Tribunal Overturns Tax Demand: UK Firm Not Liable for Non-Deduction at Source u/s 195 of Income Tax Act.

The ITAT ruled in favor of the assessee, a UK-incorporated company, by quashing the tax demand raised under section 201 of the Income Tax Act for not deducting tax at source under section 195. The Tribunal determined that the remittance to the assessee's own UK bank account did not constitute a payment to another person, thus not triggering the requirement for tax deduction at source. Consequently, the assessee was not deemed an "assessee in default," and the orders by the tax authorities were annulled. The appeal was allowed, and the Tribunal's decision was pronounced on 8th August 2024.

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Issues:
1. Demand raised by AO under section 201 of the Income Tax Act, 1961 for not deducting tax at source under section 195 in relation to remittances to foreign bank account.

Analysis:
The appeal was filed by the assessee challenging the order passed by the Ld.Addl/JCIT(A)-4, Kolkata, related to the assessment year 2016-17. The main issue in this case was the demand raised by the Assessing Officer (AO) under section 201 of the Income Tax Act, treating the assessee as "assessee in default" for not deducting tax at source under section 195 in respect of remittances made to its foreign bank account. The AO raised a tax demand of Rs. 65.50 crores and interest demand of Rs. 39.95 crores, totaling Rs. 159.65 crores, due to the failure of the assessee to deduct tax at source.

The assessee, a company incorporated in the United Kingdom, claimed Long Term Capital Gain as exempt under section 10(38) of the Act. The remittance of surplus funds from its Indian bank account to its UK bank account was the subject of the dispute. The AO contended that tax should have been deducted at source under section 195 of the Act from these remittances. However, the Tribunal noted that the remittance was made by the assessee to its own bank account in the UK, not to any other person, making it a transfer of funds by the assessee to itself. As per section 195, the provisions apply when a person is making a payment to another person chargeable under the Act, which was not the case here. Therefore, the Tribunal held that the assessee could not be treated as an "assessee in default" under section 201 for the remittance to its foreign bank account.

Regarding the confusion over the assessment year, the Tribunal clarified that since the transaction was not liable to tax, the assessment year mentioned in the appeal loses significance. Ultimately, the Tribunal concluded that the tax authorities were not justified in raising the demand on the assessee. Consequently, the orders passed by the tax authorities were quashed, and the grounds raised by the assessee were allowed. The appeal filed by the assessee was allowed, and the decision was pronounced in the open court on 8th August 2024.

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