Jack N Jill Solo Complex ITO (ITAT Gauhati)
ITAT Gauhati held that deduction of tax at source not liable as payment of rent was made to assessee who are not liable to pay tax in terms of exemption u/s 10(26) of the Income Tax Act. Accordingly, assessee cannot be held to be ‘assessee in default’.
Facts- TDS survey u/s. 133A(2A) of the Act was conducted on 06.02.2019 in the office/business premises of the assessee at Dimapur. It was found that the assessee had failed to deduct tax at source u/s. 194-I on payment of rent of Rs.39,53,040/- to different persons during the financial year. Assessee was show caused why it should not be treated as an ‘assessee in default’ u/s. 201(1) for non-deduction of tax at source.
AO was of the opinion that tax deduction u/s. 194-I is required to be made when the payment of rent equals or exceeds Rs.1,80,000/- and for this the payer i.e. the assessee cannot decide upon chargeability of receipt in the hands of payee. Thus, Ld. AO concluded that assessee deductor is deemed to be an ‘assessee in default’ u/s. 201(1) of the Act in respect of Rs.3,82,104/- being tax deductible @ 10% u/s. 194-I on the payment of rent. Ld. AO also charged interest u/s. 201(1A) of the Act in respect of the said TDS liability.
CIT(A) dismissed the appeal of the assessee. Being aggrieved, the present appeal is filed.
Conclusion-We note that assessee firm has made the impugned rent payments to four persons, all of whom enjoyed exemption u/s. 10(26) as they belong to recognised Scheduled Tribes, under The Constitution (Scheduled Tribes) Order, 1950 and The Constitution (Nagaland) Schedule Tribes Order, 1970 under Article 366 clause (25) of the Constitution of India. Accordingly held that rent payments made to exempt assessee under the Act do not invite deduction of tax at source and, therefore, assessee cannot be held to be ‘assessee in default’. According to us, if the payee has no liability to pay tax on such income, the liability to deduct tax at source in the hands of the payer cannot be fastened. Thus, the assessee was not liable to deduct tax at source from the payment of rents paid by it.
FULL TEXT OF THE ORDER OF ITAT GAUHATI
All these four appeals filed by the assessee are against the separate orders passed by Ld. CIT(A), Guwahati-1, Guwahati vide Acknowledgment No. 462782611100419/108, 462786161100419/109, 462787371100419/107 and 462789001100419/110, all dated 11.09.2020 against the assessment order passed by ITO, TDS-1, Guwahati u/s. 201(1) and 201(1A) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) all dated 15.03.2019 for AYs 2016- 17 to 2019-20 . Since grounds are common and facts are identical, we dispose all these four appeals by this consolidated order for the sake of convenience.
2. In all these four appeals, identical issues are involved except variation in amount, For the purpose of adjudication, we will take up one appeal for AY 20 16-17 in ITA No. 14/GTY/2022 and the findings in this case shall apply mutatis mutandis to all other three appeals.
3. Grounds taken by the assessee for AY 2016-17 are reproduced as under:
“1. For that the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad in law, facts and procedure.
2. For that on the facts and circumstances of the case, the learned CIT(A) ought to have hold that the learned ITO, TDS-1, Guwahati [AO] was not justified in treating the appellant as assessee in default in respect of Rs. 3,82,104/- without bringing on record any material to show that any part of the related amount of 38,21,040/- paid by the appellant as Rent was ‘income’ chargeable to tax under section 4(1) of the Act.
3. For that the learned CIT(A) has erred in confirming the order of the Ld. AO without controverting and after admitting the fact that the rent of Rs. 38,21,040/- paid by the appellant was not assessable as income in the hands of the payees and payees were not liable to pay tax on that amount as per the provisions of the Act and therefore, the appellant was not a person responsible for paying income chargeable to tax within the meaning of section 204(iii) of the Act.
4. For that keeping in view the sanctity of the judicial hierarchical system followed in the country, the Id. CIT(A) was not justified in contemptuously ignoring and not following the binding decision of the Hon’ble Jurisdictional High Court and the Hon’ble Jurisdictional Tribunal cited before him.
5. For that the Id. CIT(A) was not justified in contemptuously ignoring and not following the interpretation rendered by the Hon’ble Apex Court to section 4 of the Act cited before him and that too without giving any reason, whatsoever.
6. For that the ld. CIT(A) was not justified in not holding that order under section 201(1) of the Act was passed by the Id. AO in gross violation of the principles of natural justice and without allowing any opportunity of hearing in respect of the decision of the Hon’ble Tripura High Court and therefore, the same was bad in law and was liable to be quashed.
7. For that the Ld. CIT(A) was not justified in ignoring the submissions of the appellant to the effect that the Ld. AO erred both in law and on facts in erroneously imposing interest under section 201(1A) of the Act without allowing any opportunity of hearing and consequently, in confirming the action of the Id. Further, the Id. CIT(A) was not justified in ignoring the submission of the appellant to the effect that the Id. AO has erred in computing the interest under section 201(lA) till the date of order which is bad in law and consequently, in confirming the action of the Id. AO.
8. For that the impugned order has been passed by the Id. CIT(A) in a laconic manner and in gross violation of principles of natural justice and therefore, the same is bad in law.
9. For that in absence of DIN being quoted in the face of the order the same is bad in law.
10. For that your appellant craves leave of your honours to take additional ground or grounds and/or to modify any ground(s) of appeal at or before the time of hearing.”
4. Brief facts of the case are that TDS survey u/s. 133A(2A) of the Act was conducted on 06.02.2019 in the office/business premises of the assessee at Dimapur. It was found that the assessee had failed to deduct tax at source u/s. 194-I on payment of rent of Rs.39,53,040/- to different persons during the financial year. Assessee was show caused why it should not be treated as an ‘assessee in default’ u/s. 201(1) for non-deduction of tax at source. In response, assessee made a detailed submission claiming that –
a. The three persons to whom rent exceeding Rs. l,80,000 per annum was paid during the year under consideration belong to Scheduled
b. These persons have been granted a certificate from Income-tax Department issued by the Income-tax Officer, Ward -1 and Ward -2 Dimapur wherein it is certified that the persons belong to Scheduled Tribe and are not liable to pay tax under section 10(26) of the Act in respect of income arising or accruing to him from any source in the specified tribal area.
c. The rent paid to them is in respect of property situated in specified tribal areas and therefore, corresponding income arising or accruing to them are from a source situated in scheduled tribal None of them is liable to pay income-tax on the amount of rent paid.
d. The assessee, in support of his submission, placed reliance on the following judgements:
i. CIT vs. Eli Lilly and Co. (India) P Ltd. (2009) 312 225 (SC)
ii. Sing Killing vs. ITO (2002) 255 ITR 444 (Gau)
iii. Komorrah Limestone Mining Co. Ltd. vs. ACIT in ITA No. l00/Gau/201 6
iv. G E India Technology Centre P Ltd vs. CIT (2010) 327 ITR 456 (SC)
e. Lastly the assessee prayed for dropping of proceedings under section 201 of the Act as follows:
“In the circumstance, keeping in view the fact of the instant case and the above cited binding decisions of the Hon’ble Supreme Court, Hon’ble High Court and Hon’ble jurisdictional Tribunal, it may kindly be appreciated that as no part of the rent paid by us to the three schedu1ed tribe person in chargeable to lax under section 4 of the Act in view of the provisions of section 10(26) of the Act, hence, we could not have legally deducted ITDS therefrom. In the circumstances, we cannot be treated as ‘assessee-in-default’ on account of non-deduction of tax at source on Rent of Rs.39,53,040/- paid by us to the aforesaid persons during the financial year 2015- 2016. Therefore, it is most respectfully prayed that the proceedings initiated vide notice under reference may kindly be dropped.”
4.1. On the submissions made by the assessee, Ld. AO was of the opinion that deduction of tax at source u/s. 194-I is required to be made when the payment of rent equals or exceeds Rs.1,80,000/- and for this the payer i.e. the assessee cannot decide upon chargeability of receipt in the hands of payee. Thus, Ld. AO concluded that assessee deductor is deemed to be an ‘assessee in default’ u/s. 20 1(1) of the Act in respect of Rs.3,82,104/- being tax deductible @ 10% u/s. 194-I on the payment of rent. Ld. AO also charged interest u/s. 201(1A) of the Act in respect of the said TDS liability. The details of rent paid which is under consideration in the present four appeals is tabulated as under:
