2017 (5) TMI 74 - AT - Income Tax

TDS - default u/s 201(1) of the Act - rent - the assessee has submitted that the TTD has obtained no deduction certificate u/s 197 of the Act, from the department for nondeduction of tax at source on rent payments and hence, the assessee has not deducted tax at source - Held that - No matter, whether the payment has been made by the assessee directly or paid on behalf of the directors, as long as the recipient income is exempt and also the recipient had got a certificate u/s 197 of the Act, for non-deduction of tax at source on the impugned payment, the assessee need not to deduct tax at source on such payments. M/s. TTD is an entity governed by section 12A of the Act had obtained certificate u/s 197 of the Act for non-deduction of tax at source on rental receipts from the tenants. Since, the income of the recipient M/s. TTD is exempt from tax and also fact that the recipient has obtained no deduction certificate u/s 197 of the Act, the assessee not obliged to deduct tax at source on the impugned payments - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
- Whether the assessee is obligated to deduct tax at source on rental payments made to Tirumala Tirupathi Devasthanams (TTD) for running hotels.
- Whether the CIT(A) correctly held that the assessee was not an assessee in default u/s 201(1) of the Income Tax Act.
- Whether the payments made by the assessee to TTD were in the nature of constructive payments made to the directors of the company.

Analysis:
1. The case involved appeals by the revenue against the CIT(A)'s order for the assessment years 2009-10, 2010-11 & 2011-12. The revenue contended that the assessee failed to deduct tax at source on rental payments to TTD, while the assessee argued that TTD was exempt from deduction of tax at source due to a certificate obtained u/s 197 of the Act.

2. The CIT(A) observed that TTD, being governed by section 12A and having a certificate u/s 197, was exempt from tax. Citing a Supreme Court decision, the CIT(A) held that if the recipient had paid tax on such receipts, the payer need not deduct tax at source. The revenue challenged this decision, arguing that the facts were different from the cited case.

3. The revenue asserted that the payments to TTD were constructive payments to the directors, thus falling under the definition of rent u/s 194I. The assessee contended that the rent was paid on behalf of the directors, who had licenses from TTD, and as TTD was exempt with a certificate u/s 197, no tax deduction was required.

4. The Tribunal found that the directors had obtained licenses from TTD, and although the assessee paid TTD directly, it was on behalf of the directors. As TTD was exempt and had a certificate u/s 197, tax deduction by the assessee was not mandated, regardless of who made the payment.

5. The CIT(A) directed the A.O. to delete the additions for short deduction of tax at source, emphasizing that TTD's tax-exempt status and certificate u/s 197 absolved the assessee from TDS liability. The Tribunal upheld the CIT(A)'s decision due to lack of evidence provided by the revenue.

6. Ultimately, the appeals filed by the revenue were dismissed, affirming the CIT(A)'s ruling. The decision was pronounced on 28th Apr'17, with the Tribunal finding in favor of the assessee based on the legal provisions and factual circumstances presented in the case.