Case Note & Summary
The petitioner, Rohan Developers Pvt. Ltd., a company engaged in property development, sought to purchase a 1/8th undivided share in a property from Mr. Pesh Rustom Framjee, a non-resident. Since the seller was a non-resident and had not filed income tax returns in India for earlier years (having no taxable income), the petitioner filed an application under Section 195(2) of the Income Tax Act, 1961 before the Income Tax Officer (International Taxation) requesting a lower tax deduction certificate. The officer rejected the application on the ground that the seller had not filed returns. The petitioner challenged this rejection by way of a writ petition. The High Court observed that Section 195(2) requires the Assessing Officer to determine the appropriate proportion of income chargeable to tax and the rate at which tax is to be deducted. The officer's rejection solely on the ground of non-filing of returns was not sustainable. The court set aside the rejection and directed the officer to decide the application afresh on merits, after providing an opportunity of hearing to the petitioner. The court also noted that the seller's tax liability, if any, would be determined separately.
Headnote
A) Income Tax - Deduction of Tax at Source - Section 195(2) of the Income Tax Act, 1961 - Application for Lower TDS Certificate - The petitioner, a developer, sought a lower TDS certificate for payment to a non-resident seller of immovable property. The Assessing Officer rejected the application solely because the seller had not filed returns for earlier years. The High Court held that the officer must consider the application on its merits and cannot reject it on extraneous grounds. The court directed the officer to decide the application afresh after giving the petitioner an opportunity of being heard. (Paras 1-12)
Issue of Consideration
Whether the Income Tax Officer was justified in rejecting the petitioner's application under Section 195(2) of the Income Tax Act, 1961 for a lower tax deduction certificate on the ground that the non-resident seller had not filed income tax returns for earlier years.
Final Decision
The High Court allowed the writ petition, set aside the order dated 30th September 2010, and directed the Income Tax Officer to decide the application under Section 195(2) afresh on merits after giving the petitioner an opportunity of being heard.
Law Points
- Section 195(2) of the Income Tax Act
- 1961
- Lower TDS Certificate
- Non-resident seller
- Tax deduction at source
- Application for lower rate
- Obligation of Assessing Officer to consider on merits
Case Details
2022 LawText (BOM) (02) 23
WRIT PETITION NO.339 OF 2011
K. R. SHRIRAM, N. J. JAMADAR
Mr. J. D. Mistri, Senior Advocate a/w. Mr. Nitesh Joshi i/b. Mr. Atul K. Jasani for Petitioner; Mr. Suresh Kumar for Respondents
Rohan Developers Pvt. Ltd.
Income-tax Officer (International Taxation)-3(1), Mumbai; Director of Income-tax (International Taxation)-II Mumbai; Union of India
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Nature of Litigation
Writ petition challenging the rejection of an application under Section 195(2) of the Income Tax Act, 1961 for a lower tax deduction certificate.
Remedy Sought
Petitioner sought a direction to the Income Tax Officer to issue a lower tax deduction certificate or to decide the application afresh on merits.
Filing Reason
The Income Tax Officer rejected the petitioner's application for a lower TDS certificate solely on the ground that the non-resident seller had not filed income tax returns for earlier years.
Previous Decisions
The Income Tax Officer rejected the application under Section 195(2) by order dated 30th September 2010.
Issues
Whether the Income Tax Officer was justified in rejecting the application under Section 195(2) of the Income Tax Act, 1961 on the ground that the non-resident seller had not filed income tax returns for earlier years.
Submissions/Arguments
Petitioner argued that the officer must consider the application on merits and cannot reject it on extraneous grounds. The seller's non-filing of returns is irrelevant for determining the appropriate rate of TDS.
Respondents argued that the rejection was justified as the seller had not complied with tax filing requirements.
Ratio Decidendi
Under Section 195(2) of the Income Tax Act, 1961, the Assessing Officer is required to determine the appropriate proportion of income chargeable to tax and the rate at which tax is to be deducted. The officer cannot reject an application solely on the ground that the non-resident seller had not filed income tax returns for earlier years. The application must be considered on its merits.
Judgment Excerpts
Petitioner is a company engaged in the business of development and re-development of various properties in the city of Mumbai.
Petitioner filed an application before respondent No.1 under Section 195(2) of the Act requesting him to issue a LOW tax rate Certificate for Deduction of Tax at Source in respect of consideration for purchase of immovable property from seller.
The officer rejected the application solely on the ground that the seller had not filed returns for earlier years.
Procedural History
The petitioner filed an application under Section 195(2) of the Income Tax Act, 1961 before the Income Tax Officer (International Taxation)-3(1), Mumbai on an unspecified date. The officer rejected the application by order dated 30th September 2010. The petitioner then filed the present writ petition before the Bombay High Court, which was heard and decided on 3rd February 2022.
Acts & Sections
- Income Tax Act, 1961: Section 195(2)
