Wednesday, January 21, 2015

No TDS liability of buyer when capital gain arose to NR wasn't taxable due to sec. 54 relief

Where on date of purchase of house property from non-resident vendor, assessee was aware of fact that capital gain was not taxable in vendor's hands due to availability of deduction under section 54, he was not required to deduct tax at source while making payment of sales consideration


a)Assessee had purchased a residential property from a non-resident (‘NR’) and made payment to him without deducting tax at source.

b)He argued that that he was not required to deduct tax at source while making payment to NR since NR was eligible to claim relief under section 54 in respect of capital gain arising out of sale of residential property.

c)The Assessing Officer (‘AO’) opined that capital gain tax would be chargeable in the hands of the recipient on sale of the house property. Hence, assessee was required to deduct tax while making payment irrespective of fact that recipient was entitled to deduction under section 54. Consequently, the AO raised demand under section 201 by treating assessee as assessee-in-default.

d)The CIT(A) affirmed the order of AO. The aggrieved assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

1)The ultimate levy of taxes depends upon many circumstances like exemption, deduction etc. In the instant case assessee did not deduct tax on payment as he was aware that such payment to NR did not require deduction of tax due to availability of Section 54 relief to NR.

2)If facts of the instant case were to be examined in the light of instruction No. 2/2014 dated 26-02-2014, it would indicate that the AO is required to determine the appropriate proportion of the sum chargeable to tax to ascertain the tax liability on which the deductor shall be deemed to be an assessee in default under section 201.

3)The facts on record indicated that from the date of payments, parties were aware that these payments would not be subject to taxes, because of exemption, hence, there was no need to deduct the taxes. Thus, assessee could not be treated as assessee in default under section 201. - A. MOHIUDDIN V. ADIT(INTERNATIONAL TAXATION) [2015] 53 102 (Bangalore - Trib.)
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