Case Law Details

Case Name : Shri R. Prakash Vs The Income Tax Officer (ITAT Bangalore)
Appeal Number : ITA No. 1097/Bang/2012
Date of Judgement/Order : 12/07/2013
Related Assessment Year : 2009- 10
Courts : All ITAT (5316) ITAT Bangalore (262)

It is not in dispute that Mrs. Shyamala Vijai and Mrs. Poornima Shivaram were entitled to half share each over the property that was sold to the appellant. In fact, as we have already seen, the sale deed clearly acknowledges the receipt of sale consideration of Rs.1 .20 crore by both the vendors in equal shares. In law, Mrs. Shyamala Vijai and Mrs. Poornima Shivaram are entitled to half share each over the property. The share of each of the vendors would therefore be Rs. 60 lakhs. Mrs. Shyamala Vijai is, admittedly, a non-resident and to the extent of Rs. 60 lakhs paid to her, the provisions of section 195 are attracted  and the assessee ought to have deducted tax at source while making payments to the non-resident through Mrs. Shyamala Vijai.

The ld. DR has, however, relied on the decision of the ITAT Bangalore Bench in the case of Syed Aslam Hashmi v. ITO in ITA No. 1313/Bang/2010 & 107 6/Bang/2012, dated 28.09.2012. The ld. DR pointed out before us that the Tribunal in the aforesaid decision has held that u/s. 195 of the Act, tax is to be deducted on the entire sale consideration. We have perused the aforesaid decision and are of the view that the same is not applicable to the facts of the present case. In the aforesaid case, the issue was as to whether u/s. 195 of the Act, tax is to be deducted at source on the capital gain arising out of the transfer of a capital asset or on the entire sale consideration for which the capital asset is transferred. In the aforesaid case, there was no dispute that the payment of the entire sale consideration was made to a non-resident. The Tribunal held that tax has to be deducted at source u/s. 195 of the Act on the entire sale consideration and not on the capital gain arising on transfer of the capital asset. As we have already seen, the facts of the present case are different and the issue is only with regard to whether the tax deduction at source is on the entire sale consideration of Rs. 1.20 crores or Rs. 60 lakhs which was the payment made to the non-resident out of Rs. 1.20 crores.

INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE

BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER

AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER

ITA No. 1097/Bang/2012 & IT(IT)A No.778/Bang/2013

Assessment year : 2009-10

Shri R. Prakash,

Vs.

The Income Tax Officer, International Taxation

Date of Pronouncement: 12.07.2013

O R D E R

Per N. V. Vasudevan, Judicial Member

These appeals are by the assessee against the order dated 25.06.2012 of the CIT(Appeals)-IV, Bangalore relating to assessment year 2009-10.

2. In these appeals, the assessee has challenged the order of the CIT(Appeals) whereby the CIT(A) held that the assessee is an ‘assessee in default’ for not deducting tax at source u/s.201(1) of Act, while making payment for purchase of a property.

3. The material facts giving rise to the present appeals are as follows. The appellant is an individual. He purchased residential property bearing No.696, WOC Road, 3rd Stage, 3rd Block Extension, Bangalore, under a registered sale deed dated 27.04.2008. The property in question originally belonged to one Cmdr. J.R. Vijai. Mr. Vijay died intestate on 21.09.2003 leaving behind him, his wife, Mrs. Shyamala Vijai and only daughter Mrs. Poornima Shivaram as Class-I legal heirs, entitled to succeed to his properties. The appellant purchased the aforesaid property for a total consideration of Rs.1 .20 crores. Mrs. Poornima Shivaram, one of the co-owners of the property was a non-resident. She had given a General Power of Attorney (GPA) to her mother, Mrs. Shyamala Vijai. Mrs. Shyamala Vijai executed the sale deed in favour of the appellant for herself and as GPA holder of Mrs. Poornima Shivaram. The sale consideration of Rs.1.20 crores was paid by one cheque for Rs.10 lakhs; 10 DDs for Rs.9,50,000 and 2 DDs for Rs.9 lakhs & Rs.6 lakhs respectively. The DDs were issued in the name of Mrs. Shyamala Vijai. The sale deed acknowledges the receipt of Rs.1 .20 crores in the following manner:-

“In pursuance of the covenants contained herein and the Purchaser having paid the entire sale consideration of Rs.1,20,00,000/- (Rupees One Crore Twenty Lakhs Only), the receipt of which sum the Vendors hereby acknowledge and also confirm the full and final settlement of the entire sale price of the schedule property.”

4.  As already stated, Mrs. Poornima Shivaram, one of the co-owners was a non-resident. Under the provisions of section 195 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], any person responsible for paying to a non-resident any interest nor being interest referred to in section 1 94LB or section 1 94LC or any other sum chargeable under the provisions of the Act, shall at the time of such sum to the account of 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, deduct income tax thereon at the rates in force.

5.  Admittedly, the appellant did not deduct tax at source while making the payment. The ITO, International Taxation, Ward 2(1) issued a show cause notice u/s. 201(1) of the Act calling upon the assessee to show cause as to why he should not be treated as an ‘assessee in default’ in respect of tax not deducted at source as mandated by the provisions of section 195 of the Act. The assessee did not give any reply to the show cause notice. The Assessing Officer therefore proceeded to pass an order u/s. 201(1) of the Act as follows:-

“As stated above, during the financial year 2008-09, the assessee purchased the property at West of Chord Road, Bangalore, from Smt. Purnima Shivaram for a consideration of Rs.1,20,00,000/-. This amount was paid by the assessee to the seller on 04.04.2008 amid 19.04.2008 by Demand Drafts. The payee, Smt.Purnima Shivaram, was a non-resident. The assessee has not deducted any tax at source at the time of making this payment.

Here it may be noted that in the registered Sale Deed dated 21.04.2008, the seller has given her residential address as No.8, Allen Drive, Kinnelon, NJ 07405, U.S.A.

Thus, the assessee, at the time of making payment of Rs. 1,20,00,000/- to the non-resident seller, has not deducted any tax a source as per the provisions of Sec.195 of the Income Tax Act. As the payment of sale consideration of Rs. 1,20,00,000/- to Smt. Purnima Shivaram, a non-resident, is chargeable to tax in India, and as the assessee has failed to discharge its obligation to deduct tax at source as stipulated u/s. 195 of the Income Tax Act, 1961, as per the provisions of Sec.201(1) of the Income Tax Act, 1961, for the asst. year 2009-10, 1 am holding the assessee, Sri.R.Prakash, as deemed to be an assessee in default in respect of tax not deducted at source in respect of payment of Rs.1,20,00,000/-. He is liable to pay the tax deductible in this regard along with the interest u/s. 201(1A).

The tax liability of the assessee, Sri.R.Prakash, u/s.201(1) for asst. year 2009-10 is worked out as under:

Amount of Sale consideration paid by the assessee on which no tax was deducted at source 1,20,00,000
Tax deductible at source @ 20% 24,00,000
Tax    liability   u/s.   201(1)   of           the
Income Tax Act.
24,00,000
Add: Surcharge@ 10% 2,40,000
Add: Education Cess@2% 48,000
Total tax liability u/s. 201(1) of the Income Tax Act 26,88,000

As per the provisions of Sec.201(1A) the assessee is liable to pay interest @ 1% for every month or part of a month on the tax which it had failed to deduct. Tax liability u/s. 201(1A) for the asst. year 2009-10 is calculated as under:

Tax liability u/s.201(l) for the asst. year 2007-08 (sic) as computed above 26,88,000
Interest @ 1% per month for 33 months – from April 2008 to December 2010 on 26,88,000 13,87,040
Tax liability u/s. 201(1A) 40,75,040

The total tax liability of the assessee, Sri.R.Prakash, for the asst. year 2009-10, under Sections 201(1) and 201(1A) of the Income Tax Act, 1961, is as under:

Amount in Rs.
Tax liability u/s.201(l) 26,88,000
Tax liability u/s.201(lA) 13,87,040
Total Tax Payable for the asst. year 2009-10 40,75,040

6. Aggrieved by the order of the Assessing Officer, the appellant preferred appeal before the CIT(Appeals).

7. Before the CIT(Appeals), the assessee submitted that the entire sale consideration of Rs.1 .20 crores was paid to Mrs. Shyamala Vijai, who was a resident and therefore the provisions of section 195 of the Act were not attracted. It was also argued that Mrs. Shyamala Vijai was the absolute owner of the property and Mrs. Poornima Shivaram, her daughter was shown as a party only by way of abundant caution. Alternatively, it was submitted that Mrs. Shyamala Vijai had invested the entire capital gain for purchase of a new property and was entitled to claim deduction u/s. 54F of the Act and therefore no capital gain was chargeable to tax in the hands of Mrs. Shyamala Vijai and hence there could be no liability on the part of the assessee u/s. 195 of the Act. The CIT(Appeals), however, rejected the contention observing as follows:-

“ Having heard the contention of the appellant and on perusal of the Order of the Assessing Officer, the above contentions of the appellant are not found acceptable due to the reasons given below:

(i) The sale deed in respect of the property clearly indicates that Smt Shamala Vijay (Resident) and Smt Purnima Shivaram (Non Resident) were the joint owners of the property. It is also clear from the Sale Deed that Smt Purnima Shivaram authorised Smt Shamala Vijay through a general Power of Attorney.

(ii) The Sale Deed has been signed by Smt Shamala Vijay in two capacities i.e. one for herself and another as the GPA Holder of Smt Purnima Shivaram.

(iii) Even after the repeated opportunities and show cause notices issued by the Assessing Officer, the appellant failed to produce any evidence in respect of the share of Smt Purnima Shivaram in the said property.

The above facts make it clear that the payment of 1,20,00,000/- includes the consideration for the shareholding in the property of the Non Resident. The share of the Non Resident in the sale of the property was chargeable to tax in India as per the Provisions of the Income Tax Act.”

8. The CIT(Appeals) also referred to the decision of the Hon’ble Supreme Court in the case of GE India Technology Center Pvt. Ltd. v. CIT, 327 ITR 456 (SC) and held that in the event of the assessee  having a doubt with regard to deductibility of tax at source on payments made to a non-resident, he ought to have approached the Assessing Officer u/s. 195(2) of the Act and cannot take a plea that the income is not chargeable to tax in the hands of the recipient. The appeal of the assessee was accordingly dismissed by the ld. CIT(Appeals).

9.  Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred the present appeals before the Tribunal.

10. We have heard the rival submissions. In our view, the order of the CIT(Appeals) can be sustained in part only i.e., with regard to the quantum of tax that needs to be deducted at source and consequential levy of interest u/s. 201(1A) of the Act. It is not in dispute that Mrs. Shyamala Vijai and Mrs. Poornima Shivaram were entitled to half share each over the property that was sold to the appellant. In fact, as we have already seen, the sale deed clearly acknowledges the receipt of sale consideration of Rs.1 .20 crore by both the vendors in equal shares. In law, Mrs. Shyamala Vijai and Mrs. Poornima Shivaram are entitled to half share each over the property. The share of each of the vendors would therefore be Rs. 60 lakhs. Mrs. Shyamala Vijai is, admittedly, a non-resident and to the extent of Rs. 60 lakhs paid to her, the provisions of section 195 are attracted and the assessee ought to have deducted tax at source while making payments to the non-resident through Mrs. Shyamala Vijai.

11.  The ld. DR has, however, relied on the decision of the ITAT Bangalore Bench in the case of Syed Aslam Hashmi v. ITO in ITA No. 1313/Bang/2010 & 1076/Bang/2012, dated 28.09.2012. The ld. DR pointed out before us that the Tribunal in the aforesaid decision has held that u/s. 195 of the Act, tax is to be deducted on the entire sale consideration. We have perused the aforesaid decision and are of the view that the same is not applicable to the facts of the present case. In the aforesaid case, the issue was as to whether u/s. 195 of the Act, tax is to be deducted at source on the capital gain arising out of the transfer of a capital asset or on the entire sale consideration for which the capital asset is transferred. In the aforesaid case, there was no dispute that the payment of the entire sale consideration was made to a non-resident. The Tribunal held that tax has to be deducted at source u/s. 195 of the Act on the entire sale consideration and not on the capital gain arising on transfer of the capital asset. As we have already seen, the facts of the present case are different and the issue is only with regard to whether the tax deduction at source is on the entire sale consideration of Rs. 1.20 crores or Rs. 60 lakhs which was the payment made to the non-resident out of Rs. 1.20 crores. We are therefore of the view that the decision relied upon by the ld. DR is of no assistance to the plea of the department.

12. We therefore allow the appeals of the assessee in part and hold that the assessee can be considered as an ‘assessee in default’ only to the extent of Rs. 60 lakhs paid to the non-resident. Levy of consequential interest u/s. 201(1A) should be modified  accordingly.    We order accordingly.

13.  In the result, the appeals are treated as partly allowed.

Pronounced in the open court on this 12th day of July, 2013.

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