NRI Wins Delhi High Court Case in Real Estate Property Tax Dispute
A Non-Resident Indian (NRI) successfully contested a tax dispute in the Delhi High Court, resolving issues related to TDS form errors and the failure to file an Income Tax Return.
NriReal EstateTdsIncome TaxDelhi High CourtReal EstateJun 19, 2025
The dispute arose from an 'Income from House Property' case where the TDS amount was correctly deducted and filed with the government, and advance tax was paid as required. However, the NRI received a notice from the Income Tax (IT) department, leading to a legal battle.
The petitioner, a non-resident Indian and a US tax resident, sold a residential property in Maharashtra in 2015, which he had purchased in 1998. To repatriate the sale proceeds, he opened a new bank account in India. The buyers demanded a 20% TDS deduction for the property sale, which the petitioner agreed to. The sale deed was executed for Rs 2 crore, with the buyers crediting Rs 1,81,31,823 to the petitioner’s bank account and withholding Rs 18,68,177. The buyers then deposited the withheld amount with the government for the petitioner’s credit.
The petitioner claimed to have computed his income tax liability at Rs 1,91,780 and deposited it as advance tax. He repatriated the remaining sale proceeds to the USA, claiming he was unaware of the requirement to file an ITR. The Assessing Officer (AO) issued a notice under Section 148A(b) of the Income Tax Act, 1961, alleging that the petitioner’s income had escaped assessment due to the sale of the property. The petitioner responded by providing all necessary details to prove that he had discharged his tax liability on the sale consideration.
However, the AO did not accept the petitioner's explanation and proceeded to pass an order under Section 148A(d), suggesting that it was a fit case for the issuance of a notice under Section 148 of the Act, which deals with 'Issue of notice where income has escaped assessment.'
The petitioner also pointed out that the buyers had deposited Rs 18,68,177 with the government, but the TDS return was filed under Form 26QB, which is applicable to resident Indians, not NRIs. The AO initiated penalty proceedings under Section 270A of the Act, which allows the AO to impose penalties on individuals who under-report or mis-report income in the ITR form.
The confusion arose because the buyers had correctly deducted and deposited TDS, but the credit for the petitioner was denied due to the incorrect form being used. The buyers filed Form 26QB instead of Form 27Q and did not provide proof of TDS payment in Form 16A.
The court ruled in favor of the petitioner, dropping the penalty proceedings under Section 270A. The court stated, “Since the provisions of levy penalty in case the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148 u/s 270A is effective from 01.04.2017, and the instant case related to FY 2015-16 (AY 2016-17), the penalty proceedings u/s 270A is hereby dropped vide Order dated 12.03.2025 to the benefit of the Petitioner.”
The Court also directed the Revenue to correct the record and reflect the TDS deposited by the buyers to the petitioner’s credit under the return filed in Form 26QB with effect from the date the amount was deposited. The Revenue was further instructed to compute the amount of any refund due to the petitioner under the law.
Frequently Asked Questions
What was the main issue in the NRI's tax dispute?
The main issue was the failure to deposit the correct TDS form and the failure to file an Income Tax Return (ITR).
What forms were involved in the TDS dispute?
The buyers filed Form 26QB, which is for resident Indians, instead of Form 27Q, which is for NRIs.
Why did the Delhi High Court rule in favor of the NRI?
The court ruled in favor of the NRI because the TDS was correctly deducted and deposited, and the penalty proceedings under Section 270A were not applicable for the fiscal year in question.
What did the court order the Revenue to do?
The court ordered the Revenue to correct the record and reflect the TDS deposited by the buyers to the petitioner’s credit and to compute any refund due to the petitioner.
What is the significance of the ruling for NRIs?
The ruling highlights the importance of using the correct TDS forms and provides a precedent for similar cases involving NRIs and real estate transactions.
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