TDS u/s 195 on Sale Consideration or Capital Gains?

 Syed Aslam Hashmi vs Income Tax Officer ; IT APPEAL NOS. 1313(BANG.) OF 2010 AND 1076 OF 2012 DATED 28TH SEPT., 2012
ISSUES INVOLVED:-
 
1.       Whether the assessee, purchasing immovable property from a NRI, can contend that he was not aware of the fact that seller was a NRI  and hence he did not deduct TDS as per the provisions of Section 195?
 
2.       Whether TDS under Section 195 has to be deducted on whole of the Sale Consideration or only on the amount of Capital Gains in case of purchase of immovable property situated in India from a NRI ?
 
 
FACTS OF THE CASE:-
                                      
The assessee, a NRI, purchased an immovable property situated at Bangalore from another NRI. However the assessee did not deduct any TDS from the sale consideration as required under the provisions of Section 195 of the Income Tax Act, 1961. Assessing officer noticed that the assessee ought to have deducted TDS @ 20% (plus surcharge and cess) of the sale consideration before making the payment to the seller NRI and accordingly initiated proceedings under section 201(1) of the Act. Assessee contended that he was not aware of the fact that the seller was a NRI and was under impression that the seller was based at Pune. He also contended that he was not made aware of the provisions of Section 195 by the Chartered Accountant.
 
The assessee further contended that even otherwise the TDS was deductible only on the amount of Capital Gains and not on whole of the sale consideration. The AO, however, discarding the explanations of assessee, held him to be an assessee in default and also charged interest under section 201(1A). The CIT (Appeals) upheld the order of AO.
 
           
REVENUE'S CONTENTIONS:-
 
(a)     That the sale deed clearly mentioned that the sellers were NRIs as the address mentioned therein showed that they were resident abroad.
 
(b)    That the seller in instant case did not file their Income Tax Returns and it is for this very reason that legislature incorporated provisions like Section 195.
 
(c)     Reliance was placed on the decision of the co-ordinate Bench of same Tribunal in case of  Meena S Patil vs  ACIT which was against assessee on similar facts.
 
(d)    That as regards deduction of TDS on sale consideration or capital gains it was contended that Section 195(1) clearly lays down that tax has to be deducted on whole sum if the same is chargeable to tax and if assessee is of view that tax whole or part of sum is not chargeable to tax then application has to be made to Assessing officer under Section 197 or 195(2).
 
 
 ASSESSEE'S CONTENTIONS :-
 
(a)     That he was under impression that the seller was an Indian resident based at Pune and that the seller has made adequate arrangements to pay taxes and file return.
 
(b)     That he was not made aware of the provisions of section 195 by the professional who guided him in the matter at Bangalore.
 
(c)     That while quantifying the tax to be deducted at source under Section 195, the assessing officer erred in applying the rate on entire sale consideration and not on capital gains arising out of the transaction.
 
 
HELD:-
 
Bangalore Bench of the Tribunal discussed the provisions of Section 195 of the Income Tax Act and observed & held as under:-
 
(a)     That the address given in sale deed clearly establishes that seller resides at Hongkong.
 
(b)    That seller did not pay the taxes and file the return of income. It is for this very reason the legislature has incorporated the provisions of Section 195 to prevent non residents from taking entire money abroad without paying due taxes and over which money Indian authorities have no control once the money is ferreted abroad.
 
(c)     That the contentions of the assessee did not rescue or absolve him of the duty to do what law required him to do.
 
(d)    That as regards quantification of amount on which TDS was deductible, it was held that Section 195(1) clearly stipulates that tax has to be deducted from whole of the sale consideration.
 
(e)     That Section 195(2), Section 197 are there for the safeguard of the assessee and if he thinks that whole of part of amount is not chargeable to tax that application can be made to the assessing officer for lower deduction of tax. Similarly, Section 195(3) of the Act provides such a safeguard to the recipient of such sum.
 
(f)     Reliance was placed on the judgement of Apex Court in the case of Transmission Corporation of AP Ltd. wherein the Hon'ble Apex Court held that if the assessee failed to make an application under section 195(2) read with Section 197 of the Act to the Assessing Officer for lower deduction of tax, then income tax on such 'sum' is to be deducted and it is the statutory obligation of the person responsible for making such payment of such 'sum' to deduct tax thereon before making payment.
 
(g)     Hence it was held that in view of his failure to deduct tax at source , the assessee was rightly held to be assessee in default in accordance with section 195 read with section 201(1).
                                  
 
COMMENTS:-
 
It is an established law that in case sum paid/payable to non resident, if not chargeable to tax, is not subject to deduction of tax at source under section 195 and there is no need to apply to assessing officer for no deduction of tax at source. However if sum is otherwise chargeable to tax and the payer or payee thinks that whole or part of the sum is not chargeable to tax then application has to be made to the assessing officer under Section 195(2) or 197 by the payer for lower  deduction of tax. Section 195(3) also provides the safeguard to the payee. In case of Transmission Corporation of AP also the Hon'ble Apex Court has held that assessee cannot take unilateral decision for lower deduction of tax. If provisions of section 195 are not adhered to then the payer would be subject to penalty as per provisions of the law.
 
Further the assessee cannot escape the responsibility cast upon him under Section 195 by contending that he was not aware about the residential status of the payee as it would defeat the very purpose of the statue and Revenue authorities would not be able to recover the taxes due once the whole of the amount is remitted abroad.
 
 
 
 
I am sure that your goodself would find the above ruling useful.
 
  Regards
 
CA.Vipin Verma
B.COM, FCA, DISA (ICA)
EX-CHAIRMAN DELHI BRANCH
FIRM REGN. NUMBER 15107N
(M): 9811156389, 9811188940
(O) : 011-27429630 / 47082580
Email: info@snvca.com 

 

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