2016 (8) TMI 1548 - AT - Income Tax

TDS u.s 194 - TDS on payments made to an exempt entity like M/s. APIIC in whose respect eligibility for exemption u/s. 11 - whether eligibility for exemption u/s. 11 is to be decided by the AD from year to year? - HELD THAT - There is no provision in the IT Act to grant blanket permit for non-deduction of tax except by following procedure of applying to the appropriate authority. To get the exemption certificate the concern seeking exemption from the deductee it has to apply to the DIT (Exemption) with the request in proper form only upon approval from DIT (Exemption) in writing the exemption is allowed not otherwise. In our considered view the grounds raised by the revenue are correct. In the present case the CIT(A) has made the passing comment that APIIC is a exempt entity but the CIT(A) has allowed the ground of assessee treating the transaction as capital in nature. CIT(A) has not adjudicated this ground mainly on exemption of entity. Hence the ground raised by the revenue is dismissed. Whether M/s. APIIC is a corporation established by the State Government of Andhra Pradesh and not by the Central Government so as to enjoy the exemption available u/s. 196(iii)? - There is no dispute that APIIC established under State Act. In the present case CIT(A) has allowed the exemption by treating the APIIC as a concern u/s 194A(iii)(b) of the Act. On careful observation the concern which is exempt u/s 194A(iii)(b) should be a financial corporation established by or under central state or provincial Act. On the record submitted before us does not clarify that APIIC is a financial corporation. Since we are not sure about the type of financial corporation we remit this issue back to the file of the AO to determine the status. In case it is found that it is a financial corporation the exemption may be granted. Whether Provision for Expenses is made on adhoc basis no TDS is deductible on such provision which is in contravention to the provisions of section 194(2) ? - CIT(A) has allowed as no TDS is deductible on such provision which is in contravention to the provisions of section 194(2) of the Ac. We are surprised to observe that there is no such section 194(2) in the Act. The section referred by the revenue is relating TDS on dividend. Since there is no relevance to the present case we are not considering this ground for adjudication. Appeal of the revenue is partly allowed for statistical purposes

Summary

Issues:
1. Failure to deduct tax at source under various heads.
2. Exemption from TDS for payments made to APIIC.
3. Treatment of lease premium and rental payments.
4. Contract payments and TDS applicability.
5. Disputed provisions for expenses and TDS deduction.

Issue 1: Failure to deduct tax at source under various heads:
The AO observed non-deduction of tax at source by the assessee for payments totaling &8377; 29,72,42,976, leading to a demand under section 201(1) of the Act. Additionally, interest under section 201(1A) was computed at &8377; 17,83,45,620. The assessee appealed to the CIT(A) challenging these observations.

Issue 2: Exemption from TDS for payments made to APIIC:
The CIT(A) ruled in favor of the assessee regarding interest payments to APIIC, stating that no TDS was necessary under section 194A(3)(B) due to APIIC's status as a state government undertaking. The CIT(A) accepted the assessee's submissions regarding lease premium and rental payments to APIIC, considering them as capital in nature and exempt from TDS under section 11 of the IT Act.

Issue 3: Treatment of lease premium and rental payments:
The CIT(A) approved the assessee's argument that lease premium and rental payments to APIIC were capital in nature, not subject to TDS. The CIT(A) relied on previous ITAT decisions and exempted the payments based on the nature of the transaction.

Issue 4: Contract payments and TDS applicability:
Regarding various contract payments, the CIT(A) allowed exemptions for power charges and water abstraction charges made to the Government of AP. The CIT(A) also dismissed the need for TDS on a provision for expenses, citing its reversal in the subsequent financial year.

Issue 5: Disputed provisions for expenses and TDS deduction:
The CIT(A) noted TDS deductions for payments made to Sri Jagananda Rao and audit fees. The CIT(A) highlighted the applicability of section 201(1A) for late payments. The revenue appealed the CIT(A) decision, arguing against the exemption granted to APIIC and the treatment of provision for expenses.

In the final judgment, the ITAT partially allowed the revenue's appeal for statistical purposes, remitting certain issues back to the AO for further determination. The cross objections raised by the assessee were dismissed as infructuous due to the revenue's grounds being dismissed.

This detailed analysis covers the key issues addressed in the legal judgment delivered by the ITAT Hyderabad.