source from the payments of nonresident, then, subjected to the non-resident to the rigour process of filing of return and seeking refund and assessments on the basis of such return where remitter was of the opinion that some part of the income may be chargeable to tax in India - The remitter can approach the ITO to demand proper portion of the income that would be chargeable to tax in India and how on which tax was to be deducted at source - when the payment to be made to the non-resident, which chargeable to tax in the hands of the resident recipient TDS to be deducted. Relying upon GE India Technology Centre P. Ltd. Vs. CIT and Anr., [2010 (9) TMI 7 - SUPREME COURT OF INDIA ] a person paying any sum to the non-resident is liable to deduct tax u/s 195 only if such sum is chargeable to tax in India and not otherwise - the Assessing Officer observed that assessee not deducted the TDS as required u/s 195 and, therefore, he treated the assessee as ‘the assessee in default’ - lower authorities did not go into the merits of the case on a question of chargeability of income tax –thus, the order is set aside and the matter remitted back for fresh consideration to determine the income chargeable to tax – Decided in favour of Assessee. Issues Involved:1. Whether the appellant company is an 'assessee in default' under section 201(1) of the IT Act, 1961.2. Applicability of section 195 of the IT Act to the non-resident appellant company.3. Obligation to withhold tax on the gross sale consideration paid to foreign nationals.4. Requirement for the appellant company to obtain a certificate under section 195(2) of the IT Act.5. Applicability of surcharge on the withholding tax liability.6. Levy of interest under section 201(1A) of the IT Act.7. Potential penal action for non-deduction of tax at source.Issue-wise Detailed Analysis:1. 'Assessee in Default' under Section 201(1):The appellant objected to being treated as an 'assessee in default' for not deducting tax on payments made to foreign nationals for purchasing shares of Shantha Biotechnics Ltd. The CIT(A) upheld the Assessing Officer's decision, stating that the appellant had a statutory duty to deduct tax. However, it was noted that some non-residents had filed returns and paid taxes, which would relieve the appellant from being an 'assessee in default' for those specific cases. The Tribunal remitted the issue back to the Assessing Officer for fresh consideration to determine the income chargeable to tax.2. Applicability of Section 195:The appellant argued that section 195 does not have extra-territorial jurisdiction and that it applies only to persons within the ambit of Indian tax provisions. The CIT(A) disagreed, holding that the appellant had a duty to deduct tax under section 195. The Tribunal remitted the issue back to the Assessing Officer to determine the chargeability of income to tax in light of the Supreme Court's decision in GE India Technology Centre P. Ltd.3. Withholding Tax on Gross Sale Consideration:The appellant contended that tax should be withheld only on the income component of the consideration, not the entire amount. The CIT(A) did not accept this argument, stating that the appellant should have applied for a certificate under section 195(2) if it believed there was no income component. The Tribunal remitted the issue for fresh consideration by the Assessing Officer.4. Certificate under Section 195(2):The CIT(A) held that the appellant should have obtained a certificate under section 195(2) to determine the tax liability. The appellant argued that there was no income element, so no application was necessary. The Tribunal remitted this issue for fresh consideration by the Assessing Officer.5. Applicability of Surcharge:The appellant argued that surcharge should not apply as the foreign nationals incurred a capital loss, meaning there was no taxable income exceeding Rs. 10 lakhs. The CIT(A) upheld the Assessing Officer's application of surcharge. The Tribunal remitted this issue for fresh consideration by the Assessing Officer.6. Levy of Interest under Section 201(1A):The CIT(A) confirmed the levy of interest under section 201(1A) for non-deduction of tax at source. The Tribunal remitted the issue back to the Assessing Officer for fresh consideration.7. Penal Action for Non-Deduction of Tax:The CIT(A) observed that the appellant could face penal action for non-deduction of tax at source. The appellant argued that it was under a bona fide belief that tax was not required to be withheld. The Tribunal did not specifically address this issue but remitted the overall issue of non-deduction of tax to the Assessing Officer.Conclusion:The Tribunal set aside the orders of the lower authorities and remitted the entire issue to the Assessing Officer for fresh consideration and determination of the income chargeable to tax. The appeals were allowed for statistical purposes.