TaxTMI 
TaxTMI 
2009 (2) TMI 277
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....t source. 2. Whether the learned CIT(A) was justified in holding that passing an order on the basis of notice issued on 27th November, 2007 for asst. year 2002-03 and 2003-04 are barred by limitation. 3. Whether the learned CIT(A) was justified in deleting the demands raised Under Section 201(1) towards short deduction of tax on licence fee on the ground that the recipient has shown the amount as income in its return for the relevant previous year and the tax has also been paid. 4. Whether the learned CIT(A) has erred in holding that interest Under Section 201(1A) for the asst. years 2003-04 to 2005-06 has been wrongly levied, since the recipient has paid advance tax on the above amount of annual licence fee. Some of the above grievances are common for other asst. years and in subsequent paras, we will dispose of such grievances for other asst. years. 3.1 The assessee, M/s The Grand Ashok is a limited company. M/s The Grand Ashok Bangalore was taken over by M/s Bharat Hotels Ltd., New Delhi on lease for a period of 30 years in the month of November, 2001. The main business of M/s The Grand Ashok Is providing accommodation on rent and also running restaurant. Survey Under Se....
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....ranted the licence to manage and operate the hotel viz. The Grand Ashok Bangalore owned by KKFHPL for a period commencing from the closing date i.e. 29th November, 2001 up to March 31, 2032. In consideration of the lease/licence granted by the lessor to the assessee in respect of the hotel, the amounts were payable by the assessee to the lessor in terms of Article 2.2 of the agreement. The learned CIT(A) has reproduced Article 2.2 and 2.3 of the agreement in his order and these are also reproduced below for ready reference: 2.2 Consideration: In consideration of the lease and license granted hereunder, the Lessee/Licensee agrees to pay the following amounts. (i) Rs.4,11,00,000 (Rupees Four crore Eleven lakhs only) per annual hereinafter referred to as "Minimum Guaranteed Annual Payment" or "MGAP". The said amount shall be increased on April 1, 2007 and every five years thereafter during the term of this Agreement by 25% (Twenty Five percent) computed on the amount payable under this Article 2.2(a)(1) at the time of such increase; or (ii) 16.5% (Sixteen and a half percent) of the Gross Turnover of the Hotel hereinafter referred to as the "Turnover Based Annual Payment" or "TBA....
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....d to the lessor during the financial year 2001-02. Tax was not deducted under the bonafide belief that payment to lessor, which was held 100% by Government of India, constituted payment to government and provision of Chapter XVIIB relating to tax deduction at source did not apply to such payments. It was submitted that provision of Section 1941 of the Act has no application in respect of upfront fee paid by the assessee to the lessor during the previous year relevant to the asst. year 2002-03. TDS is required to be deducted in respect of credit/payment of any income by way of rent. Before the learned CIT(A) reliance was placed on the Circular of the Board dated 8th April, 2008 vide which, the CBDT No. 5/08 clarified that service tax on rent charged by the landlord does not partake the nature of income of the landlord and therefore, no tax is required to be deducted in respect of service tax. Hence, if the receipt is in the nature of income as rent, then tax is required to be deducted. The learned AR drew the attention of the learned CIT(A) to Section 4(2) of the IT Act. It was submitted that tax is not required to be deducted at source if the amount received by an assessee is not c....
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....fore, no tax was required to be deducted. The upfront fee was to be adjusted against 50% of the licence fee for the 30 years starting from the previous year 2002-03 relevant to asst. year 2003-04. The learned CIT(A) has also referred to the assessment order of the lessor where the upfront fee has not been taxed for the asst. year 2002-03. It was therefore held that the assessee is not in default Under Section 201(1) for non-deduction of tax at source Under Section 1941 from the amount of upfront fee paid to the lessor. 3.6 The learned CIT(A) recorded another finding that order passed by the Assessing Officer is barred by limitation because the notice for TDS verification was issued on 29th November, 2007. Therefore, the learned CIT(A) held that orders passed for asst. years 2003-04 and 2004-05 are barred by time limit. For this proposition, the learned CIT(A) has relied on the following decisions: * CIT v. NHK Japan Broadcasting Corporation 305 ITR 37(Del.) * Raymond Woollen Mills Ltd. v. ITO 57 ITO 536 (Bom.) * Sahara Airlines Ltd. v. DCIT 83 ITO 11 (Del. Bench) * ACIT v. Pepsi Foods Ltd. 129 Taxman 79 * Mitsubishi Corporation v. DCIT 85 ITD 414 Looking to the above ju....
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....s, then tax was required to be deducted at source as per Section 1941 of the IT Act. The learned DR drew our attention to Circular No. 5 dated 2nd March, 2001. Copy of the circular is available at page 101 and 102 of the paper book filed by the learned DR. In that case, the Board has to deal with the situations where the tax at source is deducted on the advance rent pertaining to one or more financial years. The Board visualized two situations in a case where tax at source is deducted from advance rent. One of the situations is that rent agreement gets terminated/cancelled resulting into refund of balance amount of rent to the tenant. Second situation is that when rented property is transferred by way of sale, lease, gift etc. with tenant in occupation or otherwise, which results into refund of balance amount of advance rent to the transferee or the tenant. The Board clarified that where advance rent is spread over more than one financial year of tax, then credit is to be allowed in the same proportion. In case, the rent agreement gets terminated or the rented property is transferred and the advance rent is refunded, then the Board clarified that credit is to be allowed in respect ....
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....year in which tax was deducted. 3.12 The Hon'ble jurisdictional High Court in the case of United Breweries Ltd. v. ACIT 211 ITR 256 had an occasion to consider the deduction of tax at source. In that case, entries were made but the amount was remitted subsequently. The amount was to be remitted as per the permission given by the Reserve Bank of India. In the case before the Hon'ble jurisdictional High Court, the payee ceased to be a non-resident under the Act by the time the permission was given by Reserve Bank of India. The Hon'ble jurisdictional High Court held that it will not materially affect the liability arising pursuant to the entries made in the books of account of the petitioner company. The Hon'ble jurisdictional High Court observed at page 267 as under: Point No. 3 Chapter XVII provides for collection and recovery of tax under the Act. In the usual course after the order of assessment is passed the Assessing Officer will raise a demand by a notice in the prescribed form specifying the sum payable and such sum shall be payable by the assessee and under Section 190, it is provided that notwithstanding that the regular assessment in respect of any inco....
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....t thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, [deduct income-tax thereon at the rate of- a) fifteen per cent if the payee is an individual or a Hindu undivided family; and b) twenty per cent in other cases:] The above Section requires that a person, who is responsible for paying to a resident any income by way of rent is required to deduct tax at source at the time of credit of such income to the account of the payee. The word 'refer' is paying to any income by way of rent. It does not refer that such income should be income of the previous year which is being paid and the tax should be deducted on the income of that previous year. It only says that payment should be of income. It is not disputed either by the revenue or by the assessee that upfront fee is an item of income though it is taxable in subsequent years. We cannot read into the provisions of the Act. The words 'such income' appearing in 1941 refers to any income, which is being paid by the person. The words 'such income' does not refer to the income of the previous year. 3.15 Words of general nature following specific and particular words ....
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....t the rate as mentioned in Central Act in respect of income of the previous year. The Hon'ble Apex Court in the case of Kalwa Devadattan v. Union of India 491 ITR 165 held that under the Income Tax Act, liability to pay income tax arises on the accrual of income. Finance Act 2001 vide para 2(6) has mentioned that tax is to be deducted at specified rate as mentioned in Section 1941. Quantification of tax is as per the rates applicable for a particular asst. year but charging Section is that income tax is chargeable at the time of accrual. Hence if income has accrued then tax is to be deducted. 3.18 We have reproduced para 2.2 and para 2.3 of the agreement in the earlier paras as the same were reproduced by the learned CIT(A). The consideration was in respect of lease and licence granted. 2.1 of the agreement refers to the grant of lease and licence. As per para 2.1 of the agreement, the leaser granted the lessee with lease term for a period up to March, 31, 2032. The lessee was also granted the right to use the licencer asset. Licencer assets have been defined in para 1.1(c) of the agreement while the lease term has been defined in para 1.1(b) of the agreement. The word 're....
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....case, the question pertained to the completion of proceedings. The decision in the case of Bhatinda District Coop. Milk Producers Union Ltd. refers to the initiation of proceedings. The Hon'ble Delhi High Court observed as under: In so far as the Income- Tax Act is concerned, our attention has been drawn to Section 153(1)(A) thereof which prescribes the time limit for completing the assessment, which is two years from the end of the assessment year in which the income was first assessable. It is well known that the assessment year follows the previous year and, therefore, the time limit would be three years from the end of the financial years. This seems to be a reasonable period as accepted under Section 153 of the Act, though for completion of assessment proceedings. The provisions of reassessment are under Sections 147 and 148 of the Act and they are on a completely different footing and, therefore, do not merit consideration for the purpose of this case. Even though the period of three years would be a reasonable period as prescribed by Section 153 of the Act for completion of proceedings, we have been told that the Income-tax Appellate Tribunal has, in a series of deci....
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....eriod of 4 years. In the case before the Hon'ble Kerala High Court, a plea was raised that order Under Section 201(1A) is barred by limitation on the ground of Section 231. The Hon'ble Kerala High Court has not considered the decision of the Hon'ble Apex Court in the case of Bhatinda District Coop. Milk Producers Union Ltd. So, according to us the decision of the Hon'ble Delhi High Court is applicable and the Assessing Officer could not have initiated the proceedings after the end of the four years from the relevant financial year. Accordingly, order Under Section 201(1) and 201(1A) for the asst. years 2002-03 and 2003-04 are barred by limitation. 3.25 Though we are holding that the order for the asst. year 2002-03 and 2003-04 are barred by limitation, yet we are deciding the issue on merits so that in case our finding in respect of limitation is reversed, the matter on merits stands decided. The assessee has filed the returns and has paid tax on the licence fee. The Assessing Officer has not raised demand Under Section 201(1) for the asst. years 2002-03, 2003-04 and 2004-05. Such finding is in consonance with the decision of the Hon'ble Apex Court in the case ....
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....ient has paid the tax on licence fee as advance tax or self-assessment tax. As per the finding given for the asst. year 2002-03, the issue of computation of interest Under Section 201(1A) is restored back on the file of the Assessing Officer. The interest should be charged till the date when the recipient has satisfied the tax liability on the licence fee. 3.27 For the asst. year 2004-05, the Assessing Officer has charged interest Under Section 201(1A) in respect of TDS to be deducted on licence fee. The tax payable after taking into credit the lease rent came to Rs. 1,92,74,580/- as per the computation of income available at page 83 of the paper book filed by the learned AR. The assessee has paid advance tax of Rs. 2,03,82,486/-. The assessee has claimed refund of Rs. 11,07,906/-. In the profit and loss account, lease rent credited is of Rs. 3,69,28,350/-. Interest income credited in profit and loss account is to the extent of Rs. 2,20,31,949/-. In the computation of income, the sum of Rs. 2,20,31,949/- has been shown under the head 'income from other sources' and income from business has been written at Rs. 3,16,96,104/-. After going through the computation of total inco....
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....he return for the asst. year 2005-06 has been filed and licence fee credited in PAL account is the same, which is receivable on the basis of the turnover, hence, there was no case of raising demand in respect of short deduction of tax because the deductee has already satisfied the demand. Hence, the demand in respect of 201 is deleted while the demand in respect of interest Under Section 201(1A) is upheld. 3.32 Explanation to Section 191 has been introduced by the Finance Act 2008 with retrospective effect from 1st June, 2003. As per this Explanation, if the deductee fails to pay the tax in respect of income on which the deductor was required to deduct the tax at source, then the deductor has to be deemed to be an assessee in default. This is without prejudice to the other consequences. Such explanation is applicable for Section 201(1) as deductor is to be deemed as an assessee in default. Section 201(1A) is without prejudice to the provisions of Section 201(1). Thus, it has been made clear by Explanation introduced in Section 191 that the revenue can raise demand against the deductor also in case the deductee fails to pay the tax. Thus, the liability of the deductor does not end ....
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....ore for his consideration as under. 1. There is no time limit prescribed in the Income-tax Act, beyond which ITO (TDS) cannot reopen proceedings related to TDS matters. Hence, the statute does not prescribe any time for passing any order Under Section 201. There are decisions directly applicable for the current case as under: (i) United Insurance Co. Ltd. v. ITO (TDS), Ward-16(3), Bangalore in ITA Nos. l715/B/05 dated 6.9.2007 (ii) Mittal Steel Ltd., Bangalore v. ACIT (TDS), Bangalore ITA Nos. 983 to 98/Bang/1997 dated 25.2.1998. (iii) Indo Nissin Foods Ltd. v. JCIT (TDS), Bangalore in ITA No. 240 to 246/Bang/2002 dated 30.9.2003 (iv) Ibex Gallagher Pvt Ltd. v. ITO (Int.Taxn.) ITA No. 2274 to 2278/Bang/2004 dated 7.7.2006 (v) Sultan Cooperative Housing Limited 261 ITR 364 (Kar.) Some of the other decisions are: (i) British Airways v. CIT 193 ITR page 439 (Call) (ii) Grindlays Bank Ltd. v. CIT 193 ITR page 457 (Cal.) (iii) Grindlays Bank Ltd. v. CIT 200 ITR page 441 (Cal.) (iv) CIT v. Thrissur Cooperative Bank Ltd. 266 ITR page 574 (Kerala) (v) Secretary Sultan Battery Cooperative Housing Society Ltd. v. CIT 261 ITR page 364 (Kerala) (vi) 81 ITR 87 Cat. : 2....