2017 (3) TMI 198 - AT - Income Tax

TDS u/s 194I - non deduction of TDS - compensation paid for the use of the building / premises / place of the members for construction activities - Held that - The assessee has merely paid compensation to the members of the society. It is for them to utilise this amount for payment of rent or otherwise. Even if it has been paid as rent, the contract of rent/lease would be between the members and their respective landlords from whom these members would take premises (alternative accommodation) on rent/lease, and then the amount payable by these members to their respective landlords may be liable for deduction of TDS u/s 194-I, if applicable upon them. As far as assessee is concerned, there was no transaction, much less, transaction of rent between the assessee and the new landlords of members of the society. Therefore, it would be highly unjustified to treat this amount as payment of rent and to make it liable for deduction of tax at source u/s 194-I. Thus invoking of provisions of section 40(a)(ia) is unjustified. Thus, the disallowance made by the lower authorities is illegal and therefore, directed to be deleted. Addition on account of difference in closing balance of the assessee and one of the buyers of the property sold by the assessee - Held that - It is noted that a confirmation has been placed by the assessee on record on behalf of Ms. Rakhi Sawant which is claimed to be signed by one, Shri Dewal Modi. On our enquiry, it was replied by Ld. Counsel that Shri Dewal Modi, happened to be the accountant of Ms. Rakhi Sawant. But nothing was brought on record to support the said claim. However, he requested for giving one more opportunity to bring proper documentary evidence on record. In our considered view also, this issue should go back to the file of the AO. The assessee should place on record confirmation signed by the customer only, i.e. Ms. Rakhi Sawant. If it is signed by some other person, then it has to be established that the said person is duly authorised to sign confirmation on behalf of Ms. Rakhi Sawant.

Summary

Issues Involved:
1. Disallowance of displacement compensation under section 40(a)(ia).
2. Addition on account of differences in balances of creditors/purchasers.
3. Addition on account of differences in total sale price as per Agreement/AIR and advances received till the end of the relevant year.

Issue-wise Detailed Analysis:

1. Disallowance of Displacement Compensation under Section 40(a)(ia):
The primary issue revolves around the disallowance of ?65,86,800 paid as compensation to society members for alternative accommodation during redevelopment, which was disallowed for non-deduction of tax under section 194I. The lower authorities treated this payment as rent, thereby attracting TDS provisions. However, the assessee argued that there was no landlord-tenant relationship, and the payment was a compensation, not rent. The Tribunal referred to the case of Sahana Dwellers Pvt Ltd vs Income Tax Officer, where similar payments were not considered rent, thus not attracting section 194I. The Tribunal concluded that the payment was indeed compensation for displacement and not rent, and therefore, no TDS was required under section 194I. Consequently, the disallowance under section 40(a)(ia) was deleted.

2. Addition on Account of Differences in Balances of Creditors/Purchasers:
- Ground 2.1: This ground was dismissed as it was not pressed by the appellant.
- Ground 2.2: The issue concerned a discrepancy of ?3,05,870 in the closing balance with a buyer, Ms. Rakhi Sawant. The Tribunal noted that while a confirmation was available, it was not signed by the customer but by an accountant. The Tribunal remanded the issue back to the Assessing Officer (AO) for verification, directing the assessee to provide a proper confirmation signed by Ms. Sawant or establish the authority of the person who signed it. The AO was instructed to verify the confirmation and decide the issue afresh based on the evidence provided.

3. Addition on Account of Differences in Total Sale Price as per Agreement/AIR and Advances Received Till the End of the Relevant Year:
The assessee challenged the additions of ?13,34,452 and ?2,81,419, citing that the projects were under construction and not completed by the end of the relevant year. Both sides agreed to remit these grounds back to the AO for proper adjudication, considering the evidences and ensuring no double taxation. The Tribunal directed the AO to verify if these amounts were taxed in subsequent years and to avoid double taxation. The AO was also instructed to consider any new evidence provided by the assessee to explain the differences.

Appeal for A.Y. 2011-12:
- Ground 1: Similar to the issue in A.Y. 2010-11, the disallowance of ?2,65,000 for non-deduction of TDS on compensation paid for alternative accommodation was treated identically. The Tribunal allowed this ground in line with the decision for A.Y. 2010-11.
- Ground 2: Similar to the issue in A.Y. 2010-11, concerning the addition of ?4,28,480 due to differences in advances received and sale price. This ground was also remanded back to the AO with similar directions as in A.Y. 2010-11.

Conclusion:
Both appeals were partly allowed, with specific grounds remanded back to the AO for fresh adjudication based on the Tribunal's directions. The Tribunal emphasized ensuring proper verification and avoiding double taxation in subsequent years.