2007 (10) TMI 327 - AT - Income Tax

Summary

Issues involved: Applicability of s. 194-I, penalty and interest u/s 201(1) and 202(1), CIT(A) order on Circular No. 736.

Applicability of s. 194-I:
The case involved a public limited company providing computer education through franchisees. The Revenue argued that the company was liable to deduct tax u/s 194-I for amounts paid to franchisees. They contended that the franchisees were using premises and infrastructure provided by the company, making them liable for tax deduction. The Revenue also claimed that Circular No. 736 did not apply to this case.

Counter-argument by the Assessee:
The company argued that the revenue shared with franchisees was for conducting the education business jointly, not for the use of premises. They highlighted various clauses in the agreement showing shared responsibilities beyond infrastructure. The company emphasized that the essence of the agreement was to conduct business, not merely use premises.

Judgment:
After considering both arguments, the tribunal held that the main objective of the agreement was to share revenue for conducting the business, not for renting premises. The variable nature of revenue sharing and absence of minimum guarantee amount supported this view. Therefore, the company was not liable to deduct tax u/s 194-I for amounts shared with franchisees. The tribunal upheld the CIT(A) order and dismissed the Revenue's appeal.

Cross-objections and Limitation:
The company raised cross-objections challenging the action taken under s. 201 of the IT Act, citing a delay in filing. The tribunal noted that the cross-objections were filed beyond the permissible time limit. The company sought condonation of the delay, while the Revenue argued against it, stating lack of sufficient cause for the delay.

Decision on Cross-objections:
The tribunal found no acceptable explanation for the delay in filing cross-objections and declined to condone it. As a result, both cross-objections were rejected as unadmitted. Ultimately, the appeals of the Revenue were dismissed, and the cross-objections of the company were rejected.