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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER:
These stay petitions are filed by the M/s. Inno Real Pvt. Ltd. and M/s. Inno Estates Pvt. Ltd., seeking stay of their outstanding
2 SP. Nos.152&153/Mds/2017 & demand of Rs.16,53,496/- & Rs.2,05,32,747/- respectively. When the stay petitions came up for hearing, the Bench was reluctant to grant stay and therefore the Ld.AR pleaded on behalf of both the assessees for instant hearing of the appeals. Therefore the Bench decided to hear the appeals on merits instead of entertaining the stay petition.
2. The issues in both the appeals are identical and both the parties are interconnected, therefore both the appeals are heard together and disposed off by this common order.
The assessee has raised six identical grounds in both the appeals, however the crux of the issue is that the Ld.CIT(A) has erred in holding that the appellants has not deduction tax at source on the remittance made for purchase of shares from the company incorporated in Cyprus and thereby not complied with the provisions of Section 94A(5) of the Act.
The brief facts of the case are that both the companies are FDI complaint domestic companies carrying out construction and development projects.
3 SP. Nos.152&153/Mds/2017 &
From the information available with the Department, the following facts were revealed:- A. M/s. Inno Real Pvt. Ltd : The assessee had made foreign remittance to the tune of Rs.53,51,120/-, the details of which are as follows:
Date of Nature of Name of the Name of the Amount in TDS remittance remittance remitter recipient Rs. 08.01.2015 Purchase INNO Real IIROF 4 53,51,120 0 of shares Private Ltd. Artemis Limited B. M/s. Inno Estates Pvt. Ltd. : The assessee company had made foreign remittance to the tune of Rs.64,49,020/-, the details of which are as follows:
Date of Nature of Name of Name of the Amount in TDS remittance remittance the remitter recipient Rs. 08.01.2015 Purchase INNO Innovative 93,03,890/- 0 of shares Estate India Realty Private Opportunity Limited Fund Limited 08.01.2015 Purchase INNO IIROF 4 5,71,45,130/- 0 of shares Estate POSEIDON Private Limited Limited
The Ld.AO opined that by virtue of Section 94A &195 of the Act, the assessees are liable to deduct tax at source, because the 4 SP. Nos.152&153/Mds/2017 & payment is made to non-residents. On query, the assessee had replied as follows: “In the transaction under reference, there is a loss. The recipient companies had not earned any income. What was remitted was share purchase consideration. As against the initial investment made by the recipients, the consideration paid by the Purchaser has resulted in a loss to the recipients due to substantial erosion in value of India rupee as against the USD, in which currency the initial investment was brought in. As there is no income chargeable to tax in the hands of the recipients, i.e. IIROF 4 Poseidon Limited and Innovative India Realty Opportunity fund Limited, the question of deduction of tax at source does not arise in the hands of the remitter. In this regard, we have already provided the workings to you as required under section 195(6) of the Income Tax Act, 1961. Further under section 94A(5C) 30% rate can be applied only on income accrued or arising in India whereas, in this case, it is only loss and hence section 94A(5C) cannot be invoked.
The assessee also relied in the decision in the cases of GE India Technology P. Ltd vs. C.I.T and Transmission Corporation of A.P. Limited Vs. CIT.
8. ……………… the sale of shares ended up in long term capital loss due to fluctuations in the foreign currency and the resultant erosion of Indian Rupees. As there is capital loss, chapter XVII B of the Income Tax Act 1961 read with section 195 is not applicable and hence there is no need to deduct any tax at source. As there is no withholding tax liability, section 94A(5) of the Income Tax Act is also not applicable,
9. The assessee also stated that despite being a notified jurisdictional read u/s 94A from 01.11.2013, as per the CBDT notification, the Double Taxation Agreement entered with the Govt of Cyprus is still in force. If any tax liability arises as per the DTA provisions, then only section 195 as well as section 5 SP. Nos.152&153/Mds/2017 & 94A(5) of the Act can be invoked. However, in our case as per the DTA the capital gains tax for the sale of shares to an Indian company by a Cyprus company, chapter XVIIB and section 94A(5) is not applicable.”
6.1 However, the Ld.AO opined as follows:-
(i) Section 195 of the Act mandates that the payer has to deduct 'Tax at source’ on any sum payable / paid to any non- resident, if the transaction attracts tax liability as per the provisions of the Act.
(ii) Section 94A of the Act is an anti-tax avoidance measure which has a self-contained code.
(iii) The assessee cannot rely in the decision of the case GE
India Technology Pvt. Ltd vs. CIT, when it has failed to comply with Section 94A(5) of the Act.
(iv) Section 94A(5) of the Act overrides any other section in the Act, including the chargeability of income U/s.4 of the IT Act.
Hence, any payment made by the Indian company is subject to tax deduction at source.
(v) Cyprus falls under the notified jurisdictional area and therefore it is mandatory to deduct tax at source for any payment made to any entity in that country.
6 SP. Nos.152&153/Mds/2017 & (vi) Reliance was also placed in the press release of the Ministry of Finance dated 01.11.2013.
6.2 For the above stated reasons, the Ld.AO came to a conclusion that, since the assessees has not deducted tax at source and in view of the notification; both the assessee companies are deemed to be assessees in default as per the provisions of Section 201(1) of the Act.
6.3 Accordingly the Ld.AO computed the tax payable in case of M/s. Inno Real Pvt Ltd. Rs.16,53,496/- and in the case of M/s. Inno Estates Pvt Ltd. Rs.2,05,32,747/-.
On appeal, the Ld.CIT(A) confirmed the order of the Ld.AO by observing as under in the case of both the assessees:- “Thus, it becomes crystal clear that in view of NOTIFICATION NO. SO 3307(E) [NO.86/2013 (F.NO.504/05/2003-FTD-I)], DATED 1- 11-2013, 'CYPRUS' as SPECIFIED AS NOTIFIED JURISDICTIONAL AREA FOR PURPOSES OF SECTION 94A OF THE INCOME-TAX ACT, 1961. The assessee is governed by provision of sec. 94A of Income Tax Act, 1961 and therefore the assessee was required to deduct TDS @ 30% in view of sec , 94A(5)(c). Moreover, sec.94A being a specific section overrides other general sections.
Now, during the appeal proceedings, the appellant has provided copy of two notification rescinding the NOTIFICATION NO. SO 3307(E) [NO.86/2013 (F.NO.504/05/2003-FTD-I)], DATED 1-11-2013,
7 SP. Nos.152&153/Mds/2017 & 'CYPRUS' as SPECIFIED AS NOTIFIED JURISDICTIONAL AREA FOR PURPOSES OF SECTION 94A OF THE ACT, 1961, the same are reproduced for ready reference as NOTIFICATION NO. SO 4033(E) [NO.114/2016 (F.NO.500/02/2015- FT&TR-III)], DATED 14-12-2016 S.O.4033 (E). - In exercise of the powers conferred by subsection (1) of section 94A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby rescinds the notification of the Government of India in the Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, number 86 of 2013 published in the Gazette of India, Part Il, section 3, sub-section (ii) vide S.O. 3307(E) dated 1st November 2013, except as respects things done or omitted to be done before such rescission, with effect from the date of publication of this notification in the Official Gazette.
NOTIFICATION NO. SO 4082(E) [NO.119/2016 (F.NO.500/02/2015- FT&TR-III)], DATED 16-12-2016
No.119/2016 SO 4082(E) - In the notification of Government of India, in the Ministry of Finance, Department of Revenue, No. 114/2016 dated 14.12.2016 vide S.O. No. 4033(E) and published in the Gazette of India, Extraordinary, Part Il, section 3, sub-section (ii), in the last line, for "this", read "the".
Thus, with the corrigendum referred above, the appellant contends that the NOTIFICATION NO. SO 3307(E) [NO.86/2013 (F.NO.S04/05/2003- FTD-III, DATED 1-11-2013, 'CYPRUS' as SPECIFIED AS NOTIFIED JURISDICTIONAL AREA FOR PURPOSES OF SECTION 94A OF THE INCOME-TAX ACT, 1961 is rescinded with retrospective effect.
However, there is no where mentioned in the notification dt.14.12.2016 or dt.16.12.2016 that the notification has a retrospective effect. Having it not mentioned that it has a retrospective effect the day on which the assessee company transacted with the entity in Cyprus which is a notified
8 SP. Nos.152&153/Mds/2017 & area, therefore it is governed by provision of Sec.94A (S)(c) of the Act. Assessee was as such required to deduct TDS on payment made. The assessee has remitted amount of Rs.53,51,120/- / Rs.6,64,49,020/- given in detail supra to the entity of Cyprus. Therefore, this specific provision of sec. 94A(5) overrides the other provision of the Act. The notification clearly mentions that any payment made to a person located in Cyprus shall be liable for withholding of tax @ 30% or higher. In the circumstances, the assessee’s submission that the transaction has resulted in loss and chapter XVIIB r.w. Sec.195 is not found applicable and hence no tax deduction at source had to be made. The assessee having not complied with Sec.94A(5) of the Act, the assessee was required to deduct TDS ujs.195 on such remittances made by the assessee company to a entity in Cyprus. Having assessee not deducted TDS on such remittances I upheld the action of the AO to treat as assessee in default u/s.201(1) and levied interest u/s.201(1A) of the Act. The ground of appeal on this issue is accordingly dismissed.”
At the outset, the Ld.AR submitted that the Central Govt. vide its circular No.15 dated 21.04.2017, had removed Cyprus from the list of notified jurisdictional area U/s. 94A of the Act with retrospective effect. It was therefore pleaded that the assessee cannot be held as deemed to be in default as per section 201(1) of the Act. Hence, it was humbly submitted that the tax levied on both the assessees may be deleted. The Ld.DR could not controvert to the submission of the Ld.AR. However, he pleaded that the matter may be remitted back to the file of Ld.AO to examine the scope of the applicability of the Circular No.15 of 2017 issued by the Central Govt. dated 21.04.2017 in the case of the assessee.
9 SP. Nos.152&153/Mds/2017 & ITA Nos.1021&1022/Mds/2017
We have heard the rival submissions and carefully perused the materials available on record. On perusing the issue, we find merit in the submission of the Ld.AR. The circular No.15 of 2017 was produced before us by the Ld.AR, which is reproduced herein below for reference:
Circular No. 15 of 2017 F. No. 500/002/2015-FT&TR-III(1) Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes
New Delhi, dated 21st April, 2017 Subject: Clarification on removal of Cyprus from the list of notified jurisdictional areas under section 94A of the Income-tax Act, 1961.
Cyprus was specified as a "notified jurisdictional area" (NJA) under section 94A of the lncome-tax Act, 1961 vide Notification N0.86/2013 dated 01.11.2013. The said Notification No. 86/2013 was subsequently rescinded vide Notification No. 114 dated 14.12.2016 and Notification No. 1 19 dated 16.12.2016 with effect from the date of issue of the notification.
It has been brought to notice of the Central Board of Direct Taxes that in some cases a view has been taken by the Income-tax authorities that the rescission of Notification No. 86/2013 was not with retrospective effect from 01.11.2013, For removal of doubts, it is hereby clarified that Notification No. 86/2013 has been rescinded with effect from the date of issue of the said notification, thereby, removing Cyprus as a notified jurisdictional area with retrospective effect from 01.11.2013.
(Gaurav Sharma) Under Secretary to Government of India
10 SP. Nos.152&153/Mds/2017 & Copy to: 1. The Chairman, Members and officers of CBDT of the rank Under Secretary and above 2. PS to the Revenue Secretary 3. All Pr.CCslT/ Pr.DGslT and DGsIT(lnv.) 4. Addl. Director General of Income Tax (PR, PP & OL) 5. The Comptroller & Auditor General of India 6 Hindi cell of Department of Revenue for Hindi translation 7. The Web Manager of www.incometaxindia.gov.in 8. The Web Manager of www.irsofficersonline.in 9. Guard file
Since the above circular was not before the Ld.AO at the time of passing the order, we are of the considered view that the matter must be remitted back to the file of Ld.AO for fresh consideration. Accordingly, we hereby remit both the cases of the assessees to the file of Ld.AO, to consider the issue afresh and in the light of circular No.15 of 2017 dated 21.04.2017, F.No.500/002/0215-FT&TR-III(1) issued by Government of India, Ministry of Finance, Dept. of Expenditure, Central Board of Direct Taxes.
Since we have remitted back both the appeals of the assessee to the file of Ld.AO for de-nova consideration, both the stay petitions filed by the assessees have become infructuous.
11 SP. Nos.152&153/Mds/2017 &
In the result, both the appeals of the assessees are allowed for statistical purposes as indicated herein above and both the stay petitions filed by the assessees are dismissed as infructuous.
Order pronounced on 04th July, 2017 at Chennai.