2016 (8) TMI 472 - AT - Income Tax

Tds u/s 194I - failure to deduct tax at source on payment made to RIICO - assessee in default u/s 201(1) - development charges paid by the assessee to Rajasthan State Industrial Development and Investment Corporation Limited (RIICO) towards allotment of land on lease of 99 years - Held that - As decided in case of M/s. Gupta Fabtex (P) Ltd. vs. DCIT (TDS) 2016 (1) TMI 664 - ITAT JAIPUR lease document has used the Development charges and Economic rent to be payable by the assessee. As the document has used two different phrases to connote different obligation therefore in our view development charges can not be read as rent within the purview of the section 194-I. further lease document has provided the consequences of non-payment of the development charges by the assessee, if the assessee failed to pay the development charges, as mentioned in the agreement, the possession was liable to be taken over by the RIICO, therefore the development charges can not be considered as rent.- Decided in favour of assessee Payment to M/s Rajasthan Technical University (RTU) on account of affiliation fee on which TDS was not deducted - appellant has claimed that the income of RTU is exempt under section 10(23C)(iiiab) - Held that - The CBDT Circular No 4/2002 dated 16.7.2002 has been issued in the context of self-declaration by entities/institutions whose income is exempt under section 10 of the Act. In the said circular, the CBDT has clarified that in case of those funds or authorities or Boards or Bodies, by whatever name called, whose income is unconditionally exemption u/s 10 of the IT Act and who are statutorily not required to file return of income as per section 139 of the Income Tax Act, there would be no requirement for tax deduction at source since their income is anyway exempt under the Income Tax Act. The appellant has claimed that the income of RTU is exempt under section c(iiiab) of the Act. Where the income of RTU is exempt, in light of CBDT Circular, there is no requirement to deduct tax at source. In light of above, the AO is directed to verify from the concerned AO of RTU as well as independently from RTU whether the income of RTU is exempt under section 10(23C)(iiiab) of the Act. If the AO finds the same to be in order, the AO is directed not to treat the assessee in default u/s 201(1) of the Act and thereby not to recover any tax and interest u/s 201(1A) on payments to RTU. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Whether the assessee was correctly treated as an assessee in default for failure to deduct tax at source on payments made to RIICO, resulting in the imposition of interest under section 201(1A) of the IT Act, 1961.
2. Whether the assessee was correctly treated as an assessee in default for failure to deduct tax at source on payments made to Rajasthan Technical University, Kota, leading to the imposition of interest under section 201(1A) of the IT Act, 1961.

Issue 1:
The first issue revolves around the treatment of the assessee as an assessee in default for not deducting tax at source on payments made to RIICO. The Assessing Officer (AO) raised a demand under section 201(1) and 201(1A) of the IT Act, which was later amended. The contention was that the payments made were not subject to TDS under section 194-I. The AO and CIT(A) disagreed, emphasizing that the lease agreement with RIICO did not transfer ownership rights but constituted a lease, making the payments liable for TDS. The CIT(A) referred to relevant clauses of the lease agreement and a precedent from ITAT Chennai to support this decision. However, the Coordinate Bench decision in a similar case favored the assessee, stating that the development charges were distinct from rent and, therefore, not subject to TDS. The Tribunal, following the Coordinate Bench's decision, allowed the appeal in favor of the assessee.

Issue 2:
The second issue concerns the treatment of the assessee as an assessee in default for not deducting TDS on payments to Rajasthan Technical University (RTU). The AO raised a demand under section 201(1)/201(1A) of the IT Act, asserting that the payment constituted professional fees and that RTU was not covered under section 196. The CIT(A) upheld the demand, noting that TDS should have been deducted on contractual payments to RTU. The appellant argued that RTU's income was exempt under section 10(23C)(iiiab) and cited supporting documents. The Tribunal considered the CBDT Circular exempting certain entities from TDS if their income is unconditionally exempt under section 10. As the appellant claimed RTU's income fell under this exemption, the AO was directed to verify RTU's exempt status. If confirmed, the AO was instructed not to treat the assessee in default. Consequently, the appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal's judgment addressed the issues of TDS deduction on payments to RIICO and RTU, considering the nature of the transactions and the entities involved. The decision highlighted the importance of correctly interpreting the provisions of the IT Act and verifying the exempt status of entities to determine TDS obligations accurately.