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Income Tax Appellate Tribunal, ‘SMC‘ BENCH
Before: SHRI ABY T. VARKEY & SHRI M.BALAGANESH
आदेश / O R D E R PER M. BALAGANESH (A.M):
This appeal in ITA No. 2592/Mum/2022 for A.Y. 2017-18 arises out of the order by the Ld. Commissioner of Income Tax (Appeals) - NFAC in appeal No. ITBA/NFAC/S/250/2021-22/1035417242(1) dated 09/09/2021 (ld. CIT(A) in short) against the order of assessment passed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 26.12.2019 by the ld. Assessing Officer (hereinafter referred to as ld. AO).
2 ITA No. 2592/Mum/2022 Shree Jalaram Builders & Develpers 2. At the outset, we find that there is a delay in filing of appeal by the assessee before us by 395 days. Assessee has filed an affidavit explaining the reason for the said delay. Assessee had made certain payments in respect of compensation for alternative accommodation given to various members of the Housing Society under the development agreement made with the society and the members. The was disallowed by the Ld. AO u/s 40(a)(ia) of the Act. Similar disallowance was also made by Ld. AO for AY 2015-16. It was affirmed in the affidavit that Ld. CIT(A) had disposed the appeals for both the AYs. 2015-16 and 2017-18 on the same date 09.09.2021 and both the years were served on the assessee in electronic mode. Assessee had taken cognizance only the order of Ld. CIT(A) passed on 09.09.2021 for AY 2015-16 and took action by preferring the appeal to Tribunal in time. The order passed by Ld. CIT(A) for AY 2017- 18 which was also served on the assessee on electronic mode went un- noticed and unattended by the assessee by inadvertence. Only when the penalty notice was issued by the Ld. AO on the assessee firm, it realized about the disposal of appeal of Ld. CIT(A) for AY 2017-18.
In the interest of substantial justice, we are inclined to accept the reasons adduced by the assessee for delay. Accordingly, we condone the delay in filing the appeal before us and admit the appeal of the assessee for adjudication.
The assessee has raised the following grounds of appeal before us, which are as under:-
In the Facts and Circumstances of the Appellant's case and in Law, the Learned CIT (A) erred in confirming disallowance/addition of Rs. 38,18,023 made u/s 40(a)(ia) of the Income-tax Act, 1961. 2. The learned CIT (A) grossly erred in taking an altogether different view that in the facts of the Appellant's case Section 194-IA was applicable
3 ITA No. 2592/Mum/2022 Shree Jalaram Builders & Develpers and hence the Appellant was required to deduct tax at source u/s 194I-A from the compensation for temporary alternative accommodation paid to the Society members and that since there was no such deduction, the impugned disallowance was justified. It is respectfully submitted that in the facts of the Appellant's case, provisions of section 194I-A are not at all attracted.
Without prejudice to the above grounds it is submitted that since the recipient of compensation/rent were liable to include the same in their ROI, and pay tax thereon, provisions of section 40(a)(ia) would have no application to the case of the Appellant.
It is also submitted that the learned CIT (A) erred in not giving an opportunity of hearing for rebutting the altogether different view taken by the learned CIT (A). The issue in appeal was whether the provisions of section 194I were applicable to the case of the Appellant and since the learned CIT (A) unilaterally held that provisions of section 194I-A were applicable, he could have in the very least provided an opportunity of hearing to the Appellant.
The learned CIT (A) erred in not dealing with the Appellant's ground about interest levied u/s 234B/C. 5. We have heard the rivals submissions and perused the material placed on record. The assessee is builder and real estate developer. During the year, assessee had undertaken a redevelopment project in Borivali. The redevelopment involved demolition of the old structure of the society and construction of a new structure where the Old Flat Owners would be given area equal to their old flat area plus agreed additional area. During the construction period, the old flat holders were required to shift to temporary alternative accommodation as the old structure would be demolished.
4 ITA No. 2592/Mum/2022 Shree Jalaram Builders & Develpers 6. In terms of Redevelopment Terms agreed between the Society and its Members, the assessee had paid a sum of Rs. 1,39,39,200 to various members of the Society as rent/compensation for shifting to temporary alternative accommodation during the construction period. The Assessee had not deducted any TDS from the amounts paid as aforesaid, as in view of the Assessee such payments did not attract any of the TDS Provisions. In the course of assessment, the Ld. AO was of the view that the said payments made to various members of the society would be in the nature of Rent and hence would be liable to TDS u/s 194-I and since the Assessee had not deducted TDS from such payments, the provisions of section 40(a)(ia) would be attracted. The Ld. AO accordingly proceeded to disallow Rs. 41,81,760 u/s 40(a)(ia).
In the First Appeal, the Assessee had, inter-alia. contended that the provisions of section 194-I would not be applicable to its case and that the Assessee was not required to deduct any TDS from the payments made to various society members and hence the provisions of Section 40(a)(ia) would not be applicable to its case. The Assessee had also relied on several decisions of ITAT including the decisions of Mumbai ITAT, which squarely supported the case of the Assessee. However, the First Appellate Authority took a view that provisions of section 194I-A would be applicable to the case of the Assessee and hence the impugned disallowance u/s 40(a)(ia) was rightly made. Accordingly, the Ld. CIT(A) rejected this ground of the Assessee.
At the outset, we find that issue in dispute is squarely covered by the decision of this Tribunal in assessee’s own case in ITA No. 1730/Mum/2021 for AY 2015-16 dated 25.04.2022. The relevant observation of the order of Tribunal is reproduced hereunder:-
I have heard both the parties and perused the records. I find that the issue is covered in favour of the assessee by the decision of the ITAT in case of M/s.
5 ITA No. 2592/Mum/2022 Shree Jalaram Builders & Develpers Sahana Dwellers Pvt. Ltd. Vs. ITO (ITA No. 5963/Mum/2013 vide order dated 24.2.2016). In the said case on identical issue it was held as under : “6. We have considered the submissions of the parties and perused the material available on record. Undisputedly, the property in question where the tenants were staying earlier was owned by the Brihan Mumbai Mahanagar Palika and the tenants were paying rent to the Municipal Corporation. It is also a fact on record that the subject building having become old and in a dilapidated condition the authorities concerned decided to demolish the said building and construct a new building in its place under the SRA Project and the construction of the new building was entrusted to the assessee. It is also a fact that since the entire building had to be demolished for the purpose of constructing the new building, the tenants had to vacate the said premise and alternative accommodation was required to be provided to them. On a perusal of the agreement entered into between the assessee and the society formed by the tenants, it is relevant to note that since the assessee was not able to provide alternative accommodation to the tenants, it was provided under the agreement that assessee would pay them compensation towards expenditure to be incurred by them on account of rent payable by them for alternative accommodation and in accordance with such terms assessee initially paid compensation of Rs. 5,000 per month to each tenant which was subsequently revised from time–to–time as the assessee could not construct the building within the stipulated time period for various reasons. From the aforesaid facts, it is very clear that the concerned persons to whom the assessee had made the payment are neither tenants of the assessee nor the assessee has in reality paid rent on behalf of them. Only because the assessee was not able to provide alternative accommodation to these tenants the assessee had to pay compensation for enabling the tenants to meet the expenditure to be incurred by them towards rent payable whether they are actually paying rent or not. This is for the simple reason that tenants were displaced from the property where they were staying for construction of new building. On a perusal of section 194I of the Act, it is seen that under clause (i) rent has been defined as under:– “Explanation.-For the purposes of this section,- (i) "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,- (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, whether or not any or all of the above are owned by the payee;” 7. On a plain reading of the aforesaid definition of rent, it becomes clear that the payment made by the assessee does not come within the purview of rent as prescribed in the said provision as the assessee is not making such payment for use of any land, building, etc. On the contrary, if the facts involved are considered as a whole the payment made by the assessee is nothing else but in the nature of compensation. The Tribunal in case of Jitendra Kumar Madan (supra) while considering the nature of payment received for alternative accommodation by the recipients held such payments at their hand as income from other sources instead of income from
6 ITA No. 2592/Mum/2022 Shree Jalaram Builders & Develpers house property. That being the case, the payment made by the assessee also being in the nature of compensation for alternative accommodation cannot be treated as rent. Moreover, such compensation cannot be treated as rent for the simple reason that not only the assessee is not using any land and building but it may also be a fact that persons to whom such payments have been made may not be incurring any expenditure on account of rent. In any case of the matter, payments made by assessee under no circumstances can be construed to be coming within the meaning of “Rent” as provided under section 194I. Thus, after considering the totality of the facts and circumstances of the case, we are of the considered opinion that compensation paid by the assessee to the tenants towards alternative accommodation not being in the nature of rent as defined in section 194I, there is no requirement for deduction of tax under the said provisions. Therefore, the disallowance made under section 40(a)(ia) of the Act cannot be sustained. Consequently, we delete the addition made on that account. Grounds raised by the assessee are allowed.’’ 7. In find that learned CIT(A) has erred in distinguishing the same by referring to section 194-IA of the I.T. Act. This section is not at all applicable to the facts here. Hence following the precedent from ITAT, I set aside the order of the learned CIT(A) and decide the issue in favour of the assessee. 9. Respectfully following the aforesaid decision, the grounds raised by the assessee are allowed.
In the result, the appeal file by the assessee is allowed.
Order pronounced on 20/12/2022 by way of proper mentioning in the notice board.
Sd/- Sd/- (ABY T VARKEY) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 20/12/2022 Dhananjay, sr.ps
7 ITA No. 2592/Mum/2022 Shree Jalaram Builders & Develpers Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. 6. //True Copy//
BY ORDER,
(Asstt. Registrar) ITAT, Mumbai