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

ITA 1498/MUM/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2482 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2019-2020
• Appeal Filed On: 29-08-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SMITA NAIR
• Keywords: TDS
• Section: 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI SANDEEP SINGH KARHAIL (JUDICIAL MEMBER) ITA No. 1498/MUM/2021 Assessment Year: 2019-20 Shri Bhanu Murthy Venkata Ranga Satya Tirumalasetty, Flat No. 1504, Valentine Tower, Pimpri Pada, Film City Road, Malad (West), Mumbai-400097. Vs. DCIT Centralized Processing Cell-TDS, CPC, Aayakar Bhavan, Sector-3, Vaishali, Gaziabad, U.P.-201010. PAN No. ABDPT 7966 J Appellant Respondent Assessee by : Mr. K. Gopal, Adv./ Mr. Om Kandalkar AR Revenue by : Mrs. Smita Nair, DR Date of Hearing : 23/06/2022 Date of pronouncement : 27/07/2022 ORDER PER OM PRAKASH KANT, AM This appeal has been preferred by the assessee against the order dated 29.07.2021 passed by the National Faceless Appeal Centre (NFAC), Delhi [in short ‘the Ld. CIT(A)’] in relation to liability of surcharge on short deduction of tax by the raised by the assessee are reproduced as under: 1. The Learned Commissioner of Income in confirming the demand raised by AO of Rs. 21,280/ account of short deduction of TDS i.e. surcharge element u/s 195 of the Act stating that the entire consideration shall be treated as "income paid" without appreciating the fact that surcharge shall be considered while deducting TDS under section 195 of the Act only when the taxable income of the deductee exceeds Rs. 50,00,000. Thus, the demand 200A of the act is unjustified and the same may be deleted. 2. Brief facts and submission of the assessee before the Assessing Officer are reproduced as under: “3. an immovable property for Rs.1.99 crore from two non residents who each had 50% share of the property. Hence, he made payment of Rs.99,50,000/ deductees obtained lower de of the I.T. Act, which authorised the appellant to deduct tax at 1%, excluding education cess and surcharge. The appellant deducted TDS at 1% and education cess thereon. However, he did not add 10% surcharge on the TDS o Hence, CPC Shri Bhanu Murthy Venkata Ranga of surcharge on short deduction of tax by the assessee ed by the assessee are reproduced as under: The Learned Commissioner of Income-tax (Appeals) erred in confirming the demand raised by AO of Rs. 21,280/ account of short deduction of TDS i.e. surcharge element u/s 195 of the Act stating that the entire consideration shall be treated as "income paid" without appreciating the fact that surcharge shall be considered while deducting TDS under section 195 of the Act only when the taxable income of the deductee exceeds Rs. 50,00,000. Thus, the demand determined under section 200A of the act is unjustified and the same may be deleted. Brief facts and submission of the assessee before the Assessing Officer are reproduced as under: Brief facts of the case are that the appellant purchased an immovable property for Rs.1.99 crore from two non residents who each had 50% share of the property. Hence, he made payment of Rs.99,50,000/- to each of the sellers. The deductees obtained lower deduction of tax certificates u/s 197 of the I.T. Act, which authorised the appellant to deduct tax at 1%, excluding education cess and surcharge. The appellant deducted TDS at 1% and education cess thereon. However, he did not add 10% surcharge on the TDS on such payment. Hence, CPC-TDS has raised demand towards short deduction Shri Bhanu Murthy Venkata Ranga Satya Tirumalasetty ITA No. 1498/M/2021 2 assessee. The grounds tax (Appeals) erred in confirming the demand raised by AO of Rs. 21,280/- on account of short deduction of TDS i.e. surcharge element u/s 195 of the Act stating that the entire purchase consideration shall be treated as "income paid" without appreciating the fact that surcharge shall be considered while deducting TDS under section 195 of the Act only when the taxable income of the deductee exceeds Rs. determined under section 200A of the act is unjustified and the same may be deleted. Brief facts and submission of the assessee before the Assessing Brief facts of the case are that the appellant purchased an immovable property for Rs.1.99 crore from two non- residents who each had 50% share of the property. Hence, he to each of the sellers. The duction of tax certificates u/s 197 of the I.T. Act, which authorised the appellant to deduct tax at 1%, excluding education cess and surcharge. The appellant deducted TDS at 1% and education cess thereon. However, he n such payment. TDS has raised demand towards short deduction amounting to 10% of the TDS amount, i.e. Rs.19,000/ of Rs.1,99,000/ 4.1 applicable in this. He has c attracted only when the income of the payee exceeds Rs. 50 lakh. In case of the sellers, although the payment was more than Rs. 50 lakh, the income component was much lower, which is evident from the lower deduction of tax ce issued to them. Under Rule 28 AA of Income Tax Rules, the Assessing Officer is bound to estimate the income of the deductee before issue of the lower deduction certificate u/s 197 of I.T. Act. 4.2 based on 1% TDS rate allowed by the Assessing Officer in the 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 threshold for application of surcharge. 4.3 8/2018, dated 31.12.2018 detailing procedure to be followed before issue of lower TDS certificate and stipulating that Assessing Officer is bound to follow Rule 28 AA of IT. Rules. 4.4 Court decision in the case of GE Inida Technology(P) Ltd. vs. CIT and Transmission Corporation of AP Ltd. Vs. CIT and also 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 Shri Bhanu Murthy Venkata Ranga amounting to 10% of the TDS amount, i.e. Rs.19,000/ of Rs.1,99,000/- and interest thereon. The appellant's contention is that surcharge is not applicable in this. He has contended that 10% surcharge is attracted only when the income of the payee exceeds Rs. 50 lakh. In case of the sellers, although the payment was more than Rs. 50 lakh, the income component was much lower, which is evident from the lower deduction of tax ce issued to them. Under Rule 28 AA of Income Tax Rules, the Assessing Officer is bound to estimate the income of the deductee before issue of the lower deduction certificate u/s 197 of I.T. Act. The appellant has made a reverse calculation that based on 1% TDS rate allowed by the Assessing Officer in the 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 threshold for application of surcharge. The appellant has referred to CDT Notification No. 8/2018, dated 31.12.2018 detailing procedure to be followed before issue of lower TDS certificate and stipulating that Assessing Officer is bound to follow Rule 28 AA of IT. Rules. Further, the appellant has relied on Hon'ble Supr Court decision in the case of GE Inida Technology(P) Ltd. vs. CIT and Transmission Corporation of AP Ltd. Vs. CIT and also 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 Shri Bhanu Murthy Venkata Ranga Satya Tirumalasetty ITA No. 1498/M/2021 3 amounting to 10% of the TDS amount, i.e. Rs.19,000/- on TDS The appellant's contention is that surcharge is not ontended that 10% surcharge is attracted only when the income of the payee exceeds Rs. 50 lakh. In case of the sellers, although the payment was more than Rs. 50 lakh, the income component was much lower, which is evident from the lower deduction of tax certificate issued to them. Under Rule 28 AA of Income Tax Rules, the Assessing Officer is bound to estimate the income of the deductee before issue of the lower deduction certificate u/s The appellant has made a reverse calculation that based on 1% TDS rate allowed by the Assessing Officer in the 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 CDT Notification No. 8/2018, dated 31.12.2018 detailing procedure to be followed before issue of lower TDS certificate and stipulating that Assessing Officer is bound to follow Rule 28 AA of IT. Rules. Further, the appellant has relied on Hon'ble Supreme Court decision in the case of GE Inida Technology(P) Ltd. vs. CIT and Transmission Corporation of AP Ltd. Vs. CIT and also 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 the Ass sum chargeable to tax u/s 195 of the Act. 2.1 Thus the dispute is regarding applicability of surcharge @ 10% on the tax deducted by the assessee on payment of non is undisputed that paym lakhs to ₹1.00 crore and therefore same was liable for surcharge @ 10%, if the income of the deductee is CIT(A) however, held that the deductor was supposed to deduct the tax and surcharge treating the payment made as income in the hands of the payee/deductee. The relevant finding of the Ld. CIT(A) is reproduced as under: “6.1 has focused on the determination non-resident deductee/payee by the Assessing Officer. However, neither authorised, nor is at liberty to income of the deductee. 6.2 and are alternate ways to collect assessed. Moreover, in the case of Non Shri Bhanu Murthy Venkata Ranga the Assessing Officer shall determine appropriate portion of sum chargeable to tax u/s 195 of the Act.” Thus the dispute is regarding applicability of surcharge @ 10% on the tax deducted by the assessee on payment of non is undisputed that payment made to the deductee is between 1.00 crore and therefore same was liable for surcharge @ if the income of the deductee is more than ₹50 lakhs. The Ld. CIT(A) however, held that the deductor was supposed to deduct the e treating the payment made as income in the hands of the payee/deductee. The relevant finding of the Ld. CIT(A) is reproduced as under: It is noted that the entire argument of the appellant has focused on the determination of taxable income of the resident deductee/payee by the Assessing Officer. However, the same is not applicable to the deductor, who is neither authorised, nor is at liberty to estimate the taxable income of the deductee. TDS provisions are parallel to the charging sections and are alternate ways to collect tax before income is finally assessed. Moreover, in the case of Non-residents, the same Shri Bhanu Murthy Venkata Ranga Satya Tirumalasetty ITA No. 1498/M/2021 4 essing Officer shall determine appropriate portion of Thus the dispute is regarding applicability of surcharge @ 10% on the tax deducted by the assessee on payment of non-residents. It ent made to the deductee is between ₹50 1.00 crore and therefore same was liable for surcharge @ 50 lakhs. The Ld. CIT(A) however, held that the deductor was supposed to deduct the e treating the payment made as income in the hands of the payee/deductee. The relevant finding of the Ld. CIT(A) It is noted that the entire argument of the appellant of taxable income of the resident deductee/payee by the Assessing Officer. the same is not applicable to the deductor, who is estimate the taxable TDS provisions are parallel to the charging sections tax before income is finally residents, the same could be the final tax recovered before they leave the country. Hence, such provisions are 6.3 Finance Act. As per the Finance made to a non such incomes paid or likely to be paid and subject to the deduction exceeds fifty lakh rupees, but crore rupees, the tax shall be increased by surcharge at the rate of ten the income paid, or likely to be paid. As the subject to TDS, although at a lower rate, from the poin view of the the 'income paid' in the instant case deductor was required to increase the TDS amount by surcharge at 3. We have heard the rival submissio in-dispute and perused the relevant material on record. At the outset, the Ld. Counsel of the assessee has brought our attention to the CBDT Circular No. 8/2020 tax was to be deducted cases, the deductor was exempted from higher rate of surcharge Shri Bhanu Murthy Venkata Ranga could be the final tax recovered before they leave the country. Hence, such provisions are more stringent. Rates of tax for a particular year are enacted by the Finance Act. As per the Finance Act in respect of payment made to a non-resident, where the income or aggregate of incomes paid or likely to be paid and subject to the deduction exceeds fifty lakh rupees, but does not ex crore rupees, the tax shall be increased by surcharge at the rate of ten percent of the tax. Here, it is clear that it refers to the income paid, or likely to be paid. As the entire amount is subject to TDS, although at a lower rate, from the poin view of the deductor, the entire payment is 'income paid'. As the 'income paid' in the instant case exceeds Rs 50 lakh, the deductor was required to increase the TDS amount by surcharge at the rate of ten percent.” We have heard the rival submission of the parties dispute and perused the relevant material on record. At the outset, the Ld. Counsel of the assessee has brought our attention to the CBDT Circular No. 8/2020, wherein any transaction on which tax was to be deducted, was made before 05.07.2019 cases, the deductor was exempted from higher rate of surcharge Shri Bhanu Murthy Venkata Ranga Satya Tirumalasetty ITA No. 1498/M/2021 5 could be the final tax recovered before they leave the more stringent. icular year are enacted by the Act in respect of payment resident, where the income or aggregate of incomes paid or likely to be paid and subject to the does not exceed one crore rupees, the tax shall be increased by surcharge at the percent of the tax. Here, it is clear that it refers to entire amount is subject to TDS, although at a lower rate, from the point of deductor, the entire payment is 'income paid'. As exceeds Rs 50 lakh, the deductor was required to increase the TDS amount by n of the parties on the issue- dispute and perused the relevant material on record. At the outset, the Ld. Counsel of the assessee has brought our attention to wherein any transaction on which e before 05.07.2019, then in such cases, the deductor was exempted from higher rate of surcharge introduced by way of Finance Bill, 2019. For ready reference, the relevant Circular is reproduced as under: Shri Bhanu Murthy Venkata Ranga introduced by way of Finance Bill, 2019. For ready reference, the relevant Circular is reproduced as under: Shri Bhanu Murthy Venkata Ranga Satya Tirumalasetty ITA No. 1498/M/2021 6 introduced by way of Finance Bill, 2019. For ready reference, the 3.1 On perusal of the order of the Central Proc 16.07.2019 wherein the TDS return of the assessee processed and rectified, we find that on 31.05.2019 and corrected on 04.07.2019. Thus transaction on which tax has been 05.07.2019. On record, t subsequently and therefore, case of the assessee is squarely covered by the CBDT Circular (supra) and could be raised in the case o Shri Bhanu Murthy Venkata Ranga On perusal of the order of the Central Processing Centre dated 16.07.2019 wherein the TDS return of the assessee processed and rectified, we find that the said return has been filed on 31.05.2019 and corrected on 04.07.2019. Thus, it is evident that transaction on which tax has been deducted, was made On record, there is no reference of any payment and therefore, case of the assessee is squarely covered by the CBDT Circular (supra) and, therefore no liability of surcharge could be raised in the case of the assessee. Further, the tax deductor Shri Bhanu Murthy Venkata Ranga Satya Tirumalasetty ITA No. 1498/M/2021 7 essing Centre dated 16.07.2019 wherein the TDS return of the assessee has been he said return has been filed it is evident that deducted, was made prior to here is no reference of any payment and therefore, case of the assessee is squarely covered therefore no liability of surcharge f the assessee. Further, the tax deductor has explained on the basis of the low tax deduction certificate issued by the Assessing Officer of the deductee/payee that their income was less than ₹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 rejecting the basis payee, taken by the deductor for the purpose of tax deducted at source. On this ground also there is no liability for chargin surcharge by the deductor on payment to the deductee. 3.2 In view of the above, the sole ground of the appeal of the assessee is allowed. 4. In the result, the appeal filed by the assessee is allowed. Order pronounced in the Court on Sd/- (SANDEEP SINGH KARHAIL JUDICIAL MEMBER Mumbai; Dated: 27/07/2022 Rahul Sharma, Sr. P.S. Shri Bhanu Murthy Venkata Ranga explained on the basis of the low tax deduction certificate issued by the Assessing Officer of the deductee/payee that their income 50 lakhs and therefore, no surcharge was liable to be in their case. In our opinion, the Ld. CIT(A) is not justified in rejecting the basis for computing of income of the non taken by the deductor for the purpose of tax deducted at source. On this ground also there is no liability for chargin surcharge by the deductor on payment to the deductee. In view of the above, the sole ground of the appeal of the In the result, the appeal filed by the assessee is allowed. ounced in the Court on 27/07/2022. Sd/- SANDEEP SINGH KARHAIL) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT Shri Bhanu Murthy Venkata Ranga Satya Tirumalasetty ITA No. 1498/M/2021 8 explained on the basis of the low tax deduction certificate issued by the Assessing Officer of the deductee/payee that their income 50 lakhs and therefore, no surcharge was liable to be in their case. In our opinion, the Ld. CIT(A) is not justified of income of the non-residents taken by the deductor for the purpose of tax deducted at source. On this ground also there is no liability for charging surcharge by the deductor on payment to the deductee. In view of the above, the sole ground of the appeal of the In the result, the appeal filed by the assessee is allowed. OM PRAKASH KANT) MEMBER Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// Shri Bhanu Murthy Venkata Ranga Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary ITAT, Mumbai Shri Bhanu Murthy Venkata Ranga Satya Tirumalasetty ITA No. 1498/M/2021 9 Sr. Private Secretary) ITAT, Mumbai