11.54% TDS on NRI Share Transfers u/s 112(1)(c)(iii): ITAT Rejects Revenue’s ₹2.37 Crore Default Claim Against Godrej Agrovet [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT), held that lower deduction rate of 11.54% under Section 112(1)(c)(iii) of the Income Tax Act, 1961 on long-term capital gains arising from share transfers was correctly applied by the non-resident assessee Godrej Agrovet, dismissing the Revenue’s claim that tax should have been deducted at a higher rate, resulting in an alleged default of more than two crore rupees.

The Income Tax Officer filed the appeal against Godrej Agrovet Limited. The assessee had acquired equity shares of unlisted Indian company Creamline Dairy Products Limited and listed Indian company Astec Lifesciences Limited from ten non-resident shareholders during the financial year 2015-16.

While remitting the purchase consideration, the assessee deducted tax at source at 11.54% under Section 112(1)(c)(iii) of the Income Tax Act, 1961 on nine transactions, and at 23.07% under Section 206AA read with Section 195 of theIncome Tax Act, 1961 in one case where the shareholder did not possess a Permanent Account Number.

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The Assessing Officer (AO) treated the assessee as assessee-in-default under Section 201(1) of the Income Tax Act, 1961, holding that tax should have been deducted at 23.07% on all transactions and computed a demand of ₹2,37,79,667 including interest under Section 201(1A). The first appellate authority, Commissioner of Income Tax (Appeals), Mumbai, allowed the assessee’s appeal, holding that tax deduction at 11.54% on long-term capital gains of non-resident shareholders was in accordance with Section 112.

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Counsel Krishna Kumar appearing for the Revenue argued that the assessee erroneously applied a lower tax rate without justifying eligibility for the concession in Section 112(1)(c)(iii) of the Income Tax Act, 1961. It was contended that the assessee failed to consider the first and second provisos to Section 48 governing computation of capital gains in foreign currency for non-resident taxpayers, and that the correct rate of deduction should have been 23.07% under Section 195 of the Income Tax Act, 1961.

Judicial Member Suchitra Kamble and Accountant Member Girish Agrawal affirmed the order of the Commissioner of Income Tax (Appeals) ruling that Section 112(1)(c)(iii) of the Income Tax Act, 1961 expressly provides for a concessional long-term capital gains tax rate of 10 percent for non-resident shareholders on transfer of shares, and when surcharge and cess are applied the effective tax rate of 11.54% adopted by the assessee was consistent with statutory requirements.

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The Tribunal rejected the argument that the assessee failed to consider the computation methodology laid down in the first and second provisos to Section 48, noting that the AO incorrectly applied a higher rate without establishing statutory justification. The Bench found that factual evidence placed during the appellate proceedings, including bank statements and confirmations, showed tax had been properly deducted and deposited.

The Tribunal held that there was no error in the direction issued to the AO to verify and recompute demands, and there was no basis to treat the assessee as in default under Section 201. Accordingly, the Revenue’s appeal was dismissed in full.

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