2013 (11) TMI 1512 - AT - Income Tax

Tribunal upholds tax demand on medical college society for lease agreement, dismisses TDS argument

The Tribunal upheld the demand raised under Section 201 and 201(1A) for non-deduction of tax at source by an assessee, a medical college society, in a ... Disallowance u/s 40(a)(ia) for non deduction of TDS - Lease rent – applicability of provisions of section 201(1) as inserted by Finance Act, 2012 where recipient has shown the income in its return and paid the appropriate tax on such income - Held that:- The assessee was unable to pay the lease rent and therefore has passed only accounting entry for the treatment of leaserent and not deducted tax source thereon - The receiver of lease rent has filed the returns of income belatedly subsequent to the impugned proceedings - The assessee cannot be said to have satisfied the conditions prescribed in the proviso to sec. 201 of the Act inserted by the Finance Act, 2012 – The assessee did not demonstrate as to how the provision of section 40(a)(ia) is not applicable on it – Decided against assessee. Issues Involved:1. Demand raised under Section 201 and 201(IA) for non-deduction of tax at source.2. Additions made in quantum assessments under Section 40(a)(ia) and other disallowances.Issue-wise Detailed Analysis:1. Demand Raised Under Section 201 and 201(IA) for Non-Deduction of Tax at Source:The assessee, a society running a medical college, was not registered under Section 12A of the Act. The assessee entered into a lease agreement with another society, KCHC Ltd., for infrastructural facilities, including a hospital complex. The lease rent was fixed at Rs. 6.5 crores per year. The Assessing Officer (AO) noticed that the assessee accounted for this lease rent as payable but did not actually pay it or deduct tax at source as required under Section 194I of the Act. The AO initiated proceedings under Section 201, treating the assessee as in default for non-deduction of TDS and levied interest under Section 201(1A).The assessee argued that it did not have enough funds to pay the lease rent and hence did not deduct TDS. However, the AO held that TDS under Section 194I must be deducted at the time of crediting the lease rent to the account of the payee or at the time of payment, whichever is earlier. Thus, the AO raised demand under Section 201 and levied interest under Section 201(1A).The assessee further contended that the payment of Rs. 6.5 crores was split into Rs. 5.93 crores for infrastructural facilities and Rs. 57 lakhs for rent, and only the latter should attract TDS under Section 194I. Additionally, the assessee argued that KCHC Ltd. had filed returns declaring the lease rent, and as per the Supreme Court decision in Hindustan Coco Cola Beverages (P) Ltd. vs. CIT, the AO should not raise a demand if the recipient has declared the receipt in its return of income and paid the tax.The Tribunal held that the entire amount of Rs. 6.5 crores fell under the category of rent as defined under Section 194I, and TDS liability arises irrespective of actual payment. Since KCHC Ltd. filed returns belatedly, they cannot be considered as returns filed under Section 139, and thus the proviso to Section 201 inserted by Finance Act 2012 does not apply. Consequently, the Tribunal upheld the AO's decision to treat the assessee as in default under Section 201 and the interest charged under Section 201(1A).2. Additions Made in Quantum Assessments Under Section 40(a)(ia) and Other Disallowances:For the assessment years 2008-09 and 2009-10, the AO assessed the income of the assessee as income from business since the assessee was not registered as a charitable institution under Section 12A and was collecting fees. The AO made disallowances under Section 40(a)(ia) for failure to deduct tax at source and other disallowances under Section 40A(3).The assessee contested the additions made under Section 40(a)(ia), relying on the Calcutta High Court decision in the case of Virgin Creations, which held that the amendment to Section 40(a)(ia) by Finance Act 2010 was retrospective. However, the Tribunal noted that the facts of the instant case were different, particularly regarding the validity of returns filed by KCHC. Therefore, the Tribunal did not find any reason to interfere with the decision of the CIT(A) on this issue and upheld the disallowances made by the AO.Conclusion:The Tribunal dismissed all the appeals filed by the assessee, upholding the demand raised under Section 201 and 201(1A) for non-deduction of tax at source and the additions made in quantum assessments under Section 40(a)(ia) and other disallowances.