TaxTMI 
TaxTMI 
2023 (3) TMI 596
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....ich would have necessitated the deduction of tax at source on the payments made to him under the facts and in the circumstances of the appellant's case. 2.2 The learned CIT[A] ought to have appreciated that the appellant being under the bonafide belief that Mr. Mahesh Bhupathi is a Resident in India by virtue of the agreements entered into, the appellant cannot be considered as an assessee in default u/s.201[1] of the Act under the facts and in the circumstances of the appellant's case. 3. Without prejudice to the above, the learned CIT[A] ought to have appreciated that the property agreed to be purchased from Mr. Mahesh Bhupathi was in ordinary course of business and the provisions of section 195[1] of the Act, have no application and consequently, the impugned order passed cis-201N and 201[1A] of the Act are void ab initio and deserve to be cancelled. 4. Without prejudice to the above, the learned CIT[A] failed to appreciate that Mr. Mahesh Bhupathi has since reported the transaction relating to the sale of the apartment in his return of income filed before the Income-tax Department and hence, the appellant cannot be considered as an assessee in default having re....
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.... Mr. Mahesh Bhupathi was a non-resident, the A.O. issued a notice u/s.201 of the Act, requiring the assessee to show cause as to why tax was not deducted u/s.195(1) of the Act, in respect of the consideration paid in terms of the 'Agreement' entered into with Mr. Bhupathi. After considering the assessee's submissions, the AO held that assessee was liable to deduct tax on the capital gains arising on the payment of Rs 4 crores made by the assessee to the non-resident payee. He accordingly held Assessee to be in default and levied tax & interest liability. 3. Against this assessee went in appeal before the Ld. CIT(A). The contention of the Ld. A.R. is that assessee was not aware of the fact that Mr. Mahesh Bhupathi not a non-resident and therefore, provisions of section 195(1) of the Act is not applicable. Ld. CIT(A) observed that the assessee was in regular contact with Mr. Bhupathi at least from the day of booking on 15.06.2004' when the latter booked the apartment as per MOU. Secondly and more importantly, the Website of Assessee Company shows that Mr. Bhupathi is an independent Director of the company and claimed to be associated with the company since 2005. The ....
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....-11, the AO contends that the liability u/s 195 of the Act arose in the FY 10-11 itself, being the year in which property was handed over. d) For the purposes of deduction of tax at source u/s 195, of the Act, the liability arises, "at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier". e) Further, in terms of Sec 195 of the Act, the person responsible for paying any sumchargeable to tax i.e. the assessee in this case, shall, at the time of credit/ payment of such income, deduct tax thereon (i.e on such income) at the rates in force. This implies that entire tax on such income i.e. the quantum of capital gains, has to be deducted at source from the first payment/credit itself i.e at the earliest point of time. Therefore, in cases where remittance is made to the non-resident in installments, TDS is to be affected from the first installment. Here, it is important torefer to the observation of Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. (341 ITR 1) "The object of Section 195 is to ensure that tax due from nonre....
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....ment of treating the assessee as an assessee in default. One possible implication of assessee's argument appears to be that tax is to be deducted at source only at the time of paying the last instalment because at that point of time only the chargeability of the sum paid could be determined. It may be mentioned that there's only one section [Sec194IB] in Chapter XVII of the Act where the payer is to deduct tax at source from the last payment of the year. Sub sec 2 of sec 194IB clearly mentions that "The income-tax referred to in sub-section (1) shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last mouth of tenancy, if the property is vacated during the year, as the case may be, to the account or the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier-. The legislature in its wisdom has not provided this benefit u/s 195 of the Act for the remittances made to nonresidents. And Literal Rule of Interpretation says we should read the statute as it is, without distorting or twisting. Reference in this context is made to the decision of Hon'ble ....
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....he payee. Section 201 says that if such person fails to so deduct TAS he shall be deemed to be an assessee-in-default in respect of the deductible amount of tax (Section 201). Liability to deduct tax is different from "assessment" under the Act. " 3.4 The assessment proceedings in the case of the deductor and the TDS proceedings in the hands of the deductee are to be in accordance with the provisions of the Act and not in accordance with what the deductee reports in his Return of Income. The Department has taken a consistent stand in_ both the proceedings that capital gain is taxable in AY 11-12 only. There is no inconsistency in the approach of AOs in this regard as held by Ld. CIT(A). 3.5 The Ld. CIT(A) further observed that department has got recourse to recover taxes against the deductee, it may be pointed out that in terms of section 202 of the IT Act " the power to recover tax by deduction under the forgoing provisions shall be without prejudice to any other mode of recovery". Quantum of sum chargeable u/s 195 3.6 Another submission is that in accordance with the decision of Hon'ble Supreme Court in the case of GE Technology (327 ITR 156) and CBDT instruction no 2/2....
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....y failed to consider the stamp duty of Rs.22,80,600/- paid by Mr. Mahesh Bhupathi but has also failed to consider that Mr. Mahesh Bhupathi has claimed a purchase cost of Rs.2,81,56,781/- and a sum of -Rs.63,75,302/- towards development cost, in all aggregating to Rs.3,45,32,083/-. 3.10 The Ld. CIT(A) observed that the AO mentions in the Order that total cost of Rs 2,02,72,220/- [including registration cost] was incurred by the payee. Thus, he reckoned Rs 1,97,27,780/- [i.e. 4,00,00,000 (sale consideration) - Rs 2,02,72,220/- for computing tax liability. According to Ld. CIT(A), the vendor has incurred a sum of Rs.22,80,600/- towards stamp duty, which was paid on 16.2.2009 and form part of cost of acquisition and directed the A.O. to give benefit to this extent of Rs.22,80,600/-. 3.11 Against this assessee is in appeal before us by way of above ground. 4. Regarding ground No.2, the Ld. A.R. submitted as follows: a. The appellant denies itself liable to be considered as an assessee in default in terms of Sec. 201[1] of the Act for the alleged failure to deduct tax u/s. 195 of the Act under the facts and in the circumstances of the appellant's case. b. The learned CIT[A] i....
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....t on the reason that assessee has not deducted TDS on the payment of Rs.4 crores made by assessee to non-resident Mr. Mahesh Bhupathi. Now the contention of the Ld. A.R. is that assessee was in bonafide belief that assessee is not required to deduct TDS on the payment of Rs.4 crores vide sale agreement dated 17.7.2010 on the reason that Shri Mahesh Bhupathi had given his residential address No.183/4, Kodigehalli, Kodigehalli-Thindlu Road, Vidyaranyapura Post, Bangalore 560 097 and the assessee was not aware of the residential status of Shri Mahesh Bhupathi as Mr. Mahesh Bhupathi has appeared in person before the various authorities in connection with the execution of the said documents. Further, it was submitted that there was a tripartite deed of nomination executed on 30.3.2011 in terms of which the assessee nominated Mr. Shashikiran Shetty to the benefits of agreement under which the consideration was fixed as Rs.6 crores, out of which Mr. Mahesh Bhupathi would receive the consideration of Rs.4 crores and assessee was to entitle to receive the balance sum of Rs.2 crores as his income. It was submitted that the aforesaid transaction was carried through the terms of the agreements....
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....Bhupathi. The contention of the Ld. A.R. is that the property agreed to be purchased from Mr. Mahesh Bhupathi was in ordinary course of business and the provisions of section 195[1] of the Act, have no application and consequently. These arguments of the assessee's counsel have no merit. The reading of section 195 of the Act shows that tax has to be deducted when remittance made to non-resident in respect of sum chargeable to tax when following conditions are fulfilled:- a) Payment is to a non resident b) The sum paid/credited is chargeable to tax. 5.3 In the present case, both the conditions are fulfilled. The seller, Mahesh Bhupathi,-was a non-resident in the assessment year under consideration. The assessee has not denied that the payment was towards purchase of the immovable property which is being capital asset. There is further no doubt that the same consideration is chargeable to tax as capital gains in the hands of the seller, Mahesh Bhupathi. Thus, liability u/s 195 of the Act to deduct the tax on such income arose when remittance was made or amount payable to him. This ground of appeal of the assessee is dismissed. 6. Ground No.4:- Without prejudice to the above, ....
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....urce because no tax is due to the exchequer. This plea was accepted by the Revenue. The Revenue, however proceeded to levy interest u/s 201(1A) of the Act. The provisions of sec.201(1A) of the Act reads thus: "(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest, (i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one-half per cent forevery month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishingthe statement in accordance with the provisions of sub-section (3) of section 200." Provided that in case any person including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions....
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....n of income or not. Once the conditions laid down u/s 195 of the Act are fulfilled the assessee is bound to deduct TDS. In the instant case, there is no material to show that the seller has filed the return of income for the assessment year under consideration or paid the capital gain tax on sale of said apartment. It is for this reason that the legislature incorporated provisions like section 195 under the Act to prevent NRIs from taking away the entire money abroad without paying the due tax thereon and over which money in the Indian tax authorities will have no control once this sum of money is thrashed away. The claim of the assessee that vendor Mr. Mahesh Bhupathi had already reported the said transaction to the tax authorities in the A.Y. 2013-14 and there was no capital gain reported in his return of income. As we have pointed out the transaction took place in the A.Y. 2011-12 and the TDS liability u/s 195 of the Act also arose in the A.Y. under considerationas payment is chargeable to tax. Hence, we are of the opinion that there is no relevance if the vendor does not have positive income in the A.Y. under consideration when the payment in question is chargeable to tax, then....
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....ked out above by the sum of Rs.4 Crores) towards TDS while making payments, and raised demands towards short deduction and interest in the impugned order as under: Date of payment Amount paid to Nonresident Amount on which TDS should have been made (49.32% of the payment TDS made TDS required to be made u/s 195 including SC & DC in Rs. Short deduct ion u/s 201(1) in Rs. Interest chargeable u/s 201(1A) upto January 215 in Rs. 17/07/2010 1,50,00,000 73,98,000 Nil 22,85,982 22,85,982 12,34,386 15/07/2011 2,25,00,000 1,10,97,220 Nil 34,29,041 34,29,041 14,40,180 08/04/2012 25,00,000 12,33,000 Nil 3,80,997 3,80,997 1,25,697 Total tax and interest payable by the assessee u/s 201(1) and u/s 201(1A) 60,96,020 28,00,263 9.2 The Ld. CIT(A) considered this computation and he has observed as follows:- 15. I have given my careful consideration to the argument of the appellant and the contentions of the AO. The AO mentions in the order that total cost of Rs.2,02,72,220/- (including registration cost) was incurred by the payee. Thus, he reckoned the Rs.1,97,27,780/- (i.e. 4,00,00,000 (sale consideration) - Rs.2,02,72,220) for computing tax liability. ....