MAHARAJA GANGA MAHAL,BIKANER vs. ITO, TD,, BIKANER

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH ‘DB’, NEW DELHI BEFORE SHRI SAKTIJIT DEY, VICE-PRESIDENT AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER

ITA Nos. 83, 84 & 85/Jodh/2023 Assessment Years: 2016-17, 2017-18 & 2018-19 (Through Virtual Mode) Maharaja Ganga Mahal, Versus Income-tax Officer(TDS), 0, Rathkhana Colony, Bikaner. Bikaner (Rajasthan). PAN: AANFM1000F (Appellant) (Respondent) Assessee by : Sh. Shafi Mohd. Chouhan, Adv. & Sh. D.K. Vyas, C.A. Revenue by : Sh. Rajeev Mohan, JCIT-DR

Date of hearing : 11.09.2023 Date of pronouncement: 18.09.2023

ORDER Present appeals by the assessee arise out of three separate

orders passed by National Faceless Appeal Centre (NFAC), Delhi pertaining to assessment years 2016-17, 2017-18 and 2018-19. 2. The common dispute arising in all these appeals relates to

treating the assessee as an assessee in default for not deducting tax at source under various provisions of the Income-tax Act, 1961 and raising demands under section 201(1) and 201(1A) of the Act.

2 ITA Nos. 83, 84 & 85/Jodh/2023

ITA No. 83/Jodh/2023 (A.Y. 2016-17):

assessee is engaged in hotel business and provides facility for rooms,

restaurant and bar. To verify the TDS compliance, a survey under

section 133A (2A) of the Act was conducted in the business premises

of the assessee on 18.01.2019. In course of survey, it was found that

the assessee has not deducted tax at source on laundry payment of

Rs.4,28,663/-. It was further observed that the assessee has not

deducted tax at source on payment of interest of Rs.6,13,104/- to AU

Financiers (India) Ltd., a non-banking financial corporation (NBFC).

Noticing the default committed by the assessee, the Assessing Officer

initiated proceedings under section 201 of the Act by issuing show

cause notice to the assessee. As far as laundry payment of

Rs.4,28,663/- is concerned, the Assessing Officer was of the view that

the payment is covered under section 194C of the Act, hence,

required deduction of tax at source. Since the assessee has failed to

deduct tax at source, the Assessing Officer computed the TDS

amount along with interest under section 201(1A) at Rs.6,040/-. In so

far as interest paid to AU Financiers (India) Ltd. is concerned, the

3 ITA Nos. 83, 84 & 85/Jodh/2023

Assessing Officer applied the provisions of section 194A of the Act

and computed the TDS liability and interest thereon in terms of section

201(1) and 201(1A) at Rs.83,382/-. Thus, in nutshell, the Assessing

Officer raised the demand of Rs.89,422/- under section 201(1) and

201(1A) of the Act. Contesting the demand so raised, the assessee

preferred appeal before learned first appellate authority. However, the

appeal was dismissed.

submitted that provisions of section 194A of the Act are not applicable to the interest paid to AU Financiers (India) Ltd., as it is covered under

exceptions provided in Explanation –III(a) to section 194A(3) of the

Act. He submitted, though, AU Financiers (India) Ltd. was registered

as a NBFC, however, the Reserve Bank of India (RBI) granted

approval to the said entity as a small finance bank in the private sector vide letter dated 16th September, 2015. Thus, he submitted, since, at

the time of payment/credit of interest, AU Financiers (India) Ltd. was

having status of a bank, there was no requirement of deduction of tax

at source under section 194A of the Act.

4 ITA Nos. 83, 84 & 85/Jodh/2023

learned counsel submitted that such payment will not fall within the

ambit of section 194C of the Act. Without prejudice, he submitted that

though, the PAN of laundry service provider was provided to the

Assessing Officer, he did not verify whether the concerned party has

offered the receipts to tax or not.

observations of the Assessing Officer and learned first appellate

authority.

record. Undisputedly, the assessee had paid interest of Rs.6,13,104/-

to AU Financiers (India) Ltd. in the year under consideration. Alleging

non-deduction of tax at source under section 194A of the Act, the

Assessing Officer has raised demand under section 201(1) and

201(1A) of the Act. However, materials placed on record reveal that

AU Financiers (India) Ltd. has been granted the status of a small

finance bank w.e.f. September, 2015. A careful reading of section

194A of the Act reveals that certain payments have been excluded

from compulsion of deduction of tax at source. As per Explanation-

5 ITA Nos. 83, 84 & 85/Jodh/2023

III(a) to section 194A(3) of the Act, any income credited or paid to any

banking company, to which the Banking Regulation Act, 1949 applies,

has been excluded from applicability of section 194A of the Act. The

approval granted by the RBI to AU Financiers (India) Ltd. makes it

clear that it has been covered under the Banking Regulation Act,

1949. That being the case, we hold that the interest paid to AU

Financiers (India) Ltd. will not be covered under section 194A of the

Act. Hence, there is no obligation on the assessee to deduct tax at

source while paying interest to the concerned party. Therefore, the

demand raised under section 201(1) and 201(1A) of the Act in respect

of interest paid to AU Financiers (India) Ltd. is hereby deleted.

assessee has not brought any material on record to establish that

payment is not subject to TDS. Further, the assessee has not

established the applicability of first proviso to section 201. Therefore,

we uphold the demand.

ITA No. 84/Jodh/2023 (A.Y. 2017-18):

6 ITA Nos. 83, 84 & 85/Jodh/2023

identical to ITA No. 83/Jodh/2023 except little variation in the sense

that in this year, the assessee has made following payments :

Amount paid TDS to be Interest Total Nature of default payment Name of recipient deducted 1,00,42,501/- 10,04,250/- 5,29,804/- 15,34,054/- Int. to NBFC u/s 194-A AU Small Finance Int. to NBFC 17,94,183/- 1,79,418/- 92,142/- 2,71,560/- HDB u/s 194-A Financial Services Int. to NBFC Bajaj 2,12,575/- 21,257/- 10,892/- 32,149/- u/s 194-A Finserve

elsewhere in the order, we have already decided that said payment

will not be covered under section 194A of the Act. Accordingly, we

delete the demand raised in respect of such payment.

concerned, before us, learned counsel has submitted that the

concerned payee has offered the income to tax in the return of income

filed in the assessment year under dispute. Keeping in view the

aforesaid submission of learned counsel, we direct the Assessing

Officer to factually verify, whether, the recipient of interest income has

offered it to tax in the return of income filed in the concerned

7 ITA Nos. 83, 84 & 85/Jodh/2023

assessment year and in case, it is found to be so, no demand under

section 201(1) can be raised. However, interest under section 201(1A)

has to be charged till the date of payment of tax by the recipient of

such income.

learned counsel has submitted before us that the conditions of first

proviso to section 201 has been complied and Form No. 26A collected

from the payee has been furnished. Keeping in view such submission

of the assessee, we direct the Assessing Officer to factually verify

Form 26A furnished by the assessee in respect of interest paid to

Bajaj Finserve and in case the declaration in Form 26A is found to be

in order, no demand under section 201(1) can be raised. However, the

Assessing Officer may consider charging interest under section

201(1A) of the Act till the date of payment of tax by the payee.

of Rs.1,35,103/- to Booking.com and payment of Rs.4,59,874/- to

Shiva Laundry having subjected to the proceedings under section

201(1) and 201(1A) of the Act. The only submission made by learned

counsel before us is that the Assessing Officer failed to verify whether

8 ITA Nos. 83, 84 & 85/Jodh/2023

payments are covered under the first proviso to section 201. Having

taken note of the fact, we are of the view that the duty is cast upon the

assessee to furnish primary facts to establish that the recipient of the

payment has offered the income to tax. Since, no material has been

brought on record by the assessee to establish such claim, we decline

to interfere with the decision of the departmental authorities. Appeal is

partly allowed.

ITA No. 85/Jodh/2023 (A.Y. 2018-19):

Facts are more or less identical to the other two appeals dealt in

earlier part of the order. However, in this year, payments have been

made to the following parties :

Nature of Amount paid TDS to be Interest Total default payment Name of recipient deducted Int. to NBFC AU Small 1,04,040,76/- 10,40,408/- 4,22,517/- 14,62,925/- u/s 194-A Finance (become Bank w.e.f 19/04/2017) Int. to NBFC 12,72,663/- 1,27,266/- 57,309/- 1,84,575/- HDB u/s 194-A Financial Services 2,39,535/- 23,593/- 10,557/- 34,510/- Int. to NBFC Bajaj u/s 194-A Finserve Int. to NBFC India Bulls 24,42,711/- 2,44,271/- 95,032/- 3,39,303/- u/s 194-A

9 ITA Nos. 83, 84 & 85/Jodh/2023

Ltd. is concerned, while deciding other appeals, we have already held

that the interest paid to the concerned party is not covered under

section 194A of the Act. Consistent with the view expressed in those

appeals, we direct the Assessing Officer to delete the demand raised

in respect of interest paid to AU Small Financiers (India) Ltd.

identical to ITA No. 84/Jodh/2023. Following our decision therein, we

direct the Assessing Officer to verify whether the payment is covered

under first proviso to section 201 of the Act.

admittedly, the assessee had furnished certificate in Form 26A in

terms with first proviso to section 201 of the Act. Therefore, we direct

the Assessing Officer to factually verify the certificate issued in Form

26A by the concerned payee and thereafter delete the demand raised

under section 201(1) of the Act. However, interest under section

201(1A) has to be charged till the date of payment of tax by the

concerned payee.

10 ITA Nos. 83, 84 & 85/Jodh/2023

Creaa Think, Fabric Spa and Shiva Laundry is concerned, since, the

assessee has failed to bring on record even the primary facts to

establish that the said payments are covered under first proviso to

section 201, we decline to interfere with the decision of departmental

authorities. Appeal is partly allowed.

(GIRISH AGRAWAL) (SAKTIJIT DEY) ACCOUNTANT MEMBER VICE-PRESIDENT

Dated: 18.09.2023 *aks/-