Thursday 11 October 2012

Unless Sec. 195(2) clearance is obtained, tax has to be deducted from sales consideration and not just from capital gains

The assessee purchased a residential flat from a NRI ("seller"). The AO noted that as per section 195, the assessee ought to have deducted tax on the sale consideration before making payment to the seller, however, assessee contended that he was liable to pay the tax on the basis of capital gains. Rejecting assessee's contentions, AO initiated proceedings under sec. 201(1), treating the assessee to be an assessee-in-default. The CIT (A) upheld the order of AO.
On appeal, the Tribunal held in favour of revenue -
It held that the section 195(1) required the assessee to deduct tax on entire sale consideration. If the assessee considered otherwise, section 195(2) required him to make an application to the AO to determine the appropriate proportion of consideration on which tax should be deducted, but the assessee failed to do so. Thus, the finding of AO that quantification of the TDS under sec. 195 ought to be made on the entire sale consideration was correct and it couldn't be made on the basis of capital gains. Therefore, it was held that AO had rightly raised demand under sec. 201 and issued notice of demand under sec. 156 - SYED ASLAM HASHMI v. ITO [2012] 26 taxmann.com 6 (Bangalore - Trib.)

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