M/S. JACK N JILL,DIMAPUR vs. INCOME TAX OFFICER, TDS-1, GUWAHATI

For that the learned CIT(A) has erred in confirming the order of the Ld. AO without controverting and after admitting the fact that the rent of Rs. 38,21,040/- paid by the appellant was not assessable as income in the hands of the payees and payees were not liable to pay tax on that amount as per the provisions of the Act and therefore, the appellant was not a person responsible for paying income chargeable to tax within the meaning of section 204(iii) of the Act.

4. For that keeping in view the sanctity of the judicial hierarchical system followed in the country, the Id. CIT(A) was not justified in contemptuously ignoring and not following the binding decision of the Hon'ble Jurisdictional High Court and the Hon'ble Jurisdictional Tribunal cited before him.

5. For that the Id. CIT(A) was not justified in contemptuously ignoring and not following the interpretation rendered by the Hon'ble Apex Court to section 4 of the Act cited before him and that too without giving any reason, whatsoever.

6. For that the ld. CIT(A) was not justified in not holding that order under section 201(1) of the Act was passed by the Id. AO in gross violation of the principles of natural justice and without allowing any opportunity of hearing in respect of the decision of the Hon'ble Tripura High Court and therefore, the same was bad in law and was liable to be quashed.

7. For that the Ld. CIT(A) was not justified in ignoring the submissions of the appellant to the effect that the Ld. AO erred both in law and on facts in erroneously imposing interest under section 201(1A) of the Act without allowing any opportunity of hearing and consequently, in confirming the action of the Id. AO. Further, the Id. CIT(A) was not justified in ignoring the submission of the appellant to the effect that the Id. AO has erred in computing the interest under

8. For that the impugned order has been passed by the Id. CIT(A) in a laconic manner and in gross violation of principles of natural justice and therefore, the same is bad in law.

9. For that in absence of DIN being quoted in the face of the order the same is bad in law.

ii. Sing Killing vs. ITO (2002) 255 ITR 444 (Gau) iii. Komorrah Limestone Mining Co. Ltd. vs. ACIT in ITA No. l00/Gau/2016 iv. G E India Technology Centre P Ltd vs. CIT (2010) 327 ITR 456 (SC) e. Lastly the assessee prayed for dropping of proceedings under section 201 of the Act as follows:

"In the circumstance, keeping in view the fact of the instant case and the above cited binding decisions of the Hon'ble Supreme Court, Hon'ble High Court and Hon'ble jurisdictional Tribunal, it may kindly be appreciated that as no part of the rent paid by us to the three schedu1ed tribe person in chargeable to lax under section 4 of the Act in view of the provisions of section 10(26) of the Act, hence, we could not have legally deducted ITDS therefrom. In the circumstances, we cannot be treated as 'assessee-in-default' on account of non-deduction of tax at source on Rent of Rs.39,53,040/- paid by us to the aforesaid persons during the financial year 2015- 2016. Therefore, it is most respectfully prayed that the proceedings initiated vide notice under reference may kindly be dropped."

4.1. On the submissions made by the assessee, Ld. AO was of the opinion that deduction of tax at source u/s. 194-I is required to be made when the payment of rent equals or exceeds Rs.1,80,000/- and for this the payer i.e. the assessee cannot decide upon chargeability of receipt in the hands of payee. Thus, Ld. AO concluded that assessee deductor is deemed to be an ‘assessee in default’ u/s. 201(1) of the Act in respect of Rs.3,82,104/- being tax deductible @ 10% u/s. 194-I on the payment of rent. Ld. AO also charged interest u/s. 201(1A) of the Act in respect of the said TDS liability. The details of rent paid which is under consideration in the present four appeals is tabulated as under:

5 - 17/GTY/2022 Jack N Jill, AYs: 2016-17 to 2019-20 S. Name of land lord PAN Assessm- Assess- Assess- Assessm- No ent Year ment Year ment Year ent Year 2016-17 2017-18 2018-19 2019-20 1. Zaselatuo Solo, FEUPS 6,80,520 6,80,520 6,80,520 2,46,853 Kohima 8773 D 2. Linda Solo, Kohima FNIPS 6,80,520 6,80,520 6,80,520 2,46,853 3272 J 3. T. K. Angami, ABUPA 24,60,000 25,02,915 29,74,980 9,91,660 Dimapur 6964 C

4. Vizolie Z Suokhrie, DGPPS - 23,80,500 31,74,000 10,58,060 Kohima 6409 K TOTAL: 38,21,040 62,44,455 75,10,020 25,43,426 5. TDS liability disputed in appeal (plus interest separately) 3,82,104 6,24,446 7,51,002 2,54,343 4.2. Aggrieved, assessee went in appeal before the Ld. CIT(A) who decided it against the assessee. Aggrieved, assessee is in appeal before the Tribunal.

5.1. Further, reference was made to certificates granted u/s. 197 of the Act by the Ld. AO in respect of the four payees for not deducting tax at source in AY 2019-20. Thus, Ld. Counsel asserted that rent paid by the assessee to the four persons is not includible in computing their respective total income in view of the provisions contained u/s. 10(26) of the Act and is 6 - 17/GTY/2022 Jack N Jill, AYs: 2016-17 to 2019-20 exempt from tax. According to him, the rent in question paid by the assessee is not chargeable to tax as income within the meaning of sec. 4(1) of the Act. According to him, sec. 4(2) categorically provides that in respect of such an amount which does not form part of total income, the provisions of TDS are not attracted.

5.2. Ld. Counsel also placed reliance on the decision of Hon’ble jurisdictional High Court of Gauhati in the case of Sing Killing V. ITO [2002] 255 ITR 444 (Gau) wherein it is held that if the income itself is exempted, any deduction/collection, on account of income-tax, at source, would be beyond the powers conferred by the provisions of the Act. Thus, by placing reliance on this decision, Ld. Counsel asserted that assessee was not obliged to deduct tax at source out of the rent, more particularly when it is not controverted that such rent is exempt from income-tax in the hands of the payees, as per the provisions of sec. 10(26) of the Act.

5.3. He also made a reference to the decision of Coordinate Bench of ITAT, Gauhati in assessee’s own case in dated 28.02.2020 for AY 2016-17. This year is in appeal before us. In this decision, the issue was in respect of disallowance made u/s. 40(a)(ia) for not deducting tax at source on the very same rent. The disallowance made was allowed. Ld. Counsel thus, submitted that for the same disallowance, which has been deleted, now the assessee has been treated as ‘assessee in default’ u/s. 201 of the Act though the Coordinate Bench has considered these rent payments as exempt and do not invite disallowance.

7 - 17/GTY/2022 Jack N Jill, AYs: 2016-17 to 2019-20 5.4. Ld. Counsel also referred to the decision of Coordinate Bench in the case of Komorrah Limestone Mining Co. Ltd. Vs. ACIT in ITA No. 100/Gau/2016 dated 08.03.2018, wherein similar issue was dealt and it has been held as under:

In the instant case, the contention of the assessee is that since the payee to whom payments were made are tribal persons and being exempt from income-tax u/s 10(26) of the Income Tax Act, he was not required to deduct tax at source either u/s 194C or u/s 194-1 of the Act from the payments made to them. No material has been brought on record by the AO to show that the amounts paid by the assessee towards hiring of loader and excavator charges paid to Mr. L. S Nongrum of Rs. 77,33,101/- and land rent payment of Rs. 17,57,452/- made to Smt. Rekhila Tynsong and Shri Bhison Dorkhrat, was chargeable to tax under the provisions of the Act. Therefore, in our considered view the assessee was not liable to deduct tax at source from payments made and accordingly the AO was not justified in disallowing the payments made u/s 40(a)(ia) of the Act.

7.1. The finding given by the Hon’ble jurisdictional High Court of Gauhati in the case of Sing Killing (supra) on the issue before us is as under:

“If the income to be generated by the writ petitioner from the lease in question has originated from a Sixth Schedule area and, therefore, the petitioner's income is exempted under section 10(26) of the Act, no question of applicability of section 206C of the Act can legitimately arise. If the income itself is exempted, any deduction/collection, on account of income-tax, at source, would be beyond the powers conferred by the provisions of the Act. The following passage from the judgment of the apex court in Bhawani Cotton Mills Ltd. v. State of Punjab (1967) 20 STC 290; [1967) AIR 1967 SC 1616, 1623, though made in somewhat different context may be usefully extracted hereunder (page 330 of 20 STC):

"If a person is not liable for payment of tax at all, at any time, the collection of tax from him, with a possible contingency of refund at a later stage, will not make the original levy valid; because, if particular sales or purchases are exempt from taxation altogether, they can never be taken into account, at any stage, for the purpose of calculating or arriving at the taxable turnover and for levy of tax."

9 - 17/GTY/2022 Jack N Jill, AYs: 2016-17 to 2019-20 7.2. Considering the facts on record which are undisputed and uncontroverted, fortified by the judicial precedents, we hold that assessee is not to be treated as ‘assessee in default’. Accordingly, grounds taken by the assessee in this appeal are allowed.

Order pronounced in the open Court on 12th June, 2023.