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Income Tax Appellate Tribunal, KOLKATA BENCH ‘B’, KOLKATA
Before: Shri J. Sudhakar Reddy, A.M. & Shri S.S. Viswanethra Ravi, J.M.)
ORDER Shri S.S. Viswanethra Ravi, JM This appeal by the revenue against the order dated 28.02.2014 passed by the CIT(Appeals)-I, Kolkata for assessment year 2011-12.
The appellant revenue raised following grounds of appeal is as under: (a) That on the facts and in the circumstances of the case Ld. CIT(A) erred in deleting charge of TDS and interest of 28,86,995/- u/s 194I of the I.T. Act, 1961. (b) That on the facts and in the circumstances of the case Ld. CIT(A) erred in deleting charge of TDS and interest of Rs. 13,44,512/- u/s 194A/194H of the I.T. Act, 1961. (c) The appellant craves leave to add, alter / or amend any of the grounds of appeal during the course of hearing.
2 3. The brief facts of the case are that the assessee is a joint venture of ITD and ITD Cementation. The assessee has been awarded a contract for constructing a new airport terminal in Kolkata by Airport Authority of India for short hereafter as (AAI). A survey was conducted on 18.01.2013 on the assessee under section 133A(1) of the Act. During the course of survey on an examination of records and documents it was observed that the assessee has paid an amount of Rs. 2,16,90,806/- towards land rent to AAI and the said amount was paid without deducting TDS. The AO issued show cause seeking explanation why the assessee should not be treated as in default for not taking TDS and as well as for not depositing to the Govt. accounts.
The assessee in explanation referred to Clause 19, 19.1 and 39 of general clauses of contract for short GCI and Clauses 29 and 36 of special conditions of contract for short SCC between the assessee and the AAI. It was submitted that the assessee did not have exclusive and unfettered possession of the site and the said site was to be shared with other contractors and as well as staff of AAI. On the strength of the above said clauses, the assessee submitted that the parties to the agreement agreed that the assessee should conduct and manage the construction activity under the awarded contract and it was not an agreement for lease or sub-lease of the site area and that there was no intention to part with the possession of the premises in favour of the assessee by the AAI.
3 5. The assessee further contended the payments as noticed by the AO were not for the use of land or building with furniture & fixtures. The AO did not satisfy with the explanation of the assessee and was of the opinion that the AAI was vested with the land rights and collected rent for the use of the said site by the assessee during the pendency of the contract. The AO also observed that the AAI is the ultimate owner of the land and has every right to regulate the use of the land and as such for having full possession of the said land with the assessee and treated the said amounts as rent paid by the assessee and accordingly for not deducting TDS, the AO treated the assessee in default vide his order dated 28.03.2013 passed under section 201(1) / 201(1A) of the Act.
Aggrieved by the order of the AO, the assessee challenged the same before the CIT(A). The assessee contended that AAI treated the payments made to the assessee as contractual payments and said payments were made deducting TDS as per section 194C of the Act. The impugned amount was deducted by the AAI from running accounts bills and the assessee did not make any payments to AAI and in support of which copies of extracts as SOF were submitted and relied on the decision of Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverage (P) Ltd. reported in 293 ITR 226 and submitted the revenue cannot recover tax from deductor when the deductee has already paid tax on the said amount. In view of the same, the CIT(A)
4 sought remand report from the AO. The AO stated in its remand report that the AAI confirmed regarding rental payments and deductions made from the assessee running accounts bills. The CIT(A) confronted the said remand report to the assessee and assessee filed a rejoinder the same stating that it preferred an appeal against the arbitral award made in favour of AAI for charging the rent before the District Judge, at Barasat. The CIT(A) considering the submissions along with the remand report and rejoinder and opined since the funds were not in control of the assessee and the amounts deducted directly from its running accounts bills and the AAI being Govt. Enterprise having been disclosed the said TDS in its accounts, the CIT(A) held that the assessee is not in default for non-deduction of tax. The relevant portion of which is reproduced here-in-below: “3.2 The submissions of the Appellant have been considered. It is seen that the issue is regarding certain amounts deducted by the Appellant’s client Airport Authority of India (AAI) from the Running Bills submitted by the Appellant towards construction of the Airport Terminal at Kolkata. The Appellant is a Joint Venture (assessed as an AOP) between ITD Thailand and ITD Cementation Ltd. Which was formed for the construction of Integrated Passenger Terminal Building at Netaji Subhash Chandra Bose International Airport for and on behalf of Airport Authority of India under a contract with them. Further that a sum of Rs. 2,16,90,806/- was deducted by the AAI on account of purported Land Rent from the Running Account (RA) bills. Thus, the Appellant was receiving the balance money after deduction from the monthly running account bills and was not actually making payments to the AAI. The rent charged by the AAI has been disputed by the Appellant before the Disputes Resolution Board and AAI had also approached the Arbitrator for resolution of the matter. The issue is still being contested before the District Judge by the Appellant. However the Rent has been charged under Clause 26.1 of the Special Conditions of Contract. Now even though this issue is being disputed the AAI has been deducting the amounts in question from the 15th Running Bill onwards of the Appellant. Now these amounts have been considered by the AO to be towards rental charged by the AAI from the Appellant and therefore liable for deduction of TDS, even though admittedly the amounts were directly deducted by AAI from the 5 Running Bills and then payment released to it. The first contention of the Appellant is that the amount deducted by the AAI was disputed, secondly it was not in the nature of payment covered by section 194I and that it since the funds were not in control of the Appellant and amount deducted directly from its RA Bills, it could not have deducted TDS and lastly that since the payment would have been disclosed by AAI in its income as it was a Government enterprise, the Appellant could not be held to be “assessee in default” for non deduction of TDS on the same. While from the facts and evidences on this issue it is clear that the amounts in question were being deducted by the AAI from the Running Bills of the Appellant towards ‘rent’ as per terms of the contract with the Appellant, however the quantum charged by the AAI has been disputed by the Appellant and the final Arbitral Award was in favour of the AAI, which has been challenged by the Appellant before the District Judge of Barasat. It is also seen that there was no separate agreement for payment of Rental by the Appellant and the same is flowing out of Consolidated Contract for construction of the Airport Terminal awarded to the Appellant. While the charges raised by the AAI may be in dispute, the issue is whether the same whether the Appellant is liable for TDS under section 194I on the deduction of ‘Rent’ by the AAI from the bills of the Appellant. Here if the applicability of the decision in CIT vs NIIT 318 ITR 289 is considered it has been held regarding the deduction of TDS u/s 194I, that the Composite Agreement could not be broken upto apply section 194I. It has been held by the Delhi High Court as under: “7. Reading of the agreement therefore clearly shows that the agreement was in fact a franchisee agreement and it cannot be said that by the agreement, rent was in fact being paid by the assessee-company to the licensee. No doubt, the charges have been broken up under two heads viz., that of, marketing claim and infrastructure claim. However, the agreement is an agreement as a whole and such a composite agreement cannot be broken up as it sought to be done and contended by the revenue. The provision of section 194I cannot be read to break up composite contracts and when that is not the intention of the parties themselves. If, the interpretation of the Revenue is accepted then, in a case where there is a partnership and one of the partner brings in his capital in the form of his premises from where the partnership business is carried on, then, payment made to such partner by the firm can be stretched to be included in the definition of rent under section 194I and which surely cannot be the intention of the Legislature” Furthermore in the case of National Panasonic India Ltd. it has clearly been held by the ITAT Delhi as under: 6. We have duly considered the rival contentions and the material on record. Section 194I of the Act mandates a person, other than an individual or a Hindu Undivided Family (HUF) paying rent to a resident to deduct tax at source at the time of credit or payment, whichever is earlier, Clause (i) of the Explanation to section 194I gives the meaning of ‘rent’ to be a payment under any lease, sub-lease, tenancy or any other 6 agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee. Thus, ‘rent’ for the purposes of section 194I, is essentially a payment for the use of any land or building. In other words, the agreement or arrangement which gives rise to the payment of rent, must necessarily be an agreement or arrangement predominantly for the use of land or building. However, where the agreement is not predominantly for the use of land or building, but for something else, then payment under that agreement will not constitute rent even if that ‘something else’ involves the use of land or building as an integral part of or incidental to the predominant objective of the agreement. Now in the Appellant’s case, the contract was for construction of the Airport Terminal and the disputed amount was being charged as rent by the AAI towards use of certain area and facilities as per the Contract Agreement, therefore clearly the Contract was for construction of the Terminal and the payments subject to TDS u/s 194C, the disputed Rent amount charged by the AAI was only incidental to it. Therefore if the ratio of the above decisions is applied in the instant case, the Appellant was not liable to deduct TDS u/s 194I. Furthermore on the facts of the case of the Appellant, the decisions relied upon by the AO in idea Cellular Ltd vs CIT and Bharti Cellular Ltd supra, are held to be not applicable as the issue there was deduction of TDS u/s 194H on commission and whether there was a principal to agent relationship. Even otherwise considering the decision of the Supreme Court in Hindustan Coca Lola Beverages Pvt Ltd vs CIT 293 ITR 226, the Appellant could not be held to be “assessee in default” for non-deduction of TDS, if the payments had been offered to tax by the recipient, here the recipient was AAI a Government Public Sector Enterprise. Further in view of the decision of the jurisdictional Tribunal in Ramkrishna Vedanta Math, 478 and 479/Kol/2012, ‘C’ Bench, A.Y.: 2005-06, 2006-07 and 2008-09, order dated 31.07.2012, the onus was on the AO to verify the same and if the same has not been offered as income by the recipient, only then the Appellant could be held to be liable for tax u/s 201(1). Therefore in view of the above discussion and the facts in the Appellant’s case it is held that the action of the AO was not justified and ground of appeal is allowed.”
7. Learned DR relied on the order of AO. Learned AR supported the order of CIT(A) and reiterated the submissions as made before the CIT(A).
8. Heard rival submissions and perused the relevant material available on record. We find that the CIT(A) held the 7 impugned amount does not constitute rent which attracts deduction of TDS under section 194I of the Act by placing reliance on the decision of Hon’ble High Court of Delhi in the case of CIT vs NIIT reported in 318 ITR 289.
9. We note that the CIT(A) placed reliance on the decision of Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. reported in 293 ITR 226 and held that the assessee is not in default for non-deduction of TDS as the payment alleged to have been paid to AAI was in turn offered by AAI as income in its account and paid the tax. In view of the ratio laid down by the Hon’ble High Court of Delhi in the case of NIIT (supra), we hold that the amounts alleged to have been paid to AAI does not constitute rent, therefore the application of provisions under section 194I does not arise at all. Even otherwise we are in agreement with the opinion rendered by the CIT(A) in placing reliance in the case of Hindustan Coca Cola Beverage (supra), assessee cannot be held in default as the recipient AAI is a Govt. Public Sector Enterprise which is stated to have offered this receipt to tax. The burden lies on the AO to verify whether the said AAI offered the payment received from the assessee to tax or not. Therefore, we find no infirmity in the impugned order of CIT(A) and it is justified. Accordingly ground no. 1 raised by the Revenue is dismissed.
10. Ground No. 2 is relating to deletion of an addition of Rs. 13,44,512/- on account of non-deduction of TDS on interest payments.
8 11. During the course of scrutiny proceedings, the AO found that the assessee had paid an amount totalling to Rs. 1,05,49,032/- consisting of bank guarantee commission, bank charges interest, conveyance and travelling as administrative expenses to the ITD Cementation India Ltd. In explanation, the assessee submitted the ITD Cementation India Ltd. is a co- venturer of assessee (ITD-ITD CEM JV) was reimbursed by the assessee to its co-venturer ITD Cementation India Ltd. and filed details of the same. The AO not satisfied with the submissions of the assessee and opined the said payments cannot be treated as reimbursement as the assessee company is making payment to another company and accordingly treated the assessee as in default in favour of provision under section 201(1) of the Act.
The assessee challenged the same before the CIT(A). The assessee contended that the AO failed to appreciate the reimbursement of actual expenses made to the Co venture are not subjected to TDS and not covered by section from 194A of the Act and relied on the catenae of orders passed by Kolkata, Mumbai, Delhi and Ahmedabad Benches of ITAT Tribunal for not charging of TDS as reimbursement of actual expenses. The assessee also placed reliance in the case of Dunlop Rubber Co. Ltd. reported in 142 ITR 493 (Calcutta) of Hon’ble High Court of Calcutta for the proposition that the reimbursement of expenditure is not an income in the hands of assessee. Considering the facts of the case with that of case laws relied by the assessee, the CIT(A) sought remand 9 report from the AO. The AO stated that the section 194A does not distinguish between the payment of interest or the reimbursement of interest and it clearly provides that any interest amount is paid the TDS has to be deducted on such interest expenses. The CIT(A) by placing reliance in the case of Grand Prix Fab Pvt. Ltd. reported in 128 TTJ 60 (Delhi) and in the case of Utility Powertech Ltd. of Mumbai Tribunal and held when there is no element of income and the payment of only reimbursement expenses no disallowance can be made under section 40(a)(ia) of the Act. The relevant portion of which is reproduced here-in-below: “The submission of the appellant its rejoinder to the Remand Report of the AO have all been considered. It is seen that the issue is regarding certain payments made by the appellant to its Co-Ventures on account of interest of Rs. 30,67,418/-, Bank Guarantee Commissioon Rs. 37,00,880/- and Bank Charges Rs. 37,36,966/- as also the reimbursement towards Conveyance Expenses of Rs. 1,02,399/- and Travelling Expenses of Rs. 1,16,672/- aggregating to Rs. 1,05,49,632/- and it was held by the AO that the Appellant was liable for deduction of TDS on the same. The Appellant has claimed that these were reimbursement of expenses and hence not liable to TDS. It is seen that the issue is covered by the decision in ACIT vs Grand Prix Fab (P) Ltd. 128 TTJ 60 (Del) and the Tribunal has held has under: “16. In respect of the payment towards agency charges amounting to Rs. 1,01,219/- the assessee has deducted tax amounting to Rs. 2,094/- at source and the said payment has not been disallowed by the AO. The other two payments are towards payment of customs duty and other expenses paid by the agent for/on behalf of the assessee. These reimbursement expenses were not made towards any services rendered by the agent, but have been made to set off of the expenses incurred by the agent while clearing the imported goods from the customs for/on behalf of the assessee. Since no element of income is embedded in reimbursement of expenses incurred by agency for/on behalf of the assessee, the assessee was 10 not obliged to deduct tax at source, and, therefore, the CIT(A) has rightly deleted the addition.” Similar view has been taken by the ITAT Mumbai in Utility Powertech Ltd. vs CIT supra as under: “5. We have considered the rival contentions and perused the record. The jurisdictional High Court in the case of CIT vs Seimens Aktiongesellschaft (supra) has held that reimbursement of expenses cannot be regarded as revenue in the hands of the payee. While deciding the issue, the Hon’ble High Court has followed the decision of Hon’ble Delhi High Court in the case of CIT vs Industrial Engg. Projects P. Ltd. (202 ITR 1014). It is a settled proposition of law from the various decisions of High Courts and particularly the decision of Hon’ble jurisdictional High Court (supra) that when there is no element of income and the payment is only as a reimbursement of expenses incurred by the payee, then no disallowance can be made u/s 40(a)(ia).” In the appellant’s case it is not in dispute that the payments in question were not for services rendered but for reimbursement of expenses. Even otherwise in respect of Bank Guarantee payments relying on the decision in Kotak Securities Ltd. vs DCIT, supra it has been held in the case of the co-venture i.e. ITD Cementation Ltd. for A.Y. 2011-12 in Appeal Order dated 10.12.2013, that the payment of Bank Guarantee Commissions not covered by provisions of Section 194H. Therefore following the above 2 decisions of the Tribunal and considering the facts as discussed above, it is held that the AO was not justified in holding the Appellant liable to deduct TDS on these payments and this round of Appeal is allowed.”
The learned AR relied on the orders of CIT(A).
Heard rival submissions and perused the relevant material available on record. We find that the CIT(A) examined the payments and found the said payments were made not for any services but only reimbursement of expenses and placed reliance in the case of Kotak Securities Ltd. vs DCIT reported in 50 SOT 158 for the proposition, the payments made to bank guarantee and the payments of commission paid for bank guarantee are not covered by the