THE ACIT, TDS CIRCLE,, AHMEDABAD vs. M/S. HAKMICHAND D & SONS,, AHMEDABAD

आदेश / O R D E R

PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER :

This is an appeal by the revenue against the order of the Commissioner of Income Tax (Appeals)-8, Ahmedabad, dated 14/06/2016 for the Assessment Year (AY) 2010-11, on the following Grounds: i. The Ld. CIT(A) has erred on facts and in law in deleting the penalty levied u/s. 271C of the IT Act of Rs.21,01,154/- for A.Y.2010-11. Inspite of the fact that the assess.ee made default in deducting TDS.

ITA No.2194/Ahd/2016 ACIT vs. M/s. Hakimchand D & sons Asst.Year –2010-11 - 2 - ii. The Ld. CIT(A) erred in not considering the fact that assesses in default for non deduction of tax at source on license fee paid to M/s Indian Railways Catering & Tourism Corporation (IRCTC), which fall within the purview of section 194J(1)(d) r.w.s. 28(va)(b) of the I.T. Act and liable for penalty u/s.271C of Act for failure to deduct tax at source. iii. The Ld. CIT(A) has also confirmed the order u/s.201(1)/201(1A) of the I.T. passed by the A.O. in Appeal No. CIT(A)-8/364/14-15 in the case of assessee company on the same issue. iv. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer.

"8. We have heard the rival contentions and perused the material on record. In our considered view, on merits, the assessee deserves to succeed on these counts in view of the following:-

ITA No.2194/Ahd/2016 ACIT vs. M/s. Hakimchand D & sons Asst.Year –2010-11 - 3 - a. The impugned license fee is paid by assessee to IRCTC for awarding licensed rights. Payments cannot be construed for rendering any specialized services or passing on of any managerial or technical skill or services, much less even a service. The license fee payments are attributable to a set of legal obligations flowing from license. Viewing from the parameters laid down by Hon'ble Supreme Court in the cases of Kotak securities and Bharti Cellular, there is neither any element of service or rendering of technical services whatsoever. In our considered view sec. 194J is not applicable to assessee’s case. b. Similarly sec.194C is also not applicable since the basis of allotment of catering rights on license fee involves peculiar features. The IRCTC is the contractor who awards rights and assessee is the contractee obliged to pay license fee for availing those rights. Sec.194C fastens liability on contractor, when amount is paid to contractee and not vice versa. Therefore payment of license fee by contractee to contractor can by no stretch of imagination be assumed to come under the purview of sec.194C. There being no TDS liability either u/s.194C or 194J, license fee paid cannot be disallowed under sec.40(a)(ia) of Act under any circumstances.

c. The license fee payment is not covered u/s.28(va) also, which is specifically for payments to sharing any know how, patent, copy right, trade mark, license, franchise or any other business or commercial right of similar nature etc. the similar nature of great significance and the impugned license fee not being paid for sharing any know how, patent, copy right , trade mark, license, franchise cannot fall under its purview. d. Apropos additional ground also respectfully Hon'ble Supreme court judgments Som Prakash Rekhi has laid down parameters as to when a corporation can be called a state for legal and practical purposes. Income Tax law provides some beneficial and relaxing provisions for Govt. local bodies etc. for ease of administration and flexibility. TDS is a mechanism to avoid nonpayment of taxes by payees. Legislature in its superior wisdom' has intended that Govt. Bodies will not venture into nonpayment of their income tax therefore they are exempted from TDS. It is more so as mostly they are Govt. funded, under strict regulatory

ITA No.2194/Ahd/2016 ACIT vs. M/s. Hakimchand D & sons Asst.Year –2010-11 - 4 - and financial control and are complimentary arms of Govt. to perform particular functions. Looking into all these necessities and practical difficulty the word 'STATE' has been interpreted to avoid the rigor of literal construction which was leading to unintended results, Hon'ble supreme court laid down these parameters. They have been deftly followed by Pune Bench in Kirloskar Bros. case. In our considered view, in the given facts and circumstances IRCTC falls within those parameters. Following Hon'ble Supreme Court in Som Prakash Rekhi and coordinate ITAT Pune Bench, we hold that IRCTC amounts to Govt. Therefore, assuming even there was any TDS liability; assessee was not liable to deduct any TDS from license fee paid to IRCTC.

e. The ITAT Special Bench in Bharati Auto Products and in Gujarat Pipavav Port Ltd (supra) has held that the proviso to section 201 is retrospective and if the payee has paid taxes (where payable) the payer cannot be deemed to be in default of TDS liability. Assessee by IRCTC dated 27.03.2014 and form no 26 has demonstrated that license fees paid by him for FY 2005-06 to 2010-11 has been included by IRCTC in its annual Profit & Loss account, Balance sheet and their returns of income. In view thereof we see no reason as to why the assessee shall be held to be liable for TDs and disallowance u/s 40(a)(ia). 8.1 In view of foregoing facts, circumstances and respectfully following the judicial precedents as mentioned above we hold that assessee's licence fee payments to IRCTC were not liable for TDS and cannot be disallowed u/s. 40(a)(ia). Thus we allow the assessee grounds on merits also in this behalf and dismiss relevant revenue grounds in the impugned years."

ITA No.2194/Ahd/2016 ACIT vs. M/s. Hakimchand D & sons Asst.Year –2010-11 - 5 - 7. In view of the above, we do not find any reason to interfere in the findings of the Ld. CIT(A). Therefore, appeal of the revenue is dismissed.

Sd/- Sd/- vejthr flag vejthr flag vejthr flag महावीर �साद vejthr flag (लेखा सद�य) (�या�यक सद�य) ( MAHAVIR PRASAD ) ( AMARJIT SINGH ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 27/09/2017 Priti Yadav, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-8, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad