TaxTMI 
TaxTMI 
2021 (3) TMI 258
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....T(A) has erred in concurring with the learned AO and concluding that refundable security deposits made with land owners amounting to Rs. 21,85,00,000/- are liable for TDS under section 194-IA of the Act. 2.2. On facts and in the circumstances of the case and law applicable, there was no liability to deduct tax at source under section 194-IA of the Act in respect of refundable deposit paid. 2.3. The learned AO and CIT(A) have erred in invoking section 194-IA in respect of the impugned transaction without appreciating that the (a) section 194-IA was introduced by Finance Act 2013, with effect from 01.06.2013; (b) assessee had credited the land owners in the books of accounts, on 29.05.2013 (i.e.) before introduction of section 194-IA. 2.4. The learned AO and CIT(A) have erred in not appreciating that existence of income is a sine qua non for attracting TDS provisions and that the refundable security deposit paid did not constitute income in the hands of land owners. 2.5. Without prejudice to the above, the learned AO and CIT(A) have erred in concluding that the refundable security deposit is 'consideration' for transfer of immovable property made by the assessee to land o....
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....to be adduced at the time of hearing, the assessee prays that the order passed by the learned CIT(A) to the extent prejudicial to the assessee be quashed or in the alternative, the aforesaid grounds and relief prayed for thereunder be allowed. The assessee prays accordingly." 3. The facts of the case are narrated below : 3.1 The assessee is an Indian Company engaged in the business of real estate development. In the course of its business, the assessee entered into joint development agreements with 54 parties (hereinafter referred as 'land owners') on 03-06-2013. The said agreement had been entered in respect of 11 acres of land located in Ranga Reddy district of Andhra Pradesh. As per the agreement, the assessee agreed to construct and deliver a share of the total built up area (31.66%) along with car parking spaces, terrace areas, private areas and all other built up areas to the land owners in consideration of 68.34% of land being conveyed to it by the land owner. 3.2 In terms of the agreement, a sum aggregating to Rs. 21,85,00,000/- had been paid by the assessee to the land owners as interest free 'refundable security deposit'. This deposit is refundable to the assessee afte....
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....axes under section 194IA from the refundable security deposit as the same is not in the nature of consideration for transfer of immovable property. The assessee stated that the security deposit is repayable by the land owners which indicates that the same is not in the nature of consideration for transfer. The assessee also argued that the accounting treatment of the refundable security deposit as 'current asset' in its books of account coupled with the accounting treatment of the refundable security deposit as current liability in the books of land owners supports its argument that the refundable security deposit cannot be characterized as consideration for transfer of immovable property. 3.7 The A.O. rejecting the contentions of the assessee passed the impugned order on 31.12.2013. The A.O. in the impugned order has held that the assessee has failed in deducting tax under section 194-IA from 'refundable security deposit' given to the land owners. The A.O. has reasoned that the refundable security deposit given to land owners constitutes 'consideration' for the transfer of the immovable property (land) under section 194IA. In arriving at this conclusion, the A.O. relied on the me....
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....e conclusion of the A.O. that the refundable security deposit constitutes consideration for transfer of immovable property is incorrect. The refundable deposit does not constitute consideration for transfer of immovable property. 3.12 The learned AR submitted that the term 'consideration' is not defined in the Act. The Bombay High Court and the Kerala High Court in Keshub Mahindra v. CGT [1968] 70 ITR 1 and CGT v Smt C K Nirmala 215 ITR 156 respectively held that the term "consideration" in the absence of a definition under the direct taxes legislation would carry the meaning as defined in the Indian Contract Act. Section 2(d) of the Indian Contract Act defines the term 'consideration' in the following manner: "When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise." 3.13 Evidently the definition of 'consideration' under the Indian Contract Act broadly means, "a promise, an act or abstinence" by the promisee. Such act, abstinence or promise could be past, present or futu....
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.... the Second Party hereby agrees to develop the schedule Property into Residential Apartment Building/s, club house, with required car parking spaces and all other amenities as detailed hereinafter (hereinafter referred to as the Project / Residential Apartment Building/s), subject to the terms and conditions hereinafter contained: (a) The Second Party / Developers are hereby empowered and authorized to develop the Schedule Property into "Residential Apartment Building/s" at their cost. (b) The Second party / Developers' shall construct and deliver to the First Party 31.66% of the total super built-up area comprised in the Residential Apartment Buildings to be constructed in or upon the Schedule Property, together with 31.66% car parking spaces, terraces areas, private garden areas and all other built up areas, hereinafter referred to as "OWNERS' CONSTRUCTED AREA' which is further detailed below. The remaining 68.34% of the total super built-up area in the Residential Apartment buildings to be constructed in the Schedule Property together with 68.34% of car parking spaces, terraces areas, private garden areas and all other built up areas is for the share of the Secon....
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....f the above referred to Security Deposit, the receipt of which Is hereby, acknowledged by the First Party. 15.3 The Security Deposit amount paid by the Second Party to the First Party shall be recovered through sale of part of the OWNER'S CONSTRUCTED AREA'. The First Party shall sell through the Second Party, after 18 months from the date of Second Party has commenced construction, a minimum of Rs. 1,50,000/- (Rupees One Lakh Fifty Thousand) sq ft from out of the OWNERS' CONSTRUCTED AREA' to be identified by the First Party at a price to be mutually agreed and fixed by the First Party and the Second Party, It is clarified as long as the Second Party offers to sell the aforesaid portion of the OWNERS' CONSTRUCTED AREA' at price not lower than Its own selling price, the First Party shall not unreasonably withhold its consent for selling the aforesaid area. The First Party shall authorise the Second Party to collect and recover from the purchasers this portion of OWNERS' CONSTRUCTED AREA' all amounts and the amount so collected shall be appropriated against the refund of the Security Deposit amount to be made by the First party. Any deficit amount shall be made, good....
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....itted that the Courts have held that in a development agreement similar to one in the present case; the share in constructed property constitutes 'consideration for transfer' of land by the land owner. In this connection one could refer to the following observations of the Kolkata Tribunal in ITO v Vikas Bahal (2010) 131 TTJ 229: "The assessee along with his co-owners entered into a development agreement on 31st Oct., 2000 with the developer for development and construction activity on the said premises and handed over the impugned land accordingly to the developer. As per said agreement, placed in the paper book at pp. 2 to 23, the developer was to construct on the said land two six storied buildings consisting of flats shops, common parking area etc. As per the said agreement, upon development of the premises, the developer shall retain with him as his share 67.5 per cent of the land and constructed area and the balance 32.5 per cent land and constructed area shall be allotted to all the five owners of the land. As per second schedule to the said agreement, the assessee's 1/5th share out of 32.5 per cent land and constructed area comes to 6,225 sq. ft. Therefore, in effect,....
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....O. without understanding this has concluded that the amount paid under clause 15 of the development agreement constitutes consideration of transfer. 3.29 According to the learned AR, the amount paid to the land owners under clause 15 of the said agreement is in the nature of 'refundable security deposit'. In fact the A.O. has also accepted in para 11 of the impugned order that the amount paid by the assessee is in the nature of refundable security deposit. 3.30 In the real estate industry the land owners generally obtain refundable security deposit from the developers to ensure proper execution of terms of agreement. It is repaid by the land owner to the developer on achieving certain level of construction or complying with certain terms and conditions as stipulated in the development agreement. 3.31 The learned AR submitted that in the case of the assessee the land owners have agreed to repay the deposit to the assessee after 18 months of commencement of construction. This has been specifically stipulated in clause 15.3 of the development agreement. This fact has been accepted by the A.O. in para 13 of the impugned order.Despite noticing the fact that the security deposit woul....
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....rom the date of repayment in the case of deposit." 3.34 The definition of the term 'deposit' as contained in explanation (iii) to section 269T of the Act also supports the proposition that the amount of deposit is repayable on demand. The definition reads as follows: ""loan or deposit" means any loan or deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes loan or deposit of any nature." 3.35 According to the learned AR, the land owner in the instant is contractually bound to pay the impugned amount to the assessee. The land owner received the said amount with an obligation to repay the same to the assessee. The land owners cannot appropriate the said amount. Under such circumstances, the impugned amount cannot be characterized as consideration for transfer of immovable property. 3.36 The term 'consideration' in section 194IA is followed by the expression 'for transfer of any immovable property'. This indicates that the term 'consideration' should be understood to include such payments which are made in order to achieve the transfer of the immovable property. Refundable security deposit is insist....
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....e area falling to the share of the first party, viz. the assessee; and in the event of failure on the part of the assessee in refunding such deposit, the same shall be adjusted at the time of final delivery, by the developer against the area to be handed over to the assessee applying a mutually agreeable rate. Considering these specific clauses and peculiar facts and circumstances of the case, we are of the considered view that the capital gains in the case on hand, are liable to be taxed only in the year, in which the developed area, coming to the share of the assessee, has been handed over to the assessee, in terms of the development agreement. In the present case, as the undisputed facts on record reveal, the developer has not undertaken any developmental activity to execute the construction work even today, even though in the final supplemental agreement dated 18th October, 2007 provided extension of time for the execution of the construction, by stating that the construction activity should be completed and developed area coming to the share of the assessee should be handed over within a further time of 48 months from the date of that supplemental agreement. 12. It is an und....
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....that said permission has been given to the developer for the limited purpose of development of the project and not with the intention to transfer of land. The above facts are fortified in the light of clause 5 of the development agreement which gives an option to the developer to purchase the land if they want @ Rs. 3.50 crores per acre. It is also a fact that assessee received a security deposit of an amount of Rs. 39,55,95,900/- and not the proportionate amount of Rs. 41,94,75,000/- which was not disputed by ld. DR at the time of hearing. The assessee has not received any additional amount over and above the amount as mentioned in the orders of the authorities below. We agree that the security deposit received by assessee and shown as liability is in order and same cannot be considered as sale consideration for transfer of land."(emphasis supplied) 3.40 The decision of Bangalore Tribunal in Shri V Pushpraj v ITO ITA No 686/Bang/2011 also supports the proposition that a refundable deposit does not constitute consideration for transfer of land by the land owners in case of a development agreement. 3.41 The learned AR submitted that one may in this connection also refer to Circula....
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....for transfer of land is bad in law and deserves to be set aside. Refundable security deposit does not constitute income in the hands of the land owner - TDS provisions are not applicable: 3.46 The learned AR submitted that the conclusion of the A.O. that the refundable security deposit is in the nature of consideration for transfer of immovable property is also liable for rejection on the ground that the same does not constitute income of the recipients viz., land owners. The question of deducting tax at source under the Act does not arise if the amount received by the payee does not constitute income in his hands. Existence of income is a sine qua non for attracting TDS provisions. This is the mandate of section 4(2) read with section 190 of the Act. 3.47 It is the submission of the learned AR that Section 4 is the charging provision under the Income Tax Act, 1961. The charge is defined vis-à-vis a person who is the recipient of income. The charge is in respect of the total income of a person for any year. Sub-section (2) of section 4 establishes a basis for the discharge of this tax. Sub-section (2), provides that in respect of income chargeable under sub-section (1), ....
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.... profits and gains of business, capital gains and income from other sources. The scheme of the TDS provisions applies not only to the amount paid, which bears the character of "income" such as salaries, dividends, interest on securities etc. but the said provisions also apply to gross sums, the whole of which may not be income or profits in the hands of the recipient, such as payment to contractors and sub-contractors." 3.51 The decision of Supreme Court in Vijay Ship Breaking Corp. v CIT [2009] 314 ITR 309 is an authority for the proposition that income exempt from tax is not liable for deduction of tax at source under section 195. Following are some of the decisions wherein it has been held that income exempt from tax is not liable for deduction of tax at source. Jagannath Temple Managing Committee vs. CIT [2008] 299 ITR 56 (Ori) - SLP dismissed [2009] 310 ITR (St.) 0007; CIT vs. HCL Info System Ltd [2006] 282 ITR 263 (Del); Hyderabad Industries Ltd. vs. ITO [1991] 188 ITR 749 (Kar) 3.52 The CBDT Circular No. 3 of 2002 dated 28.06.2002 and Circular No. 4 of 2002 dated July 16 2002 ([2002] 256 ITR (St.) 22) states that no tax is required to be deducted in respect of any amou....
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....325 ITR 540 observed "It is trite to say that to constitute income the recipient must have control over it." The amount received must be at the disposal of the assessee (land owner / seller in the present case). Only on satisfaction of this essential requirement, a receipt could be regarded as 'income' chargeable to tax. In the instant case, the assessee has paid refundable security deposit to the land owners. A security deposit is not covered under any of the limbs of section 2(24). It is also not understood as 'income' in its natural import. The land owners are contractually bound to repay the deposits to the assessee. The lnad owners are thus have no 'control' over the security deposit. 3.57 In view of the above, the learned AR submitted that the conclusion drawn by the A.O. in the impugned order that the amount of security deposit constitutes consideration for transfer of immovable property (and thus income) is bad in law. The assessee under such circumstances and law applicable is not obliged to withhold taxes from refundable security deposit under section 194IA. 3.58 The learned AR further submitted that the A.O. has stated that the condition of year of deductibility und....
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.... imported in section 194IA in the absence of a specific mandate. 3.62 The learned AR submitted that inview of the above, it can be stated that the aspect of transfer in context of section 194IA should be understood in the same manner as it is understood in common parlance. Normally, transfer of an immovable property is effected when the sale deed is registered with the stamp authorities. The title in the immovable property passes on to the buyer on the execution of the registered conveyance deed [Refer among others Alapati Venkataramiah v. CIT 57 ITR 185 (SC), CIT v. Periera & Sons Pvt Ltd 184 ITR 461 (Ker)]. However the event of 'transfer' should not be constructed to mean a completed event in context of section 194IA. If the term 'transfer' is inferred as a 'completed event' then one cannot give effect to the deduction from payments made prior to completion of transfer. Furthermore, there would generally be no consideration after the completion of transfer to invite or warrant a deduction. The purpose of section 194IA under such an interpretation would easily be frustrated. 3.63 Thus, the learned AR submits that in view of the above it could be stated that the provisions of se....
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....2(47)(v) cannot be imported to section 194IA so as to deem that the event of transfer therein is completed on the date of execution of the development agreement. It is a settled principle of law that a deeming fiction cannot be stretched beyond the purpose for which it was created. To quote the Supreme Court in CIT v Mother India Refrigeration Industries 155 ITR 711: "the legal fictions are created only for some definite purpose and these must be limited to that purpose and should not be extended beyond that legitimate field." 3.67 The learned AR submits that as already discussed, the assessee in the instant case has not made any payment during the relevant previous year which could be regarded as payment of sum towards consideration for transfer. The impugned payment (refundable security deposit) cannot be characterized as sum paid as consideration for transfer. The occasion to deduct tax under section 194IA had therefore not arisen in case of the assessee. 3.68 Without prejudice, the learned AR submits that a development agreement entered by the assessee cannot be characterized as an agreement to sell in the absence of a legal fiction similar to one under section 2(47)(v). Any ....
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....as under: Section(s): Income-tax Act, 1961, ss. 005(2),009(1)(i), Expln. (a),009(1)(vii),115A(1)(b)(B) WORDS AND PHRASES "PERMANENT ESTABLISHMENT" MEANINGS OF The appellant, a non-resident company incorporated in Japan, along with five other enterprises formed a consortium. The consortium was awarded by Petronet a turnkey project for setting up a liquefied natural gas (LNG) receiving, storage and regasification facility in Gujarat. The contract specified the role and responsibility of each member of the consortium and the consideration to be paid separately for the respective work of each member. The appellant was to develop, design, engineer, procure equipment, materials and supplies to erect and construct storage tanks including marine facility (jetty and island breakwater) for transmission and supply of LNG to purchasers, to test and commission the facilities, etc. The contract involved : (i) offshore supply, (ii) offshore services, (iii) onshore supply, (iv) onshore services and (v) construction and erection. The price for offshore supply and offshore services was payable in US dollars, that for onshore supply and onshore services and construction and erection partly ....
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.... Therefore, income accrued to the appellant from the offshore supply through business connection in India and some operations of the business were carried out in India. Profits were deemed to accrue/arise to the applicant in India from offshore supply of equipment/machinery but the profits deemed to accrue/arise in India would be only such part of the profits as was reasonably attributable to the operations carried out in India. (ii) That having regard to article 7(1) of the Convention for Avoidance of Double Taxation and Fiscal Evasion with respect to Taxes on Income between India and Japan read with paragraph 6 of the Protocol [1]supply of equipment or machinery (sale of which was completed abroad, the order having been placed directly by the overseas office of the enterprise) would be within the meaning of the phrase "directly or indirectly attributable to that permanent establishment" and, therefore, so much of the amount received or receivable by the appellant as was directly or indirectly attributable to the permanent establishment as postulated in paragraph 6 of the Protocol would be taxable in India. The price of the offshore services would be deemed to accrue or arise unde....
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....able to the permanent establishment, i.e., those which resulted from the permanent establishment's activities, which were economically from the business carried on by the permanent establishment. In this case, the permanent establishment's non-involvement in the transaction of offshore supply, excluded it from being a part of the cause of the income itself and thus there was no business connection. (iv) That for attracting the tax there had to be some activities through the permanent establishment. If income arose without any activity of the permanent establishment, even under the Convention the taxation liability in respect of overseas services would not arise in India. Section 9 spelled out the extent to which the income of a non-resident would be liable to tax in India. Section 9 had a direct territorial nexus. Relief under a Double Taxation Avoidance Treaty, having regard to the provisions contained in section 90(2), would arise only in the event taxable income of the assessee arose in one Contracting State on the basis of accrual of income in another Contracting State on the basis of residence. So far as accrual of income in India was concerned taxability must be read in t....
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....vided services to persons resident in India, and though they had been used here, they had not been rendered in India. (ix) That whatever was payable by a resident to a non-resident by way of technical fees would not always come within the purview of section 9(1)(vii). It must have sufficient territorial nexus with India so as to furnish a basis for imposition of tax. (x) That even in relation to such income, viz., income from offshore services, the provisions of article 7 of the Convention would be applicable, as services rendered outside India would have nothing to do with the permanent establishment in India. Thus, if any services had been rendered by the head office of the appellant outside India, only because they were connected with the permanent establishment, even in relation thereto the principle of apportionment would apply. (xi) There exists a distinction between a business connection and a permanent establishment. The permanent establishment cannot be equated to a business connection, since the former is for the purpose of assessment of income of a non-resident under a Double Taxation Avoidance Agreement, and the latter is for the application of section 9 of the ....
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....strued as having a reference to the market value of the asset transferred but the expression only means the full value of the thing received by the transferor in exchange for the capital asset transferred by him. The main part of section 12B(2) provides that the amount of capital gain shall be computed after making certain deductions from the "full value of the consideration for which the sale, exchange or transfer of the capital asset is made." In the case of a sale, the full value of the consideration is the full sale price actually paid. The legislature had to use the words "full value of the consideration" because it was dealing not merely with sale but with other types of transfers, such as exchange, where the consideration would be other than money. The expression "full value" means the whole price without any deduction whatsoever and it cannot refer to the adequacy or inadequacy of the price bargained for. Nor has it any necessary reference to the market value of the capital asset which is the subject-matter of the transfer. If the conditions of the first proviso to section 12B(2) are not satisfied the main part of section 12B(2) applies and the Income-tax Officer must tak....
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.... to SWC did not fulfil these criteria the question of applicability of section 2(7) of the Interest-tax Act, 1974, would not arise. The expression "advance" occurring in section 2(7) along with the expression "loan" should take its colour from "loan" and could not be given wider interpretation to include deposit as well. Otherwise, money deposits given in the form of investments, etc., would also qualify as "advances" and interest thereon would become exigible to interest-tax. Such a situation was never contemplated by the Legislature. Wherever the Legislature intended that a deposit be treated as loan it made a specific statutory provision in this behalf. The intercorporate deposit given by the assessee to SWC was not in the nature of loan or advance within the meaning of section 2(7) of the Act and, therefore, was not chargeable under section 5 of the Act. (d) In respect of the contention that refundable deposit cannot be regarded as consideration: (i) K.Radhika v. DCIT [(2011) 47 SOT 180 (ITAT Hyderabad)] (ii) Binjusaria Properties Pvt. Ltd. v. DCIT [(2014) 8 Taxcorp (AT) 35996, ITAT Hyderabad] (iii) M/s.Unique Builders and Developers v. DCIT [(ITA No.589 & 590/JP/2012 -....
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....nder section 2(47)(v)". 42. Their Lordships, having made the above observations, took note of the fact that section 2(47)(v) was introduced in the Act with effect from assessment year 1988-89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of conveyance. It was also noted by their Lordships that, in this scenario, assessee used to enter into agreements for developing properties with the builders and under arrangement with the builders, they used to confer privileges of ownership without executing conveyance, and to plug that loophole, section 2(47)(v ) came to be introduced in the Act. 43. There was no dispute on whether or not the conditions of section 53A of the Transfer of Property Act were satisfied on the facts of the case before the Hon'ble Bombay High Court. It was in this context, and after elaborate analysis of the facts of the case before their Lordships, their Lordships also observed as follows: "If on a bare reading of a contract in its entirety, an Assessing Officer comes to the conclusion that in the guise of agreement for sale, a development agreement is contemplated, under which the d....
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....r any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than the right specifically provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof. 46. A plain reading of section 53A of the Transfer of Property Act shows that in order that a contract can be termed to be "of the nature referred to in section 53A of the Transfer of Property Act" it is one of the necessary preconditions that transferee should have or is willing to perform his part of the contract. This aspect has been duly taken note of by the Hon'ble Bombay High Court when their Lordships observed as follows: "That, in order to attract section 53A, the following conditions need to be fulfilled. (a)There should be contract for consideration; (b)It should be in writing; (c)It should be signed by the transferor; (d)It should pertain to the transfer of immovable property; (e)The transferee should h....
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....he present case, can be said to have 'performed or is willing to perform' its obligations under the agreement. 49. Even a cursory look at the admitted facts of the case would show that the transferee had neither performed nor was it willing to perform its obligation under the agreement in the assessment year under consideration. The agreement based on which capital gains are sought to be taxed in the present case is agreement dated 11-5-2005 but this agreement was not adhered to by the transferee. The transferee originally made a payment of Rs. 10 lakhs on 11-5-2005 and another payment of Rs. 90 lakhs on the same day as refundable security deposit. However, out of this a sum of Rs. 50 lakhs was said to be refunded by the landlord to the developer on 5-3-2009. As such, the assessee has received only a meagre amount as refundable security deposit which cannot be construed as receipt of part of sale consideration. Admittedly, there is no progress in the development agreement in the assessment year under consideration. The Municipal sanction for development was obtained not in this assessment year and it was obtained only on 17-9-2006 from the Hyderabad Urban Development Auth....
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....ng the sanction of the plan from HUDA and Municipality/Gram Panchayat with a further grace period of 3 months. But the fact remains that the transferee was not only failed to perform its obligations under the agreement, but also unwilling to perform its obligations in the assessment year under consideration. Even otherwise, the assessing authorities has not brought on record the actual position of the project even as on the date of assessment or he has not recorded the findings whether the developer started the construction work at any time during the assessment year under consideration or any development has taken place in the project in the relevant period. He went on to proceed on the sole issue with regard to handing over the possession of the property to the developer in part performance of the Development Agreement-cum-General power of Attorney. In our opinion, the handing over of the possession of the property is only one of the condition under section 53A of the Transfer of Property Act but it is not the sole and isolated condition. It is necessary to go into whether or not the transferee was 'willing to perform' its obligation under these consent terms. When tr....
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....ecord by the revenue authorities to show that there was actual construction has been taken place at the impugned property in the assessment year under consideration and also there is no evidence to show that the right to receive the sale consideration was actually accrued to the assessee. Without accrual of the consideration to the assessee, the assessee is not expected to pay capital gains on the entire agreed sales consideration. When time is essence of the contract, and the time schedule is not adhered to, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under section 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of section 2(47)(v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the assessee deserves to succeed on reason that the capital gains could not have been taxed in this assessment year in appeal before us. The other grounds raised by the assess....
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....ely because rent was taken as the basis, the deposit did not lose its character as a deposit. Moreover, the deposit was to be adjusted at the fag end of the lease. Reading the entire deed as a whole, the intention of the parties appears to be that the deposit will be adjusted only when the lessee finally decides to vacate the premises forever. Simply because the lease was on year-to-year basis, renewable every year, it did not imply that every year the lessor should refund the deposit and the lessee should again place the deposit with the lessor. In other words, if the lease period was renewed from year-to-year, the parties had thought it to be impracticable to refund and place back the deposit every year. To simplify it further, on renewal of lease, the deposit was deemed to have been refunded and placed again with the lessor. Therefore, in our considered view, the deposit placed by the lessee was not rent paid in advance but, in fact, was a security deposit as is commonly understood. Further, in order to consider it to be refund of deposit, it is not necessary that the lessor should physically refund the deposit to the lessee.In the event of the lease not being renewed at any....
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....ng and at the end of the accounting year should be entered in the profit and loss account at cost or market price, whichever is lower the market value being ascertained on the last date of the accounting year, not at any intermediate date. No gain or profit can arise until a balance is struck between the cost of acquisition and the proceeds of sale. The word "profits" implies a comparison between the state of business at two specific dates, usually separated by an interval of twelve months. Stock-in-trade is an asset : it is a trading asset. Therefore, the concept of profits and gains made by a business during the year can only materialize where a comparison of the assets of the business at two different dates are taken into account. Under the mercantile system of accounting, what is due is brought into credit before it is actually received : it brings into debit an expenditure for which a legal liability has been incurred before it is actually disbursed. UNITED COMMERCIAL BANK v. CIT [1999] 240 ITR 355 (SC) followed. The accounting method followed by an assessee continuously for a given period of time has to be presumed to be correct till the Assessing Officer comes to the c....
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.... (Allahabad HC). (iv) CIT & Anr. v. Intel Tech India Pvt. Ltd. [(2011) 55 DTR (Kar.) 173. In the case of Jagran Prakash Ltd. (supra), the Hon'ble Allahabad High Court held as under:- NATURAL JUSTICE - PROCEEDINGS COMMENCED TEN DAYS BEFORE END OF YEAR AND COMPLETED IN TEN DAYS - FAILURE OF NATURAL JUSTICE. Unless the pre-conditions for exercise of jurisdiction exist in an authority assumption of jurisdiction on assuming wrong facts can be questioned in a writ court and the mere fact that the Income-tax authorities have assumed jurisdiction and proceeded to pass an order does not preclude scrutiny as to whether or not jurisdictional facts to assume jurisdiction were present. The fact that the parties have called their relationship an agency is not conclusive, if the incidents of this relationship, as disclosed by evidence do not justify a finding of agency, and the court must examine the true nature of the relationship and the functions and responsibilities of the alleged agent. A deductor who fails to deduct Income-tax at source shall be deemed to be an assessee in default only when the assessee has also failed to pay such tax directly. Thus, there is no occasion to trea....
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....etitioner, the publisher of a Hindi daily newspaper, was generated from advertisements published in its newspapers. The petitioner was a member of the Indian Newspaper Society whose rules provide that advertising agencies are free from control or interference from any business or person who owns or controls a newspaper, that newspaper agencies cannot be treated as principals and advertising agencies agents and prohibit members of the Society from appointing advertising agency as their representa-tives, that it is the advertising agency which is responsible for payment even if the advertiser has not paid to the advertising agency, that the accreditation of advertising agency is for the object of providing better service to the advertiser and that advertising agencies work in the interest of consumers and advertisers. The petitioner gave a 15 per cent. trade discount to accredited advertising agencies and a trade discount of 10 per cent. to 15 per cent. to non-accredited advertising agencies in accordance with the Rules and Regulations of the Indian Newspaper Society. On the ground that the petitioner had failed to deduct tax at source under section 194H of the Act therefrom, order....
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....plicity of proceedings to be faced by the petitioner whereas under law section 194H of the Act was not applicable in the facts. The petitioner had rightly invoked the jurisdiction of the court under article 226 and the petition could not be dismissed on the ground of alternative remedy. (v) That notice was issued on March 19, 2012, and within ten days opportunity, hearing and proceedings were concluded and completed whereas, the petitioner was required to give details pertaining to more than 1,80,000 payments made to advertising agencies during the relevant period. Suddenly in the second quarter of March, the proceedings were started and concluded within ten days. The Department had rushed through the proceedings to complete them before March 31, 2012, which evidenced infraction of rules of natural justice. Thus, adequate opportunity to which the petitioner was entitled was not provided for by the Department and the Department rushed through the proceedings. (h) In respect of the contention that the case laws on if tax is not deducted or short deducted under Chapter XVII the same cannot be recovered from the payer. (i) DIT v. Maersk Co. Ltd. [(2011) 334 ITR 79 (Uttarakhand HC....
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....essee-in-default only if the impugned amount constitute income in the hands of the landowners and tax remained unpaid by such landowners. 3.72 Without prejudice to the above, the learned AR submits that the A.O. has erred in treating the assessee as an 'assessee in default' without recording a finding that the refundable security deposit constitutes income in the hands of the land owners and such land owners have not paid the amount of tax directly on such income. 3.73 To reiterate, section 4 is the charging provision under the Act. The charge is defined vis-à-vis a person who is the recipient of income. The charge is in respect of the total income of a person for a year. Sub-section (2) of section 4 establishes a basis for the discharge of this tax. Sub-section (2), provides that in respect of income chargeable under sub-section (1), income-tax shall be deducted at source where it is so deductible or payable in advance under any provision of the Act. 3.74 Section 191 of the Act deals with a situation where a default occurs in the deduction of tax at source. In such a situation, the tax has to be borne / paid by the assessee directly. Section 191 also states that where no....
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....s of Chapter XVII, income-tax shall be payable by the assessee directly. This provision thus shows that tax deduction liability is a vicarious liability and the principal liability is of the person who is taxable in respect of such income. Section 202 lays down that tax deduction at source provisions are without any prejudice to any other mode of recovery from the assessee, which again points out to the tax deduction liability being vicarious liability in nature." 3.78 The learned AR further submitted that it may happen that the person responsible to deduct tax at source fails to deduct tax at source. In such situations, as already stated, the liability to discharge tax shifts back to the assessee. The recipient is thus never absolved of the primary charge. In other words, the charge is never transferred to the payer of the income. Section 191 stipulates this. This is also confirmed by sub-section (2) of section 190 which states that the deduction of tax at source will not prejudice the charge created by section 4(1) of the Act. These two sections are incorporated in the statute to cover the eventualities arising out of the non-deduction or non-collection of taxes by the payer co....
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....reat the deductor as an assessee in default unless the assessee has not paid the tax directly. * The fact that the assessee has failed to pay tax directly is thus, a foundational and jurisdictional fact and only after finding that the assessee has failed to pay tax directly, can the deductor be deemed to be an assessee in default in respect of such tax. * In a case where tax has not been deducted at source, the short deducted tax cannot be realised from the deductor and the liability to pay such tax shall continue to be with the assessee direct, whose income is to be charged and a person who fails to deduct the tax at source, at best is liable for interest and penalty only. * Nothing under section 201 can be read to mean that when the tax has not been deducted by the deductor, the tax not deducted can be realised from the deductor. 3.83 The learned AR submitted that no such provision is made under section 201 obviously because the liability to pay income-tax is on the assessee directly in whose case, the tax has not been deducted. 3.84 The Karnataka High Court relying on the decision of the Supreme Court in CIT v Eli Lily and Co (India) Pvt Ltd (Supra) held as under in CIT ....
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....t a payer cannot be regarded as 'assessee in default' in respect of the sum paid to a resident from which he fails to withhold tax if the tax has been paid directly by the said resident. The legislature has also cast an onus on the payer to furnish a certificate to this effect from an accountant in such form as may be prescribed. The format of the certificate has been prescribed in Annexure A to Form 26A. The question of furnishing a certificate in Form 26A (and thus discharging the onus) by the payer however arises only if the sum paid constitutes income chargeable to tax in the hands of the recipient and the payer has failed in deducting tax from the same. The expressions 'has taken into account such sum for computing income' and 'has paid the tax due on the income declared by him' in clause (ii) and (iii) respectively fortifies this proposition. A perusal of Annexure A to Form 26A also indicate that the question of furnishing the same by the payer does not arise if the sum paid to the resident payee does not result in income chargeable to tax under the Act. The table under clause (i) requires information such as nature of payment, section under which tax was deductible, amount o....
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....128 of the Paper Book filed by the AR) are mentioned below. 4.1 The First Party hereby permits the Second Party, by way of license, to enter upon the Schedule Property and further authorizes and empowers the Second Party to develop the Schedule Property by constructing Residential Apartments Building/s as aforesaid in term so this agreement and agrees not to revoke the said power until completion of development and sale of the 'DEVELOPERS' CONSTRUCTED AREA' so long as there are no default or breaches by the Second Party of this Agreement. The Second Party has accordingly entered the Schedule Property and will develop the Schedule Property in terms of this Agreement (Clause 1.1 of Page 13 of JDA). 4.2 In the event as a condition for approval of development plan the HMDA/GHMC requires parties to mortgage of certain number of residential apartments in favour of HMDA/GHMC, the Second Party shall create such mortgage from out of the 'DEVELOPERS' CONSTRUCTED AREA' as far as possible. If however the apartments to be mortgaged includes few of the apartments allocated to the share of the First Party, then the First Party also agree to mortgage same in favour of the....
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....ee has the right to mortgage even the owner's construction area to raise loans. Further, the assessee has paid Rs. 21,85,00,000 to the land owners which is to be adjusted against the sale proceeds of the constructed area. So, as seen from the conditions of the JDA, there is a transfer of the property and both the parties are willing to part perform the contract entered between them and the provisions section 2(47)(v) are applicable here. Section 2(47) (v) reads as under "any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882" Further Explanation 2 says, "...transfer includes and shall be deemed to have always included disposing of or parting with any asset or any interest therein, or creating any interest in any asset in any manner whatsoever directly or indirectly, absolutely or conditionally voluntarily or involuntarily, by way of an agreement or otherwise, notwithstanding that such transfer of rights has been characterized as being effected or dependent upon or flowing from the transfer of a share or sha....
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....rm his part of the contract under the development agreement. As can be seen from the facts and materials on record, the developer apart from making payment of the refundable security deposit of Rs. 13 lakhs per acre has not taken any steps towards development of the property" In view of this fact, it was decided in favour of the assessee which is not the case of the assessee. Here both the parties were willing to perform the contract and so not applicable. 4.7 She further submitted that it is not the case of the assessee that it had deducted TDS at the time of adjusting the sale proceeds against the refundable deposit and so not the case of double deduction of TDS. 5. We have heard rival contentions and carefully considered the material on record. In the present case, the Assessing Officer was of the opinion that since the assessee paid refundable deposit of Rs. 21.85 Crores to 54 land owners on entering into JDA with them on 3.6.2013 is liable for deduction of TDS u/s. 194-IA of the Act at 20% in 5 cases, their PAN were not available with the Assessing Officer and 1 person in other case since these payments are related to transfer of property. The CIT(Appeals) observed that t....
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....her the amount paid by the assessee towards interest free security deposit to various land owners whether it constitutes as "Consideration" in terms of Transfer of Immovable Property. In the present case, as per JDA cum General Power of Attorney, land owners have agreed to transfer a portion of land (68.34%) belonged to them in lieu of share in the super-structure (31.66%) which should be constructed by the assessee. The value of 31.66% of the constructed area promised to be transferred by the assessee has been accepted as "Consideration" for transfer of 68.34% of land by the land owners. The assessee has paid refundable security to the land owners amounting to Rs. 21.85 Crores. According to ld. DR, the payment of refundable security deposit is nothing but a part of sale consideration for transfer of immovable property in favour of the present assessee. Further it was submitted by the ld. DR that the refundable security deposit of Rs. 21.85 Crores paid to the land owners which is actually not refundable and the same is to be adjusted with the sale proceeds of the constructed area. So, the nomenclature given by the assessee to such amount as refundable security deposit should not t....
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....ded in this agreement. 1A) CONVERSION. Immediately on execution of this Agreement the members of the First Party shall apply to the Concerned Revenue Authority for conversion of the Schedule Property from the existing agricultural to non-agricultural residential purposes under the Andhra Pradesh Agricultural Land (Conversion for Non Agricultural Purposes) Land Act, 2DD6. The members of First Party undertake to secure the same within 2 (two) months from date of this agreement. The Second Party has agreed to bear/pay. conversion fee/charges payable for getting the conversion order. 18) The members of the First party also agree to secure at their cost and furnish, if necessary, no objection certificates from Revenue Department and Urban Land Ceiling Authorities for the proposed Project. 2. PLANS/LICENCES: 2.1 The Second Party shall prepare or get prepared development plan, building plans and all required drawings as per the building bye-laws, rules and regulations in force for development of the Schedule Property Into Residential Apartment Building/s with required parking spaces, common amenities like club house etc., within a period of 4 months from the date of this Agreeme....
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..../ Sharing / Supplemental Agreement, the Second Party shall commence construction in the Schedule Property. 8.2 The Second Party shall develop the entire Schedule Property and under normal conditions and in the absence of any Force Majeure event, complete the overall development and construction of the Residential Apartment Buildings in accordance with the Specifications set out in Annexure 2 hereto and the Sanctioned Plans within Sixty (60) months from the date of receipt of sanctioned plans. However, the Second Party shall not incur any liability for any delay in delivery of possession of the `OWNERS CONSTRUCTED AREA' by reason of non-availability of Government Controlled Materials, and / or by reason of Government restrictions and / or civil commotion, transporters strike, Act of God or due to any injunction or prohibitory order (not attributable to any action of the Second Party) or conditions force majeure provided the Second Party notifies the First Party of any such event within 7 working days of such event occurring with estimate or during of such event persisting. In which events, the Second Party shall be entitled to corresponding extension of time for completion and d....
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....wners constructed area. If there is any delay beyond the grace period, there is a penalty clause i.e. damage clause as mentioned in Clause No.8.3. 5.7 There is a time limit to get the permission from the competent authority which is 12 months from the date of Agreement, thereafter 60 months time to complete the construction of residential apartment buildings form the receipt of the sanction plan, thereafter grace period has been given which show that the time is the essence of the contract. In the Assessment Year under consideration, nothing is brought on record to show that the assessee got approval of the sanctioned plan vis-à-vis any construction is started. Being so, the argument of the ld. DR is that there was a transfer of immovable property in the assessment year under consideration is not tenable. This is so, because the transferee is not able to complete any act as mentioned in JDA cum General Power of Attorney. The transferee only made payment of interest free refundable security deposit of Rs. 21.85 Crores to the land owners as per clause No. 15. There was a condition in Clause No. 15 that the security deposit paid by the present assessee to the land owner shall ....
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.... are issued for information and guidance of all concerned : Query No. 1 : Whether tax is required to be deducted at source where rent has been paid in advance before 1-6-1994? Answer : Where an advance of rent has been paid before 1-6-1994, there is no requirement for deduction of tax at source. Query No. 2 : Whether tax is required to be deducted at source where a non-refundable deposit has been made by the tenant? Answer : In cases where the tenant makes a non-refundable deposit tax would have to be deducted at source as such deposit represents the consideration for the use of the land or the building, etc., and, therefore, partakes of the nature of rent as defined in section 194-I. If, however, the deposit is refundable, no tax would be deductible at source. It is further clarified that if the deposit carries interest, the tax to be deducted on the amount of interest will be governed by section 194A of the Income-tax Act. Query No. 3 : Whether the tax is to be deducted at source from warehousing charges? Answer : The term 'rent' as defined in Explanation (i) below section 194-I means any payment by whatever name called, under any lease, sub-lease, tenancy or any othe....