2021 (5) TMI 150 - AT - Income Tax

Tribunal rules against retroactive interest demand, assessee not liable under Section 201(1A)

Deputy Commissioner of Income Tax Circle 4 (3) (2), Mumbai Versus WNS Capital Investment Limited, Mauritius c/o CIM Corporate Services Limited And (Vice-Versa)

Deputy Commissioner of Income Tax Circle 4 (3) (2), Mumbai Versus WNS Capital Investment Limited, Mauritius c/o CIM Corporate Services Limited And ... Issues Involved:1. Liability to deduct tax at source under Section 195(1) of the Income Tax Act, 1961.2. Chargeability of interest under Section 201(1A) of the Income Tax Act, 1961.3. Impact of retrospective amendments made by the Finance Act, 2012, to Section 9(1)(i) and Section 195(1) of the Income Tax Act, 1961.4. Applicability of the Supreme Court decision in CIT vs. Vatika Township Pvt. Ltd.5. Special circumstances involving tax payment by the recipient.Detailed Analysis:1. Liability to Deduct Tax at Source under Section 195(1):The core issue revolves around whether the assessee had a liability to deduct tax at source under Section 195(1) on payments made to Aviva International Holdings Ltd, UK, for acquiring equity shares in Aviva Global Services Singapore Pvt Ltd. The Assessing Officer argued that the shares derived substantial value from assets situated in India, making the capital gains taxable in India. Consequently, the assessee was obligated to withhold taxes from the payment. However, the CIT(A) held that there was no such liability, considering that the law at the time did not explicitly impose such a requirement, and the retrospective amendments introduced by the Finance Act, 2012, could not impose this obligation retroactively.2. Chargeability of Interest under Section 201(1A):The Assessing Officer raised demands for interest under Section 201(1A) due to the delay in realizing taxes that should have been withheld. The CIT(A) deleted this interest, reasoning that the assessee could not be expected to comply with a law that was not in force at the time of the transaction. This decision was supported by the principle that the law does not compel a person to perform an impossible act (lex non cogit ad impossibilia).3. Impact of Retrospective Amendments:The retrospective amendments to Section 9(1)(i) and Section 195(1) by the Finance Act, 2012, were central to the dispute. The CIT(A) concluded that these amendments, although clarificatory, could not retrospectively impose a tax withholding obligation on the assessee. This view was supported by the Supreme Court's decision in CIT vs. Vatika Township Pvt. Ltd., which established that retrospective amendments should not create new obligations or liabilities.4. Applicability of Supreme Court Decision in CIT vs. Vatika Township Pvt. Ltd.:The CIT(A) relied on the Supreme Court's decision in CIT vs. Vatika Township Pvt. Ltd., which held that retrospective amendments should not impose new obligations. The Tribunal agreed, noting that the assessee could not be expected to comply with a law that did not exist at the time of the transaction.5. Special Circumstances Involving Tax Payment by the Recipient:The CIT(A) also considered the fact that Aviva International Holdings Ltd, UK, had already paid taxes on the capital gains. This special circumstance was deemed sufficient to negate the need for the assessee to deduct tax at source. The Tribunal upheld this view, noting that the purpose of TDS (Tax Deducted at Source) had been fulfilled since the recipient had paid the taxes.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the demand for interest under Section 201(1A), agreeing that the assessee could not be expected to comply with a law that was not in force at the time of the transaction. The retrospective amendments could not impose a new obligation on the assessee. Additionally, since the recipient had paid the taxes, the purpose of TDS was fulfilled. Consequently, the appeal by the Assessing Officer was dismissed, and the cross-objection by the assessee was rendered infructuous.