Section 195, 201/201(1A) of Income-tax Act, Article
13(3) of India-UAE DTAA — Liability to deduct tax on remittance of sale
proceeds of shares, by bank to UAE resident, does not arise as bank is
only acting as an authorised dealer in transferring the funds on behalf
of the share-broker-in absence of liability to deduct tax, the bank
could not be treated as an assessee in default.
Facts:
Abu
Dhabi Commercial Bank (ADCB) was engaged in the business of banking and
operated through branch in India. ADCB made remittances to individuals
being UAE residents, in respect sale proceeds of shares which sales had
resulted in short-term capital gain in India. Remittance was made
without deducting tax at source. Nil tax deduction was supported by CA’s
certificate which provided for nil tax deduction from sale proceeds to
UAE residents as capital gains tax was exempt in India in terms of
Article 13(3) of the DTAA. The Assessing Officer (AO) rejected the
contention of ADCB and held that capital gains earned by UAE residents
would not qualify for exemption under the DTAA as individuals in UAE are
not liable to pay tax on capital gains and hence in absence of existing
tax liability in that country, no benefits under the DTAA would not be
available to them. The AO therefore treated ADCB as an assessee in
default. U/s.201 and also levied interest u/s.201(1A).
Apart
from the treaty benefit, ADCB contended that shares had been purchased
and sold by UAE individuals through their brokers. Hence the term
‘payer’ as contemplated u/s. 204 of the Income-tax Act, referred to the
broker and the bank was only the medium through which remittances were
made. ADCB placed reliance on the Mumbai ITAT decision in the case of
Hongkong & Shanghai Banking Corpn. Ltd.1 to contend that a bank
merely acted as an authorised dealer to transfer funds and the Bank
cannot be regarded as ‘payer’. On appeal, the CIT(A) held that though
ADCB could be regarded as payer u/s.204, there was no withholding tax
obligation due to availability of treaty benefit.
On appeal to the Tribunal by the Department and the assessee:
Held:
Reliance
placed by ADCB on decision in the case of Hongkong & Shanghai
Banking Corporation was correct. In the said decision, it had been held
that in respect of remittance of sale proceeds of shares the bank which
merely acted as an authorised dealer, was not under any obligation to
deduct tax at source. Consequently, the action of the AO in treating the
bank as an assessee in default u/s.201 and levying interest u/s.201(1A)
was not justifiable.
