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2020 (5) TMI 410 - AT - Income TaxDenial of credit of TDS - rental income collected by the appellant under an agreement on behalf of Development Commissioner (Handicrafts) Ministry of Textiles in respect of Rajeev Gandhi Handicrafts Bhawan, New Delhi - HELD THAT - Assessee was collecting rent on behalf of Government of India from the tenants and then remits that rent as it is back to the Government. The building is owned by the Government of India. Assessee is not the beneficial owner of the rent as property was given by the Government to the assessee for its use. Assessee was merely collecting the rent. Rent collected by the assessee is definitively its income and rent paid back to the Government is its expenses. It is a lease in lease out agreement/understanding. On the rent paid to the assessee by the tenants, tax is deductible under Section 194I. As assessee pays the same to the Government, it does not need to deduct tax at source on its repayment to the Government. In all practical purposes rent collected by the assessee from its tenants and rent paid to the Government (actual transfer of rent to the Government) is its outgo. Tax deducted by the Tenant should be granted as refund to the assessee as rent collected is its income in hands of the assessee and rent paid to the Government is its expenses. AO as well as the CIT(A) was not right in denying the credit of TDS to the assessee. - Decided in favour of assessee.
Issues Involved:
Denial of credit of TDS on rental income collected by the assessee under an agreement on behalf of Development Commissioner (Handicrafts) Ministry of Textiles in respect of Rajeev Gandhi Handicrafts Bhawan, New Delhi. Analysis: Issue 1: Denial of Credit of TDS on Rental Income The assessee society, registered under section 12A of the Income Tax Act, filed an appeal against the order passed by CIT(A)-40, Delhi, for Assessment Year 2017-18. The Assessing Officer observed that the assessee's receipts from sales were commercial transactions and made an addition to the income. The CIT(A) partly allowed the appeal. The main contention was the denial of credit of TDS on rental income collected by the assessee under an agreement on behalf of the Development Commissioner (Handicrafts), Ministry of Textile. The assessee argued that since it was not directly involved in providing services related to trade, commerce, or business, TDS should not have been deducted. The assessee claimed that it was merely acting as an agent or licensee for the Government and should not be treated as the beneficiary of the payment. The dispute centered around whether the rent collected by the assessee should be considered as its income and whether TDS deduction was justified. Issue 1 Analysis: The Tribunal analyzed the nature of the arrangement between the assessee and the Government regarding the rental income. It was established that the assessee was collecting rent on behalf of the Government of India and remitting it back to the Government, as the building was owned by the Government. The Tribunal concluded that the rent collected by the assessee was its income, and the rent paid to the Government was its expense. The Tribunal characterized the arrangement as a lease in and lease out agreement. It was determined that tax was deductible under Section 194I of the Income Tax Act on the rent paid by the tenants to the assessee. Since the assessee was passing on the rent to the Government, it was not required to deduct TDS on the repayment to the Government. The Tribunal held that the credit of TDS should be granted to the assessee as the rent collected was its income, and the rent paid to the Government was its expense. Consequently, the Tribunal allowed the appeal of the assessee, disagreeing with the Assessing Officer and CIT(A) regarding the denial of TDS credit. Conclusion: The Tribunal, comprising Ms. Suchitra Kamble and Shri Prashant Maharishi, allowed the appeal of the assessee, emphasizing that the denial of credit of TDS on rental income collected under the agreement with the Government was not justified. The judgment highlighted the nature of the arrangement as a lease in and lease out agreement, leading to the conclusion that the rent collected by the assessee was its income, warranting the grant of TDS credit.
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