Will TDS u/s 194 IA be attracted in case of joint buyers if individual buyers share is less than 50 Lakhs?

INTRODUCTION

Provisions of Law
According to Section 194-IA:
Any person, being a transferee, responsible for paying to a resident transferor any sum by way of consideration for transfer of any immovable property (except agricultural land), shall deduct an amount equal to 1 per cent of such sum as income-tax thereon.

Deduction shall be done at earlier of:
- credit of such sum to the account of the transferor
- or at the time of payment of such sum in cash, cheque, draft or by any other mode.

No deduction shall be made where the consideration for the transfer of an immovable property is less than Rs 50 lakhs.

For instance, Mr. A sold a property to Mr. B for Rs 80 lakhs. As the value of property exceeds Rs 50 lakhs, Mr. B will have to deduct 1% of Rs 80 lakhs on payment of consideration to Mr. A u/s 194-IA.

However, is TDS @ 1% required to be deducted in case of joint buyers if individual buyer’s share is less than 50 Lakhs?
Let us understand the same by referring to the case of Vinod Soni vs. ITO (Delhi ITAT).

Facts of the Case

The assessee with 3 other individuals had purchased an immovable property of Rs. 1,50,00,000.

According to the Assessing Officer (AO), the assessee was required to deduct tax @ 1% on this amount and deposit the same to the credit of the Central Government.

It was the contention of the assessee that every co-owner has equal share in the property and share of every co-owner amounted to Rs. 37,50,000/- which is under the threshold limit as provided by Section 194-IA. Hence, Section 194-IA is not applicable.

AO further observed that the consideration for the transfer of an immovable property is Rs. 1,50,00,000/- i.e. more than Rs. 50 lakhs and the same is executed through a single sale deed made and duly registered.

AO held that all the co-owners are responsible for default of TDS and charged the co-owners for non-deduction of TDS u/s 201(1) and interest thereon u/s 201(1A).

Aggrieved by the order of the AO, assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)]. CIT(A) dismissed the appeal and held that the AO had rightly made the additions. The assessee then appealed before the Income Tax Appellate Tribunal (ITAT).

Observation and Proceedings at ITAT

Assessee submitted that the provisions of 194-IA are not applicable since the purchase consideration for the assessee is less than Rs. 50,00,000 (being 1/4th share).

The AO held that since the value of the property under a single sale deed was exceeding Rs. 50,00,000, the assessee was required to deduct TDS @1%.

The AO thus held that all four assessees are defaulters u/s 201(1), and CIT(A) confirmed this.

Section 194-IA is applicable on any person being a transferee. So section 194-IA(2) is also applicable only with reference to the amount related to each transferee—not the total sale deed value.

In this case, there were 4 separate transferees and each had consideration less than Rs. 50,00,000.

Each transferee is a separate income tax entity; hence, the law must apply with reference to each transferee.

The AO’s logic implies that if the sale was done through four separate deeds, 194-IA wouldn’t apply, but if through one deed, it does. This is an inconsistent interpretation.

Also, the AO issued a common order u/s 201(1) for all transferees, perhaps realizing that individually the section wouldn't apply as each consideration is below the limit.

Hence, ITAT held that the addition made by AO and confirmed by CIT(A) is not sustainable. The appeal of the assessee was allowed and the charges were deleted.

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