Introduction:
Section 194IA of the Income Tax Act pertains to the deduction of Tax Deducted at Source (TDS) when transferring certain immovable properties. However, a question arises regarding whether TDS should be deducted when the total consideration or circle rate value of a joint property exceeds Rs. 50 lakh, but the share of the joint seller is less than Rs. 50 lakh. This article explores this issue and highlights relevant cases that shed light on the matter.
Section 194IA and its Interpretation:
Section 194IA of the Income Tax Act states that any person responsible for paying consideration for the transfer of immovable property (excluding agricultural land) to a resident transferor should deduct an amount equal to one percent of the sum or the stamp duty value, whichever is higher, as income tax. However, no deduction is required if both the consideration for the transfer and the stamp duty value are below Rs. 50 lakh.
Joint Property Consideration Scenario: In cases where joint owners purchase a property, and the total consideration or stamp value of the entire property exceeds Rs. 50 lakh, some revenue officers insist on the deduction of TDS, even if the individual share of a co-purchaser or co-seller is less than Rs. 50 lakh. Non-compliance with this requirement may lead to penalties under Section 271 of the Income Tax Act.
Legal Precedents and Clarification:
To shed light on this matter, several cases decided by the Income Tax Appellate Tribunal (ITAT) provide clarity. In the case of M/s. Oxcia Enterprises Private Limited Vs. DCIT (ITAT Jodhpur), the tribunal ruled that if the sale consideration is divided equally among joint owners and falls below Rs. 50 lakh for each, the provisions of Section 194IA are not attracted.
Similarly, in the case of Vinod Soni Vs. ITO (TDS), the ITAT Delhi Bench clarified that Section 194IA does not apply to joint sellers of an immovable property when the share of each individual seller is less than Rs. 50 lakh. The law treats each seller as a separate entity, and TDS should be applied individually to each seller/buyer.
The ITAT has consistently held that Section 194IA applies to each transferee/transferor separately and not to the aggregate consideration. This interpretation has been reiterated in various cases such as Shamim Irshad vs. ITO, Bhikhabhai Hirabhai Patel vs. DCIT, and Smt. Sandhya Gugalia vs. DCIT.
Need for CBDT Circular:
Considering the consistent interpretation by the ITAT that Section 194IA applies to each individual transferee/transferor, it is crucial for the Central Board of Direct Taxes (CBDT) to issue a circular in accordance with these rulings. Such a circular would provide clarity, reduce unwarranted litigation, and bring certainty to this matter.
Conclusion:
The interpretation of Section 194IA of the Income Tax Act regarding the deduction of TDS on the transfer of immovable property depends on the individual share of each seller/buyer, rather than the aggregate consideration. Several cases decided by the ITAT have supported this interpretation. To eliminate any ambiguity, it is imperative for the CBDT to issue a circular aligning with these legal precedents. This would help establish a clear framework and bring an end to unnecessary disputes in this regard.
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