TMI Blog2022 (11) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... we uphold the assessee's plea, and quash the impugned tax withholding demand under section 201 r.w.s. 195 - Once the basic tax withholding liability u/s 201(1) is quashed, the interest liability under section 201(1A), being consequential in nature, also stand quashed. - ITA No. 1511/Mum/2022 - - - Dated:- 9-11-2022 - Pramod Kumar (Vice President) And Amit Shukla (Judicial Member) For the Appellant : J Pardiwala, Sr Advocate, along with Madhur Agarwal For the Respondent : Surabhi Sharma, Commissioner (DR) ORDER PER PRAMOD KUMAR, VP:- 1. By way of this appeal, the appellant has called into question the correctness of the order dated 19th April 2022, in the matter of tax withholding demands under section 201 read with section 195 of the Income Tax Act, 1961, for the assessment year 2015-16. 2. The short issue that, in our considered view, we need to adjudicate upon is this. Is an Indian custodian of shares required to deduct tax at source from the sale consideration of the shares so held by the custodian on behalf of the overseas depository, even though the overseas depository, on whose behalf shares were held, has already paid advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in default under section 201 of the Act notwithstanding the fact that reassessment proceedings have been initiated to assess the payee for the AY 2015-16. 7. The learned CIT(A) erred in not adjudicating the ground of appeal raised by the appellant which states that the AO failed to appreciate that no tax was required to be withheld at source under section 195 as no income was chargeable to tax from the sale consideration arising to BY Mellon on sale of shares through the recognized stock exchange as short-term capital loss was incurred on the sale of said shares having regard to the provision of section 49(2ABB) and thereby, the appellant cannot be held to be an assessee in default under section 201(1) of the Act, even though detailed submissions in support thereof were filed. 8. The learned CIT(A) erred in not adjudicating the ground of appeal raised by the Appellant which states that the AO failed to appreciate that the appellant cannot be held to be an assessee in default under section 201(4) of the Act on the basis of alleged scores of subscribers of GDRs (non-residents) who are not able to get tax benefit due to non-deduction of tax, even though detailed submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to Rs 94,61,35,488 to BNY Mellon, New York. This amount consisted of the aggregate of five different remittances, spread over the period of 22nd December 2014 to 8th January 2015, from the assessee to the BNY. It is also not in dispute, as evident from the observations of the Assessing Officer at page 18-19 of the impugned order, that a payment of Rs 40,92,98,212 was made towards the tax liability of the BNY on the sale of these shares of Rs 94,61,35,488 and by treating the cost of acquiring the shares as NIL. The Assessing Officer decline to take the above payment into account by observing that .. it cannot be denied that the BNY Mellon has made payment of taxes as mentioned above on the net consideration of Rs 94,61,35,488.36 received by the ICICI Securities Ltd on sale of equity shares of Ranbaxy Lab during AY 2015-16, but this payment has been made as advance tax whereas such payment should have been paid as TDS by the payer , that due to this (lapse), credit of tax payment is not available to those subscribers of GDRs whose GDRs were converted into shares and subsequently sold by BNY Mellon through the assessee and that as a result, a peculiar situation exists today wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) but without any success. The assessee is not satisfied and is in further appeal before us. 4. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 5. We find that the learned Assessing Officer, as also learned CIT(A) have proceeded on the basis that the recipient has paid advance tax liability which is equivalent to the tax deducted at source. The Assessing Officer has even observed that as the payment is made on ITNS 280, which is appliable for taxes on income- unlike ITNS 281 which relates to the taxes deducted or collected at source, it is a payment of advance tax. Learned CIT(A) has not disputed this position either but added that section 201 does not exempt TDS to be made on the payment made to non-residents, even if non-residents paid advance tax and filed the return of income taking into consideration the profit/income earned on transaction. . That legal proposition, however, is not correct. It is well settled in law that tax deduction at source liability under section 201 is a vicarious liability of the payer of an income, which cannot come into play only whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pay, or does not pay in time, the taxes so deducted at source. .. Section 271C deals with levy of penalty for total or partial failure to deduct tax at source i.e., for non-deduction and short-deduction of tax at source. This provision is clearly a penal provision which is applicable for the cases of tax deductor s not discharging, wholly or partially, statutory obligations of deducting taxes at source . Clearly, thus, the provisions of Section 201 are not to punish or prosecute an assessee for his lapses in respect to tax deduction at source responsibilities; there is a separate set of provisions for that purpose, e.g. under section 271C and 276B, and the provisions of section 201 are merely compensatory in nature. What essentially follows is so far as the provisions of Section 201 are concerned, the tax-deductor has to make good the shortfall in a tax deduction, and the tax-deductor also has to compensate the revenue by way of interest for the period of late realization of this tax to the revenue authorities . In this light, when we see the facts of this case, neither is there a shortfall in the collection of revenue on account of a lapse in a tax deduction, nor is ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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