Income Tax Appellate Tribunal - Chandigarh
Ito (Tds)-2, Chandigarh vs Q C Residential Pvt. Ltd., Mohali on 25 April, 2017
I N T H E I N C O M E T A X AP P EL L AT E T R I BU N A L
D I VI S I O N B EN C H , C H AN D I G A R H
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND Ms. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA Nos. 490 to 493/CHD/2016
A.Ys: 2006-07 to 2009-10
The ITO (TDS)-2, Vs M/s QC Residential P.Ltd.,
Chandigarh. (Formerly known as M/s Quark Media
House India P.ltd. ),
A-45, Phase-VIII, Indl Area,
Mohali.
PAN: AAACQ0535F
(Appellant) (Respondent)
Appellant by : Shri Raman Aggarwa;
Respondent by : Shri S.K.Mittal, DR
Date of Hearing : 23.03.2017
Date of Pronouncement : 25.04.2017
O R D E R
PER ANNAPURNA GUPTA,AM The above mentioned appeals by revenue are directed against the order of ld. CIT(Appeals)-2 Chandigarh dated 15.02.2016 for assessment years 2006-07 to 2009-10.
2. Since the facts and issues are same in all the appeals, therefore, all the appeals were heard together and are being disposed off by this consolidated order for the sake of convenience and brevity.
3. As the issues and facts are identical in all the appeals, therefore, facts are taken from ITA No. 490/CHD/2016.
2
4. The only issue in the present appeal is against the deletion of penalty imposed under section 271C of Income Tax Act,1961 ( in short 'the Act' ) for non deduction of tax at source under section 201(1) of the Act. The revenue has raised the following ground :
" T h e l d . C IT ( A p p e a l s ) h a s e r r e d i n d e l e t i n g p e n a l t y i m p o s e d u n d e r s e c t i o n 2 7 1 C r . w. s . 2 7 4 o f the IT Act, 1961 f or non-deduction of tax at source under section 201(1) ignoring the f act that the assessee has committee def ault to deduct the tax at source as required under the provisions of S e c t i o n 2 0 1 ( 1 ) o f t h e I n c o me T a x A c t , 1 9 6 1 " .
5. The brief facts relating to the issue are that the assessee company is engaged in the business of software development activities and provides the same to its associate enterprises. A survey under section 133A(1) of the Act was carried out at the business premises of the assessee. During this TDS verification, it was observed that the assessee had taken on lease a building alongwith the maintenance of building and other facilities from M/s Quark City India Pvt. Ltd. as per the terms and conditions mentioned in the lease agreement dated 13.04.2005 executed by M/s Quark Media House Pvt. Ltd. & M/s Quark City India Pvt. Ltd. The Assessing Officer noted that as per provisions of Section 194(1) of the Act the assessee company was required to deduct tax at source @ 22.66% by computing lease rent alongwith building maintenance and other facilities provided by the lessor. However, he found that the assessee company deducted TDS on maintenance 3 and service charges of the building @ 2.06% instead of 22.66% under section 194(1) of the Act. Accordingly, the Assessing Officer (TDS) passed an order under section 201(1)/201(1A) of the Act wherein the assessee was not treated as an 'assessee in default' since taxes had been paid by the payee and in view of the decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd, however, the assessee was held liable for interest under section 201(1A) and a demand of Rs. 6,35,960/- was raised. Thereafter, show cause notice for levy of penalty under section 271C was issued in response to which assessee submitted that taxes had been paid by the deductee and therefore, penalty should not be levied. The Assessing Officer was not satisfied with the contention of the assessee and held the assessee company liable for penalty under section 271C of the Act and a penalty of Rs. 45,94,195/- was levied.
6. During appellate proceedings, the assessee made detailed submissions reproduced at para 6.2 of the order. Briefly stated the assessee challenged the levy of penalty on the following grounds ;
a) That the Assessing Officer had not treated the
assessee as an assessee in default in the
assessment order and tax liability was 'zero'.
b) That there was a bonafide reason with the
assessee for deducting tax @ 2.06% on the
maintenance and service charges since it had acted 4 on the advice of its Tax Consultants and also for the reason that the lease agreement was not a composite agreement but there was a separate agreement entered into for maintenance and service contract. Therefore, the Assessing Officer had erred in treating such agreement as a composite agreement, thereby treating the maintenance and service charges as part of the lease rent and thus, holding the assessee liable to tax deduction at source under section 194(1) of the Act.
6(i) The assessee had also contended that even if it was a composite agreement, the terms and conditions relating to maintenance and service charges could not be treated as partaking the character of rent. The assessee reproduced the relevant portion of the contract relating to maintenance and service charges and stated that it was clear that separate charges were being paid on same and thus, could not be treated as part of the lease rent. The assessee also contended that separate invoice for maintenance and service charges had been raised and service charge under the service tax law had been moved on it also.
7. The CIT (Appeals), after considering the assessee's submissions deleted the penalty levied for the reason that the assessee company had acted under a bonafide belief that Section 194(1) of the Act did not include maintenance and service charges under the ambit of definition of rent. The relevant findings of the CIT (Appeals) at page 6.3 of the order are as under : 5
"6.3 The submission of the appellant has been considered carefully. The appellant company has not been held as 'assessee in default' by the A.O. as the taxes due has been paid by the deductee following the decision of the Honble Supreme Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd.(Supra). AO held the assesses only liable to interest u/s 201(1A) from due date of deduction to the date of filing of return. On appeal by the appellant for liability u/s 201(1 A) Hon'ble ITAT, Chd Bench following the decision of Allhabad Bank vs. ITO (Supra) in the case of the assessee vide order dated 15.09.2014 in ITA NO. 1286 to 1289/Chd/2012 held the assessee not in default for interest liability u/s 201(1 A) as under :
" The highlighted portion clearly shows that interest is of compensatory nature and if recipient of the income has no tax liability then there cannot be any liability on account of interest u/s 201(1 A). Similar view has been taken in case of Chhattisgarh State Electricity Board vs. ITO (TDS) (Supra) and in case of Thomas Muthoot Vs. DCIT(supra).
Therefore following these orders we hold that if the recipient was not having any tax liability then interest cannot be charged u/s 201(1 A). However, since this information was not available with the Assessing Officer. We set aside the order of the CIT(A) and remit the matter back to the file of Assessing officer to verify whether the recipient has any chargeable income or not and then decide the issue in the light of our observations made on the basis of the decision of Allahabad Bank Vs. ITO, 46 taxmann.com 200(Supra)."
a) In the instant case the assessee company is paying rent for the building as well as maintenance and service charges as per the composite agreement dated 13.04.2015. Subsequently a separate agreement for maintenance charges for various facilities used was entered into on 14.04.2006 and from this date onward there are two separate agreements for rent and maintenance charges. These maintenance and service charges includes the house keeping, gardening, security and for equipments like DG sets, lift, fire fighting etc. Therefore it is clear that as per the composite agreement and also as per the separate agreements made subsequently the appellant company had made payment for the rent of the building and for the maintenance and service charges. It is not the case where appellant company has not deducted TDS on the maintenance service charges but has deducted TDS under different provisions i.e. u/s 194C. In my considered opinion this was done by the appellant company under the bonafide belief as 6 section 194 I does not include maintenance and service charges under the ambit of the definition of rent. The assessee company has also acted for deduction of IDS u/s 194C on payment for maintenance and service charges under the advice of its Tax Consultant. For levy of penalty u/s 271C the concern and officer is required to find out that even if there was any failure to deduct tax at source, the same was without reasonable cause. There is no such finding by the AO in the penalty order. From the submission of the appellant company it is seen that right from the beginning the appellant was under bonafide belief that maintenance and service charges are not the part of the rent and therefore are subjected to different provision relating to deduction of TDS. Therefore it is held that the appellant has acted in genuine and bonafide belief and penalty u/s 271C is not justified. Penalty levied of Rs. 45,94,195/- is deleted. Ground of appeal no 2 is allowed."
8. Aggrieved by the same, the revenue has now come up in appeal before us. During the course of hearing, ld. DR relied upon order of the Assessing Officer and stated that the assessee though, was liable to deduct tax at source on the maintenance of service charges paid to the lessor @ 22.66%, had done so @ 2.6% only and for this short deduction of tax at source, it was liable for penalty under section 271C of the Act. The ld. DR argued that it made no difference for the purpose of imposition of penalty under section 271C that the payee had paid taxes on the impugned charges and no loss had been caused to the revenue. The ld. DR relied upon order of the Allahabad High Court in the case of CIT Vs Bareilly Development Authority 299 ITR 394 wherein it was held that, "Penalty shall not cease to be liable on an assessee me r e l y for the reason that bef ore levy of penalty, tax and interest had been paid by the deductor/deductee".
78(i) The ld. counsel for the assessee, on the other hand, relied on the order of the CIT(A) and further reiterated the contentions made before the CIT (Appeals) and stated that it was under a bonafide belief that tax on the impugned charges to be deducted under section 194C @ 2.6% and not under section 194(1) @ 22.66%. In support of this contention, ld. Counsel stated that it had taken opinion of a Tax Consultant in this regard. Further, ld. Counsel drew our attention to the relevant portion of the agreement dealing with maintenance and service charges reproduced in the CIT (Appeals)'s order and pointed out that it was a separate levy on the assessee and was for the maintenance and service charges availed by it and could not, thus, be treated as part of the rent only. Ld. Counsel drew our attention to the fact that separate bill/invoice for maintenance and service charges had been raised and service tax also paid on the same. The ld. Counsel further stated that there were separate agreements for rent and for maintenance and service charges and not a composite agreement. The ld. Counsel for the assessee contended that in view of the above, the assessee had harboured reasonable bonafide belief that the maintenance and service charges paid was in the nature of contract services liable to tax deduction at source under section 194C @ 2.6% and not in the nature of rent liable for deduction of tax at source under section 194(1) of the Act @ 22.66%. The ld. counsel for the assessee also 8 stated that it had not been held as an assessee in default under section 201(1) of the Act and further, no interest under section 201(1A) also had been collected from it.
9. We have heard the contentions of both the parties and gone through the evidence produced before us. We find no infirmity in the order of CIT (Appeals). The undisputed facts in the present case are that penalty under section 271C of the Act has been levied for short deduction of tax @ 2.6% instead of 22.66% under section 194(1) on account of maintenance and service charges paid in lieu of lease agreement entered into between the assessee and M/s Quark City India Pvt. Ltd. Further the assessee ,for the aforestated default ,has neither been treated as a assessee in default u/s 201(1) of the Act,nor has interest u/s 201(1A) been levied on it.
9(i) The CIT (Appeals), we find, has rightly appreciated the contentions raised by the assessee in support of its argument that it harboured a bonafide belief of tax deduction at a lower rate. The copy of the composite agreement dt.13-04-2015 as well as the separate agreement dt.14-0416 entered into between the assessee and M/s Quark City India Pvt. Ltd. for maintenance and service of the premises leased indicating separate charges for the maintainance services, the separate bill for these services raised by 9 the lessor and the levy of service tax on the same, the opinion of Tax Consultant certifying that tax is to be deducted on these charges under section 194C of the Act, all of these facts have not been controverted by the ld. DR before us and all these facts lead to a reasonable and bonafide belief that the maintenance services received by the assessee were separate from the lease agreement and the payment made in lieu thereof was for carrying out work which required TDS @ 2.6% being covered u/s 194C of the Act.The maintainance clause in the agreement dt.13-04-05 reproduced in the order of the CIT(A) clearly shows that the assessee had agreed that services to maintain the common area of the premises leased including housekeeping, gardening, security and maintainance of several common equipments like DG sets,lift etc., would be rendered by the lessor M/s Quarkcity who in turn would be paid charges @Rs.11.40/- per sq.ft per month for the super area leased by the assessee.Further the lessor was raising separate invoices for the same and charging service tax thereon. The revenue has not demonstrated before us as to how in view of the above facts, the assessee was categorically responsible for deducting tax @ 22.66% only and how the aforesaid payment could be unequivocally categorized as a rental payment only. In view of the same, we concur with the findings of the CIT (Appeals) that there was a reasonable cause with the assessee for deducting tax at lower rate 10 and in view of the same, considering the provisions of Section 273B of the Act, there was no case for levy of any penalty under section 271C of the Act. The order passed by the CIT (Appeals) setting aside the order of Assessing Officer is, therefore, confirmed.
10. The appeal of the revenue is dismissed. ITA Nos. 491 to 493/CHD/2016 (A.Ys : 2007-8 to 2009-10)
11. As the facts are identical in ITA Nos. 491 to 493/CHD/2016 to that of ITA No. 490/CHD/2016, therefore, our decision in ITA No. 490/CHD/2016 would apply mutatis-mutandis to these appeals also.
12. In the result, all appeals of the revenue are dismissed.
Order pronounced in the Open Court.
Sd/- Sd/-
(BHAVNESH SAINI (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 25th April,2017.
'Poonam'
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT,DR
Assistant Registrar, ITAT/CHD