The Income Tax Appellate Tribunal ( ITAT ), Mumbai bench, recently held that payment to Non resident for buy –back of shares not considered as dividend and no TDS will be levied under section 195 of Income Tax Act, 1961.
The assessee Kismat Exports & Investments Pvt .Ltd bought back shares from non-residential shareholder, Mr. Dileep Raghu Nath,who was a resident of Singapore, and as per the double taxation avoidance agreement (DTAA) between India and Singapore, capital gains arising to a resident of Singapore are subject to tax in Singapore and not in India. But the assessing officer rejected the claim of assessee.
Further, the assessing officer added an additional amount in the total income of the assessee for non-deduction of TDS against payment made to non-resident shareholders on account of buy back of shares. Against the order of AO assessee filed an appeal before commissioner of income of tax (Appeal).But the CIT (A) upheld the order of AO.The aggrieved assessee filed appeal against order of CIT (A) before the Mumbai bench of the ITAT.
The contention of Prakash Jotwani & Bhupendra Fafadia for assessee was thatAssesee bought some buy back shares from non resident who lived Singapore and paid an amount for that. According to article 13 of the Double Taxation Avoidance Agreement (DTAA) he paid the tax in Singapore.
There is no such provision to deduct tax on this amount as per the DTAA,and assessee is not liable to pay deduct tax Under Section 195 of the Income Tax, Act in India. So, there is no violation of section 40(a) (ia).So CIT (A) without considering the fact decided that the assessee violated the provision of section 115QA of the Income Tax Act.
Moreover Section 115QA was introduced in statute by Finance Act, 2013 with effect from 1-6-2013, payment made by assessee on account of purchase of its own shares prior to 1-6-2013 could not be termed as dividend as per provisions of section 115QA.
Vinay Sinha for Revenue supported the decision of the CIT (A) and argued that the additions confirmed by the CIT (A) did not require any interference.
The division bench of the Pramod Kumar,Vice President and Anikesh Banerjee, Judicial Member allowed the appeal filed by the assessee and held that
“As per the provisions of India Singapore DTAA jurisdiction for taxing the capital gains arising in the hands of Mr. Dileep Raghu Nath(NRI) is in Singapore and not in India. Therefore, the application of section 195 is not applicable for assessee-company. Accordingly, the addition for violation of section 40(a)(ia) Income Tax, Act read with section 195 Income Tax, Act amount of rupees fifteen crore Thirty Four Lakh And Sixty Eight Thousand is quashed”
