SHRI BHANUMURTHY VENKATA RANGA SATYA TIRUMALASETTY,MUMBAI vs. DCIT CENTRALISED PROCESSING CELL -TDS, MUMBAI

PER OM PRAKASH KANT, AM

Shri Bhanu Murthy Venkata Ranga Satya Shri Bhanu Murthy Venkata Ranga 2 Tirumalasetty ITA No. 1498/M/2021 of surcharge on short deduction of tax by the of surcharge on short deduction of tax by the assessee assessee. The grounds raised by the assessee are reproduced as under: ed by the assessee are reproduced as under:

1. The Learned Commissioner of Income The Learned Commissioner of Income-tax (Appeals) erred tax (Appeals) erred in confirming the demand raised by AO of Rs. 21,280/- on in confirming the demand raised by AO of Rs. 21,280/ in confirming the demand raised by AO of Rs. 21,280/ account of short deduction of TDS i.e. surcharge element account of short deduction of TDS i.e. surcharge element account of short deduction of TDS i.e. surcharge element u/s 195 of the Act stating that the entire purchase u/s 195 of the Act stating that the entire u/s 195 of the Act stating that the entire consideration shall be treated as "income paid" without consideration shall be treated as "income paid" without consideration shall be treated as "income paid" without appreciating the fact that surcharge shall be considered appreciating the fact that surcharge shall be considered appreciating the fact that surcharge shall be considered while deducting TDS under section 195 of the Act only while deducting TDS under section 195 of the Act only while deducting TDS under section 195 of the Act only when the taxable income of the deductee exceeds Rs. when the taxable income of the deductee exceeds Rs. when the taxable income of the deductee exceeds Rs. 50,00,000. Thus, the demand 50,00,000. Thus, the demand determined under section determined under section 200A of the act is unjustified and the same may be deleted. 200A of the act is unjustified and the same may be deleted. 200A of the act is unjustified and the same may be deleted.

“3. Brief facts of the case are that the appellant purchased Brief facts of the case are that the appellant purchased an immovable property for Rs.1.99 crore from two non- an immovable property for Rs.1.99 crore from two non an immovable property for Rs.1.99 crore from two non residents who each had 50% share of the property. Hence, he residents who each had 50% share of the property. Hence, he residents who each had 50% share of the property. Hence, he made payment of Rs.99,50,000/ made payment of Rs.99,50,000/- to each of the sellers. The to each of the sellers. The deductees obtained lower de deductees obtained lower deduction of tax certificates u/s 197 duction of tax certificates u/s 197 of the I.T. Act, which authorised the appellant to deduct tax at of the I.T. Act, which authorised the appellant to deduct tax at of the I.T. Act, which authorised the appellant to deduct tax at 1%, excluding education cess and surcharge. The appellant 1%, excluding education cess and surcharge. The appellant 1%, excluding education cess and surcharge. The appellant deducted TDS at 1% and education cess thereon. However, he deducted TDS at 1% and education cess thereon. However, he deducted TDS at 1% and education cess thereon. However, he did not add 10% surcharge on the TDS o did not add 10% surcharge on the TDS on such payment. n such payment. Hence, CPC Hence, CPC-TDS has raised demand towards short deduction TDS has raised demand towards short deduction

Shri Bhanu Murthy Venkata Ranga Satya Shri Bhanu Murthy Venkata Ranga 3 Tirumalasetty ITA No. 1498/M/2021 amounting to 10% of the TDS amount, i.e. Rs.19,000/- on TDS amounting to 10% of the TDS amount, i.e. Rs.19,000/ amounting to 10% of the TDS amount, i.e. Rs.19,000/ of Rs.1,99,000/ of Rs.1,99,000/- and interest thereon.

4.1 The appellant's contention is that surcharge is not The appellant's contention is that surcharge is not ontended that 10% surcharge is applicable in this. He has c applicable in this. He has contended that 10% surcharge is attracted only when the income of the payee exceeds Rs. 50 attracted only when the income of the payee exceeds Rs. 50 attracted only when the income of the payee exceeds Rs. 50 lakh. In case of the sellers, although the payment was more lakh. In case of the sellers, although the payment was more lakh. In case of the sellers, although the payment was more than Rs. 50 lakh, the income component was much lower, than Rs. 50 lakh, the income component was much lower, than Rs. 50 lakh, the income component was much lower, which is evident from the lower deduction of tax certificate which is evident from the lower deduction of tax ce which is evident from the lower deduction of tax ce issued to them. Under Rule 28 AA of Income Tax Rules, the issued to them. Under Rule 28 AA of Income Tax Rules, the issued to them. Under Rule 28 AA of Income Tax Rules, the Assessing Officer is bound to estimate the income of the Assessing Officer is bound to estimate the income of the Assessing Officer is bound to estimate the income of the deductee before issue of the lower deduction certificate u/s deductee before issue of the lower deduction certificate u/s deductee before issue of the lower deduction certificate u/s 197 of I.T. Act. 197 of I.T. Act.

4.2 The appellant has made a reverse calculation that The appellant has made a reverse calculation that based on 1% TDS rate allowed by the Assessing Officer in the based on 1% TDS rate allowed by the Assessing Officer in the based on 1% TDS rate allowed by the Assessing Officer in the certificate u/s 197, the total taxable income would have been certificate u/s 197, the total taxable income would have been certificate u/s 197, the total taxable income would have been between Rs 9 lakh to R 10 lakh, much below Rs 50 lakh, the between Rs 9 lakh to R 10 lakh, much below Rs 50 lakh, the between Rs 9 lakh to R 10 lakh, much below Rs 50 lakh, the threshold for application of surcharge. threshold for application of surcharge.

4.3 The appellant has referred to CDT Notification No. CDT Notification No. 8/2018, dated 31.12.2018 detailing procedure to be followed 8/2018, dated 31.12.2018 detailing procedure to be followed 8/2018, dated 31.12.2018 detailing procedure to be followed before issue of lower TDS certificate and stipulating that before issue of lower TDS certificate and stipulating that before issue of lower TDS certificate and stipulating that Assessing Officer is bound to follow Rule 28 AA of IT. Rules. Assessing Officer is bound to follow Rule 28 AA of IT. Rules. Assessing Officer is bound to follow Rule 28 AA of IT. Rules.

4.4 Further, the appellant has relied on Hon'ble Supreme Further, the appellant has relied on Hon'ble Supr Court decision in the case of GE Inida Technology(P) Ltd. vs. Court decision in the case of GE Inida Technology(P) Ltd. vs. Court decision in the case of GE Inida Technology(P) Ltd. vs. CIT and Transmission Corporation of AP Ltd. Vs. CIT and also CIT and Transmission Corporation of AP Ltd. Vs. CIT and also CIT and Transmission Corporation of AP Ltd. Vs. CIT and also on CDT Instruction No. 2/2014, dated 26.02.2014 which guide on CDT Instruction No. 2/2014, dated 26.02.2014 which guide on CDT Instruction No. 2/2014, dated 26.02.2014 which guide that tax has to be deducted on the element of income and that that tax has to be deducted on the element of income and that that tax has to be deducted on the element of income and that Shri Bhanu Murthy Venkata Ranga Satya Shri Bhanu Murthy Venkata Ranga 4 Tirumalasetty ITA No. 1498/M/2021 the Ass the Assessing Officer shall determine appropriate portion of essing Officer shall determine appropriate portion of sum chargeable to tax u/s 195 of the Act. sum chargeable to tax u/s 195 of the Act.” 2.1 Thus the dispute is regarding applicability of surcharge @ 10% Thus the dispute is regarding applicability of surcharge @ 10% Thus the dispute is regarding applicability of surcharge @ 10% on the tax deducted by the assessee on payment of non on the tax deducted by the assessee on payment of non on the tax deducted by the assessee on payment of non-residents. It is undisputed that paym is undisputed that payment made to the deductee is between ent made to the deductee is between ₹50 lakhs to ₹1.00 crore and therefore same was liable for surcharge @ 1.00 crore and therefore same was liable for surcharge @ 1.00 crore and therefore same was liable for surcharge @ 10%, if the income of the deductee is if the income of the deductee is more than ₹50 lakhs. The Ld. 50 lakhs. The Ld. CIT(A) however, held that the deductor was supposed to deduct the CIT(A) however, held that the deductor was supposed to deduct the CIT(A) however, held that the deductor was supposed to deduct the tax and surcharge treating the payment made as income in the e treating the payment made as income in the e treating the payment made as income in the hands of the payee/deductee. The relevant finding of the Ld. CIT(A) hands of the payee/deductee. The relevant finding of the Ld. CIT(A) hands of the payee/deductee. The relevant finding of the Ld. CIT(A) is reproduced as under: is reproduced as under:

“6.1 It is noted that the entire argument of the appellant It is noted that the entire argument of the appellant has focused on the determination has focused on the determination of taxable income of the of taxable income of the non-resident deductee/payee by the Assessing Officer. resident deductee/payee by the Assessing Officer. resident deductee/payee by the Assessing Officer. However, However, the same is not applicable to the deductor, who is the same is not applicable to the deductor, who is neither authorised, nor is at liberty to neither authorised, nor is at liberty to estimate the taxable estimate the taxable income of the deductee. income of the deductee. 6.2 TDS provisions are parallel to the charging sections TDS provisions are parallel to the charging sections and are alternate ways to collect and are alternate ways to collect tax before income is finally tax before income is finally assessed. Moreover, in the case of Non assessed. Moreover, in the case of Non-residents, the same residents, the same

Shri Bhanu Murthy Venkata Ranga Satya Shri Bhanu Murthy Venkata Ranga 5 Tirumalasetty ITA No. 1498/M/2021 could be the final tax recovered before they leave the could be the final tax recovered before they leave the could be the final tax recovered before they leave the country. Hence, such provisions are country. Hence, such provisions are more stringent. more stringent. 6.3 Rates of tax for a particular year are enacted by the icular year are enacted by the Act in respect of payment Finance Act. As per the Finance Finance Act. As per the Finance Act in respect of payment made to a non made to a non-resident, where the income or aggregate of resident, where the income or aggregate of such incomes paid or likely to be paid and subject to the incomes paid or likely to be paid and subject to the incomes paid or likely to be paid and subject to the deduction exceeds fifty lakh rupees, but deduction exceeds fifty lakh rupees, but does not ex does not exceed one crore rupees, the tax shall be increased by surcharge at the crore rupees, the tax shall be increased by surcharge at the crore rupees, the tax shall be increased by surcharge at the rate of ten rate of ten percent of the tax. Here, it is clear that it refers to percent of the tax. Here, it is clear that it refers to the income paid, or likely to be paid. As the the income paid, or likely to be paid. As the entire amount is entire amount is subject to TDS, although at a lower rate, from the point of subject to TDS, although at a lower rate, from the poin subject to TDS, although at a lower rate, from the poin view of the view of the deductor, the entire payment is 'income paid'. As deductor, the entire payment is 'income paid'. As the 'income paid' in the instant case the 'income paid' in the instant case exceeds Rs 50 lakh, the exceeds Rs 50 lakh, the deductor was required to increase the TDS amount by deductor was required to increase the TDS amount by deductor was required to increase the TDS amount by surcharge at the rate of ten percent.” surcharge at 3. We have heard the rival submissio We have heard the rival submission of the parties n of the parties on the issue- in-dispute and perused the relevant material on record. At the dispute and perused the relevant material on record. At the dispute and perused the relevant material on record. At the outset, the Ld. Counsel of the assessee has brought our attention to outset, the Ld. Counsel of the assessee has brought our attention to outset, the Ld. Counsel of the assessee has brought our attention to the CBDT Circular No. 8/2020 the CBDT Circular No. 8/2020, wherein any transaction on which wherein any transaction on which tax was to be deducted tax was to be deducted, was made before 05.07.2019 e before 05.07.2019, then in such cases, the deductor was exempted from higher rate of surcharge cases, the deductor was exempted from higher rate of surcharge cases, the deductor was exempted from higher rate of surcharge

Shri Bhanu Murthy Venkata Ranga Satya Shri Bhanu Murthy Venkata Ranga 6 Tirumalasetty ITA No. 1498/M/2021 introduced by way of Finance Bill, 2019. For ready reference, the introduced by way of Finance Bill, 2019. For ready reference, the introduced by way of Finance Bill, 2019. For ready reference, the relevant Circular is reproduced as under: relevant Circular is reproduced as under:

Shri Bhanu Murthy Venkata Ranga Satya Shri Bhanu Murthy Venkata Ranga 7 Tirumalasetty ITA No. 1498/M/2021 3.1 On perusal of the order of the Central Proc On perusal of the order of the Central Processing Centre dated essing Centre dated 16.07.2019 wherein the TDS return of the assessee 16.07.2019 wherein the TDS return of the assessee 16.07.2019 wherein the TDS return of the assessee has been processed and rectified, we find that processed and rectified, we find that the said return has been filed he said return has been filed on 31.05.2019 and corrected on 04.07.2019. Thus on 31.05.2019 and corrected on 04.07.2019. Thus, it is evident that it is evident that transaction on which tax has been transaction on which tax has been deducted, was made deducted, was made prior to 05.07.2019. On record, t On record, there is no reference of any payment here is no reference of any payment subsequently and therefore, case of the assessee is squarely covered and therefore, case of the assessee is squarely covered and therefore, case of the assessee is squarely covered by the CBDT Circular (supra) and by the CBDT Circular (supra) and, therefore no liability of surcharge therefore no liability of surcharge could be raised in the case o could be raised in the case of the assessee. Further, the tax deductor f the assessee. Further, the tax deductor

Shri Bhanu Murthy Venkata Ranga Satya Shri Bhanu Murthy Venkata Ranga 8 Tirumalasetty ITA No. 1498/M/2021 has explained on the basis of the low tax deduction certificate issued explained on the basis of the low tax deduction certificate issued explained on the basis of the low tax deduction certificate issued by the Assessing Officer of the deductee/payee that their income by the Assessing Officer of the deductee/payee that their income by the Assessing Officer of the deductee/payee that their income was less than ₹50 lakhs and therefore, no surcharge was liable to be 50 lakhs and therefore, no surcharge was liable to be 50 lakhs and therefore, no surcharge was liable to be deducted in their case. In our opinion, the Ld. CIT(A) is not justified in their case. In our opinion, the Ld. CIT(A) is not justified in their case. In our opinion, the Ld. CIT(A) is not justified in rejecting the basis in rejecting the basis for computing of income of the non of income of the non-residents payee, taken by the deductor for the purpose of tax deducted at taken by the deductor for the purpose of tax deducted at taken by the deductor for the purpose of tax deducted at source. On this ground also there is no liability for chargin source. On this ground also there is no liability for chargin source. On this ground also there is no liability for charging surcharge by the deductor on payment to the deductee. surcharge by the deductor on payment to the deductee. surcharge by the deductor on payment to the deductee.

3.2 In view of the above, the sole ground of the appeal of the In view of the above, the sole ground of the appeal of the In view of the above, the sole ground of the appeal of the assessee is allowed.