2018 (12) TMI 987 - AT - Income Tax

TDS u/s 194C or 194I - non deduction of tds on payment of hotel accommodation expenses - addition u/s 40(a)(ia) - admission of additional evidences - Held that - The assessee claimed that the above additional evidences clearly establish the nature of the contract with the Hotels and also establish that there are only rate contracts and do not involve any obligation for providing a room or specified set of rooms. Assessee further claimed that since Ld. CIT(A) misunderstood the Circulars issued by the CBDT, therefore, these additional evidences shall have to be considered in order to decide the issue whether provisions of Section 194I would apply in the facts and circumstances of the case. Hon ble Supreme Court in the case of Tekram 2013 (8) TMI 459 - SUPREME COURT and Mukta Metal Works 2011 (2) TMI 250 - PUNJAB AND HARYANA HIGH COURT admitted additional evidences being relevant and required to be looked into for deciding the matter in issue. Therefore, in order to do substantial justice we are of the view that these additional evidences should be admitted for disposal of the appeal Admittedly, the above additional evidences were not before authorities below to decide whether provisions of Section 194I or 194C would apply in the matter. Therefore, interest of justice requires that an opportunity should be given to the A.O. to examine these additional evidences and decide the issue as per Law. - Decided in favour of assessee for statistical purposes.

Issues Involved:

1. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961 for non-deduction of TDS on hotel accommodation expenses.
2. Applicability of Section 194-I versus Section 194-C for TDS on payments to hotels.
3. Interpretation and application of CBDT Circulars No. 715 and No. 5 of 2002.
4. Admission of additional evidence under Rule 29 of Income Tax (Appellate Tribunal) Rules, 1963.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961:

The primary issue revolves around the disallowance of ?1,53,09,598 made by the Assessing Officer (A.O.) under Section 40(a)(ia) of the Income-tax Act, 1961 due to non-deduction of TDS on hotel accommodation expenses. The A.O. argued that the payment to hotels was on a regular basis for services obtained, thereby necessitating TDS under Section 194C. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance, referencing CBDT Circular No. 5 of 2002, which clarifies the applicability of Section 194I for payments made to hotels for hiring rooms.

2. Applicability of Section 194-I versus Section 194-C for TDS on payments to hotels:

The CIT(A) held that the payments made by the assessee to hotels were covered under Section 194I, which pertains to TDS on rent, rather than Section 194C, which deals with TDS on contracts. The CIT(A) observed that the rate contracts between the assessee and the hotels involved an obligation to provide a certain number of rooms at specified rates, thus falling under the purview of Section 194I.

3. Interpretation and application of CBDT Circulars No. 715 and No. 5 of 2002:

The CIT(A) interpreted the CBDT Circulars to mean that if a rate contract agreement carries an obligation to provide rooms, it is considered accommodation taken on a regular basis and thus liable for TDS under Section 194I. The assessee contended that the CIT(A) misconstrued these circulars, arguing that their contracts with hotels were merely rate contracts without any obligation to provide specific rooms, and thus should not attract TDS under Section 194I.

4. Admission of additional evidence under Rule 29 of Income Tax (Appellate Tribunal) Rules, 1963:

The assessee filed an application for the admission of additional evidence to establish the nature of their contracts with hotels. The additional evidence included rate contract agreements, stop sale communications, ledger extracts, and sample bills. The Tribunal, recognizing that these evidences were crucial for a proper adjudication of the matter, admitted them. The Tribunal noted that the CIT(A) had misunderstood the CBDT circulars and that the additional evidence would help clarify the nature of the contracts.

Conclusion:

The Tribunal admitted the additional evidence and set aside the orders of the authorities below. The matter was remanded to the A.O. for re-examination in light of the additional evidence. The A.O. was directed to re-decide the issue, considering whether the provisions of Section 194I or Section 194C would apply, and to provide a reasonable opportunity of being heard to the assessee. The appeal was allowed for statistical purposes, ensuring that substantial justice is done by considering all relevant facts and evidence.

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