No TDS u/s. 194H on commission or brokerage payable by BSNL or MTNL to their PCO franchisees

Finance Act, 2007 has incorporated third proviso to section 194H stating, ‘no deduction shall be made under this section of any commission or brokerage payable by BSNL or MTNL to their PCO franchisees. The same is relevant for the A.Y. 2008-09. The issue is whether similar exemption is applicable for the assessment year prior to the assessment year 2008-09. This issue was adjudicated in favour of the assessee by co-ordinate Bench of this Tribunal in assessee’s own case in ITA No.71 to 77/PN/2009.

It has taken support from the order of the Tribunal in the case of ITO Vs. Accounts Officer, BSNL (ITA No.3996/Del/2004). Considering the exact nature of the issue, we are of the opinion that the CIT(A) was justified in cancelling the orders of the A.O. u/s 201 and 201(1A) for the years under consideration. Respectfully following the aforesaid order of the ITAT in assessee’s own case, we hold that the authorities below have erred in treating the assessee in default under Section 201(1) and 201(1A). Accordingly, we reverse the orders of authorities below and allow the appeals filed by the assessee.

INCOME TAX APPELLATE TRIBUNAL,  DELHI

ITA Nos.193/Del/2012 to 198/Del/2012

Assessment Years: 2003-04 to 2008-09

M/s Bharat Sanchar Nigam  Limited

Vs.

Income Tax Officer (TDS)

ORDER

PER G.D.AGRAWAL, VP:

These appeals by the assessee are filed against the consolidated order of learned CIT (A), Rohtak dated 17th October, 2011 for the AY 2003-04 to 2008-09.

2. Since common issue is involved in all these appeals, the same are being disposed of by this consolidated order for the sake of convenience.

3. The grounds taken by the assessee in all these appeals are identical. We reproduce the grounds raised in ITA No.193/Del/2012 as under:-

“1. The CIT (A) has erred in law and on facts in treating the appellant as assessee in default u/s 201(1) & 201(1A) of the IT Act and raising demand of Rs.12,90,280/-.

2. The CIT (A) has erred in law and on facts in ignoring the provisions of section 194H of the I.T.Act, 1956 despite of the fact that amendment brought in the section 194H w.e.f. 01.06.2007, is of a clarifying nature only to remove the hardship faced by the bsnl/mtnl, std/pco franchises and the department itself, which is evident from the CBDT circular/instruction, Commentary on Budget 2007 Finance Bill, Finance Minister Letter to Telecom Minister.

3. The CIT (A) has erred in law and on facts in not considering the Circulars issued by the Central Board of Direct Taxes (CBDT) regarding deduction of TDS u/s 194H from STD/PCO franchises of the BSNL, which are binding on the income tax authorities.

4. The CIT(A) has erred in law in disregarding the binding judicial precedent delivered by Hon’ble Jurisdictional ITAT Delhi, ‘B’ Bench, Delhi in the case of ITO(TDS) Gurgaon Vs. BSNL, GMTD Gurgaon, vide ITA No.3996/D/2004.

5. The CIT (A) has erred in law and on facts in ignoring the fact that demand u/s 201(1) & 201(1A) must be raised within a reasonable time.”

4. At the outset, the learned counsel for the assessee submitted that the issue involved in the present appeals is covered in favour of the assessee by the order of ITAT, Pune Bench dated 7th December, 2011 rendered in assessee’s own case in ITA Nos.983 & 984/PN/2010 for the AY 2006-07 & 2007-08. He has placed on record the copy of the said order of the Tribunal. He submitted that the authorities below have erred in treating the assessee in default under Section 201(1) and 201(1A) and in making additions. He further relied upon the CBDT Instruction No.3 dated 8.5.2009 and contended that it has been clarified in the said Instruction that recovery of TDS under Section 194H on commission paid by BSNL and MTNL to their STD-PCO franchisees may not be enforced by the field formations and only where they have already deducted TDS on commission paid to PCO owners, directed to deposit the same in the government account.

5. The learned DR, on the other hand, supported the orders of authorities below.

6. We have heard the rival contentions and perused the material placed before us. We find that the issue involved in the present appeals is covered in favour of the assessee by the order of the Tribunal dated 7th December, 2011 (supra) passed in assessee’s own case for AY 2006-07 & 2007-08. In the said order, the ITAT Pune Bench has followed the earlier order of the Tribunal in assessee’s own case in ITA Nos.71 to 77/PN/2009 for the AY 2002-03 and 2008-09, and held that the amendment brought in Section 194H is only clarification in nature. The relevant portion of the said order is reproduced below:-

“5. From the above, it is evident that the Finance Act, 2007 has incorporated third proviso to section 194H stating, ‘no deduction shall be made under this section of any commission or brokerage payable by BSNL or MTNL to their PCO franchisees. The same is relevant for the A.Y. 2008-09. The issue is whether similar exemption is applicable for the assessment year prior to the assessment year 2008-09. This issue was adjudicated in favour of the assessee by co-ordinate Bench of this Tribunal in assessee’s own case in ITA No.71 to 77/PN/2009. It has taken support from the order of the Tribunal in the case of ITO Vs. Accounts Officer, BSNL (ITA No.3996/Del/2004). Considering the exact nature of the issue, we are of the opinion that the CIT(A) was justified in cancelling the orders of the A.O. u/s 201 and 201(1A) for the years under consideration.”

7. Respectfully following the aforesaid order of the ITAT in assessee’s own case, we hold that the authorities below have erred in treating the assessee in default under Section 201(1) and 201(1A). Accordingly, we reverse the orders of authorities below and allow the appeals filed by the assessee.

8. In the result, the appeals of the assessee are allowed.

Decision pronounced in the open Court on 23rd March, 2012.