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Income Tax Appellate Tribunal, LUCKNOW BENCH ‘SMC’, LUCKNOW
Before: SHRI T. S. KAPOOR
PER T. S. KAPOOR, A.M.
This is an appeal filed by assessee against the order of learned CIT(A)-2, Lucknow dated 25/04/2018 pertaining to assessment year 2013- 2014. In this appeal the assessee has raised the following grounds of appeal:
“1. The Learned Commissioner of Income Tax (Appeal)-II, Lucknow (hereinafter referred to as CIT(A) against facts and law erred in confirming disallowance of Interest on Housing Loan of Rs.8,52,720/- and Payment of Hall Charges to LDA Rs.3,00,000/-.
In confirming the disallowance of Rs.8,62,720/- of Interest on housing loan the Ld. CIT(A) erred in facts and in law was not justified in observing that-
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"It is noticed that the assessee has not produced any details or documents to exhibit that the house property situated at House No. J-5, Ashiyana, Lucknow was used for any business purposes."
In confirming the disallowance of Rs.3,00,000/- on account of Hall Charges to LDA the Ld. CIT(A) erred in facts and in law and was not justified in observing that "the assessee has debited an amount of Rs.3,00,000/- as Hall Charges to LDA. The amount being in the nature of rent, tax at source was required to be deducted on this. However no TDS is made on this amount. Accordingly this amount of Rs.3,00,000/- is disallowed u/s 40(a)(ia) of the I.T. Act."
Explaining the facts of the case, Learned A. R., at the outset, submitted that assessee was running an event management company and has been conducting event management services for various companies. It was submitted that the Assessing Officer, during the assessment proceedings, made a disallowance of Rs.3,00,000/- u/s 40(a)(ia) of the Act for non deduction of TDS on rent paid to Lucknow Development Authority, which the learned CIT(A) has upheld. Learned A. R. submitted that LDA is a registered charitable organization and income of the LSA is exempt u/s 11 of the Act and therefore, the assessee was not required to deduct tax on such rent. In this respect, reliance was placed on a judgment of Hon'ble Calcutta Tribunal in the case of M/s Gourishankar Bihani vs. DCIT in I.T.A. No.1127/Kol/2011 wherein the Hon'ble Tribunal has held that where the income received by assessee is exempt, the disallowance u/s 40(a)(ia) was not warranted. Further reliance was placed on a judgment of Hon'ble Allahabad High Court in the case of CIT vs. Lucknow Development Authority 219 Taxman 162 for the proposition that the income of the trust was exempt u/s 11 of the Act.
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2.1 Regarding the other addition of Rs.8,62,720/-, Learned A. R. submitted that the assessee had purchased a property at House No. J-5, Ashiyana, Lucknow by taking the housing loan from Tata Capital Housing Finance Ltd. Learned A. R. invited our attention to the copy of balance sheet placed at page 11 of the paper book where the said property has been included as business asset under the schedule fixed asset and loan from Tata Capital Housing Finance Ltd. has also been shown as liability in the balance sheet. It was further argued that before the learned CIT(A), various documents and evidences were filed wherein it was demonstrated that the said property was being used as a business asset and in this respect our attention was invited to page 4 onwards of learned CIT(A) where learned CIT(A) has reproduced the written submissions of the assessee. Learned A. R. submitted that findings of learned CIT(A), that assessee had not furnished any details about the specific event for which the property was used, is wrong, as is apparent from the written submissions reproduced by him from para 2.1 onwards where the details of parties, from whom the income was earned from the use of said property, are placed. Therefore, it was prayed that the expenditure was an allowable expenditure.
Learned D. R., on the other hand, heavily relied on the orders of the authorities below.
I have heard the rival parties and have gone through the material placed on record. As regards the first issue of disallowance of Rs.3,00,000/- on account of non deduction of TDS u/s 40(a)(ia) of the Act, I find that the LDA has been held to be eligible for exemption u/s 11 of the Act vide judgment of Hon'ble Allahabad High Court dated 6th September, 2013 reported at 219 Taxman 162 where the Hon'ble court has held that the
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assessee was entitled to exemption u/s 11 of the Act. For the sake of convenience, the findings of Hon'ble court, as contained from para 28 to 32, are reproduced below:
“28. There is no material/evidence brought on record by the revenue which may suggest that the assessee was conducting its affairs on commercial lines with motive to earn profit or has deviated from its objects as detailed in the trust deed of the assessee. In these facts and circumstances of the case, the proviso to Section 2(15) is not applicable to the facts and circumstances of the case, and the assessee was entitled to exemption provided under Section 11 for the relevant assessment year.
From the record, it also appears that the “Authority” had been maintaining infrastructure, development and reserve fund IDRF as per the notification dated 15.01.1998, the money transferred to this funds is to be utilized for the purpose of project as specified by the committed having constituted by the State Government under the said notification and the same could not be treated to be belonging to the “Authority” or the receipt is taxable nature in its hands. For this reason also, it other connected matters Page No. 17 appears that the funds are utilized for general utility. 30. Moreover, in the instant case, the Assessing Officer has not given any defective in computation of income as per Section 11 as submitted in Form-XB, but observed that the activities of the assessee are not charitable. The activities of the assessees are genuine. So, then it is so, then we find no reason to interfere with impugned orders passed by the Tribunal. The same are hereby sustained along with reasons mentioned therein.
The answer to the substantial questions of law are in favour of the assessee and against the department.
In view of above, all the appeals filed by the department are dismissed, as stated above.”
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We further find that Hon'ble Kolkata Bench of the Tribunal, in the case of M/s Gourishankar Bihani vs. DCIT in I.T.A. No.1127/Kol/2011, vide order dated 18/12/2014, has held that the rent paid by assessee to Kolkata Port Trust, cannot be subjected to disallowance u/s 40(a)(ia) of the Act as the rent paid to Kolkata Port Trust was not to be included in the taxable income as the same was exempt u/s 11 of the Act. The findings of Hon'ble Tribunal, as contained in para 6, are reproduced below:
“6. In term of the above, we are of the view that in the instant case no tax was deductible at source under section 194- I read with section 204 comprised in Chapter XVII-B from the rent paid by the assessee to KPT. This is because such rent was not to be included in the taxable total income of the KPT and was, therefore, not chargeable under the provisions of the Act. As argued by Ld. Senior Advocate that in the instant case no tax was at all payable by KPT for AY 2007-08. U/s 191 of the Act the person making the payment can be deemed to be an assessee in default within the meaning of sub-section (1) of section 201 only where the deductee/payee has also failed to pay such tax directly. This issue has been considered by Hon'ble Allahabad High Court in the case of Jagran Prakashan Ltd. V. DCIT (TDS) (2012) 345 ITR 288 (All) and by ITAT Kolkata bench in the case of Ramakrishna Vedanta Math v. ITO (2013) 55 SOT 417 (Kol). In the instant case, KPT was not required to pay any tax and in turn the assessee cannot be treated to be in default within the meaning of section 201(1). Accordingly, we are of the view that no disallowance ought to have been made under section 40(a)(ia) of the Act. But, Ld. Senior DR, Shri Amitava Roy relied on this Tribunal’s order of ‘B’ Bench in ITA No.1091/Kol/2012 dated 14-10-2014 for the AY 2009-10 in the case of ACIT v. Hitech Logistics Ltd. wherein exactly the similar facts were there and the same 4 ITA No.1127/K/2011 M/s. Gaurishankar Bihani AY 2007-08 party that KPT was the recipient of rent without the deduction of TDS and Hon'ble Bench decided the issue vide para-4 of its order as under:-
“4. We have heard rival submissions and gone through facts and circumstances of the case. We find that the
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CIT(A) has deleted the disallowance for the reason that the payments made to Kolkata Port Trust do not attract the TDS provision. For this, he observed that “I find that the Kolkata Port Trust is under the Ministry of Surface Transport, where in the Govt. of India has full beneficial interest. Therefore, any payment made to Kolkata Port Trust will be covered u/s. 196 of the I. T. Act, 1961 and as such assessee’s appeal on this ground is allowed.” We find that the findings of CIT(A) is totally perverse and against law for the reason that the TDS from rent payment to Kolkata Port Trust is liable to TDS u/s. 194-I of the Act. Kolkata Port Trust is assessable entity within the provisions of Income Tax Act and it is not Government itself. It is a Corporate entity assessable to tax. Once the payment of rent on account of warehouse by the assessee was made to Kolkata Port Trust and is claimed as expenditure, the same is liable for TDS u/s. 194-I of the Act, for which the assessee has not deducted any TDS. The disallowance made by invoking the provisions of section 40(a)(ia) of the Act by the AO is within the provisions of law. Hence, we restore the disallowance and the order of CIT(A) is reversed. This issue of revenue’s appeal is allowed.”
Accordingly Ld Senior DR stated that the issue is covered in favour of Revenue. But other facet of arguments has not been countered.”
In view of the above fact, we are of the view that in the instant case no tax was deductible at source under section 194- I read with section 204 comprised in Chapter XVII-B from the rent paid by the assessee to KPT. This is because such rent was not to be included in the total income of the KPT and was, therefore, not chargeable under the provisions of the Act. In the case law referred by Ld. Sr. DR the fact relating to the claim of exemption of the income of KPT was not before Tribunal or that issue was not raised but in the instant case, KPT was not required to pay any tax and in turn cannot be treated to be in default within the meaning of section 201(1). Accordingly, we are of the view that no disallowance ought to have been made under section 40(a)(ia) of the Act.”
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In view of these facts and circumstances and following the above decision, I hold that the assessee was not liable to deduct TDS on rent of Rs.3,00,000/- Therefore, ground No. 2 is allowed. 4.1 Now coming to the second grievance regarding confirmation of disallowance of Rs.8,62,720/-, which the assessee had paid as interest to Tata Capital Housing Finance Ltd., I find that assessee had though purchased the house and had obtained a housing loan but the property was classified as business asset as is apparent from the copy of balance sheet, placed at page 11 of the paper book. I further find that the assessee has also classified the loan, taken from Tata Capital Housing Finance Ltd., as its business liability which is also apparent from the copy of balance sheet, placed at page 11 of the paper book. I further find that assessee had submitted written submissions to the learned CIT(A) narrating therein the amount of income earned from various persons on account of use of the same house property situated at J-5, Ashiyana, Lucknow, such statement has been recorded by learned CIT(A) at page 4 of his order. Learned A. R. has also filed paper book pages 63 to 68, which were also filed before learned CIT(A) wherein the income from the same property was recorded. The income received from various parties, as submitted to learned CIT(A) and as reproduced by him in his order, matches with the ledger account of income placed at pages 64 to 68 of the paper book. All these evidences prove that the property was necessarily being used as business asset and therefore, the expenditure incurred to earn income was allowable expenditure and therefore, the findings of learned CIT(A) to this extent are wrong and therefore, I reverse the order of learned CIT(A) and allow ground No. 3 also. Ground No. 1 is general and do not require any adjudication.
In the result, the appeal of the assessee stands allowed. (Order pronounced in the open court on 22/02/2019)
Sd/. ( T. S. KAPOOR ) Accountant Member Dated:22/02/2019 *Singh
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Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow