10 July, 2015

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Payment made for use of property of the member of the Joint Venture (JV) - assured return not in the nature of Rent u/s 194-I

M/s. Facets Polishing Works Pvt Ltd Versus ITO, TDS-1, Surat

No.- ITA Nos. 674 to 676/Ahd/2011, ITA Nos. 856 & 857/Ahd/2011

Dated.- June 25, 2015

ITA Nos. 674 & 856/Ahd/2011 are the cross appeals filed by the assessee and Revenue respectively against the order of the learned Commissioner of Income-tax (Appeals)-I, Surat dated 16.11.2010 for Assessment Years 2007-08. ITA Nos. 676 & 857/Ahd/2011 are the cross appeals filed by the assessee and Revenue respectively against the order of the learned Commissioner of Income-tax (Appeals)-I, Surat dated 16.11.2010 for Assessment Years 2009-10. ITA No. 675/Ahd/2011 is the appeal filed by the assessee against the order of the learned Commissioner of Income-tax (Appeals)-I, Surat 16.11.2010 for Assessment Years 2008-09. Since these appeals involve common issues, these were heard together and are being disposed of by this consolidated order for the sake of convenience.


ITA Nos. 856 & 857/Ahd/2011–Revenue’s Appeal for AYs 2007-08 & 2009-10

2. The first ground raised in the appeal by the Revenue in both the years read as under:-

AY 2007-08

The Ld. CIT(A) has erred in law as well as facts of the case in deleting the order passed u/s 201A(1) of the I.T. Act of ₹ 10,09,800/- & interest charge u/s 201(1A) of the IT Act of ₹ 4,27,482 for A.Y. 2007-08 even though during the course of verification it was noticed that the assessee company had not deducted tax in respect of payment of rent u/s 194I of the IT Act of ₹ 60,00,000/- @ ₹ 5 lakhs per month to M/s. Tirupati Organisers Pvt Ltd (TOPL) for using premises & infrastructures.

AY 2009-10

The Ld. CIT(A) has erred in law as well as facts of the case in deleting the order passed u/s 201A(1) of the I.T. Act of ₹ 8,44,600/- & interest charge u/s 201(1A) of the IT Act of ₹ 84,460 for A.Y. 2009-10 even though during the course of verification it was noticed that the assessee company had not deducted tax in respect of payment of rent u/s 194I of the IT Act to M/s. Tirupati Organisers Pvt Ltd (TOPL) for using premises & infrastructures.

3. We have heard both the parties and perused the material placed before us. The Assessing Officer held the assessee to be in default in non deduction of tax in respect of payment made to Tirupati Organizers Pvt Ltd. That, as per Assessing Officer, the above payment was in the nature of rent and therefore, the assessee was liable to deduct the tax u/s 194I. The CIT(A) accepted the assessee’s contention that it was not the payment of rent but it was a joint venture between the assessee and the Tirupati Organisers Pvt Ltd. Therefore, there was no liability of deducting the tax on the payment made to assessee who derived income from joint venture alongwith the assessee.

4. At the time of hearing before us, it was pointed out by the ld. Counsel that in the case of Tirupati Organisers Pvt Ltd, the issue arose about the taxability of the head of income under which the amount received from the assessee was to be assessed. As per Revenue, it is to be assessed under the head from “house property” while as per assessee it was assessable under the head “profits and gains of business”, because it was the income from the business of joint venture of processing of diamonds. The dispute reached to the High Court and the Hon’ble jurisdictional High Court in the case of Tirupati Organisers Pvt Ltd vide Tax Appeals No. 226 to 268 of 2013, decided the issue in favour of the assessee with the following findings:-

“… In the present case, the facts are vitally different. The assessee had not rented out property but had allowed its use thereof for the purpose of joint venture business. In addition to the space with proper infrastructural facilitates, it also provides various other facilitates to be used for the purpose of diamond processing.”

5. Thus, when the Hon’ble jurisdictional High Court has accepted in the case of Tirupati Organizers Pvt Ltd that the said company provided the property for the purpose of joint venture business alongwith assessee, the payment made by the assessee to Tirupati Organizers Pvt Ltd cannot be said to be rent, so as to make the assessee liable for deduction u/s 194I. We, therefore, respectfully following the decision of Hon’ble jurisdictional High Court (supra), uphold the order of the CIT(A) on this point and reject Ground No.1 of the Revenue’s appeal for Assessment Year 2007-08 as well as Assessment Year 2009-10.

6. The only other ground raised in the Revenue’s appeal in Assessment Year 2009-10 reads as under:-

“2. The Ld. CIT(A) has erred in law as well as facts of the case in deleting the order passed u/s 201A(1) of the I.T. Act of ₹ 2,20,025/- & interest charge u/s 201(1A) of the IT Act of ₹ 33,917 for A.Y. 2009-10 even though during the course of verification it was noticed that the assessee had entered into agreement with various concerns & deducted of tax on payment for technical services u/s 194C of the Act instead of 194J of the Act.”

7. We have heard both the parties and perused the material placed before us. The assessee made the payment to various parties in respect of annual maintenance charges. The Assessing Officer was of the opinion that it is a professional fee; therefore, tax was required to be deducted u/s 194J. While, the assessee was of the opinion that it was a contract for rendering the services and therefore, tax was required to be deducted u/s 194C. The tax was actually deducted u/s 194C. On appeal, the CIT(A) accepted assessee’s contention with the following findings:-

“7.5 I have considered both i.e. contentions of the A.O. in the order in question and the appellant’s submissions. On going through the facts with regard to services rendered by various concerns, I find no point/clue on the basis of which the nature of these services can be characterized as professional of technical in nature. The services rendered are nothing but for maintenance of various types of machines already installed. Only because technical persons are involved in rendering the said services does not mean that services become technical or professional in nature. Hence, the A.O.’s action in this regard is not approved.”

8. After considering the facts of the case and arguments of both the sides, we do not find any infirmity in the above findings of the CIT(A). We, therefore, uphold his order in this regard and reject Ground No.2 of the Revenue’s appeal for Assessment Year 2009-10.

ITA Nos. 674 to 676/Ahd/2011 – Assessee’s appeals for AYs 2007-08, 2008-09 and 2009-10

9. The first ground of the assessee’s appeal in all the three years reads as under:-

The Hon’ble Commissioner of Income Tax (Appeals [‘CIT (A)’] erred in law and on the facts and in the circumstances of the case for not allowing exemption for the office Wear Allowance (‘OWA’) under section 10(14) of the Income Tax Act, 1961 (‘the Act’) paid by the Appellant to its workers.

10. We have heard both the parties and perused the material placed before us. The assessee has paid Wear-Allowance to the employees and the same was claimed exempt u/s 10(14) of the Income-tax Act. Therefore, the allowances paid to the employees were not included in salary for the purpose of deduction of tax at source u/s 192. The Assessing Officer was of the opinion that the Wear-Allowance is not exempt u/s 10(14) and therefore, ought to have been included in the salary for the purpose of deduction of tax at source. On appeal, the CIT(A) sustained the order of the Assessing Officer with the following findings:-

“6.4 I do not agree with the appellant’s submission that office wear allowance is exempt u/s 10(14) of the Act because the provisions of Sec. 10(14) talks about ‘the expenses which is granted to meet wholly, necessarily and exclusively incurred in the performance of the duties…… to the extent to which such expenses are actually incurred for that purpose.’ Here in this case what has actually been incurred by the employee is not known as the appellant has not been able to submit any details in this regard before the A.O. and also during appellate proceedings. Hence, the A.O.’s action in this regard is approved.”

11. At the time of hearing before us, the ld. Counsel for the assessee could not establish how the wear-allowance paid to the employees was exempt u/s 10(14). During the course of argument before us, he fairly admitted that there was no dress code for the employees. Thus, the employees were free to wear any dress. For the purpose of getting exemption of any allowance u/s 10(14), two conditions must be satisfied.

1. That the allowance has been given to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office;

2. The expenditure must be actually incurred because the exemption is limited to the extent of expenses actually incurred.

12. In this case, the assessee is unable to satisfy any of the conditions. When there was no dress code and the employees were free to wear any dress, how the wear-allowance can be said to be granted to meet the expenses wholly, necessarily and exclusively in the performance of duties of an office. Moreover, the CIT(A) has recorded the finding that the assessee was unable to establish that the expenditure was actually incurred. In view of above, we do not find any justification to interfere with the order of the CIT(A) in this regard and the ground No.1 of the assessee’s appeal in all the three assessment years is rejected.

13. The Ground No.2 of the assessee’s appeal reads as under:-

2. The Hon’ble CIT(A) erred in law and on the facts and in the circumstances of the case for not discussing the following ground of appeal raised by the appellant before him:

“The learned AO has erred in law and on facts in imposing surcharge on TDS which is actually not applicable”

14. At the time of hearing before us, the ld. Counsel for the assessee fairly submitted that in this regard the assessee has already filed an application u/s 154. The same is disposed of by the Assessing Officer and the appeal against such order u/s 154 is pending before the CIT(A). He, therefore, submitted that, at present, this ground can be treated as infructuous and the assessee will be at liberty to take proper remedy if the CIT(A) does not accept the assessee’s contention in the appeal filed u/s 154. The ld. Departmental Representative has no objection to the above suggestion of the ld. Counsel . We, therefore, treat the Ground No. 2 as infructuous and reject accordingly. However, we may clarify that the disposal of Ground No.2 as above will not prejudice to the assessee’s case and the CIT(A) will decide the assessee’s appeal filed against the order u/s 154 on merits.

15. In the result, the appeals by the Revenue as well as by the assessee, all are dismissed.

Order pronounced in the Court on 25th June, 2015 at Ahmedabad.


2015 (7) TMI 328 - ITAT AHMEDABAD

Shri G. D. Agrawal And Shri Rajpal Yadav,JJ.

For the Petitioner : Shri Tushar Hemani, AR

For the Respondent : Smt Sonia Kumar, Sr. DR.

ORDER

Per G. D. Agrawal, Vice President:

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