TaxTMI 
TaxTMI 
2020 (6) TMI 819
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....r non-deduction of tax at source U/s. 195 of the Act. 3. The Brief facts of the case are that the assessee is a Private Limited Company engaged in the business of running Nursing Home. During the course of proceedings U/s. 201(1) of the Act it was observed by the Ld. DIT (International Taxation) that in the relevant Financial Year 2011-12, the assessee company had purchased house property consisting of two buildings at Municipal No.3-8-477 and 3-8-477/1, Survey No. 68, Mansoorabac Village, Saroor nagar Mandal, Ranga Reddy District vide Sale Deed dated 16/12/2011 registered as Doc. No. 5079/2011 for total sale consideration of Rs. 24,20,00,000. The sale deed was executed by 8 persons in favour of the assessee viz., Smt. K. Urmila Reddy, Sri K. Prabhakar Reddy, Smt. K. Sarita Reddy, Smt. K. Vijita Reddy, Smt. Kavita Reddy, Smt. Shalini Reddy, Sri K. Ravikant Reddy and Smt. K. Varsha. It was further revealed that out of the above stated 8 vendors, 4 vendors were non-resident Indians viz., Smt. Kavita Reddy, Smt. Vijita Reddy, Smt. Sarita Reddy and Smt. Shalini Reddy to whom the assessee company had paid Rs. 3,02,50,000/- each aggregating to Rs. 12,10,00,000/- towards the sale consi....
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....instead of directly paying the tax, have availed exemption provided under section 54 of the Income Tax which is otherwise available to all individual assessee's under the Act. We therefore submit that even on this count, our company cannot be held as 'assessee in default' under the provisions of section 201(1) of the Income Tax Act, 1961. It is also pertinent to note here that Sri K. Prabhakar Reddy is a resident in India and he is the GPA holder on behalf of the four daughter's, the property was sold by him and money was also received by him and therefore the provisions of section 195 are not attracted in the company's case by virtue of the provisions of the Income Tax Act, for the foregoing reasons and also on the basis of judicial pronouncements in the following cases. (i) Rakesh Chauhan vs. Director of Income Tax (International Taxation) (ii) Rakesh Chauhan vs. Dy. Director of Income Tax (International Taxation) (2010) 128 TTJ 116 (Chd.) (iii) Tecumseh Products (I) Ltd vs. DCIT, Circle-6 (TDS) Hyderabad (2007) 13 SOT 489 (Hyd)." 4. However, the Ld. DIT (International Taxation) was of the view that the submission made by the assessee-compan....
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....lt' as per the provision of section 201(1) of the Act. 5. With the above observations, the Ld. DCIT computed the total tax payable at Rs. 2,74,18,600/- U/s. 201(1) of the Act and also levied penalty U/s. 201(1A) of the Act for the period 15/12/2011 upto 20/12/2012 i.e., for 13 months @ 1% per months which works out to Rs. 35,64,418/-. 6. On appeal, the Ld. CIT (A) made the following observation: - (i) The recipient NRIs had availed exemptions U/s. 54F of the Act with respect to the entire capital gains and filed their returns of income. The copy of the returns of income were also filed before the ld. AO. Therefore, there was no merit in treating the assessee Company to be an 'assessee in default'. (ii) Reliance placed by the Ld. AO on the undertaking of one of the vendor's representative stating that Form 15C was filed before the Bank proposing to remit the sale proceeds in overseas bank account in order to purchase residential property in USA is not appropriate because all the four vendors had remitted the total sale proceeds in the LTCG Scheme account in Andhra Bank, MLA Colony Branch within the specified time provided under the Act and had also filed thei....
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....sions of section 201(1) and 201(1A) of the Act instantly. (ii) From the correspondence of the advocate of the vendors etc., the assessee was aware that four vendors were NRIs. (iii) At the time of purchase of the residential property the assessee was also not aware that the vendors would claim deduction U/s. 54F of the Act with respect to the LTCG earned by them. (iv) Even if the vendors had claimed deduction U/s. 54F of the Act and filed their return of income that would be after a long span of time from the date of the purchase of the residential property by the assessee. Non-deduction of tax at source by the assessee on the anticipating of future claim of deduction by the recipients / vendors is not appropriate. (v) No conclusive proof is brought before the ld. Revenue Authorities with respect to the purchase / construction of the residential House Property within the stipulated period stipulated under the Act in order to entitle the vendors the claim of the deduction U/s. 54F of the Act. (vi) The compliance of the entire provisions of section 54F of the Act enabling the vendors to claim the deduction U/s. 54F of the Act is not brough....
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....f the vendors and deduct tax at source wherever applicable with respect to the payment made to non-resident Indians. However, the assessee Company had failed to do so. (iv) If the assessee Company is of the view that the amount received by the vendors from it is not chargeable to tax under the provisions of the Act then it is mandatory on the part of the assessee company to prefer an application before the Ld. Assessing Officer U/s. 195(2) of the Act and in the case of the assessee Company it had failed to do so. (v) In what manner the entire sale consideration is utilized by the NRI vendors is also not established before us though the Ld.CIT(A) states in his Order that the same is deposited in the LTCG Scheme account. (vi) From the above it was clear that the assessee Company had failed to deduct tax at source towards the payments made to the NRIs and therefore the assessee has to be held as an 'assessee in default' as per the provision of section 201(1) of the Act., if it is established that the amount received by the NRI vendors are liable for LTCG tax during the relevant assessment year. 12. From the above, it is obvious that the order of the ld. C....
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....icial to assessee it is curative in nature. Hence, it would be applicable with retrospective effect. In this situation, we are of the view that the assessee should be given an opportunity to comply with the proviso cited herein above before the Ld. DIT (International Taxation) so as to establish that the NRI's who had received the sale consideration from the assessee towards the sale of their residential house property had complied with the relevant provisions of Section 54F of the Act with respect to the assessment year 2012-13 ie., the NRI vendors had at least deposited the sale proceeds in the LTCG Scheme account within the stipulated period under the Act during the relevant assessment year. In that case the NRI Vendors would be eligible for deduction U/s.54F of the Act and the charge of LTCG on them would be nil during the relevant assessment year. In such circumstance the assessee Company would be relieved from deducting tax at source from the NRI vendors to whom the assessee had made payment for purchase of their residential property as decided in the Cases cited by the LD.AR. Needless to mention that if the entire sale proceeds is deposited in the LTCG Scheme account, then t....