ITAT: No Penalty Would be Imposed U/S 27(1)(C) as TDS Deducted Under DTAA

A Chandigarh bench of the ITAT ruled that the penalty under section 271(1)(c) does not apply because tax has already been deducted in accordance with Double Taxation Avoidance Agreements (DTAA).

As a short summary, the facts are that the assessee is not a resident of the country and has booked certain units in the entity Omaxe Ltd during the F.Y. relevant to the impugned A.Y., units are situated in Novelty mall, Amritsar.

At the time of booking, the assessee paid 95% of the basic sale price. After being provisionally allocated the said units and in lieu of 95% payment of the basic sale price, Omaxe Ltd. was required to pay the assessee monthly assured returns until the units were handed over to the assessee.

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Under the Head Income from House property, the assessee has claimed a statutory deduction under section 24 of the Act for the amount received from M/s Omaxe ltd. in the impugned assessment year.

A further claim for credit has been made by the assessee in accordance with Article 12 of the India-United Kingdom Double Taxation Agreement and Section 90 of the Income Tax Act of 1962 for the TDS that M/s Omaxe Ltd. deducted at 15%.

A judge ruled that section 56(1) of the Income Tax Act restricts the assessment of income from other sources, as stated in the assessee’s income tax return. Separate penalty proceedings were instituted under section 271(1)(C) of Income Tax as a result of the assessed income being determined.

In accordance with Article 12 of the India-UK DTAA, the assessee has been charged a 15% tax on payment to M/s Omaxe Limited. This case was decided on behalf of the taxpayer by the Supreme Court of India on March 20, 2007, after a bench comprising Sudhanshu Srivatsava (Judicial Member) and Vikram Singh (Accountant Member) directed the penalty levied by the Commissioner of Income Tax (Appeals) be deleted.