Income Tax Appellate Tribunal - Delhi
Assistant Commissioner Of Income-Tax vs Air Canada on 28 March, 2003
Equivalent citations: [2004]88ITD545(DELHI)
ORDER
Y.K. Kapur, Judicial Member
1. These are six appeals in number filed by the revenue. ITA Nos. 1339 & 1340/D/97 are one group of appeals filed by revenue against the order of CIT(A) pertaining to the appeals filed by Air Canada before the CIT(A) while the other four appeals are filed by revenue pertained to the decision of CIT(A) in appeals filed by M/s. Lufthansa German Airlines. The issue in all these appeals are the same and which are reproduced below:-
ITA No. 1339/D/97&1TA No. 1340/D/97(i) On the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that the appellant acted honestly in not deducting tax at source on the payment made by it to the hotel for accommodation of its crew members.
(ii) On the facts and in the circumstances of the case, the learned CIT(A) has erred in deciding that the demand raised against the appellant on account of short deduction of case will stand deleted if the payments made by appellant to the hotel has been included by the hotel in its income disclosed to the department and advance tax has been paid thereon.ITA No. 1340/D/97
(i) On the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that non-deduction of tax at source on payments made by the appellant to the hotel for accommodation of its crew members was under bona fide belief and in deleting interest charged under Section 201(1 A) of the Income-tax Act.
(ii) On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting interest charged under Section 201(1A) of the Income-tax Act, when the relief allowed in quantum appeal is subject to verification by the ACIT, TDS.
ITA Nos. 1341 to 1344/D/97
(i) On the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that the appellant acted honestly in not deducting tax at source on the payments made by it to the hotel for accommodation of its crew members.
(ii) On the facts and in the circumstances of the case, the learned CIT(A) has erred in deciding that the demand raised against the appellant on account of short deduction of tax will stand deleted if the payments made by the appellant to the hotel has been included by the hotel in its income disclosed to the department and advance tax have been paid thereon.
2. To adjudicate the aforesaid issue's, it would be appropriate to revert back to a few available facts on the record. The record transpires that Air Canada and Lufthansa German Airlines (hereinafter referred the assessee) were carrying on their flight operations from various parts of the world to India. For the stay of crew accompanying aircraft, the assessee entered into an arrangement/agreement with the Hotel Hyatt Regency where under it was agreed between the assessee and the Hotels that as and when the crew accompanying the flights arrived in India, it was agreed that the crew would be accommodated in the hotel. Needless to say that the rooms are not earmarked nor was the strength of the rooms which the crew would occupie was certain. The record transpires that the only obligation on the hotel was to accommodate the entire crew. This arrangement continued. Payments were made by the assessees to the hotel. While making the payments, the assessees did not deduct any TDS as per the requirement of Section 194-I of the Income-tax Act. As the TDS was not deducted on the payments made by the assessee to the hotel towards the stay of its crew members, the Assessing Officer felt that the assessees though have made the payment which according to him was rent within the meaning of Section 194-I, but the assessee had not deducted the TDS. In this background the Assessing Officer formed an opinion that the provisions of Section 194-I of the Income-tax Act have been violated. Consequent to the formation of the opinion by the Assessing Officer the provisions of Section 194-I have been violated, the Assessing Officer issued a notice to show cause as to why penalty as contemplated by the Act for non-compliance of the provisions of Section 194-I be not imposed, which notice was duly replied to. In the reply filed before the Assessing Officer, the record transpires that the assessee had submitted that the provisions of Section 194-I were not applicable in the present case for the reason that Section 194-I talks payments of rent. The case of the assessee before the Assessing Officer was that the payments made by the assessee for the stay of its crew members in the hotel during the relevant time were not in the nature of rent. It was also stressed by the assessee that the payments made by the assessee for taking a room in the hotel includes service tax which is not there in the case of rent. The assessee before the Assessing Officer also relied upon the judgment of the Supreme Court in the case of Shri R.N. Kapoor in support of their submission as to what does the rent mean. It was the case of the assessee before the Assessing Officer that in view of the definition of rent in the judgment of the Supreme Court in R.N. Kapoor's case the payment made by the assessee for taking rooms were not the rent. That apart the assessee submitted before the Assessing Officer that in view of the confusion in the definition of rent and the applicability of the provisions of Section 194-I to the kind of payment made by the assessee for stay of its crew in hotel, they were prevented by sufficient cause and, therefore, they cannot be held to be assessee in default. The assessee also contended before the Assessing Officer that the confusion in the mind of the assessee that they are not liable to deduct TDS was further strengthened on account of the fact that the Bombay High Court had stayed the provisions of Section 194-I in a petition filed by Obroi Hotels Limited. The assessee also contended before the Assessing Officer that there was a confusion on the applicability of Section 194-I to the kind of the payment made by the assessee to the hotel as is evident from a circular issued by the Board clarifying the position later. The assessee contended that had the provisions of the Act been clear and left no ambiguity then there was no need to a clarificatory circular. The issuance of a clarificatory circular by the Board according to the assessee amply demonstrates that there was a doubt on the applicability of the provisions of Section 194-I to the kind of payments the assessee had made. According to the assessee if there is a doubt on the applicability of a particular provision, the benefit of doubt must go to the assessee. The assessee also submitted before the Assessing Officer that this was the first year and after the clarification was issued in all subsequent years they have been deducting not only the TDS on such payments made but also depositing the TDS in time. The assessee also submitted before the Assessing Officer that the subsequent conduct of the assessee in deducting the TDS, the issuance of clarificatory circular and the provisions of Section 194 being in the first year, there was sufficient ground for not deducting the TDS.
3. The learned Assessing Officer after considering the contentions raised by the assessee which have been referred to above rejected the same and held the assessee to be in default for the short deduction of tax at source under Section 194-I and proceeded to impose penalty under Section 271 -C of the Income-tax Act.
4. Being not satisfied with the order of the Assessing Officer, the assessee filed an appeal before the CIT(A). The contentions raised by the assessee before the CIT(A) found favour and the CIT(A) held that there was a reasonable cause for short deduction of tax. The CIT(A) in its order held that there was a sufficient cause for short deduction of tax. It was also held by the CIT(A) that the short deduction of tax shall stand deleted in case the payments made by the assessee to the hotel has been included by the hotel in its income disclosed to the department and the advance tax has been paid thereon.
5. The revenue being not satisfied with the order of the CIT(A) has filed the present appeal before us on the grounds enumerated above. At the time of the hearing of the appeal, the learned DR pressed us on ground No. 2 first. While making submissions on this ground, the learned DR submitted that there is an inherent fallacy in the reason of the CIT(A) who has observed that the short deduction of tax shall stand deleted if the payment made by the assessee to the hotel has been included by the hotel in its income disclosed to the department and advance tax have been paid through. The learned DR contended that if such a reasoning as that of CIT(A) is accepted, the provisions of Chapter XVII and more particularly of Section 194 and more particularly' the section pertaining to deduction of TDS shall become redundant. The learned DR further contended that if such an interpretation as advanced by the CIT(A) is accepted then any assessee in default who has not complied with the provisions of Chapter XVII would come out and say that as the recipient of the amount has disclosed the payment in its income-tax return and has paid advance tax thereon, no action against him can be taken. The learned DR further submitted that Chapter XVII has been brought into the Statute Book with a specific purpose that the tax has to be collected at the first given opportunity and the intention of the Legislature in bringing the said Chapter into the Statute Book cannot be brushed aside by such a reason as adopted by the CIT(A). Learned DR further submitted that what cannot be done directly can also not be done indirectly. It was the submission of the learned DR that if the reasoning of the CIT(A) is accepted then the presence of Sections 201 and 201A shall also become redundant.
6. The learned DR in support of his contention relied upon the judgment of the Andhra Pradesh High Court in Krishna Oberoi v. Union of India [2002] 257 ITR 105' (A.P.) and also the judgment of the Kerala High Court in CIT v. K.K. Engg. Co. [2001] 249 ITR 447 as well as the order of this Tribunal in Babcock Power (Overseas Projects) Ltd. v. Assn. CIT[2002] 81 ITD 29 (Delhi).
7. To the arguments raised by the learned DR, the learned AR relied upon the orders of CIT(A). In support of its contention, the learned AR relied upon the decision of this Tribunal in case of Swish Air Transport Company in ITA No. 541/D/97.
8. We have heard the parties on this issue and taken ourselves through the record as well as the legal precedents relied upon.
9. The short question before us is as to whether the assessee can avoid compliance of Section 194 more particularly Section 194-I as is the case before us in case it has not deducted the TDS but on the payments made to the recipients, the recipient has paid advance tax. To answer this question, we may see the areas in which the liability to pay. TDS operates and the areas in which the advance tax is to be paid. Not only this, we also need to examine as to who is liable to deduct TDS and who is liable to make the advance payment. If the liability to deduct tax and payment of advance tax is on two different persons then we fail to see any circumstance/justification that for non compliance by one person the shelter can be taken on another. In other words, if a person responsible for deducting TDS has not deducted TDS would it be open to him to assert that he is not an assessee in default because the recipient has paid the advance tax on the amount received from Him. If we examine this totality in the light of the provisions of Section 194 and in the light of provisions of Section 207, we feel that though both the provisions, i.e., the provision for deduction of TDS and the provisions for the payment of advance tax though fall under the same chapter but they have different purposes. In this case, the TDS in law is required to be deducted and deducted by a person who is making the payment and with respect to the payment with respect to which the rules of deduction of TDS arc applicable. He is one individual. He has a liability under the statute to discharge. The non-compliance of the provisions of the statute which direct him to deduct TDS has consequences contained within the statute itself. There he can be dealt with for failure under different provisions of the Act. The provisions for payment of advance tax are different. If a person who is obliged to pay advance tax fails to do the needful then it is he who is to face the consequences and not the person who is making the payment but not deducting the tax.
10. The obligation of one is not dependent on the other as both have different areas in which they operate and different obligations to discharge. The person cannot avoid what is required of him by the statute and if there is no passage given to such a person by law then we fail to understand as to how the CIT(A) say that the short deduction of tax will be deducted if the advance tax is paid by the recipient. The recipient has a different role to discharge and the role of the recipient is something different than that of the payer. There was no information or evidence before the assessees to come to a reasonable belief that the recipient had paid advance tax on the rent and, hence, TDS on the same rent was not liable.
11. In this background it is difficult for us to hold that merely on the plea of advance tax payable by the recipient, it absolved the payee from not complying with the provisions of Section 194-I of the Act.
12. We feel that the CIT(A) erred in making such an observation. Section 194-I has to be complied with in its strict sense. When the law mandates TDS to be deducted on payment of rent, then the TDS has to be deducted without question.
13. We, therefore, hold that the CIT(A) was not justified in observing that the demand raised against the appellant on account of short deduction of tax will stand deleted if the payment made by the appellant to the total, has been included by the hotel in its income disclosed to the department and advance tax has been paid.
14. Ground No. 2 filed by the revenue is, therefore, allowed.
15. This brings us to ground No. 1 of the appeal. The learned DR during the course of hearing while making his submissions on this ground submitted that there was no sufficient ground for not deducting the TDS by the assessee. It was the submission of the learned DR that rent has been defined in the Explanation-Ito Section 194-I of the Income-tax Act. It was the submission of the learned DR that rent means any payment by whatever name called under any lease, sub lease, tenancy or any agreement or arrangement for the use of any land or building together with furniture, fittings of the land appurtenant thereto whether or not such building is owned by the payee. After having drawn our attention to the definition of the word rent, the learned DR submitted that in case the assessee entered into an agreement/arrangement with the hotel. Under the said arrangement, the learned DR submitted that the hotel was to provide rooms to the crews. According to the learned DR as there was an arrangement/agreement between the hotel and the assessees for providing rooms, the payments made by the assessee would fall under the definition of rent. According to the learned DR as the payment made by the assessee was for rent and the assessees were aware of this and the assessees having not deducting the TDS, the assessees are in default and thus CIT(A) was not justified in deleting penalty. It was the submission of the learned DR that there was no ambiguity in the provisions of the Act as to the applicability to Section 194-I of the Act and, therefore, the assessee having not complied with the provisions of Section 194-I, the order of the Assessing Officer needs to be confirmed. The learned DR during the course of hearing submitted that the Board has clarified the position from time to time firstly in 1995 vide Circular No. 715 dated 8-8-1995 with regard to the applicability of the provisions of Section 194-I to such like payments and then vide circular No. 5 of 2002 dated 5-8-2002. It was the submission of the learned DR that as TDS has not been deducted on the payments having been admittedly made as rent for hiring the accommodations in the hotel, the natural consequences of non-compliance with the provisions of Section 194-I are attracted automatically and the order of Assessing Officer needs to be restored.
16. To the arguments raised by the learned DR, the learned AR submitted that this was the first year in which the provisions of Section 194-I were brought into the Statute Book. The learned AR further contended that as it was the first year when the said section was brought into the Statute Book, there were certain doubts on the applicability of the said section to such like payments with which the assessee was concerned. According to the learned AR as there was a doubt in the mind of the assessee, the benefit of doubt ought to be given to the assessee. Advancing his argument further the learned AR submitted that the genuineness of the doubt in the mind of the public at large on the applicability of the provisions of Section 194-I to such like payment is further fortified to the fact that the department vide its circular dated 8th August, 1995 bearing No. 715 had verified that payments for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under Section 194-I. It was the submission of the learned AR that this clarification was issued in the context on doubts that had arisen as to whether the payments made to a hotel on regular basis constitutes rent or not. The learned AR further contended that when the department itself is issuing clarification then how the assessee can be blamed for not complying with the provisions of the Act. While advancing his argument further the learned AR further submitted that the assessee was in these circumstances under a bona fide belief that the payments made by them to the hotel are not the ones on which Section 194-I is applicable. The learned AR submitted that another reason for the assessee to be under this bona fide belief was that service tax is paid on the accommodation taken in the hotel which is not so in the case of rent. Advancing further that there was a bona 'fide doubt in the mind of the assessee that provisions by Section 194-I are not applicable for the reason that in the case of a rent, there is a right created in the property as far as the tenant is concerned but when one checks into a hotel, there is no right created in the property which he occupies. The learned AR drew our attention to the definition of lease as contained in the transfer of Property Act and then submitted that the provisions of lease are not applicable in this case. The learned AR further submitted that after 1995 when the CBDT circular issued clarified the position as to the applicability of the provisions of Section 194-I of the Income-tax Act to such like payments, there had been no default and not only the tax had been deducted but paid also.
17. We have heard the parties and taken ourselves through the record. It is not in dispute that Section 194-I was brought into the Statute Book with effect from 1-6-1994. After the concept of the payment of rent was brought within the net of Section 194-I, and subsequently clarification was issued vide circular No. 715 dated 8-8-1995 clarifying the position of applicability of provisions of Section 194-I to such like payments. Once the department had itself issued a clarification vide circular No. 715 it means that there was some gray area in the definition of the rent as defined under Section 194-I and it was for this and this reason alone the need to clarify by means of circular arose. The fact that a clarificatory circular was issued leads no room to doubt that there was definitely some re-thinking in the mind of the revenue which lead to the issuance of this circular. Once the department itself is issuing clarificatory circular, we feel that there was definitely some doubt somewhere, which led to the said clarification. In the event of any doubt, the benefit of the doubt has to go to the assessee and, therefore, we have no hesitation in holding that the assessee was under a bona fide impression that the provisions of TDS were not applicable to such kind of payments. Apart from above, we also find force in the contention of the learned AR that the terminology used in the Section 194-I is the rent and the rent has been defined to mean lease, sublease, agreement or arrangement. The word agreement/arrangement used in the Section 194-I are to be read in the light of the terminology of Lease, Sub Lease. Clarification was issued, i.e., agreement/arrangement has to be read in conjunction with the lease so defined in the Transfer of Property Act, the department later issued a clarification in 1995 and another clarification in 2002 defining such like payments, as are the subject matter before us, to be falling within the ambit of the word "rent" we feel that a common man was likely to be swade away by the definition of rent, as in common parlance and in other law from where the word rent draws its origin and has a different meaning. We, therefore, feel that this is another reason which led the assessee to believe that he is not liable to deduct TDS. Finally, we may say that the assessee is stated to have been paying service tax on the payments made. While service tax is applicable to the payments made to the hotel which now after the issuance of the clarificatory circular has partaken the colour of rent but under the Transfer of Property Act, no service charge is payable on rent. The rent under the Transfer of Property Act creates an interest in the property whereas one hires a room in a hotel, no interest is created in the room with respect to which one is given possession of and as no interest is created in the room under the Transfer of Property Act, the assessee had every chance of being mislead. The department by issuing a circular has clarified the position later on and, therefore, we held that this was one of the reasons which could have and had swade the assessee from not deducting the TDS.
18. Lastly we may say that the default in deduction by TDS has occurred only in the year when the concept of TDS on rent through Section 194-I was brought into the Statute Book. Thereafter there is no default nor has the revenue a grievance on the same. This fact itself supports the contention of the assessee that there was a sufficient cause for non-deduction of the TDS in the year at the relevant time because of doubts and the moment, the revenue clarified; through its circulars, they have been adhering to statute.
19. In view of the above discussion, we feel that there was a sufficient cause for the assessee in not deducting the TDS at the relevant time and, therefore, we have no hesitation in holding that on account of short deduction, the assessee cannot be penalized. In view of the discussion above, ground No. 1 of the appeal filed, by the revenue fails and is hereby-dismissed.
20. In view of the above discussion, the appeals of the revenue while fail on ground No. 1 succeed on ground No. 2 and are, therefore, partly allowed.
21. In the result, the appeals of revenue are partly allowed.