TaxTMI 
TaxTMI 
2012 (5) TMI 138
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....as to why the said rental income was not offered for taxation, the assessee submitted that the : 'Rent agreement for Guys & Gals is between Mr. Sibal's (Landlord) and M/s. Arvind Brands Limited. This is because the landlord wanted to have agreement only with Arvind Brands Ltd and not with the franchisee directly. Since the store is of Tommy Hilfiger which is the branch of the assessee company. The franchisee pays rent to the assessee after deducting applicable TDS." The assessee explained the transaction with the help of accounting entries passed in its books of account. It was, therefore, urged that the assessee and M/s Arvind Brands Limited were only the link between Landlords of the property and the franchisee. That was stated to be the reason for which the assessee had not shown any rental income. The Assessing Officer, on going through the assessee's explanation, agreed that the assessee did not receive any rental income. He, therefore, did not make any addition on this account. However he held that the amount of TDS could not be refunded to the assessee as the assessee had not shown any income from rent. The ld. CIT(A), invoking the provisions of section 199, echoed the asses....
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..... From the above journal entries it can be observed that the assessee did not earn any rental income from Guys & Gals. It simply received the net amount of rent (after deduction of tax at source) and passed it over to M/s Arvind Brands Limited for onwards transmission to the landlords. This fact has been duly accepted by the Assessing Officer inasmuch as he did not make any addition on account of rent in the hands of the assessee-company. The net effect of the transactions is that the assessee received Rs. 100 (Rs. 80 in cash and Rs. 20 by way of TDS certificate from Guys & Gals); and acting as middleman, it paid Rs. 100 to Arvind Brands Limited for onward transmission to the landlords after due deduction of tax at source. So both the receipt and payment on overall basis in the hands of the assessee are equal. 7. On receipt of amount by M/s Arvind Brands Limited, they passed over the amount of rent to the five landlords after deduction of tax at source at the rate of 15% plus surcharge by passing the following entry:- Sh. Hira Lal Sibal } Sh. Kapil Sibal } Sh. Virander Sibal } &n....
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....he Chapter XVII deals with deduction of tax at source on various items of income. For example, section 192 provides for deduction of tax at source in respect of `income' chargeable under the head "Salaries". Section 194B provides that the person responsible for paying of any person "any income" by way of winning from any lottery or crossword puzzle etc. shall at the time of payment thereof deduct income tax thereon at the rates in force. Similarly section 194D provides that any person responsible for paying to a resident "any income" by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business shall, at the time of credit of such 'income' to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Section 194-I deals with the deduction of tax at source from rental income. It provides that any person not being an individual or a Hindu undivided family, who is responsible for paying to a resident "any income by way of rent", shall at the time of credit of such income to the account of the....
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....ar for which such sum is assessable'. Thus it can be seen that primarily the deduction of tax at source is made by the payer when an amount in the nature of income is paid to the payee. Since such amount of tax is treated as paid on behalf of payee, naturally the credit for such tax can be given only to the payee. Further since the deduction of tax at source is contemplated only from the amount credited/paid to the payee in the nature of income, the credit for such tax can be allowed simultaneous with the chargeability of such amount in the hands of payee. 12. On a conjoint reading of various sections as discussed above it is vivid that the obligation for deduction of tax at source falls on payer when he credits the account of payee or makes payment for a sum which is in the nature of income in the hands of payee. Section 199 is a natural consequence of the earlier sections inasmuch as it provides for allowing credit for the tax which was deducted at source by the payer on the amount credited/received by the payee in the nature of income. If the amount received by the payee is not in the nature of any income or does not contain some element of income, there cannot be any questio....
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....outed transaction. The landlords did not intend to rent out their property to Guys & Gals who were the eventual user of the property. Since Guys & Gals happened to be franchisee of a brand belonging to the assessee, it had to intervene by facilitating the franchisee to acquire the premises on rent from the landlords through their direct involvement. The franchisee was under an obligation to deduct tax at source on the rent paid by it which it rightly did by making payment to the assessee after due deduction of tax at source. The assessee passed over the gross amount of rent to M/s Arvind Brands Limited, its sister concern for its onward transmission to the real landlords. M/s Arvind Brands Ltd. paid the amount of rent to the landlords after due deduction of tax at source. Obviously the amount received by the assessee was not in the nature of income. In this case the transaction of income is eventually between Guys & Gals and the landlords. The Assessing Officer has duly accepted this point of view by rightly not taxing the amount in assessee's hands. Thus it follows that the question of deduction of tax at source on the amount passing through hands could have arisen only once and n....
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....payee of the amount and none else. Thus it is evident that section 199 only deals with allowing of the credit for the tax deducted at source and not with the disallowing of such credit. It does not encompass within its purview the question for determination as to whether the credit for tax deducted at source should at all be allowed or disallowed. This enabling provision cannot be employed to disable the allowing of credit for the tax deducted at source from the payment made to the assessee in the nature of income. Evidently, it can never be contemplated nor it can be the case of the Revenue that the no credit for the amount of tax deducted at source should be allowed in a given situation. The reason being that the amount of tax deducted at source has to be necessarily adjusted against the tax liability arising out of payment received in the nature of income by the payee. Till the time such adjustment is made, the seisin of the Revenue over such amount collected by way of deduction of tax at source is only in the nature of an obligation. If the amount of tax due on such income, in the hands of recipient, turns out to be lower than the amount of tax deducted at source, the Revenue i....
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....ction extinguishes inasmuch as there remains no doubt in allowing credit for such tax to the payee in the relevant year. After that there cannot be any dispute that the credit should have been allowed in a later or an earlier year. It is for this reason that when the question has been determined that the income has accrued or received in one year then it should be assessed in that year and credit for tax deducted at source should be allowed in that year alone. A problem may arise in giving effect to the prescription of section 199 (that is, allowing credit of tax deducted at source to the payee) if the question is determined that the amount received is not at all an income assessable to tax either in the year of receipt or in any earlier or later year. Such problem has arisen in the present case. It is noticed that the amount of rent has suffered deduction of tax at source at two stages but income is chargeable to tax only once and that too not in the hands of the assessee. The Revenue has received the tax due on such rent by way of deduction of tax at source made by M/s Arvind Brands Limited, who eventually paid the net amount of rent to the landlords after due deduction of tax at....