TaxTMI 
TaxTMI 
2014 (2) TMI 1021
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....he assessment proceedings, the Assessing Officer noted that the assessee-company made cash payments for purchase of lands and asked the assessee as to why the provisions of section 40A(3) of the Act should not be attracted and also requested to furnish the detailed statement of cash and cheque payments made towards purchase of land. The properties in question were located in Vijayawada and Guntur regions. The assessee filed the details of cash payments made where no banking facilities are available, cash payments on the days the banks were closed on account of holidays and the cash payments made to agents as below: Sl. No. Particulars Amount(Rs.) 1. Cash payments in places where there were no banking facilities available (Clause (g) of Rule 6DD) 4,49,45,449 2. Cash payments on which day banks were closed on account of holiday (Clause (i) of Rule 6DD) 69,29,000 3. Cash payments to agents who are required to make payments in cash to landlords (Clause (k) of Rule 6DD) 3,15,65,268 4. Cash payments made below Rs. 20,000 on each occasion 18,99,109 Total 8,53,38,826 4. The claim of exemption in respect of cash payments of less than Rs. 20,000 each was accepted by....
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....than High court in the case of Naghilal vs. CIT (167 ITR 139) and denied exemption claimed u/r 6DD(i) of the IT Rules r.w.s. 40A(3) of the Act. (c) The AO's observation on the issue of payments made through agents was that a broker cannot be treated as an agent and held that the assessee's contention that the company engaged the services of agents/brokers for procurement of land and payments made through them is only a self serving statement. The AO examined six out of seven agents/brokers on oath. The agents deposed before the AO giving the details of services provided by them and the names of the sellers and stated that they acted as mediators at the time of purchase of land mainly to identify the prospective sellers. The AO further opined that the involvement of agents in the land deal is doubtful and in order to claim some commission payments to the brokers, the assessee company came out with the theory that they Are company's agents and cash payments made through them is covered by exemption provided under clause (k) of rule 6DD. The AO further stated that the agents utilised the vehicles provided by the company to hand over cash on the same day and, therefore, it proved that....
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....ages but it helps in understanding the reason which will help in appreciating the facts of the case. The assessee has furnished all the details stating that the said villages did not have banking facilities. The assessee filed confirmations from the village surpanches who certified that there were no banking facilities in the villages concerned and the assessee has also produced confirmations from the village surpanches confirming the identity of the sellers of the land. The observation of the Assessing Officer that Krishna and Guntur districts are most developed districts in the state and almost all the villages in these districts are covered by banking facilities is only based on his assumptions. But the village surpanches who are the responsible persons of the villages have confirmed that there were no banking facilities in the said villages. It is not proper to disbelieve the confirmations filed by responsible village officers and proceed on assumption that there should be banks in the said villages. Despite all the progress there are some villages in Andhra Pradesh which are not connected by proper banking facilities. It may be noted that Rule 6DD(g) says "section 40A(3) disa....
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....draft, exceeds twenty thousand rupees in such cases and under such circumstances as may be prescribed having regard to the nature and extent of banking facilities available considerations of business expenditure and other relevant factors. 14. The exceptions to the application of sec 40A(3) is laid down in Rule 6DDJ. Rule 6DD after its amendment from 1995, reads as under: Rule 6DD Prior to 25.7.1995, clause (j) of Rule 6DD of the IT Rules read as follows: 6DD....... i) in any other cause, where the assessee satisfies the Assessing Officer that the payment could not be made by a cross cheque draw on a bank or by a drawn on a bank or by a crossed bank draft...... (1) due to exceptional or unavoidable circumstances or (2) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof. And also furnishes evidence to the satisfaction of the Assessing Officer as to the genuineness of the payment and identity of the payee". The above clause (j) of Rule 6DD has been omitted by the IT (fourteenth amendment) Rules 1995 w.e.f. 27.5.19....
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....ement of the avowed object envisaged u/s 40A(3) of the Act. 15. Therefore the only exception that the Assessee can claim is when payments are required to be made on days when the Banks were closed on account of holidays or strike. Transactions after the banking hours in the course of regular business will not fall within this exception. In those transactions, the payment is not required to be made when the banks are closed i.e. after banking hours. Further the purpose of the disallowance u/s 40A (3) is to dissuade transactions by cash. 16. Sec 40A(3) itself provides that the exceptions will have to be prescribed having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. Taking all these factors, considering the nature of activity of the Assessee and the necessity for them to pay cash to the land owners we are of the opinion that the condition under Rule 6DD for exemption viz., transactions should have taken place on Bank Holidays should be read down in the case of the Assessee. 17. In the case under consideration, no banking facility is available where the properties were purchased by Assessee, theref....
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....ods or services on behalf of the person for whom he is acting as an agent. It may be noted that the exemption under Rule 6DD(k) is available only in respect of cash payments made to an agent, hence, it is important to know the meaning of 'agent' vis-a-vis 'broker'. The words 'Agent' & "Broker" are not defined in the IT Act. There is no definition of the term 'agent' in section 40(A)(3) or in section 2 of the Act. As per well settled principles, when there is no statutory definition of a word, the meaning of the term should be ascertained by applying common parlance test viz., as the word is understood in the popular sense i.e., the meaning attached to such expression in the particular trade circle instead of attaching a technical meaning. 13. On the other hand, the learned DR submitted that the difference in the meaning of 'agent' and 'broker' is very thin and the expression 'agent' used in Rule 6DD(k) connotes to Agents of the company but in the present case the assessee used the services of local villagers / agriculturists to broker the deal between the company and the sellers and therefore, the said people cannot be termed as Agents of the Company. It is common knowledge that e....
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....ils of brokerage income? A. 3 I use to brokerage lands for Abhinandana. In very few cases, I did so for others. Per year, the income on brokerage will be around Rs. 2 to 2.5 lakhs. I use to get at lease Rs. 5,000 per acre and up to Rs. 35,000. I assisted in purchasing land for one Mr. Sushil Kumar who resides in USA. Another person was C. Ravi Kumar, who resides at Chennai. Q. 6 Please furnish full details of your brokerage income. What was the basis of determination of brokerage income and what are the duties and responsibilities as commission agent? A. 6 I am acting as brokerage agent for purchase of land for the last 7 years. I have been related to Abhinandana Housing Pvt. Ltd. for the last 5 years. There is no rate of fixed rate of commission I got. They use to give on a random basis. As there is no investment on my side, I use to take whatever the commission income as my extra income only. We identify prospective farmers who are willing to sell land and introduce the same to the company. I use to act as mediator from the agreement stage till the registration. Q. 11 On your own, did you make any advances to the land lords? A. 11 No. I did not make any payments to farmers o....
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....ove statements it is apparent that the above said parties are not the agents of the company but they worked as middlemen and offered the services to other parties as well and this distinguishes the brokers from the agents and hence, the contention of the Assessing Officer that the alleged agents were just middle men/broker providing services for commission but not agents and hence, the exemption clause (k) under Rule 6DD of IT Rules does not apply, appears correct. Accordingly, the cash payments made through third parties cannot be brought under the exemption clause and the Assessing Officer is justified in disallowing the payment made in cash in contravention of the provisions of Section 40A(3) and, therefore, the disallowance of Rs. 3,15,65,263 is justified. 15. We have heard both the parties and perused material on record. The strong contention of the Department is that the above agents worked for other persons as agents and they cannot be agents to the assessee. There is no prohibition or restriction on a middleman to work as agent of different parties, if he was acting on behalf of the assessee as agent. The assessee's case falls under the purview of clause 6DD(k) of IT Rules....