TMI Blog2021 (5) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of equity shares in Aviva Global Services Singapore Pvt Ltd, Singapore which derived value substantially from assets situate in India? 2. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) has erred in holding that interest u/s. 201(1A) of the Act is not chargeable in the case of the assessee as it had no liability to deduct tax at source u/s. 195(1) of the Act on payments made to Aviva International Holdings Ltd. UK in July, 2008 for acquiring from it 100% of equity shares in Aviva Global Services Singapore Pvt. Ltd, Singapore which derived value substantially from assets situate in India when Aviva International Holdings Ltd, UK has accepted the taxability of the capital gains in its hands and the assessment has reached finality? 3. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) has erred in holding that interest u/s. 201(1A) of the Act is not chargeable in the case of the assessee as it had no liability to deduct tax at source u/s 195(1) of the All on payments made to Aviva International Holdings Ltd UK in July, 2008 on the premise that the law at that time did not have a charge on taxation of ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments made to section 9(1)(i) and section I95(1) of the Act by the Finance Act, 2012, whereas the Memorandum to Finance Bill, 2012 categorically mention these amendments as being clarificatory and thus fulfil the test laid down by a Constitution Bench of Hon'ble Supreme Court in their decision in the case of C1T (Central)-1, New Delhi vs Vatika Township Pvt Ltd, 2015 (1) SCC I, for being declaratory and clarificatory in nature and hence explain the existing law? 7. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) has erred in holding that interest u/s 201(1A) of the Act is not chargeable in the case of the assessee as it had no liability to deduct tax at source u/s 195(1) of the Act on payments made to Aviva International Holdings Ltd UK in July,2008 under the existing law at that time relying on the decision of Hon ble Supreme Court of India in the case of GE Technology Centre (P) Ltd vs CIT Anr., (2010) 327 ITR 456 (SC), without considering that this decision is not applicable as the retrospective amendments made to section 9(1)(i) and section I95(1) of the Act by the Finance Act, 2012, are declaratory and clarificatory in nature and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , New Delhi vs Vatika Township Pvt. Ltd, 2015 SCC 1, for being declaratory and clarificatory in nature and hence explain and clarify the existing law? 11. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) has erred in holding that interest u/s 201(1A) of the Act is not required to be levied in the case of the assessee on account of special circumstance of Aviva International Holdings Ltd UK having paid the taxes, without considering that there is no provision in law regarding existence of such special circumstance and its treatment in this regard? 3. Verbosity of these grounds of appeal apart, as learned representatives fairly agree, the short grievance raised in these grounds of appeal is that on the facts and in the circumstances of this case, learned CIT(A) erred in deleting the impugned demand, on account of interest for delay in realization of taxes which ought to have been upheld by the assessee before us, under section 201(1A) read with Section 195- particularly in the light of Explanation 2 to Section 195. What are termed as grounds of appeal are arguments in support of this core grievance. 4. The issue in appeal lies in a very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 2 to Section 195 inserted by the Finance Act 2012, with retrospective effect from 1st April 1962, even a non-resident is under obligation to withhold taxes, under section 195, from any payments by such non-resident to another nonresident, when income embedded in such payments is taxable in India. It was thus concluded that the assessee has defaulted in not withholding taxes from payments made to AIH-UK. Accordingly, demands were raised under section 201(1) and 201(1A), read with Section 195(2), in respect of the tax on income, taxable in India, embedded in such sale consideration, and also for interest on account of delay in realization of these withholding taxes, i.e. from the date on which the taxes ought to have been withheld till the date on which taxes are actually realized. The demands ₹ 92.59 crores thus were raised. Aggrieved, the assessee carried the matter in appeal before the CIT(A). Learned CIT(A) noted that AIH-UK, in whose hands capital gains on the sale of shares in question is taxable, claims to have paid the tax to the extent of ₹ 47,72,84,284, representing tax on the capital gains in question. To that extent, subject to necessary verification of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead with my decision in paragraph 10 of this order regarding liability under section 195(2) which is ruled in favour of appellant. Here the situation is akin to forcing assessee to perform an impossible. Thus, I hold that there is a case to consider the case decision in CIT NGC Network (India) Pvt. Ltd. (ITA NO. 397 of 2015 dated 29.01.2018 of Mumbai High Court) where issue was whether tax is deductible under section 194C or 194J. 21. In CIT v/s NGC Network (India) Pvt. Ltd (ITA No 397 of 2015, Mumbai) the decision was vis-a-vis 194C and 194J on the basis of retrospective amendment. The Hon. High Court was dealing with disallowance as a result of same proposed by Assessing Officer under section 40(a)(ia) but not accepted by Dispute Resolution Panel. Since Dispute Resolution Panel took the view that tax is not deductible at source under section 194J as a result of retrospective amendment, the matter reached Hon. Mumbai High Court. The court held that the same tantamount to compulsion to perform what is not possible. Extract from the decision reads as under: (d) we find the view taken by the impugned order dated 9th July, of the tribunal that a party cannot be called u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee cannot be burdened with interest u/s. 234A and 234B of the Act on tax liability arising out of retrospective amendment w.e.f. 01.04.962 in the provision of section 9(1) of the Income Tax Act. In the result ground No of the appeal of the assessee is allowed. Going through the same it can be seen that while deleting charge of interest under section 234A, 2B3 and 234D the Hon ble ITAT has made mention on responsibility on deductor. It can also be viewed that there is an indirect finding that liability towards deduction of tax at source subsists. Since this is not explicit i.e whether 'subject' means here 'actually subjected' or 'to be subjected, I am not drawing any inference against appellant from the decision. 23. In this case a special circumstance exit. TDS is a mode of collection of tax in the hands of the recipient. In this case, the recipient has paid tax fully. The purpose of TDS has been met fully and the case needs to be considered differently from cases where the recipient has not paid taxes. 24. To conclude, I had (a)made a finding that section 195(2) is not applicable as even before retrospective amendment to Income Tax Act 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective effect, as it is well settled in law that the legislature can impose tax retrospectively though it cannot be arbitrary and unreasonable [Kanthi Enterprises Vs State of Karnataka [(2002) 7 SCC 283, 288]. However, s o far as tax withholding requirements under section 195 are concerned, these requirements impose duties and obligations on a person, including a non-resident, making payments, involving an element of income taxable in India, to a non-resident. The nature of this provision is thus of regulating the conduct of a person so far as tax withholding obligations are concerned. The question, therefore, arises whether such a legislative amendment can also be introduced with retrospective effect. As regards the reliance placed by the appellant on the judgment of Hon ble Supreme Court, in the case of CIT Vs Vatika Township Pvt Ltd [(2014) 367 ITR 466 (SC )], it is important to bear in mind the fact that the said decision dealt with a taxability provision not the tax withholding provision, and the peculiarities of the nature of law with respect of tax withholding obligations require these provisions to be dealt in a manner different than the taxability provisions. This q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable in India. Quite clearly, therefore, as is held by Hon ble Supreme Court in the case of Engineering Analysis (supra ), 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. Having said that, we must add that, 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 uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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