The Bangalore ITAT recently dismissed an appeal by Nitesh Estates Ltd., a real estate company, that was subject to Section 201 proceedings for non-deduction of tax at source under Section 195 on the sale of an apartment to non-resident (NRI) Mr. Mahesh Bhupathi. The ITAT found that once the conditions laid down in Section 195 are fulfilled, the Assessee is bound to deduct tax at source on payments made to non-residents (NRI). The ITAT rejected Nitesh Estates’ argument that Mr. Bhupathi was an Indian tax resident, noting that he was an independent director of the company since 2005, and his residential status was known to the company.
Nitesh Estates had sold an apartment to (NRI) Mr. Bhupathi for Rs. 2 Cr. and later agreed to buy it back for Rs. 6 Cr. The ITAT concurred with the CIT(A)’s observation that the Assessee was required to determine the income component involved in the transfer of immovable property on which withholding tax liability was to be computed. The payer is in default for non-withholding of taxes on sale of property only in relation to such income component. The ITAT explained that under Section 195, TDS is required where payment is made to a non-resident (NRI) and the sum paid or credited is chargeable to tax. In this case, both conditions were fulfilled, and thus, the Assessee was liable to deduct tax at source.
The ITAT rejected Nitesh Estates’ argument that since (NRI) Mr. Bhupathi had already reported the transaction in his income tax return and there was no capital gains tax liability, the Assessee ought not to be treated as an “assessee-in-default.” The ITAT noted that there was no material to show that the seller had filed the return of income for the Assessment year under consideration or paid the capital gain tax on the sale of the said apartment. The ITAT explained that the legislature incorporated provisions like Section 195 under the Act to prevent NRIs from taking away the entire money abroad without paying the due tax thereon, and over which money, the Indian tax authorities will have no control once this sum of money is thrashed away. Thus, the Assessee was liable to withhold tax on sale of immovable property, irrespective of the vendor’s income status.
The ITAT also rejected Nitesh Estates’ plea that the liability to deduct tax would be restricted to the income accruing in the seller’s hands and not the entire consideration. The ITAT found that the CIT(A) had considered all relevant facts and granted relief of the stamp duty cost. Therefore, the ITAT confirmed the CIT(A)’s order.
As regards the levy of interest under Section 201(1A), the ITAT upheld the levy, noting that it was consequent to the quantification of tax demand under Section 201(1) read with Section 195 of the Act. Interest under Section 201(1A) is chargeable in respect of any person who has failed to deduct the whole or any part of tax at the rates and specified therein.
In conclusion, the Bangalore ITAT dismissed Nitesh Estates’ appeal and upheld the CIT(A)’s order. The ITAT noted that once the conditions laid down in Section 195 are fulfilled, the Assessee is bound to deduct tax at source on payments made to non-residents (NRI). The ITAT also noted that the Assessee was liable to withhold tax, irrespective of the vendor’s income status, and upheld the levy of interest under Section 201(1A).
[Nitesh Estates Ltd. v. ADIT (Internation. Taxation), Bangalore – Date of Judgement : 26.06.2022 (ITAT Bangalore)]