Introduction
There are many non-resident Indians having long term capital assets, particularly residential house properties in India. After the sale of such assets, many of them further propose to reinvest requisite amounts either in house property or in eligible bonds to avail benefits of section 54/54EC/54F of the Income tax Act, 1961 (‘the Act’) . Since it is a transaction with a nonresident, the issue of withholding tax arises. Ideally, since the assessee seller is going to reinvest in eligible assets u/s 54/54EC/54F, no tax should arise. However, the buyer (being the payer of the sale consideration) would be under an obligation to deduct tax for payment being made to a non resident in terms of section 195 of the Act.
In such cases, most of the non-residents opt to apply under section 197 for NIL/lower deduction certificates. An affidavit that requisite amounts would be invested in eligible assets u/s 54/54EC/54F is also submitted alongwith other documents (like sale deed, proof of being a non-resident, computation of capital gains etc.). On the basis of the same, it can be fairly decided that the buyer need not deduct any tax or deduct tax at lower rate. It has been observed that it is a normal practice within the Department to issue such certificate but with a direction to the buyer to issue a cheque of requisite amount directly in favour of REC/NHAI Bonds or Capital Gains Account Scheme (‘CGAS’).
The unfairness:
The facility of obtaining NIL/lower deduction certificates in case of non-residents is to make matters easier for them and not to subject them to unnecessary conditions. Such directions frustrate the very purpose of applying for NIL withholding certificate. C.N.Vaze Chartered Accountant is it fair? The fact that the assessee is submitting an affidavit should be sufficient proof that he wishes to comply with the necessary provisions.
Further, where it is proposed to reinvest in house property, the direction of issuing cheques directly in favour of CGAS account is not fair as the assessee has got time upto due date of filing return of income and may like to deposit his funds in fixed deposit for the time being, to reap the benefit of higher interest rates. In an extreme illustration, sale may be effected in the month of April so that the seller has an option of making investment within six months (for section 54EC of the Act) and upto 30th September of the following year (for CGAS Scheme) as the case may be. This option is unduly curtailed by such conditions.
In many of the cases, it may really put the assessee (i.e. the non-resident seller) and the buyer in a dilemma where part payment is to be made by the bank (being housing loan obtained by the buyer) directly to the seller and part payment is made by the buyer himself. Further, it may also give rise to serious practical problems if the payment is deferred/ made in instalments. At the most, the assessee may be directed to submit the proof of such investment before the due date of filing return. Needless to state that since all documentary evidences are on record, the tax department always has power and access to catch hold of the concerned persons, if they commit any default.
Conclusion:
Such direct instruction to the buyer to issue a cheque of requisite amount directly in favour of REC/NHAI Bonds or CGAS Account would be encroaching upon assessee’s right to plan his investments. This also brings us to the question as to whether the assessing officer has the power to issue such directions to the payer.
