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2018 (9) TMI 867 - AT - Income TaxPenalty u/s 271C - assessee company had not complied with the TDS provisions properly - assessee company was held to be liable to deduct TDS from the payment of internet connectivity charges and specialised line rental u/s 194J being in the nature of royalty by relying on Explanations 4, 5 and 6 to section 9(1)(vi) inserted by the Finance Act, 2012 with retrospective effect - CIT(A) did not approve this view of AO by holding that the liability to deduct tax at source was governed by section 9(1)(vi) as it existed before the Finance Act, 2012 - Held that - As rightly pointed out by assessee this view taken by the CIT(A) is supported by various judicial pronouncements including the decision of Mumbai Bench of this Tribunal in the case of Channel Guide India Ltd. vs ACIT 2012 (9) TMI 95 - ITAT MUMBAI wherein it was held that the assessee cannot be held to be liable to deduct tax at source by relying on the subsequent amendments made in the relevant provision with retrospective effect - it was impossible for the assessee to deduct tax in the F.Y. 2003-04 when as per the legal position prevalent in the said F.Y., the obligation to deduct tax was not on the assessee -we uphold the impugned order of the Ld. CIT(A) holding that the assessee was not liable to deduct tax at source from the amount in question paid towards internet connectivity charges and specialised line rental u/s 194J and dismiss Ground No. 1 of the Revenue s appeal. TDS u/s 194I - liability to deduct tax at source from the amount paid towards internet connectivity charges and specialized line rental - Held that - In the case of Destimoney Securities Pvt. Ltd. vs ITO 2017 (8) TMI 714 - ITAT MUMBAI at similar situation held that the lease line charges were paid by the assessee to the internet service provider for faster internet access on dedicated lease line and as such the said payment had been made for use of telecommunication services / connectivity for transmission of voice / data facility provided by the vendors and not for use of any asset involved in provision of such facility / service covered in section 194I of the Act - the assessee, therefore was not liable to deduct tax at source u/s 194I of the Act and he could not be treated as the assessee in default u/s 201(1)/201(1)A of the Act in respect of failure to deduct tax at source from the payment made towards lease line charges. - decided in favour of assessee TDS from salary payment to employees - considering the house property loss resulting from the deduction on account of interest on housing loan while making deduction of tax at source from the payment of salary to some employees who had also claimed exemption on account of house rent allowance u/s 10 - Held that - CIT(A) however found that these two benefits were governed by two independent provisions and since the concerned employees had satisfied the conditions for claiming the benefits under these two independent provisions, there was no violation on the part of the assessee of the Income Tax Act. At the time of hearing before us, the learned DR has not able to raise any material contentions to reduce or controvert the decisionrendered by the Ld. CIT(A) on this issue or the reasons given while arriving at the same. - Decided against revenue Penalty u/s 271C - treating the assessee company as the assessee in default for the alleged non-deduction or short deduction of tax at source from the concerned payments - Held that - Since the said issue has already been decided by us in the foregoing portion of this order while disposing of the respective appeals of the assessee and revenue holding that the assessee company could not be treated as the assessee in default u/s 201(1)/201(1A) of the Act, the consequential penalty imposed by the A.O. u/s 271C of the Act for the alleged default of the assessee for compliance with the relevant TDS provision is liable to be cancelled. - Decided in favour of assessee
Issues Involved:
1. TDS default in respect of communication charges. 2. TDS default in respect of manpower supply charges. 3. TDS default in respect of house property loss. 4. Consequential issue relating to penalty u/s 271C of the Income Tax Act, 1961. Detailed Analysis: TDS Default in Respect of Communication Charges: The Assessing Officer (A.O.) held that the assessee company was liable to deduct tax at source under Section 194J from payments made for internet connectivity charges and specialized line rental, treating these as royalty by relying on Explanations 4, 5, and 6 to Section 9(1)(vi) inserted by the Finance Act, 2012. The Ld. CIT(A) disagreed, stating that the liability to deduct TDS was governed by Section 9(1)(vi) as it existed before the Finance Act, 2012. The CIT(A) cited judicial decisions indicating that internet charges could not be subjected to TDS under Section 194J, and specialized line rental was not royalty, but could be considered under Section 194I. The Tribunal upheld the CIT(A)'s view, noting that retrospective amendments could not impose a TDS obligation on the assessee for periods before the amendment. The Tribunal also ruled that payments for internet services and line rentals were not subject to TDS under Section 194I. TDS Default in Respect of Manpower Supply Charges: The A.O. argued that payments made for manpower supply should be subject to TDS under Section 194J, considering it as managerial services. The assessee contended that the payments were for labor supply, governed by the Minimum Wages Act, and thus fell under Section 194C. The CIT(A) found the A.O.'s reasoning unconvincing, noting that the contract was for labor supply, including services like loading/unloading, security, and housekeeping, which did not involve technical, professional, or managerial functions. The Tribunal upheld the CIT(A)'s decision, confirming that TDS provisions under Section 194C were applicable. TDS Default in Respect of House Property Loss: The A.O. contended that employees who claimed both House Rent Allowance (HRA) and interest on housing loans were receiving double benefits, which was not permissible. The CIT(A) found that the provisions for HRA exemption under Section 10 and interest deduction under Section 24(b) were independent, and employees meeting the conditions for both could claim both benefits. The Tribunal upheld this view, dismissing the A.O.'s argument and confirming that the assessee’s actions were in compliance with the Income Tax Act. Consequential Issue Relating to Penalty u/s 271C: The issue of penalty under Section 271C was contingent on the determination of the assessee as being in default under Section 201(1)/201(1A). Since the Tribunal ruled that the assessee was not in default for the alleged TDS non-compliance, the consequential penalty under Section 271C was also cancelled. The Tribunal upheld the CIT(A)'s order canceling the penalty, thus dismissing the revenue's appeal on this matter. Conclusion: Both appeals by the revenue were dismissed, and the appeal by the assessee was allowed. The Tribunal confirmed that the assessee was not liable for TDS under the contested sections and was not in default, thus negating the penalty under Section 271C.
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