Inevitable TDS obligation even if deduction for impugned exp. is not claimed

AGREENCO FIBRE FOAM (P.) LTD V. ITO(TDS) (2013) (Cochin - Trib.)

Assessee is liable to deduct tax at source on interest payments, even if it has not claimed same as deduction while computing its total income

Facts:

• The assessee-company credited interest to its sister concern’s account without deducting tax under section 194A. The Assessing Officer treated assessee as an 'assessee-in-default' and levied interest on it under section 201(1A);
• On appeal before the CIT (A), the assessee contended that it could not be treated as an 'assessee-in-default', when it had not claimed interest amount as expenditure. The CIT (A) dismissed the assessee's appeal. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of revenue as under:

1. Provisions of section 194A(1) provide that the person responsible to pay the interest is liable to deduct tax at source at the time of credit or payment, whichever is earlier. Since the section uses the term 'any income by way of interest', it should be viewed from the angle of the payee and not from the angle of the person making the payment;
2. The accounting or tax treatment given by the payer in respect of interest paid by him may not be relevant at all for the purposes of section 194A. So long as the interest amount constitutes "income" in the hands of recipient, the payer shall be liable to deduct tax at source on the interest amount so paid;
3. Thus, even if the payer had disallowed the expenditure under section 40(a)(ia) or did not claim the same as expenditure at all, he would still be liable to deduct tax at source under section 194A on the interest amount so paid, if the said payment was liable to TDS;
4. Further, the provisions of section 40(a)(ia) do not override the provisions of section 201. It provides only for deferment of the allowance and does not provide for absolute disallowance. Its objective appears to be to compel the assessee to deduct tax at source in order to claim the relevant expenditure as deduction;
5. Section 201 provides for treating an assessee as an assessee-in-default who has failed to deduct or pay the TDS amount. Its objective is only to compensate the Government for the failure of an assessee to deduct or pay the TDS amount;
6. Thus, the provisions of section 40(a)(ia) and section 201 operate on different objectives. Accordingly, the assessee was liable to deduct tax at source on interest payments, even if it had not claimed the same as deduction while computing its total income. The revenue was entitled to initiate proceedings under section 201 for such failure. Thus, the order of CIT(A) was to be upheld.

Voluntary disclosures don’t absolve one from concealment penalty; plea as to ‘buy peace’ is irrelevant

MAK Data (P.) Ltd. V. CIT (2013) (Supreme Court)

Voluntary disclosure does not lead to assessee being free from mischief of penal proceedings under section 271(1)(c)

The Supreme Court held as under:

• Explanation to section 271(1) raises a presumption of concealment, when a difference is noticed by the Assessing Officer, between reported and assessed income. The burden then shift on the assessee to show otherwise, by cogent and reliable evidence;
• When the initial onus placed by the Explanation, has been discharged by assessee, the onus shifts on the revenue to show that the amount in question constituted the income and not otherwise;
• The Assessing Officer shall not be carried away by the plea of the assessee like ‘voluntary disclosure’, ‘buy peace’, ‘avoid litigation’, ‘amicable settlement’, etc., to explain its conduct;
• Assessee had only stated that he had surrendered the additional sum with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income-tax department. Statute does not recognize those types of defences under the Explanation 1 to section 271(1)(c);
• It is trite law that the voluntary disclosure does not free the assessee from the mischief of penal proceedings under section 271(1)(c). The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty;
• The surrender of income in this case was not voluntary in the sense that the offer of surrender was made in view of detection made by the Assessing Officer in the search conducted in the sister concern of the assessee;
• The Assessing Officer had to satisfy whether the penalty proceedings were initiated or not during the course of the assessment proceedings and the Assessing Officer was not required to record his satisfaction in a particular manner or reduce it into writing. Thus, there was no illegality in action of department in initiating penalty proceedings.

Converting a leasehold property into a freehold property improves title of asset; holding period reckoned from date of lease

CIT V. SMT. RAMA RANI KALIA (2013) (Allahabad)

Conversion of rights of lessee in property from leasehold right into freehold right only results in improvement of his or her rights over property and it would not have any effect on taxability of gain from such property, which is related to period over which property is held

Facts:

• The assessee purchased a property on leasehold basis in year 1984. She got said property converted into freehold property in year 2004 and thereupon sold it. The capital gain arising therefrom was declared by assessee as long-term capital gain (‘LTCG’);
• The Assessing Officer held that since the property was acquired by converting the leasehold right into freehold right and was sold within three years, gain arising thereform was taxable as short-term capital gain;
• On appeal, the CIT(A) held that capital gain arising from sale of such property was to be taxed as LTCG. Further, the Tribunal upheld the order of the CIT (A). The aggrieved revenue filed the instant appeal.

The High Court held in favour of assessee as under:

• The difference between the 'short-term capital asset' and 'long-term capital asset' was the period over which the property had been held by the assessee and not the nature of title over the property;
• The conversion of the rights of the lessee in the property from having leasehold right into freehold right was only by way of improvement of her rights over the property and it would not have any effect on the taxability of gain arising from such property, which was related to the period over which the property was held by assessee;
• In the present case, the property was held by the assessee as a lessee since 1984, and the same was transferred on 31.3.2004, (i.e. after holding it for more than three years) after the leasehold rights were converted into freehold rights on the same property which was in her possession. Thus, gain arising from such property would be taxable as Long Term Capital Gains.

Assessee needn’t be unemployed while going abroad for a job; only stay in India would determine his residential status

ACIT V. RAJ JAIN (2013) (Delhi- Trib.)

Where status of assessee was a non-resident, fact that assessee was already employed before leaving India should not affect his residential status

Facts:

• The assessee working in Whirlpool China filed his return of income and declared taxable income under the head 'salary'. During scrutiny assessment, he pleaded that he was out of India for 236 days and he was not liable to be taxed in India as he was non-resident during the relevant financial year;
• The Assessing Officer did not accept the assessee's contention and made the assessment on ground that assessee was already employed in Whirlpool India prior to leaving India;
• On appeal, the CIT(A) held that the assessee’s salary was not taxable in India. The aggrieved revenue filed the instant appeal.

The Tribunal held as in favour of assessee as under:

• Section 6(1) read with the Explanation provides that for an individual, who has left India for employment outside India, should be treated as resident of India only if he was in India during the relevant year for 182 days or more (Anurag Chaudhary, In re (2010) 190 Taxman 296 (AAR-New Delhi));
• A careful reading of such Explanation would show that the requirement of the Explanation is not leaving India for employment but it is leaving India for the purposes of employment outside India. For the purpose of the Explanation, an individual need not be an unemployed person who leaves India for employment outside India (British Gas India (P) Ltd. In re (2006) 155 Taxman 326 (AAR-New Delhi))
• During the relevant financial year, the assessee's stay in India was of less than 182 days and, thus, his residential status was non-resident;
• The assessee’s contention, that he was already employed in the Whirlpool India prior to the leaving India for working with Whirlpool China, would not affect his residential status. Therefore, the order of the CIT(A) stating that salary income of the assessee accrued and arose during his employment in China and was not taxable in India was to be upheld.

Buyer should withhold tax from sum paid to a non-resident co-owner to acquire a house property

R. PRAKASH V. ITO (2013) (Bangalore –Trib.)

Where assessee purchased a property jointly owned by co-owners, in view of fact that one of co-owners of property was a non-resident, assessee was required to deduct tax at source under section 195 to extent sale-consideration paid to said co-owner.

Facts:

• The assessee purchased a property owned by two co-owners for a total consideration of 1.20 crores. One of the co-owner was a non-resident who had executed a General Power of Attorney in favour of other resident co-owner to execute sale agreement;
• The AO opined that since one of co-owner was a non-resident, assessee was required to deduct tax at source under section 195 on entire sale consideration of Rs 1.20 crores. On assessee's failure to deduct tax at source, the AO treated the assessee as 'assessee-in-default';
• On appeal, the CIT (A) held that assessee ought to have deducted tax at source on the share of the non-resident in the sales consideration. Aggrieved assessee filed the instant appeal.

The Tribunal held partly in favour of assessee as under:

• To the extent the sum was paid to non-resident co-owner, the provisions of section 195 were attracted and the assessee ought to have deducted tax at source while making payments to her;
• Thus, the assessee could be considered as an 'assessee-in-default' only to the extent of sum paid to the non-resident.

Disbursement of cash to farmers through discounting of cheque doesn't violate sec. 269SS or sec. 269T

CIT V. DINESHCHANDRA SHANTILAL SHAH (HUF) (2013) (GUJARAT)

When it was not proved that by cheque discounting business assessee had taken any loan or deposit from agriculturists and/or he had repaid any loan to agriculturists, neither section 269SS nor section 269T were attracted

Facts of the case:

• Assessee, engaged in business of cheque discounting, received certain amount through post-dated crossed cheques from farmers who were selling their produce to traders.
• Assessee's case was that such traders made payment to farmers traditionally by way of post-dated crossed cheques and since farmers normally did not maintain any bank account, they used to take such cheques to assessee for discounting same for cash.
• Assessing Officer held that there was contravention of sections 269SS and 269T and, accordingly, levied penalty on assessee under sections 271D and 271E.
• Aggrieved by order of AO, assessee filed an appeal before CIT(A).
• CIT(A) quashed and set aside the orders of penalty imposed under Section 271D and Section 271E of the Act.
• On appeal by revenue to ITAT, ITAT rightly confirmed the order passed by the CIT(A).
• Revenue was in appeal before High Court against order of ITAT.

Gujarat High Court held and observed that:

• Revenue was not in a position to satisfy the Court how by the aforesaid transaction of cheque discounting it could be said that there was any loan or deposit taken by the Assessee.
• In any case, when it not proved and/or established that by cheque discounting business the assessee had taken any loan or deposit from the agriculturist and/or they have repaid any loan to the agriculturist, neither Section 269SS nor Section 269T of the Act was attracted
• Under the circumstances, no error and/or illegality has been committed by the ITAT in confirming the orders passed by the CIT quashing and setting aside orders of penalty passed under Section 271D and Section 271E of the Act.
• Appeal was accordingly dismissed.

Urban land held as part of Industrial undertaking ceases to have its independent character for wealth tax purposes

DY.CIT V. HSIL LTD. (2013) (Kolkata - Trib.)

Scope of section 2(ea) does not include 'urban land' but once land so held is part of industrial undertaking or factory, it ceases to have independent character as an urban land; it would be part of industrial undertaking

• The revenue required the assessee to show cause as to why value of land, shown in the balance sheet won’t be to be included in his taxable wealth. The assessee explained that impugned land was not includible in taxable wealth as the same constituted integral part of factory;
• The Assessing Officer made addition of the value of impugned land in the net wealth of assessee by observing how could an assessee sell the land over which a factory building was situated or the land which was being used for business purposes;
• The Commissioner of Wealth Tax (A) (CWT(A)) deleted the impugned addition. Aggrieved Assessing Officer filed the instant appeal.

The Tribunal held in favour of assessee as under:

1. The scope of section 2(ea) does not include 'urban land' but once the land so held is part of the industrial undertaking or factory it ceases to have the independent character as an urban land. It would be part and parcel of the industrial undertaking or factory;
2. The mere fact that a part of land, which was held as factory, was sold by the assessee as a piece of land would not change the character of asset in the hands of the assessee;
3. There could be situations in which a part of factory land might be sold as 'land' but as long as it was a part of the factory, it couldn’t have any other character in the hands of the assessee than factory as such;
4. A vacant piece of land, even if it can be sold as 'land', as such, continues to be a business asset as long as vacant land is an integral part of factory. Therefore, the land sold was a part of the factory premises and order of CWT(A) was to be upheld.