Sale of property reported by ‘Mahesh Bhupathi’ in ITR doesn’t absolve buyer’s liability to deduct tax u/s 195: ITAT

Case Details: Nitesh Estates Ltd. v. ADIT - [2022] 140 taxmann.com 400 (Bangalore-Trib.)

Judiciary and Counsel Details

• • Smt. Beena Pillai, Judicial Member & Chandra Poojari, Accountant Member
  • V. Srinivasan, A.R. for the Appellant.
  • Narayana K.R., D.R. for the Respondent.

Facts of the Case

The assessee was engaged in the business of real estate. It had sold one apartment in a residential complex to Mr. Mahesh Bhupathi. Later on, Mr. Mahesh Bhupathi offered to sell the same apartment back to the assessee. The assessee made payment to Mahesh Bhupathi without deducting tax at source (TDS).

The Assessing Officer (AO) held that Mahesh Bhupathi was a non-resident and thus, the assessee was liable to deduct tax on the capital gains arising from the payment made to him. AO held the assessee to be in default and levied tax & interest liability.

The assessee contended that it was not aware of the fact that Mr. Mahesh Bhupathi was a non-resident. Further, Mahesh Bhupathi had duly reported the transaction relating to the sale of the apartment in his return of income. Thus, the assessee cannot be considered an assessee in default.

ITAT Held

The Tribunal held that the claim of the assessee that it was unaware of the residential status of Shri Mahesh Bhupathi cannot be accepted as he was associated with the assessee for a long time. Facts on record show that the assessee was well aware of the residential status of Mahesh Bhupathi and thus it was liable to deduct tax as per the provisions of section 195.

Section 195 casts obligations upon the payer to deduct tax at source on the sum paid to the non-resident payee. The legislature incorporated provisions like section 195 under the Income-tax Act to prevent NRIs from taking away the entire money abroad without paying the due tax. The Indian tax authorities will have no control once this sum of money is thrashed away.

Further, as per section 195, it is not relevant whether NR-payee has reported income in ITR or he does not have positive income in the A.Y. under consideration. If the payment in question is chargeable to tax, then the person making the payment is obliged to deduct tax at source.