TMI Blog2021 (5) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... wledgements of its group companies. Accordingly we hold that there was no loss to the revenue for not charging interest on the amount extended by the assessee as interest-free loan to its group companies. As decided in DELOITTEE HASKINS SELLS, AHMEDABAD. [ 2019 (10) TMI 349 - ITAT AHMEDABAD] once it is established that there is nexus between the expenditure and the purpose of business, the revenue cannot assume the role to decide as to how much is reasonable expenditure. Apart from this, the Ld. first appellate authority has also noted that the assessee firm had its own funds which were more than the amount of advances given therefore, there was no occasion for the assessing officer to make disallowance on account of interest - Decided in favour of assessee. TDS u/s 194I or 194C - short deduction of TDS - Addition u/s 40(a)(ia) - payments to the Hotels either without deducting the TDS or deducted TDS at the rate lower than the rate prescribed under the Act - HELD THAT:- The assessee in the case on hand has deducted the taxes and also deposited the same but as per the AO same is deducted in wrong section resulting in short deduction. However there the assessee cannot be h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but other payments not attracting provisions of TDS. Since the amounts of hotel rent charges hired and paid was on regular basis and hence provisions of TDS U/s 1941 was clearly applicable on it. 3. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored. 3. The first issue raised by the Revenue is that ''Ld.CIT (A)'' erred in deleting the addition made by the AO on account of interest free advances given by the assessee to its group concerns. 4. Briefly stated fact are that the assessee in the present case is a partnership firm and engaged in the activities of Chartered Accountancy. The AO during the assessment proceedings found that the assessee has incurred interest expenses amounting to ₹ 5,45,63,251/- comprising of interest on borrowing from the bank and on the capital of the partners. At the same time the assessee has extended interest free loans and advances to its group concerns amounting to Rs. 90,19,24,628/- only whereas the partner s capital funds st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... free loan by the assessee to its group concern. The learned CIT (A) besides the above also found that the assessee and the group concerns are paying the taxes on the maximum marginal rate and therefore there would not have been any impact on the Government Exchequer even in a situation if the assessee charges interest on the interest-free advances given to the group concern. Accordingly, there was no loss to the revenue for not charging any interest by the assessee from the group concern on the interest-free advances given to them. Thus, the learned CIT (A) was pleased to delete the addition made by the AO. 9.1 The first controversy that arises for our adjudication whether the interest free advances were given by the assessee to its group concern as a measure of commercial expediency in the given facts and circumstances. The expression commercial expediency refers to those transactions/ expenditures which are not required to be incurred under any provisions of the law. But it refers to such expenditure, a prudent businessman incurs for the purpose of business. Such expenditures might not have been incurred under any legal obligation, but the same are allowable as a business ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt from the MOU dated 1 April 2011 which is placed on pages 166 to 168 of the paper book. The relevant clause of the MOU reads as under: This memorandum of understanding (MOU) is made on this the first day of April 201 1 by and between; Deloitte Haskins Sells, (Registration Number 117364W), firm of practicing Chartered Accountants, registered with the Institute of Chartered Accountants of India (1CA1), having its office at 31. Nutan Bharat Soceity, Near M.K. High School, Aikapuri,'; Baroda - 390 007 (hereinafter referred to as DHS B) .; And Deloitte louche Tohmatsu India Private Limited, having its office at 12, Dr. Annie Besant Road, Worli, Mumbai -400 018 (hereinafter referred to as DTTIPL) Scope of Work Whereas DTTIPL provides, among others, the following services to its clients Management Consultancy services Assistance in all matters relating to direct and indirect taxes Any other service that may be agreed upon as per the requirement of its clients Whereas, DHS B has been appointed/engaged/retained by its clients to perform identical services and is desirous of utilizing the services of DTTIPL to fulfil its engageme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in shall be at liberty, in their own right to enter into any third party agreement required for providing services and additional services, if any, on a principal to principal basis. It is clearly understood by and between the parties hereto that no privity of contract shall arise between such third parties and the parties hereto by virtue of these presents and consequently no liability of any kind or on any account shall accrue to the parties hereto. If any function, responsibilities or tasks not specifically described or provided for in this MOU are required for the proper execution of this contract such functions, responsibilities or shall be deemed to be implied and shall be included within the scope of this MOU, as if the same were specifically set out in the MOU. Disclosure of Information Both DHS B and DTTIPL agree to hold all information relating to one another and to the client in confidence to and undertake not to disclose such information to any other person or organisation, without the written permission of the other party. Validity This MOU shall remain in force, unless terminated by any party as otherwise provided in this MOU, Termination of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DTTIPL were in the nature of a business transaction and further the commercial expediency was also not established with respect to interest free advances. The Ld. CIT (Appeals), while deleting the disallowance has noted that the assessee firm and DTTIPL are members of global network of professional firms carrying on similar profession and that the objective of the global network was to ensure cooperation amongst members and thereby enhance their respective capability to carry on professional practice. It has been noted by the Ld. first appellate authority that the assessee has demonstrated that subsequently DTTIPL has raised debit notes on the assessee for services rendered and, thus, it has been amply demonstrated that DTTIPL and has provided services of its resources against which the advances made by the assessee were adjusted. It has also been observed by the Ld. first appellate authority that there was commercial expediency in giving advance to DTTIPL as both the assessee firm and DTTIPL were in the same line of profession. The Ld. first appellate authority has reached a conclusion that there was a business relationship between the assessee and DTTIPL and, therefore, the advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in deleting the addition made by the AO for ₹ 1,07,83,531/- on account of nondeduction of TDS u/s 194-I r.w.s. 40(a)(ia)of the Act as detailed under: 11. The assessee in the year under consideration has made payments to the Hotels either without deducting the TDS or deducted TDS at the rate lower than the rate prescribed under the Act. The details of payments to the hotels stand as under. Sr.No. Name of the Hotel Total Hotel Payment(Rs.) Banquet Charges (A) (Rs.) TDS @ 2% on Banquet Charges u/s.194C(Rs.) Room/rental Charges (Rs.) TDS u/s.194 I (Rs.) 1. Moven Pick Hotel 15,10,815/- - NIL 15,10,815/- NIL 2. Vivanta Hotel 91,58,571/- 54,57,460/- 1,09,149/- 37,01,111/- NIL 3. ITC Grand 13,21,195/- 5,93,56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as room rent is concerned, the A.O. relied on question No. 20 of circular No. 715 dated 08-08-1995 which reads as under: Q No. 20: Whether payment made to a hotel for rooms hired during the year would be of nature of rent? Ans: Payment made by person other than individuals and HUF for hotel accommodation taken on regular basis will be in nature of rent subject to IDS under section 194-1 The appellant firm also relied on the same question but further stated that vide circular No. 5/2002 dated 30-07-2002 it is clarified that what is regular basis: The same is reproduced here under: 2..... The meaning of 'rent' in Section 194-1 is wide in its ambit and scope. For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on 'regular basis'. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to 'be accommodation made available on 'regular basis'. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on the part of the hotel to provide a room or specified set of rooms. Consequently, the provisions of Section 194-1 while applying to hotel accommodation taken on regular basis would not apply to rate-contract agreements. First the A.O. has not brought on record any evidence that there is agreement between the appellant firm and Hotel for providing room at specified rate and for specified period. From the copy of the bills submitted by the appellant, it is crystal clear that room was taken for some conferences or seminar which is on occasional basis. There may be only rate agreement for getting room at concessional rate, so in that case question No. 20 of circular No. 715 dated 08-08-1005 would not apply in view of subsequent clarification issued vide circular No. 05/2002 dated 30-07-2002. Hence, no tax was required to be deducted u/s. 1941 of the Act on the rent of room paid to three Hotels. In substantially similar case, the Hon'ble Mumbai ITAT in case of Red Chillies Entertainment Pvt. Ltd vs ACIT (IDS), Mumbai 92/Mum/ 2015, on which the appellant relied, held that no tax was required to be deducted u/s. 1941 from room rent paid by the assessee to Hotel. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt made by the assessee to the Hotel does not represent the payment on regular basis and therefore the same is outside the purview of the provisions of TDS as specified under section 194-I of the Act. 15.5 In the backdrop of the above stated discussion, the 1st question arises for our adjudication with respect to the banquet charges paid by the assessee amounting to ₹ 60,51,027/-, in this connection we note that the provisions of section 40(a)(ia) of the Act provides for the specified expenses will not be allowed as deduction if the assessee failed to deduct the TDS or after deducting taxes the assessee failed to deposit the same in account of revenue on or before the due date filling return of income as specified under section 139(1) of the Act. However the issue on hand is short deduction of taxes. The question arises for our adjudication whether the provision of section 40(a)(ia) can be imported in the case where tax has been deducted but same is deducted in wrong section or deducted less than the rate specified under the relevant section. In this regard we find pertinent to refer the judgment of Hon ble Calcutta High Court in case of CIT vs. S.K. Tekriwal reported in [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see from section 40(a)(ia). [Para 9] 15.7 Thus there are conflicting observations made by both the above nonjurisdictional Hon ble high courts in similar fact and circumstances, also none of party i.e. either assessee or revenue brought before us any judgment of Hon ble Jurisdictional High Court judgment on the issue on hand. Therefore in this situation where there is conflicting observation made by the non-jurisdictional High Courts, then the judgment favoring the assessee shall be adopted. In this connection we find support from the judgment of the Hon ble Apex Court in case of CIT vs. Vegetable Products Ltd reported in 88 ITR 192, where the Hon ble Apex Court have laid down that in case of conflicting view of the provision of the Act the view favoring to the assessee should be relied upon. The relevant finding of the Hon ble Apex court reads as under: The duty of the Court is to read the section, understand its language and give effect to the same. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the legislature to step in and remov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hotel as and when he stays there, the question of tax deduction at source would not normally arise (except where he is covered under section 44AB as mentioned above) since it is the employee or such individual who makes the payment and the company merely reimburses the expenditure. Furthermore, for purposes of section 194-I, the meaning of rent has also been considered. Rent means any payment, by whatever name called, under any lease . . . or any other agreement or arrangement for the use of any land. . . . [Emphasis supplied]. The meaning of rent in section 194-I is wide in its ambit and scope. For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on regular basis . Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on regular basis . Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement. 3. However, often, there are instances, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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