DCIT8(3), MUMBAI vs. WAH RESTAURANTS P.LTD ( FORMERLY KNOWN AS M/S. MARS RESTAURATNS P.LTD), MUMBAI

Briefly stated the facts are, assessee a company is engaged in the business of running hotels and restaurants, outdoor catering and trading in food items. For the assessment year under dispute, the assessee filed its return of income on 30th September 2009, declaring loss of ` 6,12,76,377. In the course of assessment proceedings, the Assessing Officer, on verification of Profit & Loss account found that as per Schedule–16 of Profit & Loss account, assessee has debited expenditure of ` 2,85,01,957, towards revenue sharing arrangements. He, therefore, called upon the assessee for furnishing necessary details justifying the claim of expenditure. It was submitted by the assessee that assessee has entered into a conducting agreement with

The first appellate authority, after considering the submissions of the assessee vis–a–vis viz. the facts and material on record, found that the conducting agreement between the assessee and M.E. & M.F.S. were first entered into on 30th September 2000, and thereafter renewed from time to time. He also noticed that though provisions of section 40(a)(ia) of the Act was introduced by Finance Act, 2004, w.e.f. 1st April 2005, the Department had accepted the claim of the assessee for all the assessment years beginning from assessment year 2005–06, by not making any disallowance under section 40(a)(ia) for non–deduction of tax at source on revenue sharing fee paid to M.E. and M.F.S. The first appellate authority, relying upon certain judicial precedents, held that though the principle of res–judicata do not apply to income tax proceedings but rule of consistency has to be followed. He observed, since the terms of agreement remained the same all through there is no material difference as far as facts are concerned in the earlier assessment years and in the impugned assessment year. Even otherwise also, the learned Commissioner (Appeals), referring to

Learned Departmental Representative, referring to the reasoning of the Assessing Officer, submitted that as per the conducting agreement what the assessee has got is hotel building, restaurant, fixtures & furniture, etc., which it manages on payment of certain fees. He submitted that since all these assets are covered within the meaning of rent as provided under section 194I, the assessee was required to deduct tax at source on such payments.

The learned Counsel for the assessee, on the other hand, strongly supporting the order of the learned Commissioner (Appeals), submitted, though the assessee had been paying revenue sharing fee from the year 2000 onwards to M.E. and M.F.S., the Department had all along been accepting such payments without asking for deduction of tax and only in the impugned assessment year, the Department has raised the issue. Learned Counsel submitted, therefore, following rule of consistency, no disallowance should have been made in the impugned assessment year. He submitted even otherwise also, a reading of the conducting agreement would make it clear that assessee has taken over the entire hotel business as a franchise on revenue sharing basis. He submitted, the sharing of revenue is as a percentage of the total sales / turnover. He submitted, not only the assessee is using the hotel building with furniture & fixture but it is running the entire business of hotel, restaurant along with other ancillary and incidental facilities. He, therefore, submitted, it cannot be considered to be the payment in the nature of rent or commission as provided under section 194I or 194H. The learned counsel submitted, assessee’s case is also squarely covered by the decision of the Tribunal in case of Kamat Hotel. Learned counsel finally submitted, the recipients of such payments having offered such receipt as their business income in the return of income filed and paid taxes no

We have considered the submissions of the parties and perused the material available on record. It is not in dispute that assessee has entered into conducting agreement with M.E. / M.F.S. for the first time in the year 2000, which was renewed from time to time and last such renewal was done on 18th July 2008. However, the terms and conditions of the agreement remained more or less similar. It is an uncontroverted fact that prior to the impugned assessment year, there has been no such disallowance under section 40(a)(ia) for non– deduction of tax at source under section 194I on payment of revenue sharing fee. Learned counsel has also made a statement at Bar that some of these assessments in case of assessee has also been completed under section 143(3) of the Act. That being the case, in our view, the Assessing Officer cannot tak a different stand in the impugned assessment year unless he demonstrates that there are material difference in facts between the earlier assessment years and impugned assessment year. If a factual position has been accepted by both the parties, which has been permeating through a number of assessment years, the Department cannot take a contrary view unless

The second issue raised by the Department is concerning deletion of addition of ` 15,77,848, for non–deduction of tax under section 194H on payments made towards commission on credit cards to Banks.

Briefly stated the facts are, the Assessing Officer, on verifying the Profit & Loss account, noticed that out of the total commission payment of ` 33,15,105, debited to Profit & Loss account, amount of ` 15,77,848, pertains to commission on credit cards paid to Banks.

The Assessing Officer observed that as per the practice followed, the assessee does not make any payment but the service provider itself deducts the commission from the amount payable. Therefore, it comes within the term “by any other mode” as provided under section 194H, hence, liable for deduction of tax at source. As the assessee has failed to deduct tax at source, according to Assessing Officer, the

The learned Commissioner (Appeals), relying upon the decision of the Tribunal, Hyderabad Bench, in Wah Magna Retail Pvt. Ltd., Hyderabad, held that as the collection charges collected by the banks for making payments to merchants establishments are not within the purview of TDS provisions, there is no requirement of deduction of tax at source. Accordingly, he deleted the addition.

We have considered the submissions of the parties and perused the material available on record. As can bee seen, the issue in dispute is squarely covered in favour of the assessee by a series of decisions of different benches of the Tribunal as under:–

The solitary issue raised by the assessee in this appeal relates to addition of ` 9,25,759.

As per AIR information available on record, it was found by the Assessing Officer that certain payments found to be credited to the assessee as per Form no.26AS, has not been shown as income by the assessee. He, therefore, called upon the assessee to reconcile such difference / discrepancies with reference to its books of account. As alleged by the Assessing Officer, since the assessee could not furnish necessary evidence, reconciling the difference, the amount of ` 9,25,759, was added.

The learned Commissioner (Appeals) also sustained the addition citing similar reasons.

Learned Counsel for the assessee submitted before us that the assessee has not actually received the amount alleged to have been credited to the assessee by the concerned parties and assessee is now in possession of necessary evidence obtained from the concerned parties to demonstrate that no such payments were actually received

Learned counsel referring to the revised Form no.26AS of Citi Bank, submitted, amount reflected therein tallies with the TDS certificate. He submitted that Citi Bank has also issued a letter acknowledging the mistake. Learned counsel submitted, as assessee is in possession of evidence to reconcile the difference the matter may be restored back to the file of the Assessing Officer for verification.

The learned Departmental Representative has no objection to the aforesaid request of the assessee.

Having heard the rival submissions of the parties as well as the nature of dispute, we are of the view that assessee should be given an opportunity to reconcile the difference between Form no.26AS and TDS certificates on the basis of the evidence brought on record. As the Departmental Authorities have not verified these evidences in the interest of justice, we restore the matter back to the file of the Assessing Officer for doing the necessary verification and deciding the issue after providing due opportunity of being heard to the assessee. Ground raised by the assessee is allowed for statistical purposes.

In the result, appeal stands allowed for statistical purposes. Order pronounced in the open Court on 29.01.2016