DCIT, NEW DELHI vs. M/S. CL EDUCATE LIMITED, NEW DELHI

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ITA 1283/DEL/2014Status: DisposedITAT Delhi10 June 2016AY 2010-116 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the payments made to franchisees were not covered under Section 194J as the assessee was providing services to the franchisees by allowing them to use its trademark and technical know-how, and the consideration flowed from the franchisees to the assessee. The Tribunal relied on its own previous decision in similar cases.

What were the facts?

The assessee, engaged in running a coaching institute, deducted TDS under Section 194C on payments made to franchisees. The Assessing Officer held that TDS should have been deducted under Section 194J and raised a demand for short deduction.

What were the issues?

The primary issue was whether payments made to franchisees were subject to TDS under Section 194C or Section 194J of the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 194C,Section 194J,Section 201(1),Section 201(1A)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI

Before: SHRI J. SUDHAKAR REDDY & SMT SUCHITRA KAMBLE

Hearing: 27.04.2016Pronounced: 10.06.2016

This appeal is filed by the Revenue against the order dated 19/12/2013 passed by CIT (A) XXX, New Delhi.

2.

The grounds of appeal are as follows:-

“1. On the facts and in the circumstances of the case as well as in law, the CIT(A) has erred in holding that the payment made to 194C and not u/s 194J of the I.T Act. 2. On the facts and in the circumstances of the case as well as in law, the CIT(A) has erred in not considering the reasons mentioned on the order passed u/s 201(1) 201(1A) of the I.T Act while deciding the appeal on the issue of short deduction of TDS on payment of retainer ship fee.”

3.

The assessee is engaged in the business of running an academic institution/coaching institute. The assessee made total payments of Rs.29,07,86,256/- to its franchisees on which tax has been deducted at source as per the provisions of Section 194C of the Act. The Assessing Officer held that the assessee is in default and the payment to franchisee was subject to tax deduction u/s 194J of the Act. The Assessing Officer further determine TDS liability of the assessee u/s 201(1A) of the Act. Aggrieved by the said order, the assessee filed an appeal before CIT(A). The CIT(A) allowed the appeal of the assessee. The Department has filed this appeal on two grounds stated hereinabove.

4.

The Ld. AR submitted that the issue raised in this appeal has already been decided in favour of the assessee in the assessee’s own case by ITAT, New Delhi Bench in to 5827/Del/2013 A.Y 2003 -04 to 2010-11) dated 17th March, 2016 (A.Y. 2003-2004 to 2010-2011).

5.

The Ld. DR was not able to distinguish the said order of the ITAT.

6.

We have perused all the records and heard both the parties. The issues that arises in the present case is clearly covered by the assessee’s own case in to 5827/Del/2013 A.Y 2003 -04 to 2010-11) dated 17th March, 2016.

The relevant para of the said judgment are as follows:-

“Para 47. …………On reading of para no. 29 to 35 of the decision of the High court it is apparent that in this case the payments are not to be made by the assessee, but it was to be received by the assessee from the franchisees. The services are being provided by the assessee to the franchisees by allowing them to exploit the technical know-how and the trademark that is available with the assessee. The dominant object of the agreement is that the assessee’s trademark should be exploited for the mutual benefit of the parties and the technical know-how that is being owned by the assessee. The licensee is using it for their own benefit. Regarding the consideration also, it is flowing from franchisee to the assessing and not from assessee to the franchisee. Therefore, here. The provisions of the services are dominantly provided by the assessee to the franchisee and for which the consideration is received. The provisions of Section 194J are applicable in case, where the assessee makes any payment to a resident assessee for the specified services. Here, in this case the payment is received by the assessee from franchisee owners. It is only in the modus operandi of the collection of the fees wherein assessee transfers the money to the franchisee. The modus operandi for collection of the fees as well as of the revenue sharing cannot determine whether the amount remitted by the assessee to the franchisee is subject to tax deduction at source u/s 194J of the act. ……………………Looking to the facts of the case we are of the view that in facts assessee is providing services to the franchisee by allowing use of intangible assets. Even otherwise assesse is not paying any fees for professional services as the franchisee do not fall in to the specified profession. It is also not paying any fees for technical services to the franchisee as it does not render any services to the assessee. Hence, we do not find any infirmity in the order of 1st appellate authority and none has been pointed out by the Ld. DR. In view of this, we confirm the finding of 1st appellate authority holding that provisions of Section 194J.

Para 48. ………………………Ground No. 2 of these appeals is against the applicability of provision of section 194J of the Act on payments made to retainers. We have already decided this issue in that appeal no. 5820/Del/2013 for Assessment Year 2003-04 wherein we have held that on the payments of retainer ship fees the provision of section 194J applies and not section 192 of the act as held by A.O.”

The CIT(A) also rightly held that TDS provisions provided under Section 194J of the Act are not applicable in the present case. In light of this, the appeal of the Revenue does not survive.

7.

In result, the appeal of the Revenue is dismissed.

The order is pronounced in the open court on 10th of June, 2016.

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