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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
This appeal by the assessee is directed against the order of learned CIT(A) dated 2.9.2021 pertains to A.Y. 2015-16.
The grounds of appeal
read as under :
1. In the Facts and Circumstances of the Appellant's case and in Law, the Learned CIT (A) erred in confirming disallowance/addition of Rs. 41,81760 made u/s 40(a)(ia) of the Income-tax Act, 1961.
2. The learned CIT (A) grossly erred in holding that in the facts of the Appellant's case Section 194-IA was applicable 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. It is respectfully submitted that in the facts of the Appellant's case, provisions of section 194I-A are not at all attracted.
3. 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.
4. It is also submitted that the learned CIT (A) erred in not giving an opportunity of hearing and rebutting the altogether different view taken by the learned CIT (A) The issue in appeal was whether the provisions of section 1941 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. 5. The learned CIT (A) erred in not dealing with the Appellant's ground about interest levied u/s 234B/C
Brief facts are that in the instant case the return of income was filed on 30.09.2015 declaring total income at Rs.1,14,910/-. The case was selected for scrutiny. The Ld AO noticed that the appellant has debited Rs.1,39,39,2007- on account of rent expenses which was paid by the developers to the members of the housing society. However, from Form 3CD of Audit Report, it was found that the assessee had not deducted TDS on such amount. The Ld AO held that the assessee has paid rent to the society members as per the terms and conditions mentioned in re-development Agreement dated 28.03.2013. In the said agreement, it was clearly mentioned that the Developer had to pay towards monthly rent for alternate accommodation to each of members of the society. Therefore, it was concluded that the assessee was liable to deduct IDS as per provisions of section 40(a)(ia). Accordingly, Rs. 41,81,760/- being 30% of rent expenses to the tune of Rs. 1,39,39,200/- was disallowed. The contention of the assessee before learned CIT(A) was that the amount paid was compensation for rent and not rent within the meaning of section 194J of IT. Act,1961. Hence, not liable for deduction of TDS and consequently no disallowance u/s 40(a)(ia) of the I.T. Act, 1961. The assessee further relied on the judgement of Hon'ble ITAT Mumbai in the case of Sanish Construction Pvt Ltd. in and also in Sahana Dwellers Pvt. Ltd. similar view was taken by the Hon'ble Mumbai ITAT.
Learned CIT(A) held as under :- 4.2 Having considered the submission of the appellant, it is seen that in the cases relied upon by the appellant the Hon'ble Tribunal has made a distinction between 'rent' and 'compensation' in the context of redevelopment projects. It is held that the payments made by the developers to tenants/ members of the society for arranging alternative accommodation should not be regarded as 'rent’, being subject to deduction of tax at source under section 194-1 of the Act. It is further noted that these rulings pertain to AY
2011-12 and earlier years. However, in view of the introduction of section 194-IA of the Act with effect from 1 June 2013, it needs to be analysed whether such payments (held to be in the nature of 'compensation') should be subject to deduction of tax at source under section 194-IA of the Act. The section 194-IA reads as under-
"Section 194-IA: (1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon.
(2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees.
(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.
Explanation — For the purposes of this section,— (a) "agricultural land" means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2; (aa) "consideration for transfer of any immovable property" shall include all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property;'
(b) "immovable property" means any land (other than agricultural land) or any building or part of a building."
4.3 The process of re-development of land involves allowing possession of the land and building by the developer to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882 and accordingly it would constitute transfer within the meaning of section 2(47)(v).Therefore, the payment of compensation by the appellant in this case, will attract provisions of section 194-IA of the Income Tax Act, 1961. The section 194-IA of the Act was introduced with effect from 1 June 2013. As the appellant's case pertain to AY 2014-15, therefore, it is squarely covered by provisions of section 194-IA. The transaction involved in the instant case is Rs1,39,39,200/-, which is well above the threshold limit of Rs 50 Lakh as per 194-IA (3). Therefore, the appellant was liable to deduct TDS on the compensation paid. As the TDS is not done by the appellant on the compensation of Rs1,39,39,200/- paid, the disallowance made by the Ld AO, under section 40(a)(ia)of the Income Tax Act, 1961 amounting to Rs. 41,81,760/- being 30% of the total compensation paid is upheld.
4.4 Another contention taken by the appellant, in the alternatives, is that the recipients of the compensation would have included the said receipts in their ROIs and paid the due tax. From the submission, it is clear that the appellant itself is not sure whether the recipients of the compensation have filed the return or not. Also, besides stating that the recipients of the compensation would have included the said receipts in their ROIs, the appellant has not demonstrated with evidences/documents either before the Ld AO or during the appeal proceedings that the recipients of the compensation have declared the amount received in the return filed. In absence of any supporting evidence, this plea of the appellant is rejected.”
Against the above order assessee appealed before the ITAT.
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. 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;”
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 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.
In the result, assessee’s appeal is allowed.
Order pronounced in the open court on 25.04.2022.