2020 (7) TMI 68 - AT - Income Tax

TDS u/s 194A - Non deduction of TDS on rent paid to Krishi Upaj Mandi Samiti - whether recipient Krishi Upaj Mandi Samiti is exempt under 10(26AAB)? - HELD THAT - A certificate of the Chartered Accountant under first proviso to section 201(1) of the Act dated 3rd June, 2016 states about the amount of rent paid by the assessee to the payee and certifies that the rental income received from the assessee has been accounted for in the financial statements and the taxable income of the 'payee' is nil. This fact proves that there was no liability to pay income tax on the payee as taxable income was nil. Also decided in BRANCH MANAGER, STATE BANK OF BIKANER JAIPUR 2012 (4) TMI 210 - ITAT JAIPUR it was held that there was no question of deducting TDS by the assessee under section 194A of the Act on the interest paid to Rajasthan Rural Road Development Agency (RRRDA) which is a society registered under Societies Act, 1958 and was wholly financed by the Stated Government. Thus, in view of the CBDT, circular vide No. 04 of 2002 on 16-7-2003 and the certificate of Chartered Accountant dated 3-6-2016 we are of the considered view that the assessee should not have been treated as assessee in default for non-deduction of tax at source on the rent payment to Krishi Upaj Mandi Samit - In view of the CBDT Circular No. 4 of 2002 dated 16-7-2013 and circular No. 18/2017 on 29-5-2017, are of the considered view that the assessee should not treated as assessee in default for non-deducting tax on rent paid to Krishi Upaj Mandi Samiti. - Decided in favour of assessee. Short deduction of TDS on rent paid u/s 201(1) - payment to Co-owners - AO in treating the share of money as rent liable to TDS - applicability of the provisions of section 194I of the Act - HELD THAT - We find that the assessee had duly deducted the tax at source on the rent paid to the co-owners where the amount of rent exceeded the limit of ₹ 1,80,000/- and in two cases where the amount was below the limit of ₹ 1,80,000/- tax was not deducted - assessee should not be treated as assessee in default for short deduction of tax on rent payment to M/s. Sadhana Enterprises since the assessee has rightly deducted, collected and paid the tax on share of the rent paid to each of the co-owners. Revenue authorities failed to bring any contrary material to prove that the total rent was paid to M/s Sadhana Enterprises. Since the rent have been paid to each of the co-owners, tax deductible at source as per the provisions of section 194I of the Act, has been complied by the assessee. We, thus, set aside the finding of Ld. CIT(A) and allow ground no. 2 of the assessee.

Summary

Issues Involved:
1. Whether the assessee was rightly treated as an assessee in default for not deducting TDS on rent paid to Krishi Upaj Mandi Samiti.
2. Whether there was a short deduction of TDS on rent paid to co-owners (M/s Sadhna Enterprises) and the applicability of the provisions of section 194I of the Income-tax Act, 1961.

Detailed Analysis:

1. Non-Deduction of TDS on Rent Paid to Krishi Upaj Mandi Samiti:
The assessee, a State Government undertaking, was treated as an assessee in default for not deducting TDS on rent payments to Krishi Upaj Mandi Samiti, Dhamnod & Khandwa. The assessee argued that Krishi Upaj Mandi Samiti's income is exempt under section 10(26AAB) of the Income-tax Act, 1961, and referred to CBDT Circular No. 4 of 2002 and Circular No. 18/2017, which state that no TDS is required for entities whose income is unconditionally exempt and who are not required to file a return of income.

The Tribunal observed that the payee, Krishi Upaj Mandi Samiti, is a State Government undertaking with income exempt under section 10(26AAB). A certificate from a Chartered Accountant confirmed that the rental income received was accounted for and the taxable income was nil. The Tribunal relied on the CBDT circulars and previous judicial decisions, concluding that the assessee should not have been treated as an assessee in default for non-deduction of TDS on the rent payment of ?4,37,528/- to Krishi Upaj Mandi Samiti. Therefore, the demand raised under section 201(1) & 201(1A) was deleted, and ground no. 1 of the assessee's appeal was allowed.

2. Short Deduction of TDS on Rent Paid to Co-owners (M/s Sadhna Enterprises):
The assessee entered into a "Joint partnership agreement scheme" with Sadhana Enterprises (co-owners) and paid rent to each co-owner separately as per their ownership share. The assessee argued that the agreement was not a rent agreement but a joint partnership agreement, and thus section 194I was not applicable.

The Tribunal examined the details and found that the assessee had deducted TDS on the rent paid to co-owners where the amount exceeded ?1,80,000/-. In two cases where the rent was below this limit, no TDS was deducted. The Tribunal concluded that the assessee had complied with the TDS provisions under section 194I by deducting tax on the share of rent paid to each co-owner. The revenue authorities failed to prove that the total rent was paid to Sadhana Enterprises as a single entity. Therefore, the assessee should not be treated as an assessee in default for short deduction of tax on rent payments to M/s Sadhana Enterprises. Ground no. 2 of the assessee's appeal was allowed.

3. General Ground:
Ground No. 3 was general in nature and did not require adjudication.

Conclusion:
The appeal of the assessee was allowed, with the Tribunal ruling that the assessee was not in default for non-deduction of TDS on rent payments to Krishi Upaj Mandi Samiti and for short deduction of TDS on rent payments to co-owners of Sadhana Enterprises.