Section 194IA is qua each transferee and not qua aggregate consideration

Shamim Irshad Vs ITO (ITAT Delhi)

Section 194IA seeks to provide that every transferee, at the time of payment or crediting any sum as consideration for transfer of immovable property (other than agriculture land) to a resident transferor shall deduct @ 1% of such sum.

he moot question therefore is whether the obligation provided under Section 194IA is qua the property or qua the transferee.

From the text and tenor of provisions of Section 194IA, it is evident that the obligation under Section 194IA relates to a transferee responsible for paying to a resident transferor any sum by way of consideration for transfer of immovable property. Secondly, obligation to deduct tax arises at the time of credit of such sum to the account of the transferor or at the time of payment of such sum to the transferor. Thus two factors co-exist for applicability of Section 194IA. The first factor, as noted above, relates to the obligation of the transferee and the second factor fixes obligation to deduct tax at the time of credit or payment. When read combinedly; while the first limb of Section 194IA refers to a singular expression, i.e., ‘transferee’ (in distinction to transferee(s) combined), second limb provides for time of discharge of obligation which in turn, depends on the action of each transferee (in exclusion to other transferee) i.e., either credit in its accounts or actual payment. Thus, when the provision is read as a whole, it gives an infallible impression that obligation cast under Section 194IA is qua each transferee and not qua the aggregate consideration. The reasons are not far to seek. It will not be practicable to achieve the requirement of second limb if the case of the Revenue is accepted that it is qua total consideration involved and not each transferee. The obligation cast under Section 194IA arises to a particular transferee at the time of payment of consideration or at the time of credit in its own accounts.

The law cannot be read to expect one transferee to deduct TDS on behalf of other transferee at the time action taken by him towards payment or credit. If the contentions of the Revenue are accepted that vicarious liability imposed under Section 194IA is linked to the value of the property, an anomalous and unintended situation will arise for deduction of TDS. The contention of the assessee that Section 194IA operates qua each transferee and not qua total consideration is in absolute congruence with the schematic interpretation of Section 194IA of the Act.

FULL TEXT OF THE ORDER OF ITAT DELHI

The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals)-XXXI, New Delhi [‘CIT(A)’ in short] dated 23.01.2019 arising from the assessment order dated 27.02.2017 passed by the Assessing Officer (AO) under Section 201(1) r.w.s. 201(1A) of the Income Tax Act, 1961 (the Act) concerning AY 2016-17.

2. As per its grounds of appeal, the assessee has challenged the action of the Revenue Authorities in imposing the liability under Section 201(1) r.w. Section 201(1A) at Rs.67,200/- on the grounds of infringement of provisions of Section 194IA(1) of the Act for non deduction of tax while making payment for purchase of property.

3. When the matter was called for hearing, the ld. counsel for the assessee, at the outset, submitted that the assessee has purchased certain house property jointly with her husband at a total consideration of Rs.55 lakhs paid to the seller of the property. It was submitted that the assessee is a joint owner has contributed Rs.40 lakh to the seller and remaining Rs.15 lakhs has been contributed by the other joint owner. In this regard, it was submitted that provisions of Section 194IA(1) is not attracted in the facts of the case where the assessee herein has made payments below threshold limit of Rs.50 lakhs for purchase of property. It was asserted that the assessee having paid less than Rs.50 lakhs as a joint owner is not obliged under Section 194IA(1) notwithstanding the fact that aggregate consideration of the property purchased exceeds Rs.50 lakhs. The ld. counsel thus submitted that no liability can be fixed under Section 201(1) r.w. Section 201(1A) in the absence of any default in terms of Section 194IA(1) of the Act.

4. The ld. DR for the Revenue, on the other hand, relied upon the order of the CIT(A) and contended that provisions of Section 194IA(1) requires the assessee to deduct TDS and deposit the sum with the exchequer in accordance with law where the purchase consideration of the property is Rs.50 lakhs or more. It was thus submitted that the assessee has clearly defaulted in compliance of Section 194IA(1) of the Act and therefore consequences under Section 201(1) r.w. Section 201(1A) must follow as a result thereof and hence no interference with the order of the CIT(A) is called for.

5. We have carefully considered the rival submissions. In the instant case, few admitted facts are required to be noted. The assessee herein is one of the joint transferees for purchase of property for a total consideration of Rs.55 lakh which is more than threshold limit as prescribed under Section 194IA of the Act. However, the assessee in the instant case, being a joint owner claims that she is a joint holder to the extent of 75% in the property. The assessee herein has paid a sum of Rs.40 lakhs only as a joint transferee of the property. The question thus piosed for consideration herein is whether any legal obligation arises under Section 194IA of the Act where the consideration paid by each transferee is below threshold limit prescribed under Section 194IA of the Act.

6. The provisions of Section 194IA reads as under:

“194-IA (1) Any person, being a transferee, responsible for paying (other than) the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon.

(2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees.

(3) The provisions of Section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.”

7. Section 194IA seeks to provide that every transferee, at the time of payment or crediting any sum as consideration for transfer of immovable property (other than agriculture land) to a resident transferor shall deduct @ 1% of such sum.

7.1 The moot question therefore is whether the obligation provided under Section 194IA is qua the property or qua the transferee.

7.2 From the text and tenor of provisions of Section 194IA, it is evident that the obligation under Section 194IA relates to a transferee responsible for paying to a resident transferor any sum by way of consideration for transfer of immovable property. Secondly, obligation to deduct tax arises at the time of credit of such sum to the account of the transferor or at the time of payment of such sum to the transferor. Thus two factors co-exist for applicability of Section 194IA. The first factor, as noted above, relates to the obligation of the transferee and the second factor fixes obligation to deduct tax at the time of credit or payment. When read combinedly; while the first limb of Section 194IA refers to a singular expression, i.e., ‘transferee’ (in distinction to transferee(s) combined), second limb provides for time of discharge of obligation which in turn, depends on the action of each transferee (in exclusion to other transferee) i.e., either credit in its accounts or actual payment. Thus, when the provision is read as a whole, it gives an infallible impression that obligation cast under Section 194IA is qua each transferee and not qua the aggregate consideration. The reasons are not far to seek. It will not be practicable to achieve the requirement of second limb if the case of the Revenue is accepted that it is qua total consideration involved and not each transferee. The obligation cast under Section 194IA arises to a particular transferee at the time of payment of consideration or at the time of credit in its own accounts.

7.3 The law cannot be read to expect one transferee to deduct TDS on behalf of other transferee at the time action taken by him towards payment or credit. If the contentions of the Revenue are accepted that vicarious liability imposed under Section 194IA is linked to the value of the property, an anomalous and unintended situation will arise for deduction of TDS. The contention of the assessee that Section 194IA operates qua each transferee and not qua total consideration is in absolute congruence with the schematic interpretation of Section 194IA of the Act.

8. On facts, the assessee in the instant case has admittedly paid Rs. 40 lakhs which is below threshold limit provided to trigger the obligation provided in Section 194IA of the Act. Hence, Section 194IA has no application where a transferee in question has neither credited nor paid consideration for transfer of immovable property in excess of threshold limit of Rs. 50 lakhs.

9. We thus find merit in the plea raised on behalf of the assessee for holding the assessee to be not an assessee in default for the purposes of Section 201/201(1A) of the Act. Hence, we reverse and cancel the liability demand raised under Section 201(1) r.w. Section 201(1A) of the Act in the absence of any default committed with reference to Section 194IA of the Act.

10. In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 02/08/2022.