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2021 (5) TMI 150 - AT - Income TaxTDS u/s 195 - interest u/s. 201(IA) - payments made to Aviva International Holdings Ltd UK in July 2008 for acquiring from it 100% of equity shares - HELD THAT - For a person to perform the tax withholding obligations on the basis of an amendment in law which was enacted on a date later than the date on which tax withholding obligations were required to be performed is expecting that person to do the impossible. When a law is nowhere even on the horizon leave aside the statute it is wholly impossible for any person to perform the obligations imposed by such a law. The assessee therefore cannot be faulted for not deducting tax at source from payments made to Aviva International Holding Ltd UK in respect of purchase of shares in Aviva Global Services Singapore which in turn are said to derive substantial value from underlying assets in India. Once we come to this conclusion to the effect that there were no lapses on the part of the assessee inasmuch as the related legal provisions were not even in existence at the point of time when the sale of shares took place i.e. 11th July 2008 we need not deal with the question as to whether the income embedded in the payments in question was at all taxable in India. Quite clearly therefore as is held by Hon ble Supreme Court in the case of Engineering Analysis 2021 (3) TMI 138 - SUPREME COURT persons responsible for deducting tax at source cannot be expected to act on the basis of an Explanation when such an explanation was not actually and factually in the statute . It cannot thus be said that on the facts of this case tax was deductible under section 195 at the time of making the said payment. We hold so. Once we hold so the very foundation of impugned demands under section 201 r.w.s. 195 ceases to be sustainable in law as the entire case of the revenue authorities hinges on Explanation 2 to Section 195 and it s retrospective application. In any event this issue is entirely tax neutral inasmuch as it is a case in which the person selling the shares i.e. Aviva International Holdings Ltd UK is said to have already paid taxes on the capital gains and independent proceedings in the said matter are in progress and the matter is said to be pending for adjudication on merits before a coordinate bench. In case the taxability of the said income in the hands of the seller is to be upheld the upholding of levy of interest under section 234B on the given facts will only be a natural corollary. Therefore our upholding the liability under section 201(1A) which could only proceed on the foundational assumption that tax was deductible at source by the person making payment in question will end up exonerating the person in whose hands the income is taxable of liability under section 234B. The levy of interest to compensate for the delay in realization of taxes in the event of the taxability of subject income being upheld is reasonably protected. In a situation in which however no income is held to be taxable in India no demands under section 201 r.w.s. 195- including demand under section 201(1A) r.w.s. 195. which are inherently in the nature of vicarious liability survive. Viewed thus the present dispute is wholly tax neutral. In view of these discussions as also bearing in mind the entirety of the case we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.
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