TaxTMI 
TaxTMI 
2021 (10) TMI 1219
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....l erred in law in not holding that since the levy of service charges is still under dispute between BMRCL and KIADB, an order requiring remittance of Tax- Deduction at source on such service charges is not in accordance with law on the facts and circumstances of the case? 2. Whether the Tribunal erred in law in not holding that the service charges fail the test of real income and consequently the order for Tax Deduction at Source is unsustainable in law on the facts and circumstances of the case? 3. Whether the Tribunal erred in law in not holding that the provisions of section 194J are not applicable to the facts and consequently there is no need to deduct any tax at source on the facts and circumstances of the case? 4. Without prejudice whether the Tribunal erred in law in not holding M/s KIADB being an entity registered under Section 12A of the Act, no Tax Deduction at Source would be required to be made and consequently the appellant BMRCL cannot be held to have defaulted for non-deduction of Tax Deduction at Source on the facts and circumstances of the case? 5. Whether the Tribunal erred in law in not deleting the interest under section 201(1A) on the facts and circums....
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....olled by the Government of Karnataka and the recipient - KIADB is not even liable to pay tax on this amount. No part of Rs. 1,225 Crores has been claimed by the assessee as expenses and the recipient - KIADB also not offered any income in this regard. The sum and substance of the arguments is that the impugned service charges cannot constitute income accruing or arising in the hands of KIADB for taxation. 7. Inviting the attention of the Court to the provisions of Section 194J of the Act, it was argued that the phrase "income tax on income comprised therein" has been interpreted by this Court in the case of Commissioner of Income Tax vs. Kalyani Steels Ltd., reported in (2018) 91 taxmann.com 359 (Karnataka), wherein it has been held that the primary factor to attract Section 194J is the ingredient of "income comprised therein". The assessee cannot be treated as the assesse in default for not deducting tax under Section 194J of the Act. In the present case, the KIADB has not recognized any income out of Rs. 1,225 Crores paid by the assessee, the entire amount is shown as deposit receipt as shown in the balance sheet. Hence, no deduction of TDS was necessary and there is no i....
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....xtracted by the Assessing Officer would disclose that the amount of Rs. 11,26,09,86,779/- is inclusive of service charges payable to KIADB. It was submitted that the nature of assessment in the hands of payee is irrelevant. Application and registration under Section 12A of the Act is subject to complying with Sections 11 and 12. The assessee cannot take the contention that the amounts paid to KIADB is not an income in the hands of the KIADB. Section 194J does not impose an obligation on the assessee to ascertain whether the deductee is liable to tax or not. It was submitted that KIADB was subjected to assessment. The service charges collected by KIADB are offered to tax. 10. Learned counsel for the revenue has relied upon catena of judgments in support of his contentions. 11. We have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record. 12. Section 194J of the Act reads thus: "194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of - (a) fees for professional services, or (b) fees for technical services, or [(ba) any r....
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....e interim award was made, it was held that the assessee is liable to pay the tax only after the final conclusion of the dispute before the Hon'ble Andhra Pradesh High Court. 15. In Kalyani Steels Ltd., supra, (where one of us, Hon'ble SSJ was a member), it has been held thus: "11. This provision (194J) makes it clear that deduction at source shall be on such income not otherwise. The primary factor to attract Section 194J is the ingredient of "income comprised therein". If no income is reflected in the balance sheet and P & L account of HSL towards the reimbursement charges paid on cost to cost basis by KSL and ML, it ceases to have the character of income. As such, the assessee cannot be treated as the assessee in default in not deducting tax at source under Section 194J of the Act. The arguments of the revenue that the fees paid by the assessee is towards technical services is imaginary one not established with substantial material. 12. xxxx 13. It is trite that, if there is no income embedded in a payment, then TDS provisions would not apply as TDS is only an alternative method of collection of taxes. It is beneficial to refer to the judgment of this Court in the case of ....
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....ing tax at source is in the nature of a vicarious liability, which pre-supposes existence of primary liability. The said liability is a vicarious liability and the principal liability is of the person who is taxable. A bare reading of Section 201(1) shows that interest under Section 201(1A) read with Section 201(1) can only be levied when a person is declared as an assesseein- default. For computation of interest under Section 201(1A), there are three elements. One is the quantum on which interest has to be levied. Second is the rate at which interest has to be charged. Third is the period for which interest has to be charged. The rate of interest is provided in the 1961 Act. The quantum on which interest has to be paid is indicated by Section 201 (1A) itself. Sub-section (1A) specifies "on the amount of such tax" which is mentioned in sub-section (1) wherein, it is the amount of tax in respect of which the assessee has been declared in default. The object underlying Section 201(1) is to recover the tax. In the case of short deduction, the object is to recover the shortfall. As far as the period of default is concerned, the period starts from the date of deductibility till the da....
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....e Parliament could have intended to cast such impossible burden upon the payer nor could it be attributed with the intention of enacting such an impractical and unworkable provision. 20. There is no cavil on these legal principles as collated. However, the crux of the controversy herein, is not about the percentage amount deductible from the income of the KIADB, it is whether the payment of Rs. 1225 Crores paid by the assessee includes the service charges and constitutes the income. The assessee's main ground that no service charges were paid to the KIADB and the amount of Rs. 1225 Crores paid to the KIADB is part of the compensation to the lands acquired requires consideration as the same goes to the root of the matter. The liability to deduct tax would arise only if payment was made towards service charges by the assessee which attracts tax liability. The primary factor to attract Section 194J is the ingredient of 'income comprised therein' as held in Kalyani Steels Ltd., supra. In order to establish the same, learned Senior counsel for the assessee has referred to Annexure to Schedule - D - Annexure - D1; deposit from allottees in the balance sheet of the KIADB as at 31.03.2013....