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

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.

“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 (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.