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Income Tax Appellate Tribunal, HYDERABAD BENCH “B”, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI A. MOHAN ALANKAMONY
PER A. MOHAN ALANKAMONY, AM.:
This appeal is filed by the Revenue against the order of the Ld. CIT(A)-V, Hyderabad in appeal ITA No.0274/DD(IT)-1/CIT(A)-V/2012- 13, dated 16/04/2013 passed U/s. 201(1) & 201(1A) r.w.s. 250(6) of the Act for the A.Y. 2012-13.
The Revenue has raised several grounds in its appeal however, the cruxes of the issues are that: -
(i) The Ld. CIT (A) has erred in deleting the charge levied U/s. 201(1) of the Act for Rs.2,74,18,600 towards non-deduction of tax U/s. 195 of the Act.
(ii) The Ld. CIT (A) has erred in deleting the levy of interest U/s. 201(1A) of the Act @ 1% per month for the period 15/12/2012 to 21/12/2011 amounting to Rs. 35,64,418 towards default for non-deduction of tax at source U/s. 195 of the Act.
The Brief facts of the case are that the assessee is a Private Limited Company engaged in the business of running Nursing Home. During the course of proceedings U/s. 201(1) of the Act it was observed by the Ld. DIT (International Taxation) that in the relevant Financial Year 2011-12, the assessee company had purchased house property consisting of two buildings at Municipal No.3-8-477 and 3-8-477/1, Survey No. 68, Mansoorabac Village, Saroor nagar Mandal, Ranga Reddy District vide Sale Deed dated 16/12/2011 registered as Doc. No. 5079/2011 for total sale consideration of Rs. 24,20,00,000. The sale deed was executed by 8 persons in favour of the assessee viz., Smt. K. Urmila Reddy, Sri K. Prabhakar Reddy, Smt. K. Sarita Reddy, Smt. K. Vijita Reddy, Smt. Kavita Reddy, Smt. Shalini Reddy, Sri K. Ravikant Reddy and Smt. K. Varsha. It was further revealed that out of the above
stated 8 vendors, 4 vendors were non-resident Indians viz., Smt. Kavita Reddy, Smt. Vijita Reddy, Smt. Sarita Reddy and Smt. Shalini Reddy to whom the assessee company had paid Rs. 3,02,50,000/- each aggregating to Rs. 12,10,00,000/- towards the sale consideration for acquiring their house property. It was further revealed that the assessee company had not deducted tax at source from the above stated NRIs with respect to the payment made for the purchase of their residential house. Therefore, the Ld. DIT (International Taxation) opined that the assessee company had violated the provisions of section 195 of the Act and accordingly invoked the provisions of Section 201(1) of the Act. The assessee had made several submissions before the Ld. DIT (International Taxation) in order to explain as to why it had not deducted tax at source from the vendors and the relevant portion of the same are extracted hereinbelow for reference:
“…….In the instant case, we submit that the entire sale consideration was paid in Indian currency to all vendors including the purported four NRI Vendors and no part of the consideration was paid in foreign currency through any mode. You may appreciate that these vendors who are supposed to be NRI’s are also entitled to the reinvestment exemptions provided under section 54 and 54F of the Income Tax Act 1961 which are available to all individuals and HUF. We are also given to understand that they intend to retain the sale proceeds in India and purchase a residential house property using the above sale consideration. We have also been informed that they have deposited the entire sale consideration in the Long- Term Capital Gains Account Scheme with Andhra Bank MLA’s colony Branch, Road No.12, Banjara Hills, Hyderabad and also claimed exemption U/s. 54 in the return filed for the AY 2012-13. We are herewith enclosing the relevant evidence in support of the same. We would like to submit that the provisions of section 195 should be read in conjunction with other provisions provided under Chapter XVII of the Income Tax Act, 1961 dealing with collection and recovery of tax. Your kind attention is invited to the provisions of section 191 “Direct payment” wherein it is categorically provided that where the deductor fails to deduct and remit the tax and the deductee also fails to pay the relevant tax directly then
only in such circumstance the deductor can be treated as an “assessee in default” within the meaning of sub-section (1) of section 201 of the Income Tax, in respect of such tax. In the instant case all the deductees with respect to whom our company is required to deduct tax have instead of directly paying the tax, have availed exemption provided under section 54 of the Income Tax which is otherwise available to all individual assessee’s under the Act. We therefore submit that even on this count, our company cannot be held as ‘assessee in default’ under the provisions of section 201(1) of the Income Tax Act, 1961. It is also pertinent to note here that Sri K. Prabhakar Reddy is a resident in India and he is the GPA holder on behalf of the four daughter’s, the property was sold by him and money was also received by him and therefore the provisions of section 195 are not attracted in the company’s case by virtue of the provisions of the Income Tax Act, for the foregoing reasons and also on the basis of judicial pronouncements in the following cases. (i) Rakesh Chauhan vs. Director of Income Tax (International Taxation) (ii) Rakesh Chauhan vs. Dy. Director of Income Tax (International Taxation) (2010) 128 TTJ 116 (Chd.) (iii) Tecumseh Products (I) Ltd vs. DCIT, Circle-6 (TDS) Hyderabad (2007) 13 SOT 489 (Hyd).”
However, the Ld. DIT (International Taxation) was of the view that the submission made by the assessee-company is not acceptable due to the following reasons: -
(i) All the 4 vendors were proved to be “Non-Resident Indians”. (ii) The assessee company was duty bound to verify the residential status of the vendors and deduct tax at source wherever applicable with respect to payment made to non-resident Indians as per the provisions of the Act. (iii) It is mandatory on the part of the assessee company to prefer an application before the Ld. Assessing Officer U/s. 195(2) of the Act if it considers that the amount received by the vendors
from the assessee is not chargeable to tax under the provisions of the Act and in the case of the assessee Company it had failed to do so. (iv) Therefore, it is obvious that as per the provisions of section 201(1) of the Act, the assessee company ought to be treated as an “assessee in default” since it had failure to deduct tax at source. (v) The contention of the assessee that the vendors had deposited entire sale consideration in the LTCG scheme account in Andhra Bank, MLA’s Colony Branch, Banjara Hills, Hyderabad does not have any merit because Sri K. Prabhakar Reddy, one of the vendors on behalf of the other vendors, had furnished Form 15C, wherein it was stated that all the NRI vendors proposed to remit the amount of Rs. 3,02,50,000/- each in the bank account maintained by them in United States of America. Therefore, it was obvious that the vendors had not retained their sale proceeds in India in the LTCG Scheme account as stated by them. (vi) Further, Sri K. Prabhakar Reddy had submitted an undertaking on behalf of Smt. Kavita Reddy stating that Smt. K. Kavita Reddy is proposing to purchase residential property No. 4782, North West, 80th Avenue, Ocala, Florida- 34482,
USA. The copy of the contract for purchase of the above stated property was also enclosed. (vii) Reliance was also placed on the decision of the cases (i) Cheminor Drugs Ltd vs. ITO (2005) reported in 76 ITD 37 (Hyd. Trib), (ii) Associate Cement Company Ltd vs. CIT (1993) reported in 201 ITR 435 (SC) and (iii) Transmission Corp. A.P. Ltd. Vs. CIT (1999) reported in 239 ITR 587 by the Ld. DIT (IT). (viii) From the above it was obvious that the assessee Company had failed to deduct tax at source towards the payments made to the NRIs and therefore the assessee has to be held as an ‘assessee in default’ as per the provision of section 201(1) of the Act.
With the above observations, the Ld. DCIT computed the total tax payable at Rs. 2,74,18,600/- U/s. 201(1) of the Act and also levied penalty U/s. 201(1A) of the Act for the period 15/12/2011 upto 20/12/2012 i.e., for 13 months @ 1% per months which works out to Rs. 35,64,418/-.
On appeal, the Ld. CIT (A) made the following observation: -
(i) The recipient NRIs had availed exemptions U/s. 54F of the Act with respect to the entire capital gains and filed their returns
of income. The copy of the returns of income were also filed before the ld. AO. Therefore, there was no merit in treating the assessee Company to be an ‘assessee in default’. (ii) Reliance placed by the Ld. AO on the undertaking of one of the vendor’s representative stating that Form 15C was filed before the Bank proposing to remit the sale proceeds in overseas bank account in order to purchase residential property in USA is not appropriate because all the four vendors had remitted the total sale proceeds in the LTCG Scheme account in Andhra Bank, MLA Colony Branch within the specified time provided under the Act and had also filed their return of income within the due dates. In such circumstances, the assessee Company cannot be held to be an ‘assessee in default’. (iii) Even if the tax is deducted at source by the assessee Company the same is liable to be refunded by the Revenue by virtue of the exemption claimed U/s. 54F of the Act by the vendors and such exercise is unnecessary and futile. (iv) Reliance was placed in the decision of the special bench of the Mumbai Tribunal in the case of Mahendra & Mahendra Ltd vs. DCIT (2009) 313 (AT) 263, Ramakrishna Vedanta Math vs. ITO (Kol.) (2012) reported in 24 Taxmann.com 29, Jagran Prakasan Ltd vs. DCIT (TDS) (2012) reported in 21 Taxmann.com 489
and GE India Technology Cen. (P) Ltd vs. CIT (2010) reported in 193 Taxman 234.
From the above, the Ld. CIT (A) came to the conclusion that the assessee is not bound to deduct tax at source as per provisions of section 201(1) of the Act because the vendors / recipients were not liable for LTCG tax since they had claimed deduction U/s. 54F of the Act by depositing the entire sale proceeds in LTCG scheme account. The Ld. CIT (A) further held that the assessee is also not liable to be levied interest U/s. 201(1A) of the Act because there is no failure on the part of the assessee to deduct tax at source and remit the same to the Government treasury. Further, if the assessee had deducted tax at source and remitted to the Government treasury then the Revenue would have been bound to refund the TDS to the vendors with interest U/s. 244A of the Act since the vendors do not have any liability towards LTCG tax by virtue of their claim of deduction U/s. 54F of the Act. Reliance was placed in the decision of Thomas Muthoot vs. DCIT reported in 150 TTJ 665. For the above stated reasons, the Ld. CIT (A) deleted the levy of interest U/s. 201(1) of the Act of Rs. 35,64,418/-.
Before us, the Ld. DR made the following submissions: -
(i) At the time of the purchase of the property, it was the obligation on the part of the assessee to verify the residential status of the vendors. Further, if the vendors are NRIs, then the provisions of section 195 of the Act will come into play and the assessee is bound to deduct tax at source on the payment made to the vendors. Further, failure to deduct tax at source in accordance with the provisions of section 195 of the Act will trigger the provisions of section 201(1) and 201(1A) of the Act instantly. (ii) From the correspondence of the advocate of the vendors etc., the assessee was aware that four vendors were NRIs. (iii) At the time of purchase of the residential property the assessee was also not aware that the vendors would claim deduction U/s. 54F of the Act with respect to the LTCG earned by them. (iv) Even if the vendors had claimed deduction U/s. 54F of the Act and filed their return of income that would be after a long span of time from the date of the purchase of the residential property by the assessee. Non-deduction of tax at source by the assessee on the anticipating of future claim of deduction by the recipients / vendors is not appropriate. (v) No conclusive proof is brought before the ld. Revenue Authorities with respect to the purchase / construction of the residential House Property within the stipulated period
stipulated under the Act in order to entitle the vendors the claim of the deduction U/s. 54F of the Act. (vi) The compliance of the entire provisions of section 54F of the Act enabling the vendors to claim the deduction U/s. 54F of the Act is not brought on record before the Ld. Revenue Authorities. (vii) The return of income filed by the vendors / recipients did not disclose about the claim of deduction U/s. 54F of the Act.
With the above submissions, the ld. DR argued stating that deletion of the charge made U/s. 201(1) of the Act and levy of interest U/s. 201(1A) of the Act by the Ld. CIT (A) is not appropriate and hence pleaded for setting aside the order of the Ld. CIT (A) and to confirm the order of the Ld. AO.
Ld. AR reiterated the arguments made before the ld. Revenue Authorities on the earlier occasion and further argued in support of the order of the Ld. CIT (A). The Ld. AR also relied on the following decisions:-
(i) Hon’ble Supreme Court judgment in the case of GE India Technology Cen. (P.) Ltd. Vs. CIT [2010] reported in 327 ITR 456 (ii) Hon’ble High Court of Allahabad judgment in the case of Jagran Prakashan Ltd vs. DCIT (TDS) [2012] reported in 345 ITR 288 (Allh.)
(iii) ITAT, Cochin Bench decision in the case of Thomas Muthoot vs.s DCIT [2013] reported in 21 ITR (T) 133 (Cochin) and (iv) ITAT Kolkata Bench decision in the case of Ramakrishna Vedanta Math vs. Income Tax Officer [2012] 18 ITR (T) 603.
We have heard the rival submissions and carefully perused the materials on record. From the orders of the Ld. Revenue Authorities and materials produced before us, the following facts emerge: -
(i) It is obvious that the assessee Company has not deducted tax at source on the payment made to the NRIs for the purchase of their residential house as per the provisions of the Act. (ii) The Ld. DIT (International Taxation) has observed in his order that the NRIs who have received the payment from the assessee Company has not deposited the sale proceeds in the LTCG scheme account. The Ld.DIT also apprehended that there was possibility for the NRI vendors to deposit the sale proceeds in bank account abroad and utilize the same to purchase residential house property outside India. However, the Ld. CIT (A) in his order has observed that all the four NRI vendors had deposited the sale proceed in the LTCG scheme account. Hence there is contrary finding by both the Ld. DCIT and Ld.CIT(A) on this regard.
(iii) As per the provisions of the Act, no doubt the assessee company was duty bound to verify the residential status of the vendors and deduct tax at source wherever applicable with respect to the payment made to non-resident Indians. However, the assessee Company had failed to do so. (iv) If the assessee Company is of the view that the amount received by the vendors from it is not chargeable to tax under the provisions of the Act then it is mandatory on the part of the assessee company to prefer an application before the Ld. Assessing Officer U/s. 195(2) of the Act and in the case of the assessee Company it had failed to do so. (v) In what manner the entire sale consideration is utilized by the NRI vendors is also not established before us though the Ld.CIT(A) states in his Order that the same is deposited in the LTCG Scheme account. (vi) From the above it was clear that the assessee Company had failed to deduct tax at source towards the payments made to the NRIs and therefore the assessee has to be held as an ‘assessee in default’ as per the provision of section 201(1) of the Act., if it is established that the amount received by the NRI vendors are liable for LTCG tax during the relevant assessment year.
From the above, it is obvious that the order of the ld. CIT (A) for deleting the demand raised by the DIT (IT) towards the charge U/s. 201(1) of the Act and levy of interest U/s. 201(1A) of the Act, without verifying the compliance of the relevant provisions of section 54F of the Act by the NRI vendors, is not justifiable. Since the Ld.DCIT had categorically mentioned in his Order that the NRI vendors had not remitted the sale proceeds in the LTCG Scheme account, the CIT(A) ought to have obtained a remand report from the Ld.DCIT before coming to the conclusion that the assessee had deposited the sale proceeds in the LTCG Scheme account. Moreover the decision cited by the assessee in the case of GE India Technology CEN Pvt Ltd reported in 327 ITR 456 is not applicable to the case of the assessee because in that case it was well established at the time of receipts by the NR that they are not liable to tax in India with respect to the income earned out of such receipts. Similar, though not identical, are the facts with respect to the other cases cited by the Ld. AR. Therefore, We are of the view that, the ratio laid down in those decisions cited by the assessee cannot be applied to the case of the assessee. Accordingly, We hereby set aside the Order of the Ld.CIT(A).
Further, on reading the provisions of section 201(1) of the Act, it is clear that the first proviso was introduced by the Finance Act, 2011
w.e.f 01/07/2012 i.e., from the AY 2013-14 onwards, and the same is reproduced hereinbelow for reference:-
“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 [payee] or on the sum credited to the account of a [payee] shall not be deemed to be an assessee in default in respect of such tax if such [payee]— (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed:”
Though this proviso is applicable from the AY 2013-14 onwards, the Division Bench of the Hon’ble Bombay High Court in ITA No.707 of 2016 vide order dated 07th January, 2019 has held that since the above referred proviso is beneficial to assessee it is curative in nature. Hence, it would be applicable with retrospective effect. In this situation, we are of the view that the assessee should be given an opportunity to comply with the proviso cited herein above before the Ld. DIT (International Taxation) so as to establish that the NRI’s who had received the sale consideration from the assessee towards the sale of their residential house property had complied with the relevant provisions of Section 54F of the Act with respect to the assessment year 2012-13 ie., the NRI vendors had at least deposited the sale proceeds in the LTCG Scheme account within the stipulated period under the Act during the relevant
assessment year. In that case the NRI Vendors would be eligible for deduction U/s.54F of the Act and the charge of LTCG on them would be nil during the relevant assessment year. In such circumstance the assessee Company would be relieved from deducting tax at source from the NRI vendors to whom the assessee had made payment for purchase of their residential property as decided in the Cases cited by the LD.AR. Needless to mention that if the entire sale proceeds is deposited in the LTCG Scheme account, then the same would be under the control of the Revenue and the Revenue would be in a position to recover the LTCG tax arisen subsequently on the non- compliance of the other provisions of Section 54F of the Act. It is also pertinent to mention that if the assessee Company had deducted tax and remitted to the Government Treasury then the same would be credited to the NRI’s account by the Revenue as tax paid and accordingly dealt with in the relevant assessment year while computing the tax liability of the NRI vendors. Therefore, in the interest of justice, we hereby remit the matter back to the file of the Ld.DIT(International Taxation) with directions to examine whether the assessee had complied with the first proviso U/s. 201(1) of the Act and whether the recipient NRI’s are not liable for LTCG tax during the relevant assessment year by virtue of their entire sale proceeds being deposited in the LTCG Scheme account within the stipulated period under the Act., during the relevant assessment year and if it is found to be in order then delete the demand raised on the
assessee U/s. 201(1) and 201(1A) of the Act. However, if found otherwise, the Ld. DIT (International Taxation) shall be at liberty to pass appropriate order in accordance with law and merits after affording proper opportunity to the assessee of being heard. Accordingly, both the grounds raised by the Revenue are disposed off. We also hereby direct the assessee and his Counsel to promptly co-operate before the Revenue in their proceedings.
Before parting, it is worthwhile to mention that this order is pronounced after 90 days of hearing the appeal, which is though against the usual norms, we find it appropriate, taking into consideration of the extra-ordinary situation in the light of the lock-down due to Covid-19 pandemic. While doing so, we have relied in the decision of Mumbai Bench of the Tribunal in the case of DCIT vs. JSW Ltd. In ITA No.6264/M/2018 and 6103/M/2018 for AY 2013-14 order dated 14th May 2020.
In the result, appeal of the Revenue is allowed for statistical purposes as indicated herein above.
Pronounced in the open Court on 25th June, 2020.
Sd/- Sd/- (P. MADHAVI DEVI) (A. MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 25th June, 2020. OKK
Copy to:- 1) M/s. Kamineni Hospitals Pvt Ltd., L.B. Nagar, Hyderabad. 2) Deputy Commissioner of Income Tax-1, (International Taxation), R.No. 346, 3rd Floor, D-Block, IT Towers, AC Guards, Hyderabad. 3) The CIT(A)-V, Hyderabad 4) The DDIT (International Taxation)-1, Hyderabad. 5) The DR, ITAT, Hyderabad 6) Guard File