TDS surcharge and assessee-in-default rules turn on deductee income and tax payment, not transaction value.

Surcharge on TDS for purchase of property from a non-resident was to be computed with reference to the deductee's income, not the gross transaction value, so the applicable rate was 10% and not 15%. The assessee was also protected from being treated as an assessee in default under section 201(1) because the deductee had disclosed the capital gain in the return and paid the tax due, satisfying the first proviso to section 201(1). The short-deduction demand was therefore unsustainable, while the interest component under section 201(1A) remained undisturbed as not pressed.

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Issues: (i) Whether surcharge on tax deducted at source from payment for purchase of property from a non-resident was to be computed at 10% or 15%. (ii) Whether the assessee could be treated as an assessee in default for short deduction of TDS when the deductee had declared the income and paid due tax, attracting the first proviso to section 201(1) of the Income-tax Act, 1961.

Issue (i): Whether surcharge on tax deducted at source from payment for purchase of property from a non-resident was to be computed at 10% or 15%.

Analysis: The applicable surcharge was examined with reference to the income of the deductee and not the gross transaction amount. The deductee's long-term capital gains were below one crore rupees, and the surcharge structure for a non-resident individual prescribed 10% where the income or aggregate of incomes exceeded fifty lakh rupees but did not exceed one crore rupees. The computation adopted by the tax department on the basis of the transaction amount was held to be incorrect.

Conclusion: The surcharge applicable was 10%, not 15%, in favour of the assessee.

Issue (ii): Whether the assessee could be treated as an assessee in default for short deduction of TDS when the deductee had declared the income and paid due tax, attracting the first proviso to section 201(1) of the Income-tax Act, 1961.

Analysis: The record showed that the deductee had filed the return of income disclosing the capital gain arising from the transaction and had paid tax thereon. The tax deducted by the assessee was higher than the deductee's actual tax liability computed on the declared income, and the conditions of the first proviso to section 201(1) were satisfied. On that basis, the assessee could not be fastened with default for short deduction.

Conclusion: The assessee was not liable to be treated as an assessee in default under section 201(1) of the Income-tax Act, 1961, in favour of the assessee.

Final Conclusion: The demand for short deduction was unsustainable, while the interest component under section 201(1A) remained undisturbed as not pressed.

Ratio Decidendi: For the purpose of surcharge and liability under section 201(1), the decisive factor is the deductee's taxable income and tax payment, not the gross transaction value; where the deductee has filed the return and paid due tax, the deductor gets the benefit of the first proviso to section 201(1).

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