SHREE JALARAM BUILDERS & DEV. ,MUMBAI vs. ITO WD 32(3) (4) , MUMBAI

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

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 ITA no. 5963/mum/2013 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

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:–

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.