2018 (12) TMI 460 - AT - Income Tax

TDS u/s 194A - addition under section 40(a)(ia) - TDS on lease rent - Held that - Respectfully following Hon ble Delhi High Court in case of Rajesh Projects (India) Pvt. Ltd vs. CIT 2017 (2) TMI 1109 - DELHI HIGH COURT , we hold that, TDS needs to be deducted on lease rent. TDS liability on Interest paid to Yamuna Expressway Development Authority (YIEDA) - Held that - Insofar as definition of, who would constitute an Authority , in our considered opinion decision of CANARA BANK 2016 (5) TMI 570 - ALLAHABAD HIGH COURT cannot be applied wherein held that assessee is entitled to exemption of payment of tax at source under section 194A, due to ratio laid down by Hon ble Supreme Court in case of New Okhla Industrial Development Authority vs CIT (supra). Accordingly, respectfully following ratio laid down in case of New Okhla Industrial Development Authority vs CIT 2018 (8) TMI 1374 - SUPREME COURT OF INDIA we hold that TDS needs to be deducted on interest paid to YEIDA. TDS liability on Bank guarantee commission u/s 194A - Held that - Assessee in present case paid commission to bank not as an agent. Accordingly, we hold that there was no need to deduct TDS on the Bank Guarantee Commission paid by assessee to Bank. Difference in amount of TDS as per 26AS - Held that - It reveals that assessee received ₹ 2,51,17,344/-, on which TDS of ₹ 25,11,900/- has been deducted. Ld. CIT(A) without verifying any details deleted addition, by holding that no income against advance accrued to assessee. Ld.CIT(A) also failed to note that advance has been received for services which are to be rendered in next year. It is the fact that assessee received money and did not offer to tax during the year under consideration, stating that, it is advance received. However, Ld.CIT(A) failed to observe that advance received, must have culminated in subsequent year as income of assessee. Therefore, in our considered opinion, it is required to be verified, in which year, the same income as been offered by assessee for income tax purposes.

Summary

Issues Involved:
1. Applicability of Section 40(a)(ia) on capitalized expenditure.
2. Treatment of ?2,51,17,344/- received from Formula One Management Limited as business income.

Issue-wise Detailed Analysis:

1. Applicability of Section 40(a)(ia) on Capitalized Expenditure
- Revenue's Argument: The Revenue contended that the provisions of Section 40(a)(ia) apply to all expenditures, including those capitalized and not claimed as deductions in the Profit & Loss (P&L) account. They argued that the term "expenditure" is of wide amplitude and includes any amount affecting the debit side of the P&L account, even if capitalized.
- Assessee's Argument: The Assessee argued that since the expenditures were capitalized and no revenue was recognized during the year, these payments were not charged to the P&L account, and thus, no TDS was required.
- Tribunal's Decision: The Tribunal held that TDS should have been deducted at the time of credit or payment, whichever is earlier, regardless of whether the expenditure was charged to the P&L account.
- Lease Rent: The Tribunal, following the Delhi High Court's decision in Rajesh Projects (India) Pvt. Ltd vs. CIT, held that TDS needs to be deducted on lease rent paid to Yamuna Expressway Industrial Development Authority (YEIDA).
- Interest Paid to YEIDA: The Tribunal, referencing the Supreme Court's decision in New Okhla Industrial Development Authority vs. CIT, held that TDS needs to be deducted on interest paid to YEIDA.
- Bank Guarantee Commission: The Tribunal agreed with the earlier decision that bank guarantee commission paid to banks does not require TDS under Section 194H, as it does not fall within the clause (i) of Explanation to Section 194H and is covered by the exemption under Section 194A(2)(ii)(a).

2. Treatment of ?2,51,17,344/- Received from Formula One Management Limited as Business Income
- Revenue's Argument: The Revenue argued that the amount received should be treated as business income for the assessment year since it was received as an advance for services like hotel booking and car hiring for the Grand Prix event.
- Assessee's Argument: The Assessee contended that the amount was an advance for specific services to be rendered in the subsequent year and thus should not be treated as income in the current year.
- Tribunal's Decision: The Tribunal noted that the CIT(A) deleted the addition without verifying whether the advance received was offered as income in the subsequent year. The Tribunal set aside the issue to the Assessing Officer (AO) for verification of whether the income was offered for taxation in the subsequent year.

Conclusion:
The appeal filed by the Revenue was partly allowed for statistical purposes. The Tribunal directed the AO to verify the year in which the advance received from Formula One Management Limited was offered as income and upheld the requirement of TDS on lease rent and interest paid to YEIDA, while agreeing that no TDS was required on the bank guarantee commission.