2017 (5) TMI 74 - AT - Income Tax

Tribunal upholds assessee's non-deduction of tax on TTD payments

The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s ruling that the assessee was not obligated to deduct tax at source on rental payments ... Assessee in default under section 201(1) - tax deduction at source on rent under section 194I - certificate under section 197 for non-deduction of TDS - exemption under section 12A - constructive payment /sub leasing and payer's TDS liability - Hindustan Coca Cola Beverages Pvt. Ltd. principleTax deduction at source on rent under section 194I - assessee in default under section 201(1) - certificate under section 197 for non-deduction of TDS - exemption under section 12A - constructive payment /sub leasing and payer's TDS liability - Hindustan Coca Cola Beverages Pvt. Ltd. principle - Whether the assessee-company was an assessee in default under section 201(1) for failing to deduct TDS under section 194I on rent paid to Tirumala Tirupathi Devasthanams (TTD), where payments were made by the company (directly or on behalf of its directors) and the recipient (TTD) is covered by section 12A exemption and holds certificates under section 197. - HELD THAT: - The Tribunal accepted the factual finding that the licensor (TTD) is governed by section 12A and had obtained non-deduction certificates under section 197; rental receipts were issued in the names of the individual directors though payments were at times made by the company on their behalf. Applying the principle in Hindustan Coca Cola Beverages Pvt. Ltd., where the recipient's receipts are exempt or the recipient has itself discharged tax or holds a valid non-deduction certificate, the payer need not deduct TDS. The Tribunal held that the character of payments as made on behalf of directors does not impose a TDS obligation on the company so long as the recipient's receipts are tax exempt and a valid certificate under section 197 exists. On these facts, the Assessing Officer's conclusion that the company was an assessee in default under section 201(1) was not sustainable. [Paras 8, 9]The CIT(A)'s deletion of additions and holding that the assessee was not an assessee in default under section 201(1) for the impugned years is upheld; the revenue's appeals are dismissed.Final Conclusion: For assessment years 2009-10, 2010-11 and 2011-12 the Tribunal upheld the CIT(A)'s finding that no TDS was required on payments to TTD (an entity under section 12A holding section 197 certificates), and dismissed the revenue's appeals against the S.201(1) default findings. Issues Involved:- Whether the assessee is obligated to deduct tax at source on rental payments made to Tirumala Tirupathi Devasthanams (TTD) for running hotels.- Whether the CIT(A) correctly held that the assessee was not an assessee in default u/s 201(1) of the Income Tax Act.- Whether the payments made by the assessee to TTD were in the nature of constructive payments made to the directors of the company.Analysis:1. The case involved appeals by the revenue against the CIT(A)'s order for the assessment years 2009-10, 2010-11 & 2011-12. The revenue contended that the assessee failed to deduct tax at source on rental payments to TTD, while the assessee argued that TTD was exempt from deduction of tax at source due to a certificate obtained u/s 197 of the Act.2. The CIT(A) observed that TTD, being governed by section 12A and having a certificate u/s 197, was exempt from tax. Citing a Supreme Court decision, the CIT(A) held that if the recipient had paid tax on such receipts, the payer need not deduct tax at source. The revenue challenged this decision, arguing that the facts were different from the cited case.3. The revenue asserted that the payments to TTD were constructive payments to the directors, thus falling under the definition of rent u/s 194I. The assessee contended that the rent was paid on behalf of the directors, who had licenses from TTD, and as TTD was exempt with a certificate u/s 197, no tax deduction was required.4. The Tribunal found that the directors had obtained licenses from TTD, and although the assessee paid TTD directly, it was on behalf of the directors. As TTD was exempt and had a certificate u/s 197, tax deduction by the assessee was not mandated, regardless of who made the payment.5. The CIT(A) directed the A.O. to delete the additions for short deduction of tax at source, emphasizing that TTD's tax-exempt status and certificate u/s 197 absolved the assessee from TDS liability. The Tribunal upheld the CIT(A)'s decision due to lack of evidence provided by the revenue.6. Ultimately, the appeals filed by the revenue were dismissed, affirming the CIT(A)'s ruling. The decision was pronounced on 28th Apr'17, with the Tribunal finding in favor of the assessee based on the legal provisions and factual circumstances presented in the case.