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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Sri A.T.Varkey, JM & Shri M.Balaganesh, AM ]
This appeal of the assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals) -Burdwan [ in short the ld CITA] in Appeal No. 380/CIT(A)/Asl/ITO/W-2(1)/Bwn/2011-12 dated 29.04.2016 against the order passed by the Income Tax Officer, Ward 2(1), Burdwan [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’] dated 16.12.2011 for the Asst Year 2009-10.
The first issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the disallowance u/s 40(a)(ia) of the Act in the facts and circumstances of the case.
The brief facts of this issue is that the assessee had paid lease rental of Rs 3,84,000/- and debited it to his profit and loss account. The ld AO noted that no tax had been deducted at source on such payment u/s 194I of the Act. The assessee argued that the rent payments had actually been made to four partners of the partnership firm M/s
Ma Kalyaneswari Agriculture (P)Ltd. A.Yr.2009-10 Bhairabi Rice Mill @ Rs 8,000/- per month. Since payment made to each partner did not exceed Rs 1,20,000/- there is no obligation for the assessee to deduct tax at source in terms of section 194I of the Act. The ld AO did not agree to this explanation of the assessee as upon examination of the lease agreement, the ld AO observed that on examination of the lease agreement, the lessor was M/s Bhairabi Rice Mill and the lessee was the assessee and the lessor had leased out the entire factory premises and machinery for a composite rent of Rs 32,000/- per month. As per agreement, the mode of payment was described to be Rs 8,000/- per month to each of the partners of the lessor firm, which would be deemd to be payment to the lessor. Accordingly he held that the provisions of section 194I of the Act would be attracted and disallowance u/s 40(a)(ia) of the Act would get attracted for violation of TDS provisions.
The assessee pleaded before the ld CITA that the rent agreement was actually between the partners of the firm M/s Bhairabi Rice Mill and the assessee and not between the firm and the assessee. The ld CITA held that the property belonged to the firm and the agreement was also between the firm and the assessee. Hence he upheld the disallowance made u/s 40(a)(ia) of the Act. Aggrieved, the assessee is in appeal before us on the following grounds:- “
1. For that on the facts of the case, the order passed by the Ld. C.I.T.(A) is completely arbitrary, unjustified and illegal.
2. For that on the facts of the case, the Ld. C.I.T.(A) was wrong in dittoing the order of the A.O. and confirming the addition u/s 40a(ia) of the Income Tax Act amounting to Rs.3,84,000/- on lease Rent paid u/s 1941 of the LT. Act which is completely arbitrary, unjustified and illegal.
3. For that on the facts of the case, the Ld. C.I.T.(A) was wrong in confirming the addition u/s. 40a(ia) of the LT. Act amounting to Rs. 3,84,000/ - as the assessee was not liable to deduct TDS on payment made for lease rent, therefore, the said disallowance u/ s. 40a(ia) is completely arbitrary, unjustified and illegal.
4. For that on the facts of the case, the Ld. C.I.T.(A) was wrong in not considering the fact that the lease Agreement as a whole and from where it would be ascertained that the Lesser M/ s. Bhairabi Rice Mill has lost its identity as soon as Lease Agreement has come in to force followed by surrender of Rice Milling licence to District Controller & due intimation of closure of business to Sale Tax 2
Ma Kalyaneswari Agriculture (P)Ltd. A.Yr.2009-10 Department payment made for lease rent, therefore, the said disallowance u/s. 40a(ia) is completely arbitrary, unjustified and illegal. 5. For that the appellant reserves the right to adduce any further ground or grounds, if necessary, at or before the hearing of the appeal.
We have heard the rival submissions and perused the materials available on record including the paper book filed by the ld AR comprising of (i) copy of lease deed in English version (enclosed in pages 1 to 3 of PB) ; (ii) copy of lease deed for 15 years term in Bengali version (enclosed in pages 4 to 20 of PB) ; (iii) certificate of change of name from office of land revenue under Government of West Bengal , Sadar, Burdwan in English version (enclosed in page 21 of PB) ; (iv) certificate of change of name from office of land revenue under Government of West Bengal, Sadar, Burdwan in Bengali version (enclosed in page 22 of PB) ; (v) execution of sale deed (enclosed in page 23 of PB) and (vi) copy of sale deed in Bengali version (enclosed in Pages 24 to 37 of PB). We find from the contents of the paper book that the lease deed has been entered into by the assessee with the four individuals (who are partners of Bhairabi Rice Mill) . The lessor is only the four individuals namely 1) Dilip Kumar Gupta ; 2) Dulal Chandra Gupta ; 3) Golok Behari Gupta and 4) Rabindra Nath Gupta. We find that they are also mentioned as co-partners of firm styled as M/s Bhairabi Rice Mill having equal share in the rice mill. We find that the clause 1 terms and conditions of lease deed is as below:- 1. That the second party shall divide rent 1/4th each to each of the co-partners separately and shall obtain receipt of lease rent from each of the co-partners and lessee shall pay rent on 7th of the following month for the month the lease rent is due.
We also find from the land revenue records (enclosed in page 21 of PB) that the aforesaid four individuals had been mentioned as the owner of the land which has been subject matter of lease. We also find from the purchase deed dated 30.6.1981 (enclosed in page 23 of PB) that the aforesaid four individuals are the purchasers of the land. From these facts, we hold that the assessee had only paid lease rent of Rs 8,000/- each to individual partners and hence the transaction is within the limits prescribed u/s 194I 3
Ma Kalyaneswari Agriculture (P)Ltd. A.Yr.2009-10 of the Act. Hence no disallowance u/s 40(a)(ia) of the Act would operate in the instant case. Accordingly the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 07.07.2017