Income Tax Appellate Tribunal - Kolkata
Ito, Wd-58(1), Kolkata, Kolkata vs M/S Itd-Itd Cem Jv (Consortium Of Itd Itd ... on 12 July, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA BENCH 'B', KOLKATA
(Before Shri J. Sudhakar Reddy, A.M. & Shri S.S. Viswanethra Ravi, J.M.)
ITA No. 1462/KOL/2014
Assessment Year : 2011-12
ITO, WD-58(1), Kolkata Vs M/s. ITD-ITD CEM JV
10B, Middleton Row, (Consortium of ITD ITD
7 Floor,
th
Cementation), Anar
Kolkata - 700071 Chambers, 5, B.N. Sarkar
Sarani,
Kolkata - 700072
PAN No. AAAAI2382Q
(APPELLANT) (RESPONDENT)
Revenue by : Shri Sourabh Kumar, Addl. CIT (DR)
Assessee by : Disha Kedia, ACA
Date of Hearing : 26.04.2017 Date of Pronouncement : 12 .07.2017
ORDER
Shri S.S. Viswanethra Ravi, JM This appeal by the revenue against the order dated 28.02.2014 passed by the CIT(Appeals)-I, Kolkata for assessment year 2011-12.
2. The appellant revenue raised following grounds of appeal is as under:
(a) That on the facts and in the circumstances of the case Ld. CIT(A) erred in deleting charge of TDS and interest of 28,86,995/- u/s 194I of the I.T. Act, 1961.
(b) That on the facts and in the circumstances of the case Ld. CIT(A) erred in deleting charge of TDS and interest of Rs. 13,44,512/- u/s 194A/194H of the I.T. Act, 1961.
(c) The appellant craves leave to add, alter / or amend any of the grounds of appeal during the course of hearing.ITA No. 1462/KOL/2014 2
3. The brief facts of the case are that the assessee is a joint venture of ITD and ITD Cementation. The assessee has been awarded a contract for constructing a new airport terminal in Kolkata by Airport Authority of India for short hereafter as (AAI). A survey was conducted on 18.01.2013 on the assessee under section 133A(1) of the Act. During the course of survey on an examination of records and documents it was observed that the assessee has paid an amount of Rs. 2,16,90,806/- towards land rent to AAI and the said amount was paid without deducting TDS. The AO issued show cause seeking explanation why the assessee should not be treated as in default for not taking TDS and as well as for not depositing to the Govt. accounts.
4. The assessee in explanation referred to Clause 19, 19.1 and 39 of general clauses of contract for short GCI and Clauses 29 and 36 of special conditions of contract for short SCC between the assessee and the AAI. It was submitted that the assessee did not have exclusive and unfettered possession of the site and the said site was to be shared with other contractors and as well as staff of AAI. On the strength of the above said clauses, the assessee submitted that the parties to the agreement agreed that the assessee should conduct and manage the construction activity under the awarded contract and it was not an agreement for lease or sub-lease of the site area and that there was no intention to part with the possession of the premises in favour of the assessee by the AAI.
ITA No. 1462/KOL/2014 35. The assessee further contended the payments as noticed by the AO were not for the use of land or building with furniture & fixtures. The AO did not satisfy with the explanation of the assessee and was of the opinion that the AAI was vested with the land rights and collected rent for the use of the said site by the assessee during the pendency of the contract. The AO also observed that the AAI is the ultimate owner of the land and has every right to regulate the use of the land and as such for having full possession of the said land with the assessee and treated the said amounts as rent paid by the assessee and accordingly for not deducting TDS, the AO treated the assessee in default vide his order dated 28.03.2013 passed under section 201(1) / 201(1A) of the Act.
6. Aggrieved by the order of the AO, the assessee challenged the same before the CIT(A). The assessee contended that AAI treated the payments made to the assessee as contractual payments and said payments were made deducting TDS as per section 194C of the Act. The impugned amount was deducted by the AAI from running accounts bills and the assessee did not make any payments to AAI and in support of which copies of extracts as SOF were submitted and relied on the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage (P) Ltd. reported in 293 ITR 226 and submitted the revenue cannot recover tax from deductor when the deductee has already paid tax on the said amount. In view of the same, the CIT(A) ITA No. 1462/KOL/2014 4 sought remand report from the AO. The AO stated in its remand report that the AAI confirmed regarding rental payments and deductions made from the assessee running accounts bills. The CIT(A) confronted the said remand report to the assessee and assessee filed a rejoinder the same stating that it preferred an appeal against the arbitral award made in favour of AAI for charging the rent before the District Judge, at Barasat. The CIT(A) considering the submissions along with the remand report and rejoinder and opined since the funds were not in control of the assessee and the amounts deducted directly from its running accounts bills and the AAI being Govt. Enterprise having been disclosed the said TDS in its accounts, the CIT(A) held that the assessee is not in default for non-deduction of tax. The relevant portion of which is reproduced here-in-below:
"3.2 The submissi ons of the Appellant have been considered. It is seen that the iss ue is regarding certain amounts deducted by the Appell ant's clie nt Air port Authority of Indi a (AAI) from the Running Bills submitte d by the Appellant towards construction of the A irport Terminal at K olkat a. The A ppe llant is a Joint Ve nture (assesse d as an AOP) between ITD T hai land and ITD Cementation Ltd. Which was formed for the construction of Integr ated P assenger Terminal Bui ldi ng at Netaji Subhash Chandra Bose International Airport for and on behalf of Airport Authority of India under a contract wit h them.
Further t hat a s um of Rs. 2,16,90,806/- was deducted by t he AAI on account of purporte d Land Rent from the Running Account (RA) bills. Thus, the Appellant was receiving the balance mone y after deduction from the monthl y running account bills and was not actually making payments to the AAI. The rent charged by the AAI has bee n dis puted by the Appel lant before the Disputes Resol ution Board and AAI had also approache d t he Arbitrator f or resol uti on of t he matter. T he issue is still being contested before the District Judge by the Appel lant . However the Rent has been charged under Clause 26.1 of the Special Conditi ons of Contract. Now even t hough t his issue is bei ng di sputed the AA I has been de duct ing the amounts in questi on from the 15 t h Running Bil l onwar ds of t he Appellant. Now these am ounts have been considered by the AO to be towar ds rental charge d by the AAI from the Appel lant and the refore li able for deduction of TDS, even though admitte dl y the amounts were directly de duct ed by A AI from the ITA No. 1462/KOL/2014 5 Running Bil ls and then payme nt releas ed to it. The first conte ntion of the A ppe llant is that the amount deducted by the A AI was dis puted, secondly it was not i n the nat ure of payment cov ered by section 194I and that it s ince the funds were not i n control of the Appel lant and amount deducted directly from its RA Bi lls, i t coul d not have de ducted TDS and lastly that since the payme nt would have been disclose d by AAI in its income as it was a Government enterprise, the Appellant could not be held to be "assessee in default " for non deduction of TDS on the same. W hile from the facts and evidences on this issue i t is clear that the amounts in question were being deducte d by t he AAI from the Runni ng Bills of the Appell ant tow ards 'rent' as per ter ms of the contract wit h the Appellant, however the quantum charge d by the AAI has bee n dispute d by the Appel lant and the fi nal Arbitral Award was in fav our of the AAI, which has bee n challe nge d by the Appellant before the District Judge of Barasat. It is also seen that there was no separate agreeme nt f or payme nt of Re ntal by the A ppe llant and the same is flowing out of Cons oli dated Contract for construction of the Airport Terminal awar ded to the Appel lant. Whi le t he charges r aised by t he AAI may be i n dispute, the issue is whether the s ame whether the Appel lant is liable for TDS under section 194I on the de ducti on of 'Rent' by the AAI from the bills of the Appellant. Here if the appli cability of t he decision in CIT vs NIIT 318 ITR 289 is considered it has been hel d regar ding the deducti on of TDS u/s 194I, that the Compos ite Agreeme nt coul d not be broke n upto apply se ction 194I. It has been hel d by the Delhi High Court as under:
"7. Reading of t he agreement therefore clearly shows that the agreement was in fact a franc hisee agreement and it cannot be said t hat by the agre ement, rent was i n fact being pai d by the assessee-company to the l ice nsee. No doubt, the charges have been broken up under two heads viz., that of, marketi ng claim and infrastructure claim. Howe ver, the agreement is an agreement as a whole and such a composi te agreeme nt cannot be broken up as it s ought to be done and c ontended by the revenue . The provision of section 194I cannot be read to break up composite contracts and when that is not t he intention of the parties themselves. If, the i nterpretation of the Reve nue i s accepted then, in a case where there is a partnership and one of the part ner brings in his capit al i n the form of his premises from where the par tnership business is carried on, t hen, payment made to s uch partner by the firm can be stretched to be i ncl uded in t he definition of rent under section 194I and which surely cannot be the intention of t he Legisl ature"
Furthermore in the case of Nat ional Panasonic Indi a Ltd. it has clearly been hel d by the ITAT Delhi as under:
6. We have duly considered the ri val contentions and the material on re cord. Se ction 194I of the Act mandates a person, other than an individual or a Hi ndu Undivided F ami ly (HUF) paying rent to a resident to deduct tax at s ource at the t ime of credit or payme nt, whichever is e arlier, Clause (i) of the Explanation to sect ion 194I gives the meaning of 'rent' to be a payment under any lease, sub-lease, tenancy or any other ITA No. 1462/KOL/2014 6 agreement or arrangement for the use of any land or any building (i ncluding factory building), toget her with furniture, fitti ngs and the land appurtenant t hereto, whether or not s uch building is owned by t he payee. Thus, 'rent' for the purposes of section 194I, is essent ially a payment for the use of any land or building. In other words, the agreement or arrangement whi ch gives rise t o the payment of rent, must necess arily be an agreement or arrangement predominantly f or the use of land or building. However, where the agreement is not predominant ly for the use of land or building, but for something else, the n payment under that agreement will not constitute re nt eve n if that 'somet hing else' involves the use of land or bui lding as an integr al part of or incide ntal to the predominant objective of the agreement.
Now i n the Appellant' s case, the contract was for construct ion of the Air port Termi nal and t he dis puted amount was being charged as rent by the A AI t owards use of cert ai n are a and facilities as per the Contract Agreement, t herefore clearly the Contract was for cons truction of t he Terminal and the payme nts subje ct t o TDS u/s 194C, the dis puted Rent amount charged by the A AI was only inci dent al t o it. Therefore if the rati o of the above decis ions is applied in t he instant case, the Appell ant was not l iable to deduct T DS u/s 194I. Furthermore on the facts of the case of the Appell ant, the decisions reli ed upon by the AO i n idea Cellul ar Ltd vs CIT and Bharti Cellular Ltd supr a, are hel d to be not applicable as the iss ue t here was deduction of TDS u/s 194H on commission and whet her there was a princi pal to agent relationship. Even otherwise cons ideri ng the decis ion of the Supreme Court i n Hindustan Coca Lola Be verages Pvt Ltd vs CIT 293 ITR 226, the Appe llant could not be he ld to be "assessee in default" for non-de duction of TDS, i f t he payme nts had bee n offered to tax by the reci pient, here t he recipient was A AI a Government Publi c Sector Enterprise. F urther in view of the decis ion of the jurisdictional Tribunal in Ramkrishna Vedant a Math, ITA No. 477, 478 and 479/Kol/201 2, 'C' Bench, A.Y .:
2005-06, 2006-07 and 2008-09, order dated 31.07.2012, the onus w as on the AO t o verify the s ame and if the same has not been offered as i ncome by the re cipient, onl y then the Appe ll ant could be hel d to be li able for t ax u/s 201(1). Therefore in view of the above discussion and t he facts in the Appel lant's case it is hel d that t he action of the AO w as not jus tified and ground of appeal is allowed."
7. Learned DR relied on the order of AO. Learned AR supported the order of CIT(A) and reiterated the submissions as made before the CIT(A).
8. Heard rival submissions and perused the relevant material available on record. We find that the CIT(A) held the ITA No. 1462/KOL/2014 7 impugned amount does not constitute rent which attracts deduction of TDS under section 194I of the Act by placing reliance on the decision of Hon'ble High Court of Delhi in the case of CIT vs NIIT reported in 318 ITR 289.
9. We note that the CIT(A) placed reliance on the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. reported in 293 ITR 226 and held that the assessee is not in default for non-deduction of TDS as the payment alleged to have been paid to AAI was in turn offered by AAI as income in its account and paid the tax. In view of the ratio laid down by the Hon'ble High Court of Delhi in the case of NIIT (supra), we hold that the amounts alleged to have been paid to AAI does not constitute rent, therefore the application of provisions under section 194I does not arise at all. Even otherwise we are in agreement with the opinion rendered by the CIT(A) in placing reliance in the case of Hindustan Coca Cola Beverage (supra), assessee cannot be held in default as the recipient AAI is a Govt. Public Sector Enterprise which is stated to have offered this receipt to tax.
The burden lies on the AO to verify whether the said AAI offered the payment received from the assessee to tax or not. Therefore, we find no infirmity in the impugned order of CIT(A) and it is justified. Accordingly ground no. 1 raised by the Revenue is dismissed.
10. Ground No. 2 is relating to deletion of an addition of Rs. 13,44,512/- on account of non-deduction of TDS on interest payments.
ITA No. 1462/KOL/2014 811. During the course of scrutiny proceedings, the AO found that the assessee had paid an amount totalling to Rs. 1,05,49,032/- consisting of bank guarantee commission, bank charges interest, conveyance and travelling as administrative expenses to the ITD Cementation India Ltd. In explanation, the assessee submitted the ITD Cementation India Ltd. is a co- venturer of assessee (ITD-ITD CEM JV) was reimbursed by the assessee to its co-venturer ITD Cementation India Ltd. and filed details of the same. The AO not satisfied with the submissions of the assessee and opined the said payments cannot be treated as reimbursement as the assessee company is making payment to another company and accordingly treated the assessee as in default in favour of provision under section 201(1) of the Act.
12. The assessee challenged the same before the CIT(A). The assessee contended that the AO failed to appreciate the reimbursement of actual expenses made to the Co venture are not subjected to TDS and not covered by section from 194A of the Act and relied on the catenae of orders passed by Kolkata, Mumbai, Delhi and Ahmedabad Benches of ITAT Tribunal for not charging of TDS as reimbursement of actual expenses. The assessee also placed reliance in the case of Dunlop Rubber Co. Ltd. reported in 142 ITR 493 (Calcutta) of Hon'ble High Court of Calcutta for the proposition that the reimbursement of expenditure is not an income in the hands of assessee. Considering the facts of the case with that of case laws relied by the assessee, the CIT(A) sought remand ITA No. 1462/KOL/2014 9 report from the AO. The AO stated that the section 194A does not distinguish between the payment of interest or the reimbursement of interest and it clearly provides that any interest amount is paid the TDS has to be deducted on such interest expenses. The CIT(A) by placing reliance in the case of Grand Prix Fab Pvt. Ltd. reported in 128 TTJ 60 (Delhi) and in the case of Utility Powertech Ltd. of Mumbai Tribunal and held when there is no element of income and the payment of only reimbursement expenses no disallowance can be made under section 40(a)(ia) of the Act. The relevant portion of which is reproduced here-in-below:
"The submission of the appellant its rejoinder to the Remand Report of the AO have all been considered. It is seen that the issue is regarding certain payments made by the appellant to its Co-Ventures on account of interest of Rs. 30,67,418/-, Bank Guarantee Commissioon Rs. 37,00,880/- and Bank Charges Rs. 37,36,966/- as also the reimbursement towards Conveyance Expenses of Rs. 1,02,399/- and Travelling Expenses of Rs. 1,16,672/- aggregating to Rs. 1,05,49,632/- and it was held by the AO that the Appellant was liable for deduction of TDS on the same. The Appellant has claimed that these were reimbursement of expenses and hence not liable to TDS. It is seen that the issue is covered by the decision in ACIT vs Grand Prix Fab (P) Ltd. 128 TTJ 60 (Del) and the Tribunal has held has under:
"16. In respect of the payment towards agency charges amounting to Rs. 1,01,219/- the assessee has deducted tax amounting to Rs. 2,094/- at source and the said payment has not been disallowed by the AO. The other two payments are towards payment of customs duty and other expenses paid by the agent for/on behalf of the assessee. These reimbursement expenses were not made towards any services rendered by the agent, but have been made to set off of the expenses incurred by the agent while clearing the imported goods from the customs for/on behalf of the assessee. Since no element of income is embedded in reimbursement of expenses incurred by agency for/on behalf of the assessee, the assessee was ITA No. 1462/KOL/2014 10 not obliged to deduct tax at source, and, therefore, the CIT(A) has rightly deleted the addition."
Similar view has been taken by the ITAT Mumbai in Utility Powertech Ltd. vs CIT supra as under:
"5. We have considered the rival contentions and perused the record. The jurisdictional High Court in the case of CIT vs Seimens Aktiongesellschaft (supra) has held that reimbursement of expenses cannot be regarded as revenue in the hands of the payee. While deciding the issue, the Hon'ble High Court has followed the decision of Hon'ble Delhi High Court in the case of CIT vs Industrial Engg. Projects P. Ltd. (202 ITR 1014). It is a settled proposition of law from the various decisions of High Courts and particularly the decision of Hon'ble jurisdictional High Court (supra) that when there is no element of income and the payment is only as a reimbursement of expenses incurred by the payee, then no disallowance can be made u/s 40(a)(ia)."
In the appellant's case it is not in dispute that the payments in question were not for services rendered but for reimbursement of expenses. Even otherwise in respect of Bank Guarantee payments relying on the decision in Kotak Securities Ltd. vs DCIT, supra it has been held in the case of the co-venture i.e. ITD Cementation Ltd. for A.Y. 2011-12 in Appeal Order dated 10.12.2013, that the payment of Bank Guarantee Commissions not covered by provisions of Section 194H. Therefore following the above 2 decisions of the Tribunal and considering the facts as discussed above, it is held that the AO was not justified in holding the Appellant liable to deduct TDS on these payments and this round of Appeal is allowed."
13. The learned AR relied on the orders of CIT(A).
14. Heard rival submissions and perused the relevant material available on record. We find that the CIT(A) examined the payments and found the said payments were made not for any services but only reimbursement of expenses and placed reliance in the case of Kotak Securities Ltd. vs DCIT reported in 50 SOT 158 for the proposition, the payments made to bank guarantee and the payments of commission paid for bank guarantee are not covered by the ITA No. 1462/KOL/2014 11 provisions of section 194H of the Act. In the present case, ITD Cementation India Ltd. is a sister concern of the assessee. The said sister concern arranged loan from IDBI to the assessee and the impugned amount is to be paid to IDBI towards bank guarantee, commission, bank charges and interest by the sister concern and the same were reimbursed by the assessee to its sister concern. There is no element of income in such payments. Therefore, we see reason to interfere in the order of CIT(A) and it is justified.
9. In the result, the appeal of the revenue is dismissed.
Order Pronounced in the Open Court on 12 t h July, 2017 Sd/- Sd/-
(J. Sudhakar Reddy) (S.S. Viswanethra Ravi) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 12/07/2017 Biswajit Copy of order forwarded to:
1 M/s. ITD-ITD CEM JV (Consortium of ITD ITD Cementation), Anar Chambers, 5, B.N. Sarkar Sarani, Kolkata - 700072 2 ITO, WD-58(1), Kolkata 10B, Middleton Row, 7 Floor, Kolkata -
th 700071 3 The CIT(A), 4 The CIT 5 DR True Copy, By order, Sr. P.S. / H.O.O. ITAT, Kolkata