M/S SHREE BALAJI CONCEPTS,MARGAO vs. INCOME TAX OFFICER (INTERNATIONAL TXATION), WARD -1, PANAJI

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 73/PAN/2018 Assessment Year: 2012-13

M/s Shree Balaji Concepts, Vs. Income-tax officer [international Flat No. 19, 1st Floor, Kadar Taxation], Ward -1, Pundalik Manzil, Martres Dias Road, Niwas, Rua-De-Qurem, Panaji, Near Hari Mandir, Margao- Goa – 403 001 403 601 State of Goa [PAN: ABLFS 0416Q] (Appellant) (Respondent)

Appellant by : Shri M. R. Hegde, CA & Shri Shravan Swarup, CA Respondent by: Smt. Rijula Uniyal, Sr. DR Date of Hearing: 05.04.2022 Date of Pronouncement: 13.05.2022

ORDER Per Dr. M. L. Meena, AM:

The appeal by the assessee, is directed against the order dated 27.11.2017 of the Commissioner of income tax appeals – 12, Bengaluru (hereinafter referred to as “the CIT appeals”) in respect of the assessment year 2012 – 13, challenging the decision of CIT(A), treating the assessee in default and thereby confirming levy of tax liability of rupees 2, 26,60,000/-

2 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO under section 201(1) and consequential interest liability of ₹ 12,236,400 under section 201(1A) of the act.

“1. The order passed by the learned Assessing Officer under section 201 [1] and 201 [1A] of the Act dated 23/02/2016 and confirmed by the learned Commissioner of Income-tax [Appeals] vide her appellate order dated 27/11/2017, in so far as it is against the Appellant is against law, equity, facts and circumstances of the case. 2. The appellant denies itself liable to be taxed under section 201 [1] of the Act and further the appellant denies itself liable to be charged to under section 201 [1] of the Act amounting to Rs. 2,26,60,000/- and interest under section 201 [1A] of the Act amounting to Rs. 1,22,36,400/-, on the facts and circumstances of the case. 3. The order passed by the learned Commissioner of Income-tax [Appeals] is bad in law as the appellant was not afforded a reasonable and a fair opportunity of hearing, which is in grave violation of principles of natural justice, on the facts and circumstances of the case. 4. The learned authorities below failed to appreciate that the provisions of section 195 of the Act is not applicable consequently the appellant cannot be held as an assessee in default as per the provisions of section 201 [1] of the Act, on the facts and circumstances of the case. 5. The learned authorities below failed to appreciate that the provisions of section 201 of the Act does not envisage a recovery proceeding from the deductor in the event of failure to effect TDS under Chapter XVII B and thus invocation of section 156 of the Act to levy a demand on the Appellant is totally misplaced and without any foundation. 6. The learned authorities below failed to appreciate that the provisions of section 191 and section 205 construct a mandate not to recover tax from the deductor in the event of failure to deduct tax and consequently the order holding the appellant as assessee in default is bad in law, on the facts and circumstances of the case. 7. The learned authorities below failed to appreciate the fact that the payee has filed the return of income and offered the sale consideration received from the appellant in his return of income and has paid the applicable taxes on the income and consequently the learned authorities below ought

3 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO not to have held the appellant as an assessee in default, on the facts and circumstances of the case.

4 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO his wife for a consideration of ₹ 10 crores. However, the appellant did not deduct any tax on this amount of payment towards the purchase of immovable property. The AO discussed that the assessee was required to deduct tax under section 195 of the IT act. Accordingly, the AO has held the assessee in default and levied tax liability of rupees 2, 26,60,000/- under section 201(1) and interest liability of ₹ 12,236,400/- under section 201(1A) of the act. 4. Aggrieved with the assessment order, the assessee carried the matter with the CIT appeal has confirmed the addition by holding that sufficient opportunity has been afforded to the assessee appellant and since the appellant assessee has nothing to say in the matter, the matter is decided on merits based on the documents available on record by observing vide para 4C, and 5C page no. 8 to 25 of the impugned order as under: “4C Findings I have carefully considered the assessing officer’s contentions and the submissions made by the appellant. For the sake of ready reference, section 195 is reproduced below: 195. [(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest 27[(not being interest referred to in section 194LB or section 194LC)I 28[or section 194LD] 29[***] or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" 31[***]) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : 32[Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only

5 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode :]

33[Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-0.1

34[Explanation 1].—For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.]

35[Explanation 2.—For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has— 1. a residence or place of business or business connection in India; or 2. any other presence in any manner whatsoever in India.]

(2) Where the person responsible for paying any such sum chargeable under this Act (other than S6[***] 37[***] 38[***] 39]***] salary) to a nonresident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the 4£[.Assessing] Officer to determine, n[by general or special order], the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub- section (1) only on that proportion of the sum which is so chargeable. 42f***]

43[(3) Subject to rules 44 made under sub section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed form to the 45/Assessing] Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1).

6 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO

(4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the 46]Assessing] Officer before the expiry of such period, till such cancellation.

(5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.]

47[(6) The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner, as may be prescribed.48]

49[(7) Notwithstanding anything contained in sub-section (1) and subsection (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub- section (1) on that proportion of the sum which is so chargeable.]

i) Regarding the argument that there was a bonalide belief:

In the deed of sale, the sellers identified themselves as formerly Indian nationals and presently British nationals. Therefore there is no force in the appellant’s arguments that it was under a bonafide belief that the sellers were residents.

ii) Regarding the argument that the payee has filed the return!applicability of proviso to section 201(1)1

The next argument of the appellant is that it cannot be treated an assessee in default as the payee has filed the return of income declaring the

7 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO consideration received by them and offered the same for tax in the return of Income. It placed reliance on the decision in the case of Hindustan Coca Cola Beverages (Supra).

This argument is not acceptable as proviso to section 201 is applicable specifically in cases where payees are residents. The text of proviso is reproduced hereafter:

49 [Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident—

has furnished his return of income under section 139; (i) has taken into account such sum for computing income in such return of (ii) income; and has paid the tax due on the income declared by him in such return of (ii) income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed 50:]

In the present case the payee is a non-resident. So the deductor assessee cannot take advantage of the same. The fact that the proviso is applicable only in case of Resident payees, becomes amply clear when read in conjunction with Section 40a(i) and 40a(ia). Section 40a(i) is wrt payments to non-residents where 40a(ia) is for payments to a resident.

2nd Proviso [that a person shall be deemed to have deducted and paid the tax on sum in question on the date of furnishing the Return of Income by the resident] and in such cases, the sum payable on which tax has not been

8 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO deducted, not paid shall not be subjected to disallowance is only in context of Residents [u/s 40a(ia)].

Further this benefit of proviso to section 201(1) is available subject to furnishing by the deductor a certificate from the accountant in Form 26. No such certificate was filed either before the AO or during the course of the appellate proceedings.

Jurisdictional Tribunal in case of Intel Tech India Pvt. Ltd. 32 SOT 227 dealt with the issue and held as under:

“16. Section 195 provides deduction that income-tax is to be deducted at the rate in force. The rates in force are given in para 2 of the Finance Bill, 2003. In respect of any other income, the rate mentioned is 40 per cent. It is true that the entire consideration paid by the deductor may not be income in the hands of the deductee but for such a case, the deductor is required to make an application under section 195(2) so that it can be ascertained as to how much is the income portion in respect of the payment made. In the instant case, no such application under section 195(2) was made and, therefore, the deductor was obliged to deduct tax at the rate of 40per cent.”.

iii) Regarding the argument that onus is on the revenue to show that the taxes are not paid

The appellant has raised the contention that it is the duty of the Revenue to demonstrate that the person concerned has not paid the amount directly. It relied on the decision of Hon’ble Allahabad High Court in case of Jagran Prakash 47Taxmann.com 82(ALL). However, this decision was rendered on 23.05.2012 and the assessment years in question were AY 09-10 and AY10-11. Wef 01.07.2012, a proviso has been added to Section 201, whereby the assessee shall not be deemed to be assessee in default if certain conditions are fulfilled including the payment of tax on the income under consideration by the payee and the person i.e. the deductor furnishes a certificate to this effect from an accountant in the prescribed form. Thus, the onus lies squarely in the deduction to prove that the payee has paid taxes on such income. The burden cannot be shifted to the Revenue by merely claiming that the taxes have been paid by the payee. This observation is only in context of the appellant’s reliance on the decision in case of Jagran Prakash

9 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO (Supra). The fact, however remains that proviso to section 201 is applicable only to residents whereas the appellant in question is a nonresident. (iv) Regarding the argument there is no tax liabilitu in terms of Article 26 on non- discrimination

Article 26 of the concerned Indo-UK DTAA is reproduced below for ready reference: ARTICLE 26 NON-DISCRIMINATION 1. The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected.

10 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO 5. In this Article, the term "taxation" means taxes which are the subject of this Convention.

The discrimination clause can be pressed into service only by a non-resident, not a resident. The appellant in the present case is a resident and therefore it cannot take refuge under the non- discrimination Article of DTAA.

Further, for purposes of application of non- discrimination, the key issue to notice is that the activities of the resident and the non-resident should be same, the circumstances should be same and the conditions should be same. The condition under section 195 requiring deduction of tax on any sum chargeable under the provisions of this Act is applicable only to payments made to non- residents and not to the residents. Therefore, the circumstances and the conditions cannot be said to be same.

(v) Regarding the argument of the appellant that income component should have been considered (ground 8)

The appellant argues that tire officer should have determined the income portion of the seller and only thereafter he should have quantified the taxable income. It relied on CBDT circular 3/2015 dated 12.02.2015

The circular relied upon by the appellant is in context of section 40(a)(i). Further, the appellant had the option to file an application under section 195(2) before the assessing officer to determine the appropriate portion of such sum chargeable to tax. Having faiied to do so, it is precluded from claiming that only income component should have been considered. In this context, in a recent decision in case of Google India Pvt Ltd. [IT(TP)A.1511 to 1516/Bang/2013], the jurisdictional Tribunal held as under:

“125 In our opinion, the scope and ambit of Section 195(2) is clear and unambiguous, which mandates the AO to decide whether any payment (Royalty) paid by the appellant to GIL is chargeable to Tax on cash/ receipt basis or not. However, to trigger 195(2), the pager (assessee) was duty-bound to make an application with the AO. Unless an application is made to the AO, there would not be any occasion for him to determine the chargeability of payment of royalty to tax by referring to DTAA or under the ACT. Therefore, the finding given by the Hon’ble Supreme Court GE India Technology Centre Pvt. Ltd (supra) does not come to the rescue of the assessee. The applicability of DTAA cannot be suo-

11 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO moto be determined by AO without there being any application under section 195(2) of the Act for the purposes of deducting the Tax at source. The Coordinate bench in the matter of Vodafone South Ltd. /2015J 53 taxrnann.com441 (Bangalore - Trib.) after referring and dealing GE India Technology Centre P. Ltd (supra) held as under: 36. The next peripheral issue is, can the payer claim full protection of DTAA as is available to the payee in respect to the payments payee had received. The DTAAs are not more than the allocation of the taxes, they do not provide any other mode, how the taxes are to be collected whether by advance deduction etc. This is an area of the domestic law, the sum chargeable to tax is to be considered, with an angle of the domestic law, unless the payee is there to demonstrate that he is not chargeable under the DTAA either by himself or through a payer. The payee never comes u/s 195 (3) of the I. T. Act. It is not available on the record that payee had ever informed the payer about the holding of their tax residency certificate and also whether they want the benefit of DTAA. According to the learned Counsel for the Revenue the tax residency certificate given by the sovereign of the State or State(s) would satisfy that payee is a taxable entity in that state and it is entitled for the benefit of DTAA, if the provisions are more beneficial than the domestic law. Contrary to this contentions, it was pointed out by the learned Counsel for the assessee that the assessee has complied with the procedural requirement contemplated under Rule37BB of the ITR 1962. It had submitted the details of the payee relevant clauses of the DTAA. According to him the entire literatures, commentaries and judicial decisions run counter to the argument of the Revenue. The judgment of the Hon'ble Andhra Pradesh High Court in the case of Sanofi Pasteur Holdings (supra), was brought to our notice during the course of hearing. The Hon'ble Court has made a reference with regard to the background giving rise to tax treaties and how the treaties and domestic law co-exists for administering the taxation of any assessee. The findings of the Hon'ble Court explaining the scope and role of the DTAA is worth to note here, it read as under:

"Double tax treaties are international agreements, their creation and consequences determined according to the rules contained in the Vienna Convention on the Law of Treaties, 1969 (VCLT). The conclusion of a treaty/convention is preceded by negotiations. States intending to conclude a treaty are represented by the appropriate level of executive, political or diplomatic expertise according to individual practices and judgment of the participant states. There are several steps in the negotiations phase eventually leading to

12 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO conclusion of the treaty. Treaties or conventions are thus instruments signaling sovereign political choices negotiated between States. The efficacy of a treaty over domestic law turns upon either Stale - specific conventions operating to govern the sovereign practices, or where there is a written constitution provisions of that charter. 'Double taxation treaty rules do not "authorize" or "allocate" jurisdiction to tax to the contracting State nor attribute the "right to tax". As is recognized by public international law and constitutional law, States have the original jurisdiction to tax, as an attribute of sovereignty. What double taxation treaties do is to establish an independent mechanism to avoid double taxation through restriction of tax claims in areas where overlapping tax claims are expected, or at least theoretically possible. Essentially therefore, through the mechanism of a treaty the contracting states mutually bind themselves not to levy taxes, or to tax only to a limited extent, in cases where the treaty reserves taxation for the other contracting states, either wholly or in part. Contracting states thus and qua treaty provisions, waive tax claims or divide tax sources and/or the taxable object. Unlike rules of private international law tax treaty norms assume that both contracting states tax according to their own law. Treaty do not lead to the application of foreign law. What treaty rules do is to limit the content of the tax law of both the contracting states to avoid double-taxation. In effect, double taxation avoidance treaty rules merely alter the legal consequences derived from the tax laws of the contracting states, either by excluding application of foreign law. What treaty rules do is to limit the content of the tax law of both the contracting states to avoid double-taxation. In effect, double taxation avoidance treaty rules merely alter the legal consequences derived from the tax laws of the contracting states, either by excluding application of provisions of the domestic tax law where these apply or by obliging one or both of the concerned States to allow a credit against their domestic tax for taxes paid in the other State. Klaus Wogel (Supra) explains that rules or double taxation are thus not conflict rules, similar to that in private international law but are rules of limitation of law, comparable to those of international administrative law'. 37. According to the learned Counsel for the Revenue, the treaty is not to be applied automatically. Section 90(2) of the Income Tax Act mandates application of treaty and it is applicable in relation to an assessee upon whom such agreements are applicable. In the present case it is applicable in the case of payee, if at all is applicable, he has highlighted that Article-1 in all the treaties specifies the type of person to whom treaty would be applicable. The treaty would be applicable to a person who is resident of State (R) or source of income in a State(s). It does not mean that it is applicable according to the domicile. He

13 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO also questioned who will make inquiry about the residential status of the payee under Article-4. He also pointed that DTAA is not a parallel Code and not a complete Code. It only allocates taxing rights. The Hon'ble Andhra Pradesh High Court has specifically observed that treaty rules do not force or "allocate jurisdiction" to tax to the contracting slate, nor attribute the "right to tax". According to the Hon'ble Court it is recognized by public international law and constitutional law, states have the original jurisdiction to tax as an attribute of sovereignty, the rule of double taxation treaties is to establish an independent mechanism to avoid double taxation through restriction of tax claims in areas where overlapping tax claims are accepted. The learned Counsel for the Revenue has not raked up any new controversy in his submissions. He has just highlighted the procedural limitations of the inquiry required to be conducted u/sl95 r.w.s 201. To our mind onus is upon the assessee to determine that payments made by it do not involve the element of income. The role of the Assessing Officer while conducting the inquiry u/s 201 would be to demolish the formation of this opinion at the end of the assessee. The Assessing Officer has to indicate that the payments made by the assessee are the sums chargeable to tax and belief harboured by the assessee that it is not chargeable to tax and therefore it did not deduct the tax was an erroneous belief. We will consider the evidence available on record in support of the assessee's conclusions in the later part of this order, but analysis of the scheme of income tax act, namely recovery of taxes in advance by withholding under Chapter XVII, procedure u/s 195(2) and 195(3) and procedure for assessment persuade us to say that certainly the rights as available to the payee to defend itself in an income tax assessment proceedings are not available to the assessee as payer in equal force. The learned Counsel for the Revenue has rightly pointed that provisions of DTAA would not automatically attract in the defense of the payer. There may be number of reasons for not assessing the income in the hands of the payee. The payee maybe entitled for some deductions, some exemption etc. The cumulative setting of all these peripheral factor and their bearing in ultimate decision making process will be considered by us in later part of the order. 126 Respectfully following the judgment of Hon’ble SC in the matter of Transmission Corporation of AP Ltd. v. CIT [1999] 239 ITR 587, orders of the coordinate benches in the matter of Vodafone South Ltd. [2015] 53 taxmann.com 441 (Bangalore - Trib.) and also for the reasons mentioned herein above ground 13 of the appeals is dismissed.”

14 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO “5C. FINDINGS

I have carefully considered the contentions of the Assessing officer and also gone through the appellant’s submissions, as also the decisions relied upon. It will be profitable to reproduce the text of Section 201(1A).

"(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,-—

(i) At one per cent for every month or part of a month on the amount of such tax from the date on Which such tax was deductible to the date on which such lax is deducted; and (ii) at one and one-half per cent for every month or part, of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub- section (3) of section 200." Provided that in case any person including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account' of a resident but is not deemed to be an assessee-in-default under the first proviso to sub-section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident.

The proviso to section 201(1 A) was inserted by Finance Act, 2012 w.e.f. 01.07.2012. Prior to the insertion to this proviso, the section contemplated only one situation where the tax was actually paid belatedly by the deductor. In 2007, the judgment of Hon’ble Supreme Court, in the case of Hindustan Coco cola Beverage Pvt. Ltd. (supra) widened the scope to include a situation where the payment of tax is made by the deductee.

The relevant part of the decision is reproduced below:

"10. Be that as it may, Circular No. 275/201/95-IT(B) dated 29.01.1997 issued by the Central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The circular declares "no demand visualized under Section

15 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO 201(1) of the Income Tax Act should be enforced after the tax deductor has satisfied the officer in charge of TDS, that taxes due have been paid by the deductee assessee. However, this will not alter the liability to charge interest under Section 201(1-A) of the Act till the date of payment of taxes by the deductee assessee or the liability for penalty under Section 271-C of the Income -Tax. [ emphasis supplied]

(iii) W.e.f. 01.07.2012, in a situation where the tax is paid by the deductee, the interest is to be computed up to the date of furnishing of return of income by such deductee. This proviso makes no distinction whether the deductee files a return with positive income, nil income or even losses. Starting date for computing the interest liability is the date on which the tax was deductable and the terminal date is the date of furnishing of return of income by the payee /deductee. (iv) Presuming this proviso to Sub-section 201 (1A) is prospective in nature, then the interest liability will be governed by the main Section i.e. Section 201(1A). So the issue to be decided is, in a case where the recipient of income had no tax liability embedded in such payments, will there be any interest liability. This issue was considered by Hon’ble Punjab & Haryana High Court in the case of CIT(TDS) Chandigarh vs. Punjab infrastructure Development Board76 taxmann.com.365 and it was held that the interest U/s 201(1A) of the IT Act has to be calculated from the date on which tax should have been deducted to the date on which the deductee should have filed return and that de hors the amendment of first July 2012, the assessee would be liable to pay interest u/s 201(1A). The relevant extent from this judgment is reproduced below:-

“13. The language of Section 201 is clear and unqualified. It indeed does not permit an assessee to decide for itself what the liability of the deductee assessee is or is likely to be. That is a matter for the assessing officer who assesses the returns of the deductee assessee. It is in fact not even possible for him to do so. He cannot ascertain with any degree of certainty as to the financial position of the deductee assessee. A view to the contrary would enable an assessee to prolong the matter indefinitely. If accepted, it may even entitle the assessee to contend that it is not liable to pay interest till the finalisation of the assessment of the deductee assessee. This could never have been contemplated by the Legislature. The language of Section 201 does not even suggest such an intention.

16 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO 14. Even if the assessee is in a position to ascertain the tcuc liability of the deductee assessee, it would make no difference for the reasons already stated. The section does not distinguish between cases where an assessee is in a position to determine the tax liability of the deductee assessee and cases where it is not in a position to do so. This view is supported by the following further observations of the Madras High Court in the above judgment:— “10. The Tribunal was clearly in error in accepting the case pleaded for the assessee that it had no duty to pay tax at source solely on the ground that one of its sister concerns had filed a loss return and the other sister concern had claimed refund. The concern which had filed the loss return was at the time of assessment found liable to pay tax and the concern which had claimed refund at the time of original assessment was found not entitled to the refund, though such refund was directed in appeal. The assessee had a duty to deduct tax at source. It apparently did not do so as payments were made to its own sister concerns and it did not wish to part with any part of that interest to the Revenue at that point of time. That however cannot be an acceptable reason for its failure to deduct tax at source and remit the same to the Government." 15. This judgment was followed by another judgment of a Division Bench of the Madras High Court in CIT v. Chennai Metropolitan Water Supply & Sewerage Board 120121 348 ITR 530/120111 202 Taxman 454/14 taxmann.com 73. It was contended that as the recipient i.e. the deductee assesses was a loss-making entity, the question of payment of interest did not arise. The contention was negated on the basis of the judgment in Ramesh Enterprises (supra). Paragraphs 15 to 18 of the judgment, read as under:— "15. As far as the present case is concerned, while the assessee had short deducted the tax under Section 195 of the Income Tax Act, it did not make good the shortfall on the ground that the payee company was a loss making company and had filed a return so. In the circumstances, the question of it further making a deduction and remitting to the State did not arise. The Circular referred to recognizes the fact that once the payee remits the differential tax, the question of further recovery of the self-same sum from the payer did not arise and till the payment made by the dedutee assessee, interest would be charged. 16. Applying the said circular herein, with no liability thus arisen at the hands of the payee, the terminal point as regards the calculation of interest necessarily has to be given a meaningful interpretation. Given the fact that the interest levy is an automatic one, the determination on the ultimate liability of the payee company to pay or not to make payment being a procedural exercise has nothing

17 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO to do with the liability of the ^.assessee to deduct TDS. As such, the loss return filed by the payee company cannot be treated as a circumstance to be taken in favour of the assessee company from not applying the provisions of Section 201(1A) of the Income Tax Act. On the facts herein, the only reasonable interpretation one can give to the provision under Section 201(1 A) as regards the terminal point upto which interest has to be calculated would be the date on which the return has to be filed by the payee, so that the calculation of interest under Section 201(1 A) of the Income Tax Act in such case would really be meaningful. 17. In the circumstances, conforming to the object of the provisions regarding the levy of interest under Section 201(1A) of the Income Tax Act on the failure to deduct tax in accordance with Section 195 of the Income Tax Act, the starting point for the levy of interest thus to commence from the date on which the assessee should have deducted the tax, the terminal point herein has to be taken as the date on which the payee should have filed its return, so that the calculation of interest under the said provision does not suffer any illegality. 18. As already pointed out, the payee company is stated to have filed a loss return. Nevertheless, this fact needs to be verified by the Assessing Officer and if it is found to be so, the question of further recovery from the hands of the assessee company herein does not arise - vide (2007) 293 ITR 226 (Hindustan Coca Cola Beverage P. Ltd. v. Commissioner of Income-Tax). However, as far as levy of interest is concerned, it being an automatic one, the order of the Tribunal merits to be set aside as far as this aspect of the question is concerned. Accordingly, the assessment order regarding levy of interest has to undergo necessary modification to the effect that interest under Section 201(1 A) of the Income Tax Act has to be calculated from the date on which tax should have been deducted to the date on which the payee should have filed its return under the provisions of the Income Tax Act. Accordingly, both the Tax Cases stand disposed of. No costs."

We are in respectful agreement with these observations as well. In particular, we agree with the judgment insofar as it holds that the terminal point has to be taken as a date on which the payee/deductee should have filed returns. Thus, even before and de hors the amendment of 1st July, 2012, the assessee would be liable to pay interest under Section 201(1 A).

18 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO judgment in Chennai Metropolitan Water Supply & Sewerage Board (supra) to the proviso to sub-section (1A) of Section 201.”

This decision of Hon’ble Punjab and Haryana High Court drew strength from the judgment of Division Bench of Hon’ble Madras High Court in the case of CIT vs. Ramesh Enterprises 250 ITR 465 [2001] wherein the assessee had failed to deduct tax at source on the interest payments made. The Hon’ble Court held as under:- "5. The provision requiring deduction of tax on interest payment does not make the duty to effect deduction contingent upon the assessee's valuation of the likely liability for tax of the recipient of interest payment. It is only in cases where the recipients of interest is in a position to file any certificate or declaration to show that the person's total income is below the taxable limit that the tax on the interest payment made to such person is not to be deducted. In all other cases, it must be deducted as required under section 195 of the Act. 6. It is not the convenience of the assessee, and its assessment of the likely extent of the liability for payment of interest of the recipients of the interest, that determines the extent of the assessee's obligation to deduct tax at source on the interest paid by it. The provision requiring deduction of lax at source on interest payment is applicable to all persons paying such interest and it is not left to the individual assessee to decide the extent of compliance that it will make with regard to the obligation imposed by the statutory provision.”

19 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO that the learned authorities below failed to appreciate that the provisions of section 191 and section 205 construct a mandate not to recover tax from the deductor in the event of failure to deduct tax and consequently the order holding the appellant as assessee in default is bad in law, on the facts and circumstances of the case; the learned authorities below failed to appreciate the fact that the payee has filed the return of income and offered the sale consideration received from the appellant in his return of income and has paid the applicable taxes on the income and consequently the learned authorities below ought not to have held the appellant as an assessee in default, on the facts and circumstances of the case; that the learned authorities below failed to appreciate that collecting the taxes on the very same amount which has been declared by the payee amounts to unjust enrichment, on the facts and circumstances of the case; that the learned authorities below failed to appreciate that there shall be No liability to deduct Tax at Source as per Article 26 on ‘Non Discrimination’ of DTAA between India 8t United Kingdom, on the facts and circumstances of the case; that the learned authorities below failed to appreciate that the proviso to section 201 of the Act is discriminative in nature and ought to have held that the proviso to section 201 of the Act even equally applicable to the non-residents as well on the facts and circumstances of the case; that the AO ought to have determined the income portion / component of the seller and after verification ought to have quantified the taxable income of the payee and only on such portion of income of the payee the learned authorities below ought to have held the appellant as an ‘assessee in default’, on the facts and circumstances of the case and that when the appellant cannot be held as an assessee in default consequently the

20 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO interest under section 201 [1A] of the Act amounting to Rs. 1,22,36,400/- is also not applicable and leviable, on the facts and circumstances of the case. He contended that without prejudice, if at all any interest is leviable then the period should be considered only from the month in which the payment is made by the appellant to the payee and only till the date of filing the return of income and payment of applicable taxes by the payee, on the facts and circumstances of the case. In support, the appellant assessee has filed a written synopsis which reads as under:

“The brief facts of the case in the present appeal for adjudication before this Honhle Tribunal are as under:

The appellant before your Honour is a Partnership Firm. During the impugned assessment year 2012-13 the appellant purchased a property from the Non- residents i.e. Mr. Erlice D’ Souza & his wife Mrs. Yesmin Mehta D’souza for a total consideration of Rs. 10 Crores on 17/09/2011. The appellant while making the payment towards purchase of the property did not deduct TDS as per the provisions of section 195 of the Act under a bonafide belief that the said sellers of the property were residents as per the Income-tax Act.

Noticing the non-deduction of TDS as per section 195 of the Act, the learned assessing officer initiated the proceedings under section 201 [1] & 201[1A] of the Act. During the course of proceedings under section 201 [1] the appellant had filed the copies of the return of income filed by the two sellers of the property wherein the consideration received towards sale of the property were duly disclosed in their respective return of income. The learned assessing officer in the impugned order passed under section 201 [1] of the Act at para 3 at page 4 of the said order has categorically observed that the assessee has filed the copies of the return of the two sellers and the said aspect is not disputed. It is also relevant to bring to the notice of this Hon’ble Tribunal that the said two payees who are non-residents have filed their respective returns on 30/07/2012. The assessee also submitted before the learned assessing officer that the since the Payee i.e. the sellers having declared the consideration received by them in their respective hands the assessee cannot be held as an “assessee in default” as per the provisions of section 201 [1] of the Act. The learned assessing officer

21 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO without properly appreciating the submissions of the appellant held that the proviso to section as it existed would apply only to the payments made to the residents and not to the non-residents. Thus, he concluded the proceedings under section 201 [1] of the Act by making an addition of Rs. 2,26,60,000/- and imposing interest under section 201[1A] of the Act of Rs. 1,22,36,400/- vide his order under section 201 [1] &201[1A] dated 23/02/2016.

Being aggrieved by the order passed by the learned assessing officer under section 201[1] & 201[1A] of the Act dated 23/02/2016, the appellant preferred an appeal before the learned CIT[A], The learned CIT[A] dismissed the appeal of the appellant vide appellate order dated 27/11/2017, by confirming the findings of the learned assessing officer and also held that the proviso to section 201 [ 1 ] as it existed is applicable to the residents and not for the payments made to non- residents.

The appellant being aggrieved by the said orders passed by the lower authorities has preferred this present appeal before this Honble Tribunal.

As submitted in the earlier paragraphs it is not in dispute that the appellant has made payments to two non-residents and did not deduct TDS as per the provisions of section 195 of the Act. It is also submitted that the payees i.e. the two sellers of the property have disclosed the consideration received from the appellant in their respective return of income filed by them before the tax authorities.

The submission and contention of the appellant are that since the said two sellers of the property having declared the sale consideration received from the appellant in their respective return of income, the appellant cannot be held as an assessee in default since as per the first proviso to section 201[1] of the Act though is applicable to the resident assessee as it stood on that particular date, the said beneficial relaxations allowed to the resident payees should also be considered and be applied to the non-residents as well, which is discriminatory in nature and should be equally applied to the non-residents.

In this context it is relevant to bring to the notice of this Hon’ble Tribunal that in the Finance [No. 2] Bill of 2019, the legislature in its wisdom has thought about this discrimination and has vide the Finance Act No. 2 has extended the benefit of the proviso to section 201 [ 1 ] even to the non-residents. The relevant extracts of the Memorandum to the Finance {No. 2] Bill of 2019 is placed in the paper

22 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO book compilation at pages 19-21. In the said Memorandum the legislature has clearly and explicitly expressed as under: “This relief in section 201 is available to the deductor, only in respect of payments made to a resident. In case of similar failure on payments made to a non-residents, such relief is available to the deductor. To remove this anomaly, it is proposed to amend the proviso to sub-section (1) of section 201 to extend the benefit of this proviso to a deductor, even in respect of failure 'to deduct tax. on payment to non-resident.” It is also relevant to bring to the notice of this Hon’ble Tribunal that the said amendment is effective from 01/09/2019.

In this regard the submissions of the appellant are that though the said benefit in the amendment to the proviso to section 201 [ 1 ] of the Act is extended to the nonresidents as well from 01/09/2019, the said benefit has to be given retrospective effect from the inception, since the said amendment has been brought into the statute only to remove the anomaly which was created in the statute and consequently any provision which has been inserted for removing any anomaly has to be given retrospective effect.

In this regard the appellant places its reliance on the following decisions in support of its contention that any provision which has been inserted with an object to remove any difficulty or anomaly then the said provision has to be given retrospective effect:

[a] Celltick Mobile Media Pvt. Ltd. V. DCIT (2021) 127 taxmann.com 598 (Mumbai- Trib.) [b] CIT v. Ansal Land Mark Township Pvt. Ltd. (2015) 61 taxmann.com 45 (Delhi). [c] CIT v. Calcutta Export Company [2018] 93 taxmann.com 51 [SC] [d] DCIT v. Ananda Marakala (2014) 48 taxmann.com 402 (Bangalore- Trib.)

It is humbly submitted before this Hon’ble Tribunal that since the payees in the instant case having filed their return of income and disclosed the consideration in their respective returns and have duly complied with the amended provisions of section 201 [ 1] of the Act which has been inserted in Finance [No. 2] Act, 2019. Wherefore, the humble submission of the appellant before this Hon’ble Tribunal that considering the decisions as relied upon by the appellant, this Hon’ble Tribunal may hold that the said proviso to section 201[1] wherein the benefit has

23 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO also been extended to the payments made to non-residents have to be given retrospective effect and consequently the appellant humbly pray before this Hon’ble Tribunal no to hold the appellant as an assessee in default as per the proviso to section 201 [ 1 ] of the Act and delete the demand made by the learned assessing officer under section 201 [ 1 ] of the Act of Rs. 2,26,60.000/-.

As regard to the interest under section 201 [1A] of the Act is concerned the A.O. has levied a sum of Rs. 1,22,36,400/-. It is humble submission of the appellant that the said property is sold by the appellant on 17/09/2011 and the return of income by the two payees have been filed on 30/07/2012. Thus, any interest under section 201 TA' of the Act has to be calculated for the period 07/10/2011 to 30/07/2012 being the return filed by the two payees. Reliance is placed on the parity of reasoning of the decision of the Hon’ble Apex Court in the case of Hindustan Coca Cola Beverages (P) Ltd v. CIT 163 ITR 355 (SC) and also the Memorandum to Finance (No.2) Bill, 2019 which is placed at page 21 of compilation. The contents of which is reproduced below:

“Consequent to this amendment, it is also proposed to amend the proviso to sub- section (1A) of section 201to provide for levy of interest till the date of filing of return by the non-resident payee.”

Wherefore, in view of the above submissions the appellant humbly prays before your Honour to kindly allow the appeal preferred by the appellant as prayed and justice rendered.”

24 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO return of income filed by them before the tax authorities; and since the said two sellers of the property having declared the sale consideration received from the appellant in their respective return of income, the appellant cannot be held as an assessee in default as per the first proviso to section 201[1] of the Act, although is applicable to the resident assessee as it stood on that particular date, the said beneficial relaxations allowed to the resident payees should also be considered and be applied to the non-residents as well, which is discriminatory in nature and should be equally applied to the non-residents. 8. The Ld. CIT appeal stated that in the present case the payee is a non-resident and therefore the diductor assessee cannot take advantage of the amended proviso to section 201[1]. He has discussed that the fact that the proviso is applicable only in case of Resident payees, and it becomes amply clear with the conjoint reading with Section 40a(i) and 40a(ia). Section 40a(i) provides for payments to non-residents where 40a(ia) is for payments to a resident. Accordingly, the learned CIT[A] dismissed the appeal of the appellant by confirming the findings of the learned assessing officer by holding that the proviso to section 201[1] as it existed is applicable to the residents and not for the payments made to non- residents. 8.1 The CIT (A) has passed a detailed order addressing the objections of the assessee in the replies filed before him. After considering the submissions of the assessee, and amended provisions of TDS, focusing on the 2nd Proviso [that a person shall be deemed to have deducted and paid the tax on sum in question on the date of furnishing the Return of Income by the resident] and in such cases, the sum payable on which tax has not

25 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO been deducted, not paid shall not be subjected to disallowance is only in context of Residents [u/s 40a(ia)]. He further noted that the benefit of proviso to section 201(1) is available subject to furnishing by the deductor a certificate from the accountant in Form 26. No such certificate was filed either before the AO or during the course of the appellate proceedings. He placed reliance on Jurisdictional Tribunal in case of Intel Tech India Pvt. Ltd. 32 SOT 227 which has dealt with the issue and held as under: “16. Section 195 provides deduction that income-tax is to be deducted at the rate in force. The rates in force are given in para 2 of the Finance Bill, 2003. In respect of any other income, the rate mentioned is 40 per cent. It is true that the entire consideration paid by the deductor may not be income in the hands of the deductee but for such a case, the deductor is required to make an application under section 195(2) so that it can be ascertained as to how much is the income portion in respect of the payment made. In the instant case, no such application under section 195(2) was made and, therefore, the deductor was obliged to deduct tax at the rate of 40per cent.”

26 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO 9.1 In this context, the Ld. AR brought to our notice that in the Finance [No. 2] Bill of 2019, the legislature in its wisdom has thought about this discrimination and has vide the Finance Act No. 2 has extended the benefit of the proviso to section 201[1] even to the non-residents. The relevant extracts of the Memorandum to the Finance {No. 2] Bill of 2019 is placed in the paper book compilation at pages 19-21. The Ld. AR contended that although the said amendment is effective from 01/09/2019, and accordingly, the said benefit in the amendment to the proviso to section 201[1] of the Act is extended to the non-residents as well from 01/09/2019. However, the said benefit has to be given retrospective effect, since, the said amendment has been brought into the statute only to remove the anomaly which was created in the statute and consequently any provision which has been inserted for removing any anomaly has to be given retrospective effect. In this regard the appellant places its reliance on the following decisions in support of its contention that any provision which has been inserted with an object to remove any difficulty or anomaly then the said provision has to be given retrospective effect: [a]. Celltick Mobile Media Pvt. Ltd. V. DCIT (2021) 127 taxmann.com 598 (Mumbai-Trib.). [b]. CIT v. Ansal Land Mark Township Pvt. Ltd. (2015) 61 taxmann.com 45 (Delhi). [c]. CIT v. Calcutta Export Company [2018] 93 taxmann.com 51 [SC] [d]. DCIT v. Ananda Marakala (2014) 48 taxmann.com 402 (Bangalore-Trib.)

27 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO 10. It is seen that the payees in the instant case having filed their return of income and disclosed the consideration in their respective returns and have duly complied with the amended provisions of section 201[1] of the Act, which has been inserted in Finance [No. 2] Act, 2019. After considering the decisions as relied upon by the appellant, we are of the considered view that the said proviso to section 201[1] wherein the benefit has also been extended to the payments made to non-residents are meant for removal of anomaly, is required to be given with retrospective effect. In our view, the appellant assessee can not be held as an assessee in default as per proviso to section 201[1] of the Act, in view of the amended provisions of section 201[1] of the Act, being inserted in Finance [No. 2] Act, 2019. Accordingly, we delete the demand raised by the AO and confirmed by the CIT(A) under section 201[1] of the Act of Rs. 2,26,60.000/-. 11. The next issue is regarding the interest levied of a sum of Rs. 1,22,36,400/- under section 201[1A] of the Act. It is noted that the said property was sold by the appellant on 17/09/2011 and the return of income by the two payees have been filed on 30/07/2012. Thus, interest amount under section 201[1A] of the Act has to be calculated for the period 07/10/2011 to 30/07/2012 being till the date of filing of the return by the two payees. The Counsel placed reliance on the parity of reasoning of the decision of the Hon’ble Apex Court in the case of “Hindustan Coca Cola Beverages (P) Ltd v. CIT”, 163 ITR 355 (SC) and also the Memorandum to Finance (No.2) Bill, 2019 which is placed at page 21 of compilation. The contents of which is reproduced below:

28 ITA No.73/PAN/2018 Shree Balaji Concepts v. ITO “Consequent to this amendment, it is also proposed to amend the proviso to sub-section (1A) of section 201 to provide for levy of interest till the date of filing of return by the non-resident payee.” 12. Accordingly, we direct the AO, to recompute the interest Tax liability u/s 201(1A) of the Act, for the period 07/10/2011 to 30/07/2012 till the date of filing of the return by the two payees. Thus, this ground of appeal on the issue of interest Tax liability u/s 201(1A) of the Act, is partly allowed. 13. In the backdrop of the aforesaid discussion, the appeal of the assessee is allowed in the terms indicated as above.

Order pronounced in the open court on 13.05.2022.

Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member Date: 13.05.2022 Doc* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned (5) The Sr. DR, I.T.A.T True Copy By Order

Sr. Private Secretary Income Tax Appellate Tribunal