Case Law Details
Court :Mumbai bench of the Income-tax Appellate Tribunal
Citation : Birla Sunlife Asset Management Company v. ITO [2010] 38 SOT 523 (MUM),
Brief :Asset management company can be treated as an agent of its non-resident investors under section 163 of the Income-tax Act, 1961 (the Act).
Facts of the case
• The taxpayer an asset management company of a mutual fund, made payments to the investors residing in United Arab Emirates (UAE), upon redemption of units of a debt scheme of a Mutual Fund, without any deduction of tax at source.
• The Assessing officer held the taxpayer to be an agent of such non-resident investors under section 163 of the Act on the ground that the non-residents were in receipt of income directly or indirectly from or through the taxpayer.
Taxpayer’s contentions
• As per article 13 of the tax treaty, capital gains arising on redemption of units in mutual fund in India would be taxable in the country of residence of non-resident investors i.e. UAE. Therefore, the amounts received by non-resident investors are not taxable in India.
• The taxpayer contended that proceedings have already been initiated against it for non deduction of tax at source under Section 201 and 201(IA) of the Act and therefore, parallel proceedings under section 163 of the Act could not be taken up.
Tax department’s contentions
• The taxpayer has a dual capacity, one as an agent or representative of non-resident investors under section 163 of the Act and the other as a person responsible to deduct tax in terms of section 195 of the Act.
• In the proceedings for non deduction of tax at source the taxpayer represents himself whereas under section 163 of the Act the taxpayer is a representative or an agent of the non-resident and therefore both are separate proceedings.
• The proceedings for non deduction of tax at source are for non compliance of section 195 of the Act. Section 195 of the Act does not deal with tax assessment but only deals with the provisions of tax deductible at source. Regular assessment could be made either on non-resident or their statutory agents being agent in terms of section 163 of the Act.
• As per section 163 of the Act, the taxpayer as a representative of the non-resident is vicariously liable for the non-resident’s tax dues and accordingly, the final tax liability of the non-resident can be fastened on the taxpayer.
Issue before the Tribunal- Whether the taxpayer can be considered as an agent of the non-resident investors under section 163 of the Act?
Tribunal’s ruling
• Income accruing or arising to a non-resident through a transfer of capital asset situated in India are Taxable as income deemed to accrue or arise in India as per section 9(1) of the Act and therefore the taxpayer was rightly treated as an agent of non-resident investors.
• Section 195 of the Act deals with the provisions of deduction of tax from the payments made to non-resident whereas section 163 of the Act deals with the persons from whom tax dues of non-residents can be recovered.
• The amount deducted under section 195 of the Act is to be adjusted with reference to actual tax liability of the non-resident through representative taxpayer. Both proceedings are complementary to each other and therefore there is no bar under the Act in taking action under section 163 of the Act simultaneously with the proceedings for non-deduction of tax.
• The Tribunal held that if the non-resident investor is not liable to tax in terms of the tax treaty provisions then merely because they had an agent in India will not affect their tax liability. Therefore, the taxpayer’s objection that it will lead to multiplicity of proceedings and double taxation is not acceptable.
• Accordingly, the Tribunal treated the taxpayer as an agent of the non-resident investors under section 163 of the Act.
Our Comments
This decision could have far reaching impact on asset management companies. Apart from the withholding tax obligations, asset management companies could also be regarded as agents of non-resident investors. This implies that asset management companies could be proceeded against by the tax authorities for assessment and recovery of non-resident investors’ taxes.
Although, the Tribunal has not delved into the taxability of the income, the Tribunal has observed that merely having an agent in India, will not affect the tax treaty benefit available to the non-resident investor.
