Amendment to proviso of section 201(1) (01.09.2019) clarificatory, retroactive relief to non-residents where no new liability

ITAT held that the 01.09.2019 amendment to the proviso of section 201(1) is clarificatory, intended to remove anomaly by extending relief to non-residents and may be applied retrospectively where it imposes no new liability (per SC precedent). The taxpayer produced certified Form 26A showing tax was discharged, preventing double taxation. The tribunal found no error in CIT(A)'s order remanding the matter to the AO to verify documents and grant relief, and dismissed the revenue's grounds.

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ISSUES PRESENTED AND CONSIDERED

1. Whether a purchaser who failed to deduct tax at source on payment for purchase of immovable property to a non-resident can be relieved from being an "assessee in default" under section 201(1) of the Income Tax Act by furnishing Form 26A and evidence that the payee has discharged tax liability.

2. Whether the proviso to section 201(1) - as amended w.e.f. 01.09.2019 to expressly include payments to non-residents - is clarificatory and therefore applicable retrospectively to an assessment year prior to the amendment, for purposes of granting relief to the purchaser who furnished Form 26A.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Relief under section 201(1) upon furnishing Form 26A where tax was not deducted on payment to a non-resident

Legal framework: Section 201(1) treats a person required to deduct tax at source as an "assessee in default" if tax is not deducted or not paid; the proviso to section 201(1) conditions relief where the deductor obtains a certificate (Form 26A) from the payee's tax return and evidence the payee has discharged tax liability.

Precedent treatment: The judgment relies on the settled principle that relief under a statutory proviso is available where the formal conditions of the proviso are met; it also cites the Supreme Court principle (Vatika Township Pvt. Ltd.) that clarificatory statutory provisions not imposing new liabilities may be applied retrospectively.

Interpretation and reasoning: The Court found as an admitted fact that the purchaser failed to deduct tax under sections 195/194IA and that the purchaser produced a Form 26A certified by a Chartered Accountant showing the seller's return, computation of capital gains and discharge of tax liability. The Tribunal reasoned that once the seller has in fact disclosed the transaction and paid the tax, there is no revenue leakage and the purchaser should not be treated as an assessee in default. The Tribunal treated the furnishing of Form 26A and verification of the payee's return and tax payment as satisfying the proviso's protective conditions, entitling the purchaser to relief subject to verification by the assessing officer.

Ratio vs. Obiter: Ratio - A purchaser who did not deduct tax at source can be relieved from being an assessee in default under section 201(1) if he furnishes Form 26A evidencing that the payee filed a return and discharged the tax liability, thereby eliminating revenue leakage; relief can be granted subject to verification by the assessing officer. Obiter - Observations about the equitable character of the proviso and the general proposition that the same income cannot be taxed twice (supporting the absence of revenue leakage) are ancillary but reinforce the ratio.

Conclusions: The Court upheld the administrative appellate authority's directions to remit the matter to the assessing officer to verify Form 26A and related documents and to grant relief if verification supports the claim; relief is proper where the seller has paid tax and no revenue loss is found.

Issue 2 - Retrospective application of the 01.09.2019 amendment to the proviso to section 201(1) extending benefit to payments made to non-residents

Legal framework: The proviso to section 201(1) originally applied to certain categories of payees; the proviso was amended w.e.f. 01.09.2019 to extend the benefit to payments made to non-residents by rectifying an anomaly. The Court considered principles of retrospective application for clarificatory/amending provisions that do not impose new liabilities.

Precedent treatment: The Tribunal relied on the Supreme Court's holding in Vatika Township Pvt. Ltd. that clarificatory statutory amendments may be applied retrospectively where they do not impose new burdens on taxpayers and merely clarify legislative intent.

Interpretation and reasoning: The Tribunal examined the Finance Memorandum (No.2) of 2019 accompanying the amendment and concluded the amendment was intended to remove an anomaly (i.e., to make relief impartial across payees including non-residents) rather than to create a new liability. The Tribunal characterized the amendment as clarificatory in nature. Because the amendment merely extended the existing protective mechanism and did not increase tax liability, the Tribunal held it permissible to apply the amendment retrospectively to the assessment year in question. The Tribunal further reasoned that since Form 26A and evidence of tax discharge were furnished, applying the clarificatory amendment to include non-resident payees avoids arbitrary denial of relief and prevents double taxation of the same income.

Ratio vs. Obiter: Ratio - The amendment to the proviso to section 201(1) that extends relief to payments made to non-residents can be treated as clarificatory and applied retrospectively when it merely removes an anomaly and does not impose new tax burdens. Obiter - Policy observations about impartiality of the proviso and the legislative intent reflected in the Memorandum are supportive but secondary.

Conclusions: The Tribunal held that the proviso (as amended w.e.f. 01.09.2019) is clarificatory and may be applied retrospectively for the impugned assessment year; consequently, where Form 26A and evidence of the payee's tax discharge are produced, the purchaser is entitled to relief from being treated as an assessee in default, subject to verification by the assessing officer.

Cross-issue - Verification and scope of appellate direction

Legal framework: The appellate authority may direct remand to the assessing officer for verification of factual documents supporting statutory conditions for relief under the proviso.

Interpretation and reasoning: The Tribunal endorsed the appellate authority's exercise of power under section 251(1)(c) to remit the matter for verification of Form 26A and supporting evidence, emphasizing that relief was to be granted only after such verification confirmed that the payee had filed returns and paid tax.

Ratio vs. Obiter: Ratio - An appellate direction to remit for verification of documentary proof required by the proviso is appropriate and non-interfering when the appellate authority finds prima facie compliance; such verification is a condition precedent to final relief. Obiter - The Tribunal's statement that there is "no infirmity" in the appellate order is declaratory of its satisfaction with the procedure adopted.

Conclusions: The Tribunal declined to interfere with the appellate authority's remand order; it dismissed the revenue's appeal and the assessee's cross-objection (supportive of the appellate order) as infructuous after dismissal of the appeal, thus affirming the requirement that verification by the assessing officer precede final relief under the proviso.

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