2020 (6) TMI 819 - AT - Income Tax

Tribunal remits tax compliance verification back to tax department for NRIs under Section 54F

Deputy Commissioner of Income Tax-1, (International Transaction), Hyderabad. Versus. M/s. Kamineni Hospitals Pvt Ltd.,

Deputy Commissioner of Income Tax-1, (International Transaction), Hyderabad. Versus. M/s. Kamineni Hospitals Pvt Ltd., - TMI Issues Involved:1. Deletion of charge levied under Section 201(1) of the Income Tax Act for non-deduction of tax under Section 195.2. Deletion of interest levied under Section 201(1A) of the Income Tax Act for the period of default in non-deduction of tax at source under Section 195.Issue-wise Detailed Analysis:1. Deletion of Charge Levied Under Section 201(1) of the Act:The Revenue contended that the assessee, a Private Limited Company, failed to deduct tax at source under Section 195 when making payments to non-resident Indian (NRI) vendors for the purchase of house property. The total sale consideration was Rs. 24,20,00,000, with Rs. 12,10,00,000 paid to four NRIs. The Revenue argued that the assessee should be treated as an 'assessee in default' under Section 201(1) for not deducting tax at source. The assessee argued that the NRIs had availed exemptions under Section 54F by depositing the sale proceeds in the Long-Term Capital Gains (LTCG) Scheme account and filing their returns of income, thus negating the requirement for tax deduction at source.The CIT (A) sided with the assessee, noting that the NRIs had claimed exemptions and filed returns, making the assessee not liable as an 'assessee in default.' The CIT (A) also considered that any tax deducted would be refunded due to the exemptions claimed, rendering the deduction exercise futile.2. Deletion of Interest Levied Under Section 201(1A) of the Act:The Revenue also challenged the deletion of interest levied under Section 201(1A) for the period of default. The CIT (A) deleted the interest, reasoning that since the NRIs claimed exemptions under Section 54F and filed returns, the assessee was not at fault for not deducting tax. Additionally, any tax deducted would have been refunded with interest, making the levy of interest under Section 201(1A) unnecessary.Tribunal's Observations and Decision:The Tribunal noted conflicting findings between the Ld. DIT (International Taxation) and the CIT (A) regarding the deposit of sale proceeds in the LTCG Scheme account. The Tribunal emphasized that the assessee was obligated to verify the residential status of the vendors and deduct tax at source. It also highlighted that the assessee should have applied under Section 195(2) if it believed the payments were not chargeable to tax.The Tribunal found that the CIT (A) should have obtained a remand report from the Ld. DCIT to verify compliance with Section 54F by the NRI vendors. It referenced a Bombay High Court decision, which held that the first proviso to Section 201(1) is curative and applies retrospectively, allowing the assessee to demonstrate compliance with the proviso.Conclusion:The Tribunal set aside the CIT (A)'s order and remitted the matter back to the Ld. DIT (International Taxation) to verify if the NRIs complied with Section 54F and deposited the sale proceeds in the LTCG Scheme account. If compliance is established, the demand under Sections 201(1) and 201(1A) should be deleted. If not, the Ld. DIT (International Taxation) may pass an appropriate order after providing the assessee an opportunity to be heard.The appeal by the Revenue was allowed for statistical purposes, with directions for the assessee to cooperate with the Revenue authorities.