DCIT, NEW DELHI vs. M/S. NEEMRANA HOTELS PVT. LTD., NEW DELHI

per section 194I except in the case of M/s DWPL and TDS has been made

as per section 194C under the garb of contractual payments. Therefore,

AO held that there is short deduction of TDS by the assessee under

section 194-I in the cases of Peirce Leslie India Ltd., Sudhir Muljee,

Francis Wacziarg, Matheson Bosanquet Ent Ltd., Meera Kulkarni, Ashok

Jain and SRK Travels & Tours Pvt. Ltd. Therefore, AO held that as per

provision of section 40(a)(ia) of the Act, the corresponding expenditure of

license fees to the extent of short deduction is not allowable.

Accordingly, addition of Rs. 1,40,99,015/- was made and added in the

hands of the assessee vide order dated 25.3.2013 passed u/s. 143(3) of

the Income Tax, Act, 1961 and assessed the income at Rs. 5,67,28,870/-

. Against the assessment order, assessee appealed before the Ld. CIT(A),

who vide his impugned order dated 28.5.2014 has partly allowed the

appeal of the assessee. Aggrieved with the impugned order, Revenue is

in appeal before the Tribunal.

Officer.

and also stated that the issue is squarely covered by the decision dated

27.11.2018 of the ITAT, ‘E’ Bench, New Delhi in assessee’s own case

passed in ITA No. 2893/Del/2013 (AY 2011-12). In this behalf, he filed

the copy of the aforesaid decision before us.

the impugned order. We find that Ld. CIT(A) has elaborately discussed

the issues in dispute vide para no. 4.6-4.7 at page no. 16-18 of the

impugned order. For the sake of clarity, we are reproducing the relevant

finding of the Ld. CIT(A) as under:-

“4.6 Regarding the license fee paid to SRK

Travels & Tours Pvt. Ltd, from the

agreement dt. 23/06/2005 between the

appellant and the party it is evident that

there is no involvement of the party in the

management and day to day running of the

business affairs of the hotel in that property.

The license fee payable to the party during

the relevant period is minimum of Rs.

18,00,000/- or 17.5% of gross operating

profit whichever is higher subject to

maximum of Rs. 24,00,000/- per annum.

Therefore, unlike other agreements there is

a maximum ceiling of Rs. 24 Lakhs. The

license fee is payable simply because the

property is let out and the requirement of

the appellant company to maintain proper

accounts is simply because the party is

otherwise entitled to license fee of 17.5% of

Gross Operating Profit subject to minimum

ceiling of Rs. 18 Lakhs and maximum ceiling

of Rs. 24 Lakhs. In any case simply because

the party is entitled to certain percentage of

Gross Operating Profit subject to maximum

and minimum ceiling, do not make the

income, a business income. Because there is

no involvement in the business of running of

the hotel. Further the payments are also

subject to ceilings i.e. the party will not be

entitled beyond the maximum ceiling.

Therefore, irrespective of higher business

income, the party will get only Rs. 24 lakhs.

Further, during the period the license fee

actually paid was Rs. 24 lakhs, which is the

fixed maximum amount. The fixed amount

actually paid has the character of house

property income. Since, there is no

involvement of the party in the business

affairs being run in the property and the

license fee paid is solely for the use of land

and building, therefore, the payments made

are in the nature income of house property

and not in the nature of income from

business carried out. In view of the above

the payments made being in the nature of

income by way of rent, therefore, the

appellant is liable to deduct tax on account

of the said payments to the party under Sec

1941. Since there is short deduction of TDS

by the appellant u/s 1941 as shown by the

A.O. in respect of the above payments to

SRK Travels & Tours Pvt. Ltd. to the extent

of Rs. 19,08,030/-, therefore, the A.O. is

justified in disallowing the above payment

made by the appellant u/s 40(a)(ia).

4.7 The AR of appellant also submitted that

disallowance u/s 40(a)(ia) does not cover

short deduction of TDS or deduction of TDS

under wrong head due to difference of

opinion or any other reasons. The above

submission of the appellant is not

sustainable because Chapter XVII-B

contains specific provisions of TDS at

different rates in respect of different nature 7

of payments like salary, interest on

securities, dividends, interest, rents,

payments to contractors etc. Sec 40 (a)(ia)

provides that payments of the nature

specified therein shall not be allowed as

deduction if TDS as provided in chapter

XVIIB is liable to be made and such TDS has

not been made or paid before the due date.

Therefore, if disallowance u/s 40(a)(ia)

cannot cover short deduction of TDS or TDS

under wrong head as claimed by the

appellant, the provisions in chapter XVIIB

providing different rates of TDS would be

meaningless. If provisions of Sec 40(a)(ia)

cannot cover short deduction of TDS, the

assessees would be at liberty to make TDS

at lower rates and therefore, the provisions

of Sec 40(a)(ia) would also be meaningless

altogether. In view of the above, I am of the

opinion that provisions of Sec 40(a)(ia)

covers both non-deduction as well as short-

deduction of TDS. In this context the

reference may be made to second proviso to

sec 40(a)(ia) inserted by the Finance Act,

2012 with effect from 01.04.2013 which

says:-

[Provided further that where an

assessee fails to deduct the

whole or any part of the tax in

accordance with the provisions

of Chapter XVII-B on any such

sum but is not deemed to be an

assessee in default under the

first proviso to sub-section (1)

of section 201, then, for the

purpose of this sub-clause, it

shall be deemed that the

assessee has deducted and paid

the tax on such sum on the date

of furnishing of return of income

by the resident payee referred

to in the said proviso.]

The above proviso provides protection to the

assessee in case of failure to deduct the

whole or any part of the tax with effect from

01.04.2013 subject to fulfillment of

condition mentioned therein. In other

words, this protection was not there before

01.04.2013. The proviso clearly says that

“Where an assessee fails to deduct the

whole or any part of the tax”. From the

above, it is clear that short deduction of tax

was always recognized by Legislature even

under the provisions of section 40(a)(ia).

While the protection is now available with

effect from 01.04.2013 subject to the

fulfillment of conditions in the proviso such

protection was not there before 01.04.2013.

Therefore, failure of the assessee on

account of short deduction shall face the

consequences of disallowance u/s 40(a)(ia).

In view of the above, AO is fully justified in

disallowing the above payment of Rs.

19,08,030/- made to SRK Travels & Tour

Pvt. Ltd. Therefore, the disallowance made

by the A.O. is reduced from Rs.

1,40,99,015/- to Rs. 19,08,030/-.”

5.1 We further find that Tribunal vide order dated 27.11.2018 in

assessee’s own case passed in ITA No. 2893/Del/2013 (AY 2011-12) has

adjudicated the similar and identical issue vide para no. 3.0 to 5.0 at

page no. 3 to 5 of the aforesaid order and allowed the similar issue in 10

favour of the assessee. For the sake of convenience, we are reproducing

herewith the relevant portion of the Tribunal’s order:-

“3.0 The Ld. Authorised Representative (AR)

submitted that the assessee had deducted tax at

source u/s 194C of the Act on the ground that

transaction with M/s SRK Travels & Tours Pvt. Ltd.

was a business transaction as the assessee was

required to pay portion of the gross operating

profit to the party from whom the property was

taken on lease to run the hotel. It was submitted

that the assessee had deducted tax at source u/s

194C in the case of other parties also from whom

the premises had been taken on lease and the

same stood accepted by the Assessing Officer as

well as the Ld. Commissioner of Income Tax

(Appeals). It was further submitted that the

impugned payment was treated as business

income by the recipient of the amount. It was

further submitted by the Ld. AR that no

disallowance could be made u/s 40a (ia) of the Act

if there was a short deduction of tax and the

provisions would apply only if no tax was

deducted. It was further submitted that the stand

of the department that the payment was in the 11

nature of rent and, therefore, would attract

provisions of section 1941 of the Act was

incorrect. The Ld. AR placed reliance on the

judgment of Hon’ble High Court of Calcutta in the

case of CIT vs. S.K. Tekriwal reported in 361 ITR

432 (Cal) wherein it had been held that in case of

any shortfall due to any difference of opinion as to

the taxability of any item or nature of payment

failing under various TDS provisions, no

disallowance can be made by invoking provisions

of section 40a (ia) of the Act. It was also

submitted that a similar view had been taken by

the Coordinate Benches of Mumbai and Delhi

ITAT.

4.0 In response, the Ld. Senior Departmental

Representative (Sr. DR) placed reliance on the

concurrent findings of the Assessing Officer as

well as the Ld. Commissioner of Income Tax

(Appeals) and highlighted the fact that in this

case, the Ld. Commissioner of Income Tax

(Appeals) had given a categorical finding that

since there was no involvement of M/s SRK

Travels & Tours Pvt. Ltd. in the management of

day to day running of the business affairs of the 12

hotel in that property, therefore, the payment

made by the assessee was in the nature of rent

and the assessee was liable to deduct tax at

source u/s 1941 of the Act and, therefore, the

disallowance u/s 40a(ia) was justified.

5.0 We have heard the rival submissions and

perused the material available on record. The

facts in this case are undisputed and we find that

the assessee’s case is squarely covered by the

judgment of the Hon’ble Calcutta High Court in

the case of CIT vs. S.K. Tekriwal (supra) wherein

the Hon’ble Calcutta High Court had held that in

case of any shortfall due to any difference of

opinion as to the taxability of any item or nature

of payments falling under the various TDS

provisions, the assessee can be declared to be the

assessee in default u/s 201 of the Act but no

disallowance can be made by invoking provisions

of section 40a(ia). The Hon’ble High Court of

Calcutta observed that the provisions of section

40a(ia) have two limbs; one is where, inter alia,

the assessee has to deduct tax and second where

after deducting tax, inter alia, the assessee has to

pay the same into government account. The 13

Hon’ble High Court of Calcutta went to observe

that there was nothing in the said section to treat,

inter alia, the assessee as defaulter where there is

a shortfall in deduction and further, section

40a(ia) refers only to the duty to deduct tax and

pay to government account. Undisputedly, in the

present appeal also, there is no allegation that the

tax deducted was not paid into the government

account and the only fault of the assessee is the

failure on its part to ft deduct tax at the

prescribed rate. This, as per the judgement of the

Hon’ble High Court of Calcutta, does not attract

disallowance u/s 40afia) of the Act. We also note

that a similar view has been taken by the ITAT

Mumbai Bench in the case of DCIT vs.

Chandabhoy & Jassobhoy reported in (2012) 17

taxmann.com 1 58 (Mum.) and Hon’ble High

Court of Karnataka in CIT -LTU vs. Hewlett-

Packard India Sales (P.) Ltd. reported in 382 ITR

496 (Kar). Accordingly, respectfully following the

ratio of the judgments as aforesaid, we allow

ground no. 4 of the assessee’s appeal.”

5.1 After perusing the aforesaid finding of the Ld. CIT(A) as well as the

finding of the Tribunal in assessee’s own case, we do not find any 14

infirmity or legality in the order passed by the Ld. CIT(A), hence, we

uphold the order of the Ld. CIT(A) on this issue wherein he has reduced

the disallowance from Rs. 1,40,99,015/- to Rs. 19,08,030/- and

accordingly the grounds raised by the Revenue stand rejected.

Order pronounced on 05-02-2019.

Sd/- Sd/- [PRASHANT MAHARISHI] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER

Date: 05/02/2019

SRBhatnagar