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Income Tax Appellate Tribunal, DELHI BENCH “SMC” NEW DELHI
Before: SHRI N.K. SAINI:
This is an appeal by the assessee against the order dated 13-03-2014 of ld. CIT(Appeals)-Karnal. Only effective ground raised in this appeal reads as under: “AO erred in law & fact in disallowing rent Rs. 5,16,808/- to Warehouse + contract payment of Rs. 2,37,757/- to NBHC paid during year by applying section 40(a)(ia), which is applicable only to amounts payable as on 31/3/2010 & 40(a)(ia) is not applicable to amounts paid during the year.”
2. Facts of the case, in brief, are that assessee was engaged in the manufacturing of rice and its bye-products and filed the return of income on 2 ITA 1497/Del/2015 23-9-2010, declaring an income of Rs. 1,04,790/-, which was processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the “Act” in short), on 22-4-2011. Later on, the case was selected for scrutiny. During the course of assessment proceedings the AO noticed that the assessee had debited warehouse paddy rent to the tune of Rs. 5,76,808/-, which comprised of Rs. 60,000/- paid to M/s Hanuman Rice Mills on 28-11-2009 and Rs. 5,16,808/- paid to Haryana Warehousing Corporation and Central Warehousing Corporation. The AO was of the view that the assessee was under obligation to deduct the tax on the rent payment of Rs. 5,16,808/- u/s 194-I of the Act, which had not been done by the assessee. He asked the assessee to explain as to why the TDS on rent payment had not been deducted. The assessee submitted that since the rent had been paid to the State Government and Central Government, no TDS was deductible. The assessee also furnished the copy of Circular no. 699 dated 30-1-1995 issued by the CBDT. The AO did not find merit in the submissions of the assessee and made the addition of Rs. 5,16,808/-. The AO also noticed that the assessee had claimed NBHC bank guard pay to the tune of Rs. 2,37,757/- and no TDS was deducted as per the provisions of section 194C of the Act. The said amount was also disallowed u/s 40a(ia) of the Act and added to the income of the assessee.
3. Being aggrieved, the assessee carried the matter to the ld. CIT(A) and furnished the written submissions, which read as under:
The Ld.ITO made an addition of Rs.516808/ - which was rent paid for Godowns as warehousing charges. The godowns are owned and controlled exclusively by the Sate Govt. and Central Govt. in the interest of the nation. TDS as per law was not deducted on such payments of rent. The appellant submitted 3 ITA 1497/Del/2015 letters, circulars and certificate from the CWC and HWC and a certificate from. the assessee were filed to prove that TDS is not required to be deducted from the state govt. and the central govt. corporations.
The assessee also furnished the copy of the Circular no. 699 dated 30- 1-1995 issued by the CBDT.
The ld. CIT(A) asked the assessee to produce evidence that the Haryana Warehousing Corporation and Central Warehousing Corporation were entities, which were government and statutory authorities or local authorities covered u/s 10(20) or 10(20A) of the Act.
In response, the assessee furnished the written submissions, which read as under:
That for non deduction of TDS from rent paid to Central Warehousing Corporation of Rs. 206452/- and Rs.310356/- to State Warehousing Corporation the expenses have been disallowed and added as Income. The bare reading of Section 194-I is clear- The payee is the Government and under this bonafide impression the assessee did not deduct TDS. Similarly TDS on payment of Rs.237757/- to NBHC a banking concern was not required as per our bonafide and common man feelings. This addition is also wrong. In our opinion these are directly Government concerns and cannot be called local authorities as no local or Authority is involved. As regards obtaining any certificates required under clause 20 or 20A of Section 10 we could not obtain such certificate of Tax exemption status of these Govt. Deptt. and these days no officer 4 ITA 1497/Del/2015 likes to write any such letter or certificate. The same can be obtained at your honours level.
Ld. CIT(A) after considering the submissions of the assessee observed that the assessee failed to produce any document in support of its contention that it is covered u/s 10(20) or 10(20A) of the Act, on the basis of which it is claiming exemption from the provisions of section 194-I of the Act. Accordingly, the disallowance of Rs. 5,16,808/-, made by the AO u/s 40a(ia) of the Act, was upheld.
Ld. CIT(A) also observed that the AO provided numerous opportunities to the assessee during the course of assessment proceedings. He, therefore, dismissed this contention of the assessee that the AO had passed the order in hurry and without giving proper opportunity.
As regards to another disallowance of Rs. 2,37,757/-, the contention of the assessee before the ld. CIT(A) was as under:
Another addition of Rs.237757/- made u/s 194-C of the Act by disallowing u/ s 40 a(ia) of the Act, paid to NBHC for guarding and supervisory work. The contract is effected between the bank and NBHC. The bank also makes certain payments out of the interest earned to the NBHC(National Bulk Handling Corporation)The assessee has to pay as per bank directions. As there no contract between the appellant and NBHC no TDS was made. Further payment of salary to two guards and supervisor are finalized by the bank and guards are also changed from time to time thus TDS was not required.
The ld. CIT(A), after considering the submissions of the assessee, observed that if the contention of the assessee was considered to be true that the contract was between the bank and NBHC and that the payment on 5 ITA 1497/Del/2015 guards and supervisors were finalized by the bank and the guards were changed from time to time by the bank, then why the assessee was paying money to NBHC bank guard. Accordingly, the contention of the assessee was considered to be futile and baseless. According to ld. CIT(A), the assessee was liable to deduct TDS u/s 194C of the Act, as the payment was contractual in nature. He, therefore, held that the AO rightly made the disallowance u/s 40a(ia) of the Act. Now, the assessee is in appeal.
Ld. counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee paid warehouse rent to Central Warehousing Corporation and Haryana Warehousing Corporation and it was under a bonafide belief that no tax was to be deducted at source u/s 194-I on rent paid to the government of India/ Haryana, amounting to Rs. 2,06,452/- and Rs. 3,10,356/- respectively and similarly, the assessee was also under bonafide belief that no tax was to be deducted at source u/s 194C on guards’ salary reimbursed to bank amounting to Rs. 2,37,757/-. It was further stated that in the tax audit report also in form no. 3CB in part-B at sl. No. 27(a), the auditor had mentioned “Yes” in response to the query of TDS compliance and had also mentioned in clause (b) “Nil” in response to query of TDS non-compliance. It was further submitted that nothing was payable as on 31st March, therefore, disallowance u/s 40a(ia), made by the AO, was not justified. Reliance was placed on the decision of the ITAT Visakhapatnam, Special Bench in the case of Merilyn Shipping & Transport Vs. JCIT and the judgment of the Hon’ble Allahabad High court in the case of CIT vs. Vector Shipping Services Pvt. Ltd. 357 ITR 642. Reliance was also placed on the following case laws:
6 ITA 1497/Del/2015 - Hon’ble Delhi High Court in the case of CIT vs. M/s DLF Commercial Project Corporation (ITA nos. 627/2012 & 507/2013 dated 15-7-2015); - ITAT Mumbai Bench ‘J’ in the case of Shri Jitendra Mansukhlal Shah Vs. DCIT (ITA nos. 2293 & 2294/Mum/2013 –order dated 4-3-2015).
In his rival submissions, ld. Sr. DR reiterated the observations made by the authorities below and further submitted that ‘payable’ does not mean payable at the end of the year and that the amount can be payable on day to day basis. He strongly supported the impugned order passed by the ld. CIT(A).
I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the assessee reimbursed the salary to the guards of the bank and there was no contract in between the assessee and NBHC. Guards were deputed by the bank, but the expenses were reimbursed by the assessee. On a similar issue, the Hon’ble Delhi High Court in the case of CIT Vs. DLF Commercial Project Corporation in ITA 627/2012 and 507/2013 vide order dated 15-7-2015, while deciding the issue relating to reimbursement of service charges vis a vis non-deduction of TDS, observed in paras 17 to 21 as under: “17. The AO disallowed the amount of Rs. 19,69,83,236/- as deduction for the reason that the assessee deducted TDS only on the service charges paid by it to M/s DLF Land Ltd. According to the AO, TDS ought to have been deducted under the amount paid by the assessee towards reimbursement expenses to M/s DLF Land Ltd. This Court holds that the CIT(A) and the ITAT rightly set aside the AO’s order, ruling that the assessee was not required to deduct TDS on reimbursement expenses paid to M/s DLF Land Ltd.
7 ITA 1497/Del/2015 18. The assessee has correctly relied upon this Court’s ruling in Industrial Engineering Projects Pvt. Ltd., (supra). A Division Bench of this Court in that case specifically held that "reimbursement of expenses can, under no circumstances, be regarded as revenue receipt" and therefore, it is not liable to income tax. The Court relied upon the Supreme Court's decision in CIT v. Tejaji Farasram Kharawalla Ltd., [1968] 67 ITR 95 (SC), where the Court had held that it is only the amount that exceeds the expenditure incurred by the agent that would be liable to tax. More recently, this Court in Fortis Health Care Ltd. (supra) has also held that amount received towards reimbursement of expenses is not taxable under the Act.
In the instant case, it is undisputed that M/s DLF Land Ltd. had deducted TDS on the payments made by it under various heads on behalf of the assessee. Further, it is also not disputed that the assessee deducted TDS on the service charge paid by it to M/s DLF Land Ltd. on the reimbursement expenses. In such circumstances, this Court holds that the entire amount paid by the assessee to M/s DLF Land Ltd. is entitled to deduction as expenditure.
In arriving at the aforesaid conclusion, this Court derives support from the Gujarat High Court’s decision in Commissioenr of Income Tax-III v. Gujarat Narmada Valley Fertilizers Co. Ltd. (in Tax Appeal no. 315 of 2013, decided on 25-06-2013), where the facts were similar to those in the present case. The Court therein rejected the revenue’s contention that non deduction of TDS on reimbursement expenses would lead to disallowance of such reimbursement expenditure. The Court noted that the payee therein had already deducted tax on the various payments made by it to third parties (such as towards transport charges and other charges). Since the payments made by the assessee therein were only for the reimbursement of expenses incurred by the payee on behalf of the assessee, the Court held that no TDS was required to be deducted by the assessee. A special leave petition preferred by the revenue against the High Court's decision was dismissed by the Supreme Court on 17.01.2014 (in SLC CC No. 175 of 2014). This court is also supported in its reasoning by the text of Section 194C (TDS for "work") and Section 194J (TDS of income from "professional 8 ITA 1497/Del/2015 services" - the latter expression defined expansively by Section 194J (3) Explanation (a)). Neither provision obliges the person making the payment to deduct anything from contractual payments such as those made for reimbursement of expenses, other than what is defined as "income". The law thus obliges only amounts which fulfill the character of "income" to be subject to TDS in such cases; for other payments towards expenses, the deduction to those entitled (to be made by the payeee) the obligation to carry out TDS is upon the recipient or payee of the amounts.
The facts of this case are identical to those in Gujarat Narmada Valley (supra) and for the reasons stated above, this Court does not find any compelling ground to arrive at a different conclusion. Thus, the ITAT's ruling in this regard is upheld.
In the present case also, the assessee reimbursed the expenses to the bank and the bank ought to have deducted the TDS when there was a contract in between the bank and the NBHC, but there was no contract between the assessee and NBHC. Therefore, provisions of section 40a(ia) were wrongly applied by the ld. AO, as the assessee was not required to deduct TDS u/s 194C of the Act on the reimbursement of the expenses. In that view of the matter, addition on account of disallowance of Rs. 2,37,757/- is deleted.
As regards to the other issue relating to the payment of rent paid to the warehousing Corporation, the ld. CIT(A) categorically observed that the assessee was asked to produce evidence that the Haryana Warehousing Corporation and Central Warehousing Corporation are entities which are government and statutory authorities or local authorities covered u/s 10(20) or 10(20A) of the Act, but the assessee was not in a position to produce any evidence.
9 ITA 1497/Del/2015 16. It is well settled that when any assessee claims any benefit or exemption under any provision of the statute, it is for the assessee to produce the relevant documents or evidence, on the basis of which it is claiming such a benefit or exemption. However, in the present case, it is noticed that the AO in the assessment order nowhere stated that he asked the assessee to produce such an evidence. I, therefore, deem it appropriate to set aside this issue back to the file of AO, to be decided afresh in accordance with law, after providing due and reasonable opportunity of being heard to the assessee.
In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in open court on 29/10/2015.