High Courts Grant TDS Credit to NRI Denied Due to Procedural Error by Buyer

The petitioner is a Non-Resident Indian [NRI] and a tax resident of the United States of America [USA]. In the year 1998, the petitioner had purchased a residential property. The petitioner was desirous of selling the subject property, and certain prospective buyers had also shown interest in purchasing the subject property. The petitioner states that Dr. Sharad Moreshwar Hardikar and Mrs Leela Sharad Hardikar [the buyers] had formally expressed their interest to purchase the subject property and on 18.03.2015 offered to pay earnest money for concluding the transaction.

The petitioner accepted the said offer and conveyed his consent to sell the same to the buyers. He also informed the buyers that he intended to open a new bank account in India to ensure that the sale proceeds are repatriated to him. The buyers stated that the Tax Deducted at Source [TDS] on the sale of the subject property was required to be deducted at the rate of 20 per cent as the petitioner was a non-resident.

The buyers called upon the petitioner on 05.09.2015, to confirm his willingness for deduction of the TDS at the rate of 20 per cent, which the petitioner affirmed. Thereafter, on 08.09.2015, the petitioner and the buyers executed the sale deed for the subject property at the agreed consideration of Rs. 2.00 Crores. Out of the aforesaid sum, the buyers credited a sum of Rs. 1,81,31,823/- to the petitioner’s bank account and withheld the remaining amount of Rs. 18,68,177/-. There is no dispute that this amount was deposited by the buyers with the Government to the credit of the petitioner.

The petitioner computed the balance of income tax liability at Rs. 1,91,780/- and deposited the same as advance tax. Thereafter, on 27.10.2015, the petitioner repatriated the balance amount of the sale proceeds to the USA. The petitioner claimed that he was not aware at the material time that he was also required to file the Income Tax Return [ITR] for the relevant period and therefore, had failed to do so.

Issue of Notice u/s 148 by Income Tax Department:

Income Tax Department holding that it is a fit case for issuance of notice under Section 148 of the Act, initiated proceedings against the Taxpayer.

Petitioner contacted Buyer for the resolution of the Error

The petitioner stated that immediately on receipt of the said information, he once again contacted the buyers and pointed out to them that Form 26AS reflected the credit of Rs. 2,00,000/- as against the actual credit amount of Rs. 18,68,177/-. As per the petitioner, the buyers should have deposited the requisite sum with the Government. The petitioner was informed by the buyers that in fact the amount of Rs. 18,68,177/- was deposited by them to the credit of the petitioner, however, the TDS return was filed under Form 26QB, which relates to a resident-Indian instead of Form 27Q, which would be applicable in case of NRIs. The petitioner states that the buyers also proceeded to approach the Bank to correct the TDS challan on 20.05.2023.

Order of the Delhi High Court: Relevant Text

10. The learned counsel appearing for the Revenue submits that the Revenue has been unable to correct the error, as under the Standard Operating Procedure (SOP), the consent of the buyers is required, along with an indemnity bond and other documents.

11. On a pointed query as to why the buyers’ consent would be required, the learned counsel for the Revenue submits that the same would be necessary in order to obviate any action on the part of the buyers to recover the amount of the TDS that had been deposited. She states that although there is no dispute as to the deposit of the TDS, the petitioner’s case has been withheld only on account of the documents required from the buyers.

12. In the peculiar facts of this case, we consider it apposite to direct the Revenue to correct the record and reflect the TDS deposited by the buyers to the petitioner’s credit under the return filed in the Form 26QB with effect from the date on, the amount was deposited. The Revenue shall further compute the amount of the refund, if any, that may be due to the petitioner in accordance with law. All the orders and communication not in conformity with the aforesaid directions shall be treated as having been set aside.