Retrospective TDS relief for non-resident payees limits default liability and requires recomputation of interest

The amended first proviso to section 201(1) was treated as a curative provision and applied retrospectively to non-resident payees where the income had been returned and tax paid, so the deductor was not retained as an assessee in default and the section 201(1) demand was deleted. Interest under section 201(1A) was confined to the period from the date tax was deductible until the date the non-resident payees filed their returns, and was directed to be recomputed on that basis.

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Issues: (i) Whether the amended first proviso to section 201(1) of the Income-tax Act, 1961, which extends relief for non-deduction of tax where the payee has returned the income and paid tax, applies to payments made to non-residents and operates retrospectively. (ii) Whether interest under section 201(1A) is to be recomputed up to the date of filing of return by the non-resident payees.

Issue (i): Whether the amended first proviso to section 201(1) of the Income-tax Act, 1961, which extends relief for non-deduction of tax where the payee has returned the income and paid tax, applies to payments made to non-residents and operates retrospectively.

Analysis: The deductor had made payment to non-resident sellers without deducting tax under section 195. The payees had disclosed the consideration in their returns. The proviso to section 201(1), as amended by the Finance Act, 2019, was treated as a curative provision introduced to remove the anomaly that relief earlier available for resident payees was not available for non-residents. On that basis, the relief was held to extend to the present case, and the deductor could not be retained as an assessee in default.

Conclusion: The issue was decided in favour of the assessee. The demand raised under section 201(1) was deleted.

Issue (ii): Whether interest under section 201(1A) is to be recomputed up to the date of filing of return by the non-resident payees.

Analysis: Once the payees had filed their returns, the interest liability had to be aligned with the date of such filing. The order directed recomputation of interest for the period from the date tax was deductible until the date the payees filed their returns.

Conclusion: The issue was partly in favour of the assessee. The interest was directed to be recomputed accordingly.

Final Conclusion: The appeal succeeded to the extent that the assessee was not treated as an assessee in default under section 201(1), and the interest liability under section 201(1A) was remitted for fresh computation on the basis of the payees' return filing dates.

Ratio Decidendi: A curative amendment intended to remove an anomaly in TDS relief can be applied retrospectively, and where non-resident payees have already offered the income to tax, the deductor may be relieved from default liability while interest is confined to the statutory period up to return filing.

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