Will TDS u/s 194 IA be attracted in case of joint buyers if individual buyers share is less than 50 Lakhs?
The provisions pertaining to TDS (Tax Deducted at Source) have proved extremely beneficial to the government. It ensures a continuous flow of revenue to the Government. It is a measure incorporated to prevent tax evasion. TDS is deducted from certain payments made by the individuals. Further, what will be the impact of TDS u/s 194 IA in case of joint buyers if individual buyers share is less than 50 Lakhs. We will see this with the help of an interesting case of Vinod Soni vs.ITO (Delhi ITAT).
Provisions of Law
According to Section 194-IA,
Any person, being a transferee, responsible for paying to a resident transferor any sum by way of consideration for transfer of any immovable property (except agricultural land), shall deduct an amount equal to 1 per cent of such sum as income-tax thereon.
- Deduction shall be done at earlier of:-
i. credit of such sum to the account of the transferor
ii. at the time of payment of such sum in cash, cheque, draft or by any other mode
2. No deduction shall be made where the consideration for the transfer of an immovable property is less than Rs 50 lakhs
For instance Mr. A sold a property to Mr B for Rs 80 lakhs. As the value of property is exceeding Rs 50 lakhs, Mr. B will have to deduct 1% of Rs 80 lakhs on payment of consideration to Mr. A u/s 194 IA.
However, is TDS @ 1% required to be deducted in case of joint buyers if individual buyer’s share is less than 50 Lakhs?
Let us understand the same by referring to the case of Vinod Soni vs.ITO (Delhi ITAT).
Facts of the Case
- The assessee with 3 other individuals had purchased an immovable property of Rs. 1,50,00,000.
- According to the Assessing Officer (AO), the assessee was required to deduct tax @ 1% on this amount and deposit the same to the credit of the Central Government.
- It was the contention of the assessee that every co-owner has equal share in the property and share of every co-owner amounted to Rs. 37,50,000/- which is under the threshold limit as provided by Section 194IA. Hence, Section 194IA is not applicable.
- AO further observed that in the instant case, consideration for the transfer of an immovable property is Rs. 1,50,00,000./- i.e. more than Rs. Fifty lakhs and the same is executed through a single sale deed made and duly registered.
- AO held that all the co-owners are responsible for default of TDS and charged the co-owners for the non deduction of TDS u/s. 201(1) and interest thereon u/s. 201(1A) on the payments made
- Aggrieved by the order of the AO, assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)]. CIT(A) dismissed the appeal of the assessee and held that the AO has rightly made the additions. Aggrieved with the order, assessee appealed before the Income Tax Appellate Tribunal (ITAT).
Observation and Proceedings at ITAT
- Assessee submitted that the provisions of 194-IA are not applicable for the assessee as the purchase consideration for the assessee is less than Rs. 50,00,000 (being 1/4th share of the property)
- The AO held that since the value of the property purchased under a single sale deed was exceeding Rs. 50,00,000/- therefore, as per section 194 IA, the assessee was required to deduct TDS @1%.
- The AO thus held that all the four assessees as defaulters u/s. 201(1) and CIT(A) confirmed the findings of the AO.
- Section 194 IA is applicable on any person being a transferee, so section 194-IA(2) is also, obviously, applicable only w.r.t. the amount related to each transferee and not with reference to the amount as per sale deed.
- In the instant case there were 4 separate transferees and the sale consideration w.r.t. each transferee was less than Rs. 50,00,000/- each.
- Each transferee is a separate income tax entity therefore; the law has to be applied with reference to each transferee as an individual transferee / person.
- The main reason by the AO to charge TDS is that the amount as per sale deed is Rs. 1,50,00,000. The law cannot be interpreted and applied differently for the same transaction, if carried out in different ways.
- For instance, the law cannot be read as, that in case of four separate purchase deed for four persons separately, Section 194-IA was is not applicable, and in case of a single purchase deed for four persons Section 194-IA will be applicable.
- It was also noted that AO had passed a common order u/s. 201(1) for all the four transferees. In order to justify his action since in case of separate orders for each transferee separately, apparently, provisions of section 194IA could not had been made applicable since in each case purchase consideration is less than the limit of Rs 50 lakhs.
- This action of AO shows that he was also clear in his mind that with reference to each transferee, Section 194IA was not applicable.
Hence, ITAT are of the considered view that the addition made by the AO and confirmed by the Ld. CIT(A) is not sustainable in the eyes of law, thus the same is deleted. Accordingly, the grounds raised by the assessee stand allowed and as a result thereof, the appeal of the assessee is allowed.