TeDiouS provisions appear to be simple but are complex and
have been subject matter of litigation over the years. This is
especially true for section 195 because divergent views have been
expressed by various courts as to when the liability gets fastened
u/s 195 to deduct tax and when an assessee may not deduct tax at
A plain reading of section 195 suggests that the section would
come into operation when the payment being made to the recipient
constitutes income in the hands of the recipient. The moot question
therefore is that who decides whether the payment constitutes
income in the hands of the recipient? Is it the payer or the
Consider a case where you purchase a property from a
non-resident. The non-resident represents that the capital gain has
already been invested in another property by taking benefit of the
'one year before purchase' clause and accordingly there
shall be no capital gain accruing to the seller. As there is no
income chargeable to tax under the transaction whether you as a
buyer of the property liable to deduct tax u/s 195 of the Act.
The Hon'ble Bangalore ITAT recently adjudicated upon a
similar issue in the case of A. Mohiuddin v Additional Director of
Income-tax (International Taxation), Mangalore  119 DTR 76
Bangalore. The facts were that the assessee purchased property from
a non-resident Indian lady. While making payment to the vendor the
assessee did not deduct tax at source, as at the time of execution
of sale deed and payment of consideration, it was represented by
the vendor that she had purchased a house property within the
prescribed period of one year prior to the date of sale deed and as
she had made investment in the new residential house which was
eligible for exemption under section 54 of the Act. Accordingly,
there was no income chargeable to tax and hence no requirement to
withhold tax on the gross consideration. The assessee did not
deduct the tax at source while making payment to the non-resident
The assessee was treated as an 'assessee-in-default' u/s
201 of the Act for not deducting tax at source u/s 195 of the Act.
Interest was also levied u/s 201(1A) of the Act.
The Tribunal held that as the assessee while making payment to
the vendor was well aware that the vendor had purchased a
residential house within the prescribed period as such, the capital
gain in her hands would be eligible for exemption under section 54
of the Act. Thus, the assessee cannot be treated as "assessee
in default" under section 201 of the Act for not deducting tax
at source under section 195 of the Act while making payment to the
vendor and consequently on interest under section 201(1A) of the
Act was also leviable.
This was a case where the investment was already made by the
vendor which most likely prompted the ITAT to rule in favour of the
assessee. However, if the facts are twisted wherein the vendor
represents that a property would be purchased within the stipulated
time or investment would be made u/s 54EC of the Act would the
buyer be justified in such a case to not to withhold tax. The
answer to my mind should be 'No'. Nevertheless, in
situations similar to the above, one can surely take benefit of the
Originally published August 10, 2015
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Recently the Delhi High Court's in the case of CUB Pty Ltd granted relief to multinationals licensing and registering their intellectual property in India and held that the situs of an intangible asset like IPRs, shall be the situs of the owner of such asset.
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