Case Law Details
DCIT Vs WNS Capital Investment Ltd. (ITAT Mumbai)
In the case of Engineering Analysis Centre of Excellence Vs CIT [(2021) 125 taxmann.com 42 (SC)], Hon’ble Supreme Court has, dealing with a materially similar situation i.e. with respect to the obligations of a person under tax withholding requirements, observed that “It is thus clear that the “person” mentioned in section 195 of the Income Tax Act cannot be expected to do the impossible, namely, to apply (the law as it did not exist as the point of time when the obligations in question were being performed) the expanded definition of “royalty” inserted by explanation 4 to section 9(1)(vi) of the Income Tax Act, for the assessment years in question, at a time when such explanation was not actually and factually in the statute.” It is in this context that Their Lordships also observed that “This question is answered by two latin maxims, lex non cogit ad impossibilia, i.e., the law does not demand the impossible and impotentia excusat legem, i.e., when there is a disability that makes it impossible to obey the law, the alleged disobedience of the law is excused”. For a person to perform the tax withholding obligations on the basis of an amendment in law which was enacted on a date later than the date on which tax withholding obligations were required to be performed, is expecting that person to do the impossible. When a law is nowhere even on the horizon, leave aside the statute, it is wholly impossible for any person to perform the obligations imposed by such a law. The assessee, therefore, cannot be faulted for not deducting tax at source from payments made to Aviva International Holding Ltd UK in respect of purchase of shares in Aviva Global Services, Singapore, which, in turn, are said to derive substantial value from underlying assets in India. Once we come to this conclusion to the effect that there were no lapses on the part of the assessee inasmuch as the related legal provisions were not even in existence at the point of time when the sale of shares took place, i.e., 11th July 2008, we need not deal with the question as to whether the income embedded in the payments in question was at all taxable in India. Quite clearly, therefore, as is held by Hon’ble Supreme Court in the case of Engineering Analysis (supra), persons responsible for deducting tax at source cannot be expected to act on the basis of an Explanation when such an “explanation was not actually and factually in the statute”. It cannot thus be said that, on the facts of this case, tax was deductible under section 195 at the time of making the said payment. We hold so. Once we hold so, the very foundation of impugned demands under section 201 r.w.s. 195 ceases to be sustainable in law, as the entire case of the revenue authorities hinges on Explanation 2 to Section 195, and it’s retrospective application. Having said that, we must add that, in any event, this issue is entirely tax neutral inasmuch as it is a case in which the person selling the shares, i.e. Aviva International Holdings Ltd UK, is said to have already paid taxes on the capital gains, and independent proceedings in the said matter are in progress, and the matter is said to be pending for adjudication, on merits, before a coordinate bench. In case the taxability of the said income in the hands of the seller is to be upheld, the upholding of levy of interest under section 234B, on the given facts, will only be a natural corollary. Whether interest is charged under section 201(1A) or under section 234B, it is to be charged @ 1% p.m, and levy of interest under one of these provisions is to the exclusion of levy of interest under the other provision. Let’s not lose sight of the fact that the period before us is the period prior to insertion of Proviso to Section 209(1), with effect from 1st April 2012, which means that, as the law stood at that point of time, it could be argued that irrespective of the actual deduction of tax at source, as long as the tax is deductible at source, the tax deductible will be reduced from the advance tax liability. Therefore, our upholding the liability under section 201(1A), which could only proceed on the foundational assumption that tax was deductible at source by the person making payment in question, will end up exonerating the person, in whose hands the income is taxable, of liability under section 234B. The levy of interest to compensate for the delay in realization of taxes, in the event of the taxability of subject income being upheld, is reasonably protected. In a situation in which, however, no income is held to be taxable in India, no demands under section 201 r.w.s. 195- including demand under section 201(1A) r.w.s. 195., which are inherently in the nature of vicarious liability, survive. Viewed thus, the present dispute is wholly tax neutral. In view of these discussions, as also bearing in mind the entirety of the case, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.
FULL TEXT OF THE ITAT JUDGEMENT
This set of appeal and cross objection is directed against the order dated 20th March, 2018 passed by the learned CIT(A) in the manner of tax withholding, and consequent interest, demands raised under section 201 r.w.s. 195 of the Income Tax Act, 1961, for the assessment year 2009-10.
2. Grievances raised by the appellant Assessing Officer, as set out in the memorandum of appeal, are as follows:
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