TaxTMI 
TaxTMI 
2021 (3) TMI 258
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.... relating to applicability of section 194-IA 2.1. The learned CIT(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 t....
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....es its liability to pay interest under section 201(1A). 5. Prayer Each of the above grounds is independent and without prejudice to the other grounds preferred by the assessee. In view of the above and other grounds 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 ....
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....on 201(1) and 201(1A) should not be initiated. The A.O. also asked whether the land owners have furnished their PAN to the assessee. The assessee replied to this notice vide 12.12.2013 reiterating its contention that it is not obliged to withhold taxes 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....
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....or; (iv) Immovable property which is the subject matter of transfer, should not be an agricultural land; (v) Transferor should be a resident; (vi) Consideration should not be less than less than 50 lakh rupees. 3.11 The learned AR submitted that on the basis of the reasons that follow that the 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 promis....
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....er to transfer a part of the land. He drew our attention to the relevant covenants in the development agreement highlighting this facet are as under: "NOW THIS AGREEMENT WITNESSETH AS FOLLOWS: That in pursuance of the foregoing and subject to the mutual obligations undertaken by the First Party and the Second Party under this agreement, 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, ....
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....00,00,000/- (Rupees One Crore Only) per acre of the Schedule Property. The said amount shall be paid to the members of the First Party as detailed in Annexure 4 to this Agreement. 15.2 On execution of this agreement the Second, Party has today paid to the First Party (as detailed in Annexure 4) a sum of Rs. 21,85,00,000/- (Rupees Twenty One Crore Eighty Five Lakhs Only) towards full payment of 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 ....
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....orm of sale consideration. In other words, the A.O. has not questioned the sanctity of the development agreement entered by the assessee. In such circumstances the A.O. has erred in not appreciating that the commercial understanding of the development agreement viz., value of 31.66% of the constructed area promised to be transferred by the assessee constitute 'consideration for transfer of 68.34% of land'. 3.23 He further submitted 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 ....
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.... has observed that under an usual development agreement the developer constructs on the owner's land and hands over a part of the built up area to the owner as consideration. 3.28 The learned AR submitted that the development agreement entered by the assessee is a typical development agreement wherein the assessee has agreed to construct on the land owner's land and hand over a part of the built up area to such owners as consideration. The A.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 cer....
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....ain test between the loan and deposit. These are:- (i) A loan is payable immediately on receipt thereof as per the directions of the lender, while a deposit has a term for repayment, which may be a fixed date or it may be as per terms and conditions of the agreement, (ii) The loan is obtained at the request of the borrower while a deposit is made at the instance of the depositor, and (iii) The limitation period in case of a loan starts from the date of the loan, while it starts from 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 sam....
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....f the development agreement, the capital gains becomes assessable in the hands of the assessee. We are supported in this behalf by the decision of the Third Member Bench of the Tribunal in the case of Vijaya Productions Pvt. Ltd. V/s. Addl. CIT (134 ITD 19)(tm). "11. Even though the assessee in terms of recital on page 2 of the supplementary agreement dated 3rd February, 2006, was to receive "a refundable deposit of Rs. 2,00,00,016, through two cheques, the said deposit was to be refunded on the complete handing over of the 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 p....
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....rs of the developed project. We agree with the ld. AR that provision of Section 53A of the Transfer of Property Act cannot be made applicable to the land under consideration as undisputedly the said land is stock in trade of the assessee and not a capital asset. We observe that authorities below have considered the said development agreement which amount to transfer of land particularly in view of clause 4.1 thereof as it gives an irrevocable and exclusive license and permission to use the project land to the developer. But we are of the considered view 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....
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....5 According to the learned AR, the treatment given in the books of account are to be taken as correct, unless the books of account are rejected by the revenue for strong and sufficient reasons. In the instant case, as stated above, the learned TDS officer has not given cogent reasons for disregarding the accounting characterisation of the refundable security deposit as current asset in the books of account of the assessee. In the light of above judicial pronouncements, the conclusion of the learned TDS officer to treat the refundable security deposit as consideration 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 hand....
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....er alia provides that in respect of income chargeable under Section 4(1), income-tax shall be deducted at source where it is so deductible under any provision of the 1961 Act. Section 192(1) falls in the machinery provisions. It deals with collection and recovery of tax. That provision is referred to in Section 4(2). Therefore, if a sum that is to be paid to the non-resident is chargeable to tax, tax is required to be deducted. The sum which is to be paid may be income out of different heads of income mentioned in Section 14, that is to say, income from salaries, income from house property, 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 deduc....
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....eases the net assets of an assessee. Income increases the "power of disposal" of an assessee. Income is something that goes into one's pocket. This understanding of the term income is supported by the decision of the Privy Council in Shaw Wallace's case 6 ITC 178. The Privy Council defined the term 'income' to mean "connote a periodical monetary return, coming in with regularity or expected regularity, from definite sources". 3.56 The learned AR submitted that to constitute an income the assessee must have control of the use of the impugned receipt / sum. The Supreme Court in Kanchanganga Sea Foods Ltd. v. CIT (2010) 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 ....
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.... the hands of the payer (assessee in the present case) is inconsequential. In other words a payer is required to withhold tax under section 194IA even if the immovable property constitutes stock-intrade. 3.61 The definition of the term 'transfer' in section 2(47) is relevant in context of computing 'capital gains' arising out of transfer of a capital asset. Section 194IA does not deal with taxability of capital gains. It fastens an obligation on the payee / transferee to withhold taxes from any consideration paid or credited for transfer of an immovable property [not being an agricultural land]. The provisions of section 2(47) cannot be 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. C....
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....ng that the requirement of 'transfer' of an immovable property under the Act is incomplete in the absence of registration of property. The courts took the view that possession sans registration is not sufficient to attract charge of tax under section 45 of the Act. This is despite the fact that the person holding the possession enjoys most of the privileges and benefits of ownership. With an objective to curb such practices, section 2(47)(v) was introduced in the Act to create a fiction that the possession sans registration of sale deed would constitute transfer of a capital asset. 3.66 He further contended that the deeming fiction created in section 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.....
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....transactions are entered into even if the transfer of immovable property is not effective or complete under the general law."(emphasis supplied) 3.69 He relied on the following case laws:- (a) In respect of that the document should be understood from the point of view of parties concerned. (i) Vodafone International Holdings B.V. v. UOI [(2012) 341 ITR 1 (SC)] (ii) Ishikawajma Harima Heavy Industries Limited v. DIT [(2007) 288 ITR 408 (SC)] (i) CIT v. Motor General Stores [(1967) 66 ITR 692 (SC)] (ii)ITO v. Vikas Bahal [(2010) 131 TTJ 229 (ITAT Kolkata) In the case of Ishikawajma Harima Heavy Industries Ltd. v. DIT (supra) the Hon'ble Supreme Court held 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 speci....
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....payment of customs duty and transportation of the goods to the site were concerned, the applicant could be said to be acting as an agent of Petronet, these facts did not militate against the property in the goods passing to the appellant. In connection with the offshore supply, certain operations were inextricably interlinked in India, such as, signing of the contract in India which imposed liability on the appellant to procure equipment and machinery in India and receiving, unloading, storing and transporting, paying demurrage and other incidental charges on account of delay in clearance. The price of the goods covered not only their price but also of all these operations which were carried out in India and from which income accrued to the appellant. 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) T....
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.... establishment in this case had no role to play in the transaction of offshore supply, sought to be taxed, since the transaction took place abroad. (iii) That the second sentence of article 7(1) which allowed the State of the permanent establishment to tax business profits, but only so much of them as was attributable to the permanent establishment excluded the applicability of the principle that where there was a permanent establishment, the State of the permanent establishment should be allowed to tax all income derived by the enterprise from sources in the State irrespective of whether or not such income was economically connected with the permanent establishment. The State of the permanent establishment was allowed to tax only those profits which were economically attributable 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. ....
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....was completed on the high seas and, therefore, the profits on sale did not arise in India. Once excluded from the scope of taxation under the Income-tax Act application of the Double Taxation Avoidance Treaty would not arise. (viii) That, in relation to offshore services, section 9(1)(vii)(c) required two conditions to be met : to be taxable in India the services which were the source of the income sought to be taxed had to be rendered in India as well as utilized in India. In this case, both these conditions were not satisfied simultaneously, thereby excluding the income from the ambit of taxation in India. Thus for a non-resident to be taxed on income for services, such a service had to be rendered within India, and had to be part of a business or profession carried on by such person in India. The appellants had provided 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 bas....
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.... (iii) CIT v. George Henderson & Co. Ltd. [(1967) 66 ITR 622 (SC)] (iv) Jasbir Singh Sakaria In re [(2007) 294 ITR 196 (AAR)] In the case of CIT v. George Henderson & Co. Ltd. (supra), the Hon'ble Supreme Court held as under:- "FULL VALUE OF CONSIDERATION" MEANING OF The expression "full value of the consideration for which the sale, exchange or transfer of the capital asset is made", appearing in section 12B(2) of the Indian Income-tax Act, 1922, does not mean the market value of the asset transferred, but the price bargained for by the parties to the sale, etc. The consideration for the transfer of a capital asset is what the transferor receives in lieu of the asset he parts with, viz., money or money's worth, and therefore the very asset transferred or parted with cannot be the consideration for the transfer. The expression "full consideration" in the main part of section 12B(2) cannot be construed 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) provi....
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....ion by the assessee that since SWC failed to return the deposit, for recovery of the amount, the assessee was forced to file civil suits and the suits were decreed in favour of the assessee the transaction was treated as in the nature of intercorporate deposit, came to conclusion that the nature of the transaction was that of "deposit" and not "loan". On appeal : Held, dismissing the appeals, that the three main tests between the loan and deposit are : (i) a loan was payable immediately on receipt thereof according to the directions of the lender, while a deposit had a term for repayment, which may be a fixed date or it may be according to the terms and conditions of the agreement, (ii) that the loan was obtained at the request of the borrower while a deposit was made at the instance of the depositor, and (iii) that the limitation period in the case of a loan starts from the date of the loan, while it starts from the date of repayment in the case of deposit. Since the monies given by the assessee 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(....
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....ression 'transfer' includes 'any transaction involving the allowing of the possession of any immovable property (as defined) 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'. Elaborating upon the scope of section 2(47)(v), their Lordships observed as follows: "Under section 2(47)(v), any transaction involving allowing of possession to be taken or retained in part performance of the contract of the nature referred to in section 53A of the Transfer of Property Act would come within the ambit of section 2(47)(v). That, in order to attract section 53A, the following conditions need to be fulfilled. There should be contract for consideration; it should be in writing; it should be signed by the transferor; it should pertain to the transfer of immovable property; the transferee should have taken possession of property; lastly, transferee should be ready and willing to perform the contract. That even arrangements confirming privileges of ownership, without transfer of title, could fall under section 2(47)(v)". 42. Their Lordships, having made the above observations,....
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....h Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay (supra), it is, therefore, necessary to demonstrate that the conditions under section 53A of the Transfer of Property Act are satisfied. This section is reproduced below for ready reference: Section 53A : Part performance-Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed thereof by the law for the time being in force, the transferor or any person claiming under him shall be....
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....ears, there is no complete willingness but a conditional willingness or partial willingness which is not sufficient....... In judging the willingness to perform, the Court must consider the obligations of the parties and the sequence in which these are to be performed........" 48. We are in considered agreement with the views so expressed in this commentary on the provisions of the Transfer of Property Act. It is thus clear that 'willingness to perform' for the purposes of section 53A is something more than a statement of intent; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of section 53A of the Transfer of Property Act will come into play on the facts of that case. It is only elementary that, unless provisions of section 53A of the Transfer of Property Act are satisfied on the facts of a case, the transaction in question cannot fall within the scope of deemed transfer under section 2(47)(v) of the IT Act. Le....
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....ring of required cost of acquisition by the developer. In the assessment year under consideration, it is not possible to say whether the developer prepared to carry out those parts of the agreement to their logical end. The developer in this assessment year had not shown its readiness or having made preparation for the compliance of the agreement. The developer has not taken steps to make it eligible to undertake the performance of the agreement which are the primary ingredient that make a person eligible and entitled to make the construction. The act and conduct of the developer in this assessment year shows that it had violated essential terms of the agreement which tend to subvert the relationship established by the development agreement. Being so, it was clear that in the year under consideration, there was no transfer of not only the flats as superstructure but also the proportionate land by the assessee under the joint development agreement. As per clause Nos. 12.11 and 19.1 of Development Agreement-cum Power of Attorney, time is the essence of the contract and as per clause No. 12.11 the said property is to be developed and hand over the possession of the owners' allocat....
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....pugned taxability of capital gain is imposed by the Assessing Officer and upheld by the CIT(A), cannot be said to be a "contract of the nature referred to in section 53A of the Transfer of Property Act" and, accordingly, provisions of section 2(47)(v) cannot be invoked on the facts of this case Chaturbhuj Dwarkadas Kapadia of Bombay (supra) undoubtedly lays down a proposition which, more often that not, favours the Revenue, but, on the facts of this case, the said judgment supports the case of the assessee inasmuch as 'willingness to perform' has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of section 53A of the Transfer of Property Act. Revenue does not get any assistance from this judicial precedent. The very foundation of Revenue's case is thus devoid of legally sustainable basis. 50. That is clearly an erroneous assumption, and the provisions of deemed transfer under section 2(47)(v) could not have been invoked on the facts of the present case and for the assessment year in dispute before us. In the present case, the situation is that the assessee has received only a 'meagre amount' out of tota....
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....aft or by any other mode, whichever is earlier. Clause (i) of the Explanation to section 194-I defines the term "rent" to mean any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the lands appurtenant thereto, whether or not such building is owned by the payee.In the present case, as per clause (2) of the lease deed, the rent has been fixed at Rs. 37,000 per month. As per clause (3) of the deed if the lease is renewed for a further period of two years, the same terms and conditions are to continue except that the quantum of rent had to be increased by 10 per cent of the last paid rent. After the expiry of the period of 3 years, the lease was renewable with the consent of the lessor on the terms and conditions mutually agreed between both the parties. As per clause (4) of the deed, the lessee was to pay to the lessor a sum of Rs. 2,22,000 as interestfree deposit. At this juncture, it needs to be appreciated that in case of the lease being renewed with increased rent, the quantum of security deposit was not to be varie....
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....r:- WORDS AND PHRASES - "PROFITS", MEANING OF. "Loss" suffered by the assessee on account of fluctuation in the rate of foreign exchange as on the date of the balance-sheet is an item of expenditure under section 37(1) of the Income-tax Act, 1961. Decision of the Delhi High Court in CIT v. WOODWARD GOVERNOR INDIA P. LTD. [2007] 294 ITR 451 affirmed. For valuing the closing stock at the end of a particular year, the value prevailing on the last date is relevant. This is because profit/loss is embedded in the closing stock. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increase in profits before actual realization. This is the theory underlying the rule that closing stock is to be valued at cost or market price whichever is lower. Decision of the Delhi High Court affirmed. The expression "any expenditure" has been used in section 37 of the Incometax Act, 1961, to cover both "expenses incurred" as well as an amount which is really a "loss" even though such amount has not gone out fr....
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.... The most important expression in section 195(1) of the Income-tax Act, 1961, dealing with deduction of tax at source consists of the words "chargeable under the provisions of the Act." A person paying interest or any other sum to a nonresident is not liable to deduct tax if such sum is not chargeable to tax under the Act. Section 195 contemplates not merely amounts, the whole of which are pure income payments ; it also covers composite payments which have an element of income imbedded or incorporated in them. The obligation to deduct tax at source is, however, limited to appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. It is for this reason that the CBDT has clarified in Circular No. 728 dated October 31, 1995, that the tax deductor can take into consideration the effect of the DTAA in respect of payments of royalties and technical fees while deducting tax at source. The expression "chargeable under the provisions of the Act" in section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. If tax is not so assessable, there is ....
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....bility 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. 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. Two conditions to be fulfilled before holding a person liable for deduction at source under section 194H of the Act are that payment is received by a person as agent of a principal and, secondly, the payment is for services rendered (not being professional services). An agency is a contract of employment for the purpose of bringing another in legal relation with a third party or in other words, the contract between the principal and agent is primarily a contract of employment to bring him into legal relation with a third party or to contract such business as may be going on between him and the third party. In publication of advertisements submitt....
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....ion. No foundational facts existed on the basis of which any inference could be drawn that advertising agencies were agents of the petitioners and further that advertising agencies rendered any service to the newspaper. (ii) That the authorities had not adverted to the Explanation to section 191 nor had applied their mind to whether the assessee had also failed to pay such tax directly. Directing recovery of interest from the petitioner and recovery of tax alleged to be short deducted, was beyond the scope of section 201 and without jurisdiction. (iii) That the opinion of the CBDT as disclosed in an article published in a newspaper to the effect that members of the Society are liable to deduct tax at source on payments made by them to advertising agency was an irrelevant material and could not have been relied on. (iv) That since the proceedings had been challenged on the ground that there were no jurisdictional facts on the basis of which the Income-tax authorities could have assumed jurisdiction under section 201 and directed recovery of tax which according to the authority was short deducted by the deductor and since the special leave petition filed by....
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....ity of the assessee to pay the tax gets discharged. If the tax is not deducted, it is payable by the assessee directly as provided under section 191 of the Act. Further, the liability to pay interest under section 201(1A) is on the person who fails to deduct the tax at source ; it is absolute and is upon the person responsible for deducting tax at source till the date it was actually paid. The liability to pay interest under section 234B is on the person who fails to pay advance tax under section 208 of the Act and/or under section 210 of the Act. Where the assessee's income is chargeable under the head "Salaries", the person responsible for paying the income chargeable under the head "Salaries" shall at the time of paying, deduct Income-tax at source and failure on his part entails an obligation to pay interest under section 201(1A) of the Act in order to compensate the loss incurred to the Revenue. Upon failure on the part of the employer to deduct tax at source, the assessee only becomes liable to pay the tax directly under section 191 of the Act and does not become liable to pay interest under section 234B of the Act. (i) In respect of the contention ....
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.... A vicarious liability is fastened on the payer of the specified sums to discharge the tax liability of the payee. The amount withheld is however tentative in nature. The final amount of tax to be paid is determined through the process of assessment. The amount of tax deducted at source is given credit and the balance tax if any is accordingly determined. Any person who fails to comply with the obligations imposed, may be treated as an assessee in default. 3.76 He relied on the judgment of the Hon'ble Supreme Court in Transmission Corporation of A.P Ltd and Another v CIT 239 ITR 587, wherein there had an occasion to examine the obligation of the person responsible for deduction of tax at source. The Court observed as under: "The said provision is for tentative deduction of income-tax thereon subject to regular assessment and by the deduction of income-tax, the rights of the parties are not, in any manner, adversely affected." 3.77 The Mumbai Tribunal in the case of IDBI Vs ITO 293 ITR (AT) 267 observed as follows:- "Section 190 makes it clear that the scheme of tax deduction at source is one of the methods of recovering the tax due from a person and it is notwithstanding the ....
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....rovides that in case tax is deductible under Chapter XVII of the Act then the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from the income. If the tax is deducted then the primary liability of the assessee is deemed to be discharged to that extent. However, in case the tax has not been deducted then the liability to discharge the tax shifts back to the assessee. The bar created under section 205 arises only in case of actual deduction. The assessee cannot take a stand that his liability is absolved to the extent the tax was deductible, but however not deducted. [Yashpal Sahni v. ACIT 293 ITR 539 (Bom)]. 3.81 The learned AR submitted that the provisions of deduction of tax at source being tentative in nature, cannot subsist after the primary liability is discharged by the payee. The decision of the Supreme Court in Hindustan Coca Cola Beverage P. Ltd. v. CIT [2007] 293 ITR 226 may be referred in support of this proposition. The Supreme Court after referring to the provisions of section 4, 190 and 191 held as under in CIT v Eli Lilly and Co. (India) P. Ltd. [2009] 312 ITR 225: "We are directing the AO to examine ....
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....Therefore in order to foist the liability of payment of tax under s. 201(1A) it is not necessary that on the date when the demand is made, the assessee should be an assessee in default. As held by the apex Court, both these sections are independent and mutually exclusive. They could be operated independent of each other. In that view of the matter, the Tribunal was justified in holding that on payment of tax due by the payee, the liability of the payer under s. 201(1) ceases, he ceases to be an assessee in default. But he has to pay interest under s. 201(1A) of the Act. Therefore the reasoning and finding recorded by the appellate authority is legal and valid and does not suffer from infirmity, which calls for interference." 3.85 The learned AR submitted that the above discussed position of law has been statutorily recognized by the legislature in form of first proviso to section 201. The first proviso to section 201 has been incorporated in section 201 vide Finance Act 2012 with effect from 01.07.2012. The first proviso to section 201(1) reads as under: "Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of....
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....ity deposit which does not constitute income in the hands of the land owners. Under such circumstances, the assessee submits that it was not under an obligation to furnish certificate prescribed under first proviso to section 201. Moreover, it was impossible for the assessee to furnish such certificate before the learned Assistant Commissioner of Income tax (TDS) - Circle 18(1), Bangalore during proceedings under section 201. The said certificate requires information of date of filing and acknowledgement number of the return of income. These details were not available during the proceedings under section 201 as it was impossible for the payees (land owners) to file their return of income prior to 31.03.2014. The proceedings under section 201 had been initiated on 11.10.2013 [date of first show cause notice] and culminated on 31.12.2013. Thus it was impossible for the assessee to furnish the certificate as required under first proviso to section 201. Under such circumstances, going by the maxim of 'Lex non cogit ad impossibilia' [which means that the law does not compel anyone to do impossible things], non furnishing of the certificate as required under first proviso to section 201 ....
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....t to Eight members of the First Party have delivered to the Second Party certified copies of title deeds pertaining to Item No.1 of the Schedule Property as the same are common documents with other properties owned by the First to Eight members of the First Party. The Ninth to Fifty Forth members of the First Party have delivered to the Second Party all the original title deeds pertaining to Item No. 2 of the Schedule Property to be held by them for both the Parties hereto upon completion of the development the Second Party shall be entitled to retain or hand over the same to apartment owners association on its formation at its discretion. The First to Eighth members of the First Party hereby agree to allow inspection of original title deeds in respect of Item No.1 of the Schedule Property and if need be produce the same for verification by financial institutions, authorities and courts whenever necessary and hereby agree not to use the same to create any third party rights over the Item No.1 of the Schedule Property which affects the rights of the Second Party under this agreement or its ability to implement the Project. (Clause 16 of Page 28 of JDA). 4.4 The Second Party has a....
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....r this Act, consideration means something in return and need not be adequate in return to the value of something given. Here, in this case the assessee has given Rs. 21,85,00,000 as refundable security deposit 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 i.e. refundable security deposit should not take away the essence of the transaction and it is nothing but advance sale consideration received for the transfer of the property. 3.1 The case laws quoted by the Ld. AR in respect of "consideration" is not applicable for the present case as there is no monetary consideration involved in those cases and the facts are also different. 3.2. To support the stand of the assessee, the Ld.AR has quoted the case law i.e. M/s. Unique builders and developers vs DCIT (ITAT, Jaipur). The facts of the case are different and as per Para 31.1 of the order, the Hon'ble ITAT has made the following observation- "...we observe that the AO by considering the said development agreement as agreement to sale of land and also considered entire amount of security deposit to be....
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....he TDS u/s. 201(1) and also liability u/s. 201(1A) of the Act. 5.1 Now the contention of the learned Authorised Representative is that there is no applicability of Section 194-IA of the Act since there was no transfer in terms of Section 2(47)(v) of the Act in relation to the JDA cum General Power of Attorney dt.3.6.2013. We have carefully gone through the various clauses of JDA cum General Power of Attorney to see whether the consideration received by the assessee is in terms of transfer of immovable property in terms of Section 2(47)(v) of the Act. In the present case, an amount of Rs. 21.85 Crores has been paid to 54 land owners which was shown as interest free "Refundable Security Deposit" in the JDA cum General Power of Attorney and this security deposit paid by the assessee is recoverable through sale of constructed area of the land owners share which is specified in Clause 15 of the JDA cum General Power of Attorney. The provisions of Section 194-IA of the Act which was inserted by the Finance Act, 2013 w.e.f. 1.6.2013 which reads as follows : "(1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194-IA to a res....
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.... the value of 31.66% of the constructed area which is to be transferred by the assessee as consideration for transfer of 68.34 of land by the land owners. In the present case, we have gone through the JDA cum General Power of Attorney to see whether there is a transfer within the meaning of Section 2(47)(v) of the Act or whether the transferee and transferor on the facts of the present case can be considered to have "performed or is willing to perform", their respective obligation under the JDA cum General Power of Attorney. 5.3 We have carefully gone through the JDA cum General Power of Attorney dt.3.6.2013. As per this JDA, it was specifically mentioned in Clause Nos.1 & 2 as follows : " 1. PERMISSION/POWER TO DEVELOP: 1.1 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 Buildings as aforesaid in terms of 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 brea....
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....ll take appropriate steps to secure at their cost necessary consents, no objection certificates and other." 5.4 As seen from the Clause No.1 that day one, it is specifically mentioned that the assessee is only permitted by the land owners to enter upon the scheduled property to develop the scheduled property by constructing a residential apartment building as per the terms mentioned in JDA. It is also specifically mentioned tin Clause No. 1.2 that the permission to enter by way of license so granted shall not however be construed as delivery of position of the scheduled property in part performance of any conduct as defined u/s. 53A of the Transfer of Property Act r.w.s.2(47)(v) & (vi) of the Income Tax Act, 1961. Further it was mentioned that Clause No. 2.1 states that within four months from the date of this Agreement, the present assessee to get prepared development plan, building plan and all other drawings as per the buildings by law, rules and regulations in force for development of the scheduled property into residential apartment buildings with the required parking spaces, common amenities like club house, etc and present the same for the approval of the first party f....
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....or construction however the Second party in any event shall secure the occupancy certificate within 6 months from the date of completion of construction. In the event of delay in securing Occupancy Certificate / Completion Certificate or Power / Sanitary / Water Connections, the Second Party shall arrange to have temporary electrical, water and sanitary connections until permanent connections are obtained. Within the aforementioned overall time lines the Second Party shall be entitled to develop the Schedule Property in two or more phases, subject to the condition that in each of the phase the First Party shall be entitled to get their 31.66% of the built up area proportionately. 8.3 In the event of any delay in completing the construction and development as stated above other than for the reason stated herein above, the Second Party shall be entitled to Six (6) months grace period to complete the development and construction of `OWNERS CONSTRUCTED AREA', if there is any delay beyond the grace period the Second Party shall be liable to pay to the First Party damages at the rate of Rs. 8/- (Rupees Eight Only) per sq.ft. per month of delay in completing and delivering the OW....
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....is also clarified by the CBDT in its Circular No.718 dated 22.08.1995, which reads as under:- 150. Clarification regarding deduction of tax at source from payment of rent 1. The Finance Act, 1994 introduced section 194-I in the Income-tax Act, 1961, which provides for deduction of tax at source from payment of income by way of rent. This section as amended by Finance Act, 1995 reads as follows : '194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to any person any income by way of rent, 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 the issue of 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 : Provided that no deduction shall be made under this section where the amount of such income, or as the case may be, the aggregate of the amount of such income credited or paid or likely to be credited or paid during the financial year by the afore....