ITAT Ahmedabad Clarifies TDS Duty Under Section 194-IA for Property Purchases Below ₹50 Lakh Per Buyer-Seller Pair

Overview

The Ahmedabad Bench of the Income Tax Appellate Tribunal in ITO Vs Tarun Santramdas Varma has affirmed that, for A.Y. 2015-16, liability to deduct tax at source under Section 194-IA arises only when the amount paid by a particular transferee to a particular transferor reaches or exceeds ₹50 lakh. Where the individual share of consideration paid by each buyer to each seller is below ₹50 lakh, no obligation to deduct TDS under Section 194-IA exists, even if the aggregate sale consideration of the property crosses ₹50 lakh.

The Tribunal also confirmed that amendments brought in by the Finance Act 2024, which now require aggregation of consideration in cases with multiple buyers and sellers, operate prospectively and cannot be pushed back to A.Y. 2015-16.

In addition, the Tribunal accepted that:

  • Payments made to a confirming party are not covered by Section 194-IA as such parties are not “transferors” of land or building.
  • The land in question constituted rural agricultural land, which is not a “capital asset” under Section 2(14)(iii) and is therefore outside the ambit of Section 194-IA.

Consequently, the assessee could not be regarded as an assessee in default under Section 201, nor could interest under Section 201(1A) be levied.

Factual Background

Return and Original Assessment

  • The assessee, an individual, derived income from multiple sources and filed a return declaring total income of ₹3.30 crore (approximately ₹3,30,16,670).
  • Scrutiny assessment was framed under Section 143(3) on 28.12.2017.
  • The Assessing Officer (AO) completed the assessment without making any addition or adverse remark in relation to several land purchases made during the relevant year.

Subsequent TDS Proceedings

Some time after the original assessment, the TDS Officer initiated proceedings under:

  • Section 201 – for treating the assessee as an assessee in default, and
  • Section 201(1A) – for charging interest on alleged short deduction/non‑deduction of TDS.

The allegation was that the assessee had purchased certain immovable properties for consideration exceeding ₹50 lakh, and therefore was required to deduct tax at source under Section 194-IA.

Stand of the Assessing Officer

The AO took the view that:

  • Section 194-IA is attracted whenever the total value of a property is more than ₹50 lakh.
  • The threshold must be applied property-wise, not buyer-wise or seller-wise.

Accordingly:

  • Even though there were multiple buyers and sellers in each deal, the AO clubbed the total consideration of each property and held that TDS was required to be deducted by each buyer on their respective share.
  • In several cases, the AO invoked Section 206AA on the ground that some sellers did not furnish PAN, and accordingly applied TDS at 20%.

On this basis, the AO treated the assessee as an assessee in default and raised a demand of ₹1,69,34,640 (including interest).

The AO did not:

  • Carry out any independent local verification as to whether the land was agricultural or non‑agricultural, or
  • Ascertain whether the land was located within the prescribed distance from municipal limits.

The AO simply proceeded on the basis of figures appearing in the registered documents.

Findings of the CIT(A)

The assessee challenged the order under Sections 201/201(1A) before the CIT(A). After examining the record, legal position, and evidence, the CIT(A) deleted the entire demand.

Application of Section 194-IA to Multi-Party Transactions

The CIT(A) first analysed the framework of Section 194-IA as it applied during A.Y. 2015-16:

  • Section 194-IA(1) requires deduction of 1% TDS on consideration for transfer of immovable property (other than agricultural land) where consideration is ₹50 lakh or more.
  • Section 194-IA(2) states that no deduction shall be made where the consideration is less than ₹50 lakh.

The CIT(A) concluded that, for the relevant assessment year:

  • The ₹50 lakh threshold has to be evaluated per transferee–transferor pair, not on the overall value of the property.
  • Where there are several buyers and several sellers, what matters is how much each buyer pays to each seller.
  • If the payment from each buyer to each seller is below ₹50 lakh, Section 194-IA does not apply, even if the combined property value is more than ₹50 lakh.

Finance Act 2024 Amendment and Its Prospective Nature

The CIT(A) took note of the amendment introduced by the Finance Act 2024, which inserted a proviso to Section 194-IA (effective from 1 October 2024):