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Article 26(4) of India USA DTAA – In absence of similar provision for withholding taxes on payment to a resident Taxpayer on sale of land, there is no requirement to withhold taxes on sale consideration paid to Non-resident (NR) pursuant to non-discrimination Article of India- USA DTAA .
Facts
The Taxpayer, an Indian company, entered into an agreement to purchase a piece of land jointly owned by three parties. One of the co-owner of the land was a citizen of USA and a NR in India. The agreement was executed by an Indian resident who was holding the general power of attorney for the other owners.
The sale consideration was paid to the Indian resident constituted attorney in Indian rupees. The Taxpayer did not withhold taxes on such payment. The Tax authorities contended that the Taxpayer was required to withhold taxes u/s. 195 of the Act and hence, levied penalty for failure to withhold taxes.
The Taxpayer contended that since the agreement as well as payment was made to a resident in India, provision of section 195 of the Act did not apply. Further, section 195 applies only to remittance made in foreign currency, whereas in the present case since payment was made in Indian currency, tax was not required to be withheld under Act. Without prejudice to the aforesaid, it was contended that in absence of any provision relating to withholding of taxes where sale proceeds of an immovable property are paid to a resident person, there should not be any withholding requirement on payments to NRs applying the non-discrimination clause of India-USA DTAA
Held
The Tribunal did not rule on the applicability of section 195 as it was not contested before it.
In absence of a provision requiring Taxpayer to withhold tax on payment of sale proceeds to a resident, pursuant to non-discrimination article of the DTAA, Taxpayer was not required to withhold taxes on payment made to NRs.
