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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ NEW DELHI
Before: SHRI SUDHANSHU SRIVASTAVA & SHRI O.P. KANT
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: This is the assessee’s appeal preferred against the order dated 28.02.2013 passed by the Ld. Commissioner of Income Tax (Appeals)-XVI, New Delhi for assessment year 2008- 09.
2.0 Brief facts of the case are that the assessee company was engaged in the business of running hotels at various locations in India. The return of income was filed declaring income of Rs. 4,28,30,390/-. The case was selected for scrutiny assessment and the Assessing Officer, along with other additions, made a disallowance of Rs. 21,60,000/- u/s 40(a)(ia) of the Income Tax Act, 1961 (hereinafter called ‘the Act’) on account of licence fee paid by the assessee to M/s SRK Travels & Tours Pvt. Ltd. The assessee had deducted tax @2.26% on the payment made to M/s SRK Travels & Tours Pvt. Ltd. whereas the Assessing Officer was of the opinion that tax should have been deducted @22.6%. The issue was carried to the Ld. Commissioner of Income Tax (Appeals) and the Ld. Commissioner of Income Tax (Appeals) upheld the disallowance. The matter was taken before the ITAT and this issue was challenged along with other issues. The ITAT passed the order on 19.06.2015.
However, by inadvertent omission, ground no. 4 of the assessee’s appeal was not adjudicated. The assessee preferred a Miscellaneous Application (M.A.) before the ITAT and the M.A. was allowed vide order dated 23.11.2016 in M.A. No. 391/Del/2015 wherein the earlier order dated 19.06.2015 was recalled for the limited purpose of disposing of ground no. 4 raised by the assessee in its appeal. Accordingly, we proceed to dispose of ground no. 4 which reads as under:-
“4. The Commissioner of Income Tax(A) has in view of the facts and circumstances of the case and in law erred in holding and interpreting that disallowance can be made u/s 40(a)(ia) even if there is a shortfall in the deduction of tax at source by the appellant.”
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 nature of rent and, therefore, would attract provisions of section 194I 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 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 194I 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 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 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 40a (ia) 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 158 (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.
6.0 In the result, ground no. 4 stands allowed.
Order pronounced in the open court on 27th November, 2018.