M/s Nitesh Estates Limited , Bangalore V. The Assistant Director of Income Tax (Intl Taxn) Circle-1(2), Bangalore

ITA 3135/BANG/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4231 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 21-11-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: V. SRINIVASAN
• Keywords: Capital asset; Bonafide belief; Cost of acquisition; TDS; Capital Gains
• Section: 201(1); 195; 201; 13; 22

Judgement Text

ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “B’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No.3135/Bang/2018 Assessment Year: 2011-12 M/s. Nitesh Estates Limited Nitesh Timesquare 7th Floor, No.8, M.G. Road Bangalore 560 001 PAN NO : AABCN9267C Vs. ADIT (Intl. Taxn) Circle 1(2) Bangalore APPELLANT RESPONDENT Appellant by : Shri V. Srinivasan, A.R. Respondent by : Shri Narayana K.R., D.R. Date of Hearing : 14.06.2022 Date of Pronouncement : 23.06.2022 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by assessee is directed against order of CIT(A) dated 9.3.2015. The assessee has raised following grounds of appeal:- 1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The appellant denies itself liable to be considered as an assessee in default in terms of Sec. 201[1] of the Act for the alleged failure to deduct tax u/s. 195 of the Act under the facts and in the circumstances of the appellant's case. ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 2 of 25 2.1 The learned CIT[A] is not justified in holding that the appellant is an assessee in default in as much as the Appellant was unaware of the residential status of Mr. Mahesh Bhupathi which would have necessitated the deduction of tax at source on the payments made to him under the facts and in the circumstances of the appellant's case. 2.2 The learned CIT[A] ought to have appreciated that the appellant being under the bonafide belief that Mr. Mahesh Bhupathi is a Resident in India by virtue of the agreements entered into, the appellant cannot be considered as an assessee in default u/s.201[1] of the Act under the facts and in the circumstances of the appellant's case. 3. Without prejudice to the above, the learned CIT[A] ought to have appreciated that the property agreed to be purchased from Mr. Mahesh Bhupathi was in ordinary course of business and the provisions of section 195[1] of the Act, have no application and consequently, the impugned order passed cis-201N and 201[1A] of the Act are void ab initio and deserve to be cancelled. 4. Without prejudice to the above, the learned C IT[A] failed to appreciate that Mr. Mahesh Bhupathi has since r eported the transaction relating to the s ale of the apar tment in his return of incom e filed before the Income-tax D epartment and hence, the appellant cannot be considered as an asse ssee in default having r egard to the fact that no tax w as payable by Mr. Mahesh Bhupathi on the said transaction in terms of the return filed by him under t facts and in the cir cumstances of the appellant's case. 5. The Learned CIT[A] has erred in ignoring the submissions of the Appellant that the transfer took place in the assessm ent Year 2013-14, the year when the Sale deed was executed and not in the impugned year when only an advance was paid in as much as no income accrued for the ye ar under appeal. 6. Without prejudice the above, the learned CIT[A] failed to appreciate that the liability to deduct tax, if any, would only be restricted to the income accrued in the hands of Mr. Mahesh Bhupathi and not on the entire consideration as held by the Learned CIT[A]. ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 3 of 25 7. Without prejudice to the above, the extent of tax dem anded from the appellant u/s. 201[1] of the Act is highly ex cessive and the same is liable to be reduced substantially. 8. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s.201[1A] of the Act, which under the facts and in the circumstances of the appellant's case and the levy deserves to be cancelled. 9. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the 'appeal and also order for the refund of the institution fees as part of the costs. 2. The assessee is engaged in the business of real estate. It developed a residential apartment complex called "NITESH WIMBLEDON PARK" at Bangalore. It had sold one of the apartments in this residential complex to one Mr. Mahesh Bhupathi, for a consideration of Rs 2 crores under the registered deed of sale executed on 16/02/2009. Later on, Mr. Mahesh Bhupathi offered to sell the aforesaid apartment back to the assessee for a sum of Rs.4,00,00,000/- in terms of Sale Agreement dated 17/0'7/2010 (hereafter referred to as 'Agreement'). After execution of this, a Tripartite Deed of Nomination was also executed on 30/03/2011 in terms of which the assessee nominated Mr. Shashikiran Shetty to the benefits of the 'Agreement'. In terms of the aforesaid Deed of Nomination, the consideration was fixed for Rs.6,00,00,000/-.Since, the payee, Mr. Mahesh Bhupathi was a non-resident, the A.O. issued a notice u/s.201 of the Act, requiring the assessee to show cause as to why tax was not deducted u/s.195(1) of the Act, in respect of the ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 4 of 25 consideration paid in terms of the 'Agreement' entered into with Mr. Bhupathi. After considering the assessee's submissions, the AO held that assessee was liable to deduct tax on the capital gains arising on the payment of Rs 4 crores made by the assessee to the non-resident payee. He accordingly held Assessee to be in default and levied tax & interest liability. 3. Against this assessee went in appeal before the Ld. CIT(A). The contention of the Ld. A.R. is that assessee was not aware of the fact that Mr. Mahesh Bhupathi not a non-resident and therefore, provisions of section 195(1) of the Act is not applicable. Ld. CIT(A) observed that the assessee was in regular contact with Mr. Bhupathi at least from the day of booking on 15.06.2004' when the latter booked the apartment as per MOU. Secondly and more importantly, the Website of Assessee Company shows that Mr. Bhupathi is an independent Director of the company and claimed to be associated with the company since 2005. The relevant extract from the website reads as under: "Mr. Mahesh Bhupathi is India's first & only 10 times Grand Slam title winner and US Open mixed doubles titles holder. He has over 15 years of professional experience in the sports, media and entertainment industries. He is also a part of the Hon. Board of Advisors of IIMUN and the founder of International Premier Tennis League. Mr. Mahesh Bhupathi has been associated with the Company since 2005. In any case, the claim that Mr. Bhupathi has provided his Indian addresses for all the transaction cannot be a valid and an acceptable reason to claim innocence." [emphasis added) 3.1 In any case, paying in Indian currency or not being aware of the residential status does not absolve the assessee of the liability cast upon it. In the provisions of section 201 of the Act dealing with situations where assessee can be held to be in ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 5 of 25 default, there is no room for making an exception in cases of bona fide belief. Bona fide belief could be a ground for proceedings u/s 271C and Sec 221 of the Act, but not for the proceedings u/s 201(1) and 201(1A) of the Act. Therefore,Ld. CIT(A) found no force in the arguments of the assessee. This ground was therefore dismissed by Ld. CIT(A). 3.2 Regarding applicability of section 198(5) of the Act and regarding assessee being “assessee in default”, the Ld. CIT(A) not accepted the contentions of the assessee for the following reasons: a) On a plain reading of the section, tax is to be deducted under section 195 of the Act when remittance is made in respect of a sum chargeable to tax. Thus the only two conditions required for the provisions of sec195 to trigger are: i) Payment is to a non resident ii) The sum paid/credited is chargeable to tax. b) In the present case, both the conditions are fulfilled. The seller, Mahesh Bhupathi- was a non-resident in the year under consideration. The assessee has not denied that the payment was towards purchase of the capital asset. There is further no doubt that the same consideration is chargeable to tax as capital gains in the hands of the seller, Mahesh Bhupathi.Thus liability u/s 195 of the Act to deduct the tax on such income arose when remittance was made. ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 6 of 25 c) Other issue for consideration is regarding the financial year in which the assessee was required to deduct tax at .source. While the assessee states that it is not FY 10-11, the AO contends that the liability u/s 195 of the Act arose in the FY 10-11 itself, being the year in which property was handed over. d) For the purposes of deduction of tax at source u/s 195, of the Act, the liability arises, "at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier". e) Further, in terms of Sec 195 of the Act, the person responsible for paying any sumchargeable to tax i.e. the assessee in this case, shall, at the time of credit/ payment of such income, deduct tax thereon (i.e on such income) at the rates in force. This implies that entire tax on such income i.e. the quantum of capital gains, has to be deducted at source from the first payment/credit itself i.e at the earliest point of time. Therefore, in cases where remittance is made to the non-resident in installments, TDS is to be affected from the first installment. Here, it is important torefer to the observation of Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. (341 ITR 1) "The object of Section 195 is to e nsure that tax due f rom nonresident persons is secur ed at th e earlies t poin t o f time so th at ther e i s no difficult y incollection of tax subs equentl y at the time orregular ass essm ent." f) In this case, the total consideration was already known/determined at Rs.4 crores as per the clause II of the Agreement for Sale dated 17.7.2010 which is reproduced below: ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 7 of 25 "II And whereas the purchaser (assessee) has scrutinized the Title Deeds with regard' to the Schedule A property and after being satisfied with the scheme of Development formulated by the vendor (payee Mahesh Bhupathi) has agreed to purchase the 17.37% undivided share in the schedule A property...along with apartment of built up area of 7000 sq ft...along with two car parking and the common amenities and facilities provided therein for a valid consideration of Rs 4,00,00,000/- only (Rs four crores only)....Maintenance charges which need to be borne by the purchaser in terms of the Maintenance Agreement entered into separately by him." g) The sum chargeable to Capital Gains was also known (since cost of acquisition was known). Under these facts and circumstances, TDS ought to have been done out of remittance of Rs 1,50,00,000 paid as first installment on 17/07/2010. Total tax deductible as computed in the AOs order is Rs 60,96,020/- which is less than the amount remitted. It is important to point out that the signing of Agreement was backed by the intention of selling the property. This is clear from the clauses of Agreement as per which the Apartment was handed over to the assessee on 17/07/2010 [which fact is also admitted by assessee in its written submission] and from the fact that maintenance charges also were to be borne bythe assessee. Thus, to reiterate, the entire tax on the net capital gains was deductible during FY 10-11. h) In view of the provisions of the Act, date of possession has no relevance whatsoever for fixing the period of deduction of tax. The same would be relevant only for determining the year of taxability in the hands of the seller. It is also immaterial whether the possession was purely of superstructure or of undivided in share in land or of both. ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 8 of 25 z i). The assessee has submitted that Mr Mahesh Bhupathi had reported the aforesaid transaction in his income tax return for the AY 13-14 and there being a capital loss, no liability to pay capital gains tax arose and therefore there was no requirement of treating the assessee as an assessee in default. One possible implication of assessee's argument appears to be that tax is to be deducted at source only at the time of paying the last instalment because at that point of time only the chargeability of the sum paid could be determined. It may be mentioned that there's only one section [Sec194IB] in Chapter XVII of the Act where the payer is to deduct tax at source from the last payment of the year. Sub sec 2 of sec 194IB clearly mentions that "The income-tax referred to in sub-section (1) shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last mouth of tenancy, if the property is vacated during the year, as the case may be, to the account or the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier-. The legislature in its wisdom has not provided this benefit u/s 195 of the Act for the remittances made to non-residents. And Literal Rule of Interpretation says we should read the statute as it is, without distorting or twisting. Reference in this context is made to the decision of Hon'ble Supreme Court inthe case of Calcutta Knitwears (362 [TR 673). The relevant extract- is reproduced below:- "23....It is time and again reiterated that the courts, while interpreting the provisions of a fiscal legislation should neither add nor subtract a word from the provisions of instant meaning of the sections. It may be mentioned that the foremost principle of interpretation of fiscal statutes in every system of ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 9 of 25 interpretation is the rule of strict interpretation which provides that where the words of the statute are absolutely clear and unambiguous, recourse cannot be had to the principles of interpretation other than the literal rule .......... 34...A taxing statute should be strictly construed; common sense approach, equity, logic, ethics and morality have no role to play. Nothing is to be read in, nothing is to be implied; one can only look fairly w the language used and nothing more and nothing less...." j) In a different context, Hon'ble ITAT Guwahati in the case of Arihant Investments [61Taxmannn.com 16] held that "persons who are bound under the Act to make tax deduction, at source are not concerned with the ultimate result of assessment. k) In the present case also when the remittances were made on 13.07.2010, 15.07.2011 and 08.04.2012, the assessee could not have been aware of the final amount chargeable to tax in the hands of the payee. l) For the aforesaid reasons, it was held by the Ld. CIT(A) that the entire liability to deduct tax at source u/s 195 arose in FY 10-11 i.e. the year under consideration. 3.3 Further, Ld. CIT(A) observed that AO is not bound by income reported by the deductee. The argument of the assessee that the AO has to onlyconsider the income reported by the payee once the latter files his return is fallacious. It is not material what stand the payee has taken regarding the amount of taxability and the year of taxability in the Return of Income. Once the conditions for applicability of Sec 195 are satisfied, it is incumbent on the deductor to deduct tax at source. Referring to the difference in ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 10 of 25 assessment and liability u/s 195, Hon'ble Supreme Court, in the case of Vodafone (supra) stated as follows: "Section 195(1) casts a duty upon the payer of any income specified therein to a non-resident to deduct therefrom the TAS unless such payer is himself liable to pay income-:tax thereon as an Agent of the payee. Section 201 says that if such person fails to so deduct TAS he shall be deemed to be an assessee-in-default in respect of the deductible amount of tax (Section 201). Liability to deduct tax is different from "assessment" under the Act. " 3.4 The assessment proceedings in the case of the deductor and the TDS proceedings in the hands of the deductee are to be in accordance with the provisions of the Act and not in accordance with what the deductee reports in his Return of Income. The Department has taken a consistent stand in_ both the proceedings that capital gain is taxable in AY 11-12 only. There is no inconsistency in the approach of AOs in this regard as held by Ld. CIT(A). 3.5 The Ld. CIT(A) further observed that department has got recourse to recover taxes against the deductee, it may be pointed out that in terms of section 202 of the IT Act " the power to recover tax by deduction under the forgoing provisions shall be without prejudice to any other mode of recovery". Quantum of sum chargeable u/s 195 3.6 Another submission is that in accordance with the decision of Hon'ble Supreme Court in the case of GE Technology (327 ITR 156) and CBDT instruction no 2/2014, the AO should have determined the appropriate proportion of sum chargeable to tax. It is seen from the AOs Order that he has duly complied with the same inasmuch as the cost of ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 11 of 25 acquisition was excluded from gross payment to arrive at the net capital Gains amount. It is on the net amount that he has computed the TDS liability (para 8 of his order). 3.7 However, in the present case, the assessee has not brought on record any evidence to show that at that time of payment it was aware that no amount will be chargeable to tax in the hands of the payee. In fact, as also mentioned above, as per the assessment order in the case of the payee, positive income under the head capital gains has been arrived at, as against loss claimed. 3.8 In view of the above facts and the provisions of law, he placed reliance on the order of ITAT Chandigarh Bench held in the case of Harpal Singh, ITA NO 37/Chd/2016, order dated 08/08/2018 that assessee cannot be absolved of the responsibility to deduct taxes (and interest). The relevant extract is as under: "7. The provisions of 201(1) stipulates that the assessee is liable to deduct tax on the payment and section 201(1)(A) casts liability of the assessee to pay interest on the default. Though the statutory provisions casts liability on the assessee, keeping in view the payment received by the exchequer, whether by the assessee (purchaser) or by the recipient (seller) leverage was given by the authorities not to burden the assessee with the strict liability of the TDS deduction when the recipient pays the clue taxes vide Circular No. 275/201/95-IT dt. 29/01/1997. This doesn't mean the assessee is absolved totally of the responsibility to deduct the taxes and also interest if any. This Circular absolves the assessee in the cases where the due payments of tax or interest has been duly paid by the recipient. In view of the detailed discussion above, these grounds are dismissed by Ld. CIT(A). ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 12 of 25 QUANTUM OF TAX LIABILITY:- 3.9 The Assessee contends before Ld. CIT(A) that the extent of tax demanded from the assessee u/s 201[1] of the Act is highly excessive and the same is liable to be reduced substantially; that the consideration paid for purchase of Schedule "B" Property inthe Sale Deed dated 16/02/2009 is Rs.1,21,00,000/- and the consideration for the Schedule "C" Property is Rs.79,00,000/- only; that the A.O. has not only failed to consider the stamp duty of Rs.22,80,600/- paid by Mr. Mahesh Bhupathi but has also failed to consider that Mr. Mahesh Bhupathi has claimed a purchase cost of Rs.2,81,56,781/- and a sum of -Rs.63,75,302/- towards development cost, in all aggregating to Rs.3,45,32,083/-. 3.10 The Ld. CIT(A) observed that the AO mentions in the Order that total cost of Rs 2,02,72,220/- [including registration cost] was incurred by the payee. Thus, he reckoned Rs 1,97,27,780/- [i.e. 4,00,00,000 (sale consideration) - Rs 2,02,72,220/- for computing tax liability. According to Ld. CIT(A), the vendor has incurred a sum of Rs.22,80,600/- towards stamp duty, which was paid on 16.2.2009 and form part of cost of acquisition and directed the A.O. to give benefit to this extent of Rs.22,80,600/-. 3.11 Against this assessee is in appeal before us by way of above ground. 4. Regarding ground No.2, the Ld. A.R. submitted as follows: a. The appellant denies itself liable to be considered as an assessee in default in terms of Sec. 201[1] of the Act ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 13 of 25 for the alleged failure to deduct tax u/s. 195 of the Act under the facts and in the circumstances of the appellant's case. b. The learned CIT[A] is not justified in holding that the appellant is an assessee in default in as much as the Appellant was unaware of the residential status of Mr. Mahesh Bhupathi which would have necessitated the deduction of tax at source on the payments made to him under the facts and in the circumstances of the appellant's case. c. The learned CIT[A] ought to have appreciated that the appellant being under the bonafide belief that Mr. Mahesh Bhupathi is a Resident in India by virtue of the agreements entered into, the appellant cannot be considered as an assessee in default u/s.201[1] of the Act under the facts and in the circumstances of the appellant's case. 4.1 According to A.R., the assessee was not aware that Mr. Mahesh Bhupathi was a nonresident since, the residential addresses furnished by him in the various agreements showed that he was a resident of Bangalore and further, Mr. Mahesh Bhupathi has appeared in person before the various authorities in connection with the execution of the said documents. a) That there was no requirement to deduct tax at source for purchase of immovable property before the enactment of the provisions of section 194IA of the Act. ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 14 of 25 b) That the vendor Mr. Mahesh Bhupathi had already reported the aforesaid transaction relating to the sale of the property in his income-tax return for the assessment year 2013-14 and there was no liability to pay Capital Gains tax as he had reported a capitalloss and accordingly, there was no requirement of treating the appellant as an assessee in default u/s.201 of the Act. 4.2 Ld. D.R. submitted that the Assessee was in regular contact with Mr. Bhupathi at least from the day of booking on 15.06.2004 when the latter booked the apartment as per MOU. Secondly and more importantly, the Website of Assessee Company shows that Mr. Bhupathi is an independent Director of the company and claimed to be associated with the company since 2005. Thus, Ld. D.R. submitted that this defence is not available to assessee. Findings:- 4.3 We have heard both the parties and carefully perused the materials available on record show that assessee has sold a property to Mr. Mahesh Bhupathi for a consideration of Rs.4 crores vide sale agreement dated 17.7.2010. Mr. Mahesh Bhupathi was non-resident. The AO after duly issuing the show cause notice u/s 201 of the Act invoked the provisions of section 195(1) of the Act on the reason that assessee has not deducted TDS on the payment of Rs.4 crores made by assessee to non-resident Mr. Mahesh Bhupathi. Now the contention of the Ld. A.R. is that assessee was in bonafide belief that assessee is not required to deduct TDS on the payment of Rs.4 crores vide sale agreement dated 17.7.2010 on the reason that Shri Mahesh ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 15 of 25 Bhupathi had given his residential address No.183/4, Kodigehalli, Kodigehalli-Thindlu Road, Vidyaranyapura Post, Bangalore 560 097 and the assessee was not aware of the residential status of Shri Mahesh Bhupathi as Mr. Mahesh Bhupathi has appeared in person before the various authorities in connection with the execution of the said documents. Further, it was submitted that there was a tripartite deed of nomination executed on 30.3.2011 in terms of which the assessee nominated Mr. Shashikiran Shetty to the benefits of agreement under which the consideration was fixed as Rs.6 crores, out of which Mr. Mahesh Bhupathi would receive the consideration of Rs.4 crores and assessee was to entitle to receive the balance sum of Rs.2 crores as his income. It was submitted that the aforesaid transaction was carried through the terms of the agreements referred to above and ultimately, the said apartment came to be sold only on 22.5.2012. In the present case the seller was non-resident and he has been associated with the assessee company since 2005, though he provided Indian address for all the transactions carried by him. The claim of the assessee that he is unaware of the residential status of Shri Mahesh Bhupathi cannot be accepted as he was with the company since long time and this argument of the assessee do not come to present assessee’s rescue or absolve him of the duty to do what the law required the present assessee to do. In our opinion, facts on record show that the assessee well aware of the residential status of Shri Mahesh Bhupathi and the assessee liable as per the provisions of section 195 of the Act to deduct at a specified rate from the purchase price before making payment to seller, who is being NRI. In the ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 16 of 25 1 present case, Ld. CIT(A) rightly held that assessee is required to determine the income component involved in the payment to non-resident on account of transfer of immovable property on which withholding tax liability is to be computed and the payer would be considered as being in default for non-withholding of taxes only in relation to such income component. In the present case, Ld. CIT(A) rightly held that assessee is liable to deduct TDS on the income component of Rs.1,74,47,180/- as against the income component determined by AO at Rs.1,97,27,780. Accordingly, these grounds of appeal of the assessee are dismissed. 5. Ground No.3:- Without prejudice to the above, the Ld. A.R. submitted that the learned CIT[A] ought to have appreciated that the property agreed to be purchased from Mr. Mahesh Bhupathi was in ordinary course of business and the provisions of section 195[1] of the Act, have no application and consequently, the impugned order passed u/s 201(1) and 201[1A] of the Act are void ab initio and deserve to be cancelled. 5.1 In this regard Ld. D.R. submitted that section 195 of the Act requires deducting TDS on payment to non-resident by buyer of immovable property and there is no difference between purchase of property in ordinary course of business or otherwise. ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 17 of 25 Findings:- 5.2 We have heard both the parties and perused the materials available on record. In the instant case, transaction took place on 17.7.2010 whereby apartment was sold to present assessee by Shri Mahesh Bhupathi. The contention of the Ld. A.R. is that the property agreed to be purchased from Mr. Mahesh Bhupathi was in ordinary course of business and the provisions of section 195[1] of the Act, have no application and consequently. These arguments of the assessee’s counsel have no merit. The reading of section 195 of the Act shows that tax has to be deducted when remittance made to non-resident in respect of sum chargeable to tax when following conditions are fulfilled:- a) Payment is to a non resident b) The sum paid/credited is chargeable to tax. 5.3 In the present case, both the conditions are fulfilled. The seller, Mahesh Bhupathi,-was a non-resident in the assessment year under consideration. The assessee has not denied that the payment was towards purchase of the immovable property which is being capital asset. There is further no doubt that the same consideration is chargeable to tax as capital gains in the hands of the seller, Mahesh Bhupathi. Thus, liability u/s 195 of the Act to deduct the tax on such income arose when remittance was made or amount payable to him. This ground of appeal of the assessee is dismissed. ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 18 of 25 6. Ground No.4:- Without prejudice to the above, it is submitted by A.R. that the learned CIT[A] failed to appreciate that Mr. Mahesh Bhupathi has since reported the transaction relating to the sale of the apartment in his return of income filed before the Income-tax Department and hence, the appellant cannot be considered as an assessee in default having regard to the fact that no tax was payable by Mr. Mahesh Bhupathi on the said transaction in terms of the return filed by him under the facts and in the circumstances of the appellant's case. 6.1 Ld. A.R. relied on the following judgements:- [a] Decision of the Hon'ble Supreme Court in the case of HINDUSTAN COCO COLA BEVERAGES PVT. LTD., reported 293 ITR 226; [b] Decision of the Hon'ble Supreme Court in ELI LILLY it Co., reported in 312 ITR 225; and [c] Decision of the Hon'ble ITAT, Mumbai in the case of MERCHANT SHIPPING SERVICES PVT. LTD., reported in 8 ITR [Trib] 1; [d] Decision of the Hon'ble ITAT, Bangalore in the case of A.MOHIUDDIN in ITA No.971 /Bang/2014 6.2 The ld. D.R. submitted that assessment proceedings in the case of deductor and TDS proceedings in the hands of the deductee are two different proceedings of the Act. If the deductee reports the income, it won’t absolve the assessee from deduction of TDS. He relied on the judgement of Punjab & Haryana High Court in the case of CIT Vs. Punjab Infrastructure Development Board, Chandigarh in ITA No.73/2016 dated 20.12.2016. Further, he relied on the order of Bangalore Bench in the case of Avestagen Quality Agriculture Pvt. Ltd. In ITA No.426/Bang/2018 and others, wherein it was held as under:- ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 19 of 25 “3.3.1 We have heard both parties and perused the material on record. It was fairly agreed to by the counsel of both the assessee and Revenue that the issue before us i.e whether the assessee's are liable to pay interest u/s 201(1A) of the Act has been considered at length and held against the assessee by the decision of the co-ordinate bench of this Tribunal in the case of power and control systems in ITA Nos.883 to 887/Bang/2018 dated 4/6/2018 holding as under at paras 3 to 11 3. The plea of the assessee in the proceedings initiated u/s 201(1) and 201(1A) of the Act was that the payee non-resident suffered losses and has filed returns of income declaring loss, therefore, assessee cannot be treated as 'an assessee in default' for non deduction of tax at source because no tax is due to the exchequer. This plea was accepted by the Revenue. The Revenue, however proceeded to levy interest u/s 201(1A) of the Act. The provisions of sec.201(1A) of the Act reads thus: "(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest, (i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one-half per cent forevery month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishingthe statement in accordance with the provisions of sub-section (3) of section 200." Provided that in case any person including the principal officer of a company 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 resident or on the sum credited to the account of a resident but is not deemed to be an assessee-in-de fault under the first proviso to sub-section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident. ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 20 of 25 4. The proviso to section 201(1A) was inserted by Finance Act, 2012 w.e.f. 01.07.2012. Prior to the insertion to this proviso, the section contemplated only one situation where the tax was actually paid belatedly by the deductor. In 2007, the judgment of Hon'ble Supreme Court, in the case of Hindustan Coco Cola Beverages Pvt. Ltd. (supra) widened the scope to include a situation where the payment of tax is made by the deductee. The relevant part of the decision i; reproduced below:- "10. Be that as it may, Circular No. 2751201195-IT(B) dated 29.01.1 997 issued by the Central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The circular declares "no demand visualized under Section 201(1) of the Income Tax Act should be enforced after the tax deductor has satisfied the officer in cLarge of TDS, that taxes due have been paid by the deductee assessee. However, this will not alter the liability to charge interest under Section 201(1-A) of the Act till thedate of payment of taxes by the deductee assessee or the liability for penalty under section 271C of the Income Tax (emphasis supplied)” Findings:- 6.3 We have heard both the parties and perused the materials available on record. The contention of the Ld. A.R. is that the vendor Mr. Mahesh Bhupathi had already reported the aforesaid transaction relating to impugned property in his income tax return for the assessment year 2013-14 and there was no liability to pay capital gain tax as he had capital loss and there was no requirement of treating the present assessee as ‘assessee in default’ u/s 201 of the Act. As seen from the orders of the lower authorities, assessee made following payments to Mr. Mahesh Bhupathi towards the impugned property. Date of payment Amount paid in (Rs.) 17.07.2010 1.5 crores 15.07.2011 2.25 crores 08.04.2012 0.25 crores Total 4 crores ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 21 of 25 6.4 As per section 195 of the Act, the assessee has to deduct tax at sources. There is no relevance whether payee has taken that amount in filing return of income or not. Once the conditions laid down u/s 195 of the Act are fulfilled the assessee is bound to deduct TDS. In the instant case, there is no material to show that the seller has filed the return of income for the assessment year under consideration or paid the capital gain tax on sale of said apartment. It is for this reason 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 in the Indian tax authorities will have no control once this sum of money is thrashed away. The claim of the assessee that vendor Mr. Mahesh Bhupathi had already reported the said transaction to the tax authorities in the A.Y. 2013-14 and there was no capital gain reported in his return of income. As we have pointed out the transaction took place in the A.Y. 2011-12 and the TDS liability u/s 195 of the Act also arose in the A.Y. under considerationas payment is chargeable to tax. Hence, we are of the opinion that there is no relevance if the vendor does not have positive income in the A.Y. under consideration when the payment in question is chargeable to tax, then the person making the payment is obliged to deduct tax at source. This ground of appeal of the assessee is dismissed. 7. Ground Nos.5 to 8:- The Ld. A.R. submitted that the authorities have erred in ignoring the submissions of the Appellant that the transfer took place in the assessment Year 2013-14, the year when the Sale deed was executed and not in the impugned year when only an advance was paid in as much as no income accrued for the year under appeal. ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 22 of 25 7.1 We have heard both the parties and perused the materials available on record. As we have already discussed this issue as the transaction took place in the AY under consideration vide agreement dated 17.7.2010 and consequent to this various payments were made which are chargeable to tax in the hands of vendor, as such the assessee is liable to deduct TDS on the amount paid or payable to the assessee as per section 195 of the Act. Accordingly, this ground of appeal of the assessee is rejected. 8. Without prejudice the above, the Ld. A.R. submitted that the learned CIT[A] failed to appreciate that the liability to deduct tax, if any, would only be restricted to the income accrued in the hands of Mr. Mahesh Bhupathi and not on the entire consideration as held by the Learned CIT[A]. 8.1 We have heard both the parties and perused the materials available on record. As discussed earlier, the AO considered only Rs.1,97,780/- and not the total sale consideration to determine the TDS liability. However, the Ld. CIT(A) considered this and given further relief of Rs.22,80,600/- towards stamp duty. Being so, the assessee cannot have any grievance on this count. This ground of assessee is dismissed. 9. Without prejudice to the above, he submitted that the extent of tax demanded from the appellant u/s. 201[1] of the Act is highly excessive and the same is liable to be reduced substantially. ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 23 of 25 9.1 We have heard both the parties and perused the materials available on record. The relevant computation made by AO is as follows:- “The relevant computation made by the Ld. AO is given below for the sake of facility:- Sale price Rs.4,00,00,000 Less: Cost Rs.2,00,00,000 Stamp duty Rs.Nil Registration charges Rs. 2,72,220 Rs.1,97,27,780 Consequently, the learned AO held that the appellant ought to have deducted tax on 49.32% of the payments (which was computed by dividing the sum of Rs.1,97,27,780/- worked out above by the sum of Rs.4 Crores) towards TDS while making payments, and raised demands towards short deduction and interest in the impugned order as under: Da t e o f p a y m en t A m ou nt p a i d t o N o n-r es i d e nt A m ou nt o n w h i ch T DS s h o u l d h a v e b e en ma d e ( 49 .3 2 % o f t h e p a ym en t T D S m a d e T D S r e q ui re d t o b e ma d e u / s 1 95 i n c lu d i n g S C & DC i n R s . S ho r t d e d u c t i on u / s 20 1( 1 ) i n R s . I n t e r es t c h a rg ea b l e u / s 20 1 ( 1 A ) u pt o J a n ua r y 2 15 i n R s. 1 7/ 07 /2 0 1 0 1 , 5 0, 0 0, 00 0 7 3, 98 , 00 0 Ni l 2 2 , 8 5 , 98 2 2 2 , 8 5 , 98 2 1 2 , 3 4 , 38 6 1 5/ 07 /2 0 1 1 2 , 2 5, 0 0, 00 0 1 ,1 0, 97 , 2 20 Ni l 3 4 , 2 9 , 04 1 3 4 , 2 9 , 04 1 1 4 , 4 0 , 18 0 0 8/ 04 /2 0 1 2 2 5 , 0 0 , 00 0 1 2, 33 , 00 0 Ni l 3 ,8 0, 99 7 3 ,8 0, 99 7 1 ,2 5, 69 7 T o t a l t a x an d i n t er e s t p a yab l e b y t h e a s s e s s ee u/ s 20 1( 1 ) an d u / s 20 1( 1A ) 6 0 , 9 6 , 02 0 2 8 , 0 0 , 26 3 9.2 The Ld. CIT(A) considered this computation and he has observed as follows:- 15. I have given my careful consideration to the argument of the appellant and the contentions of the AO. ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 24 of 25 The AO mentions in the order that total cost of Rs.2,02,72,220/- (including registration cost) was incurred by the payee. Thus, he reckoned the Rs.1,97,27,780/- (i.e. 4,00,00,000 (sale consideration) – Rs.2,02,72,220) for computing tax liability. 16. There is force in the argument of the assessee insofar as it relates to the consideration of a sum of Rs.22,80,600/- (paid by the vendor as stamp duty). This amount was already incurred on 16.2.2009 and formed part of cost of acquisition. Regarding the sum of Rs.63,75,302/-, the assessee’s AR admitted that there is no evidence of this amount having been incurred by the payee nor is the date of this expenditure known. (This admission was recorded on the notesheet entry date dated 13.8.2018 which has been duly signed by the AR). In view of the above, the AO is directed to recompute the liability, giving benefit of Rs.22,80,600/- paid as stamp duty. This ground is partly allowed.” 9.3 While deciding the issue the Ld. CIT(A) considered all relevant facts and granted further relief of Rs.22,80,600/- towards stamp duty cost incurred by vendor. The Ld. A.R. not able to suggest any mistake in that computation made by Ld. CIT(A). Accordingly, we do not find any infirmity in the same and confirm the order of the Ld. CIT(A) on this issue. This ground of appeal of the assessee is rejected. 10. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s.201[1A] of the Act, which under the facts and in the circumstances of the appellant's case and the levy deserves to be cancelled. 10.1 The Ld. D.R. relied on the order of the Ld. CIT(A) and submitted that interest liability u/s 201(1A) is mandatory and placed reliance on the judgement of Hon’ble Supreme Court in the case of Eli Lily (312 ITR 225) and also ITA No.3135/Bang/2018 Nitesh Estates Limited, Bangalore Page 25 of 25 judgement of Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd. (293 ITR 226). 10.2 We have heard both the parties and perused the materials available on record. In our opinion, the action of the A.O. in charging the assessee interest u/s 201(1A) is consequent to the quantification of tax demand u/s 201(1) r.w.s. 195 of the Act and 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. We, therefore, uphold the charging of interest u/s 201(1A) of the Act. This ground of appeal of the assessee is rejected. 11. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on 23rd Jun, 2022 Sd/- (Beena Pillai) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 23rd Jun, 2022. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.