2015 (7) TMI 45 - AT - Income Tax

Tribunal modifies disallowance under Section 40(a)(ia) and confirms Short Term Capital Gain addition.

The Tribunal dismissed the Department's appeal, partly allowing the assessee's appeal. The disallowance under Section 40(a)(ia) was modified to Rs. ... Disallowance u/s 40(a)(ia) - TDS as per provisions of section 194 I (Rent) or S. 194C (Payment to Contractors) - assessee submitted that the assessee was having Revenue Sharing Arrangements with other parties, so TDS was not required to be deducted u/s 194 I of the Act, since it was a business transaction and the assessee itself deducted the TDS u/s 194C because the assessee was required to pay portion of the Gross Operating Profit to the various parties - CIT(A) allowed part claim - Held that:- In the present case, it appears that the assessee entered into agreement with the various parties who were having various properties and were involved in all aspects of management and day to day running of business affairs of the property as a hotel. The assessee entered into agreement with those parties for different Revenue Sharing dependent on location potential etc. and the payments were made by the assessee on the basis of revenue sharing method. The assessee also agreed for minimum guaranteed amount. The ld. CIT(A) also accepted after making a detailed verification from the various agreements in between the assessee and the other parties that the payments on the basis of sharing of revenue would not come under the purview of section 194 I of the Act. However, in respect of SRK Travels & Tours Pvt. Ltd., the ld. CIT(A) categorically stated that as per the agreement dated 23.06.2005, it was evident that there was no involvement of the said party in the management and day to day running of the business affairs of the hotel in that property. Therefore, the payment made by the assessee was in the nature of rent and the assessee was liable to deduct TDS u/s 194 I. The ld. CIT(A) held that as the assessee short deducted the TDS, the disallowance u/s 40(a)(ia) of the Act amounting to ₹ 21,60,000/- was justified. In the present case, the maximum amount payable to M/s SRK Travels & Tours Pvt. Ltd. was ₹ 18,00,000/-, therefore, the disallowance could have been made to that extent only. It is also noticed from the details of the licence fees paid as mentioned by the AO that the assessee paid a sum of ₹ 18,00,000/- to M/s SRK Travels & Tours Pvt. Ltd. during the financial year relevant to the assessment year under consideration. We, therefore, considering the totality of the facts modify the order of the ld. CIT(A) and uphold the disallowance of ₹ 18,00,000/- instead of ₹ 21,60,000/- sustained by the ld. CIT(A). - Decided partly in favour of assessee, Addition made on account of Short Term Capital Gains - CIT(A) deleted part addition - Held that:- In the present case, it appears that the AO while working out the capital gain considered the purchase value at ₹ 2 crores and ignored the other expenses of ₹ 19,47,720/- incurred by the assessee which included stamp duty of ₹ 10 lakhs, corporation tax of ₹ 6 lakhs and other expenses amounting to ₹ 3,47,720/- on account of brokerage expenses, legal expenses etc. Those expenses were incurred by the assessee in accordance with Clause 16 of the purchase agreement wherein it was mentioned that the aforesaid expenses were to be borne by the vendee/purchaser. Therefore, the ld. CIT(A) was justified in considering the purchase cost at ₹ 2,19,47,720/-. In the present case, it also appears that the ld. CIT(A) accepted the bifurcation of the cost of the property into land and building because the same was shown by the assessee in its balance sheet of the preceding year which was not doubted by the department because nothing is brought on record that the valuation shown by the assessee in the preceding year was wrong. In the present case, the ld. CIT(A) adopted the value of building on the basis of circle rate. In the instant case, the total lump sum amount of ₹ 2.70 crores was received by the assessee and expenditure of ₹ 6,744,000/- was incurred towards cost of transfer, however, no bifurcation of the sale price relating to land and building was done out of lump sum sale price of ₹ 2.70 crores, therefore, the ld. CIT(A) had no other option except to adopt the sale value of the building on the basis of circle rate which was at ₹ 11,870/- per sq mts at the relevant time. In our opinion the ld. CIT(A) rightly worked the Short Term Capital Gain, therefore, we confirm the addition of ₹ 4,73,881/- sustained by the ld. CIT(A). - Decided against assessee. Issues Involved:1. Disallowance under Section 40(a)(ia) of the Income Tax Act.2. Short Term Capital Gain on the sale of property.3. Charging of interest under Sections 234A, 234B, 234C, and 234D of the Income Tax Act.Issue-wise Detailed Analysis:1. Disallowance under Section 40(a)(ia) of the Income Tax Act:The Department's appeal raised concerns about the reduction of disallowance from Rs. 1,24,49,495/- to Rs. 21,60,000/- made by the Assessing Officer (AO) under Section 40(a)(ia) of the Income Tax Act. The AO noticed that the assessee had paid license fees amounting to Rs. 2,87,49,591/- to various parties but deducted TDS at different rates. The AO argued that TDS should have been deducted under Section 194I (rent) instead of Section 194C (contractual payments). The AO made an addition of Rs. 1,24,29,495/- for short deduction of TDS.The assessee contended that the payments were made under revenue-sharing agreements, not rental agreements, and thus TDS was deducted under Section 194C. The CIT(A) agreed with the assessee, stating that the agreements were for revenue sharing and not for renting property, thus not falling under Section 194I. However, the CIT(A) sustained the disallowance of Rs. 21,60,000/- for payments made to SRK Travels & Tours Pvt. Ltd., as it was deemed a rental payment due to the fixed nature of the payment and lack of involvement in business operations.The Tribunal upheld the CIT(A)'s decision but modified the disallowance to Rs. 18,00,000/- instead of Rs. 21,60,000/-, aligning with the maximum payable amount under the agreement.2. Short Term Capital Gain on the Sale of Property:The AO noticed discrepancies in the assessee's declaration of Short Term Capital Gain (STCG) on the sale of property, where the assessee bifurcated the purchase and sale price between land and building. The AO considered the bifurcation arbitrary and added Rs. 23,92,871/- to the STCG.The assessee argued that the bifurcation was based on professional advice and was reflected in the balance sheet. The CIT(A) accepted the bifurcation and considered additional costs incurred in the purchase, which the AO had ignored. The CIT(A) recalculated the capital gain, reducing the addition to Rs. 4,73,881/- based on circle rates for the building.The Tribunal upheld the CIT(A)'s recalculation, confirming the addition of Rs. 4,73,881/-.3. Charging of Interest under Sections 234A, 234B, 234C, and 234D of the Income Tax Act:The issue of charging interest under Sections 234A, 234B, 234C, and 234D was deemed consequential by both parties. The Tribunal ordered accordingly, making the interest charges dependent on the final tax liability determined after resolving the primary issues.Conclusion:The Tribunal dismissed the Department's appeal and partly allowed the assessee's appeal, modifying the disallowance under Section 40(a)(ia) to Rs. 18,00,000/- and confirming the recalculated STCG addition of Rs. 4,73,881/-. The interest charges under Sections 234A, 234B, 234C, and 234D were ordered to be consequential.