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2008 (5) TMI 311 - AT - Income TaxFailure to deduct TDS u/s 194-I - Interest under s. 201(1A) - licence fees paid/payable to M/s Ramco Ind. Ltd. for utilization of its production facilities - whether in the nature of rent - Assessee In Default - Assessee contented that as per agreement, the company used its production facilities and charges are billed on the basis of actual production obtained by assessee company from its unit and hiring of equipments, plant and machinery and production facilities are not covered u/s 194-I - essence of the agreement was not to take on rent the premises - Ld DR submitted no evidence has been furnished to substantiate that tax on the related income covered by s. 194-I has been paid by M/s Ramco Ind. Ltd. - HELD THAT - It is settled law that when the tax due had been paid by the deductee, the same could not be recovered again from the assessee. Hon'ble Delhi High Court in the case of CIT vs. Eli Lilly Co. (I) (P) Ltd. 2006 (11) TMI 107 - HIGH COURT , DELHI held that while some salary might have accrued to these four executives outside India, the vital incidence of the payment of the salaries to them abroad had not actually been made by the assessee. The assessee was not liable to deduct tax at source. Since the four executives had paid the interest, there was no justification for claiming interest from the assessee. Hon'ble Delhi High Court in the case of CIT vs. Majestic Hotel Ltd. 2006 (6) TMI 104 - DELHI HIGH COURT held allowing the appeals, that the assessee was in default on account of its failure to make the deduction at source. That default would render it liable to pay the tax amount as also interest on the same after taking credit for the payments, if any, already made by the deductee. Learned CIT(A), on the basis of material produced before him found that appropriate taxes on such income apparently have been paid by the recipient/licensor M/s Ramco Ind. Ltd. and, directed the AO to allow such deduction subject to verification and confirmation by AO. Learned CIT(A) also noted that since the taxes have been paid by the licensor, the same would amount to double collection of tax on the same income. We do not find any infirmity in the order of the learned CIT(A) because the assessee has filed complete details before learned CIT(A) in respect of taxes paid by M/s Ramco Ind. Ltd. on whole of its income including the income received on account of licence fees. The same details are also filed with the paper book including certificate from M/s Ramco Ind. Ltd. and copy of the computation of their income and acknowledgement of filing of return. All taxes are paid quarterly. Therefore, we do not find any merit in the Departmental appeals. Even otherwise, the learned CIT(A) allowed the claim of, assessee subject to verification by the AO therefore, there should not have been any grievance against the order of the learned CIT(A). The Departmental appeals fall and are accordingly dismissed. Applicability of s. 194-I on licence fees paid/payable to M/s Ramco Ind. Ltd. for utilization of its production facilities - Assessee has not clarified as to how it can use effectively the plant and machinery without using the factory building. The details of gross block of fixed assets on 31st March, 2003 as filed at paper book-A/13 show that the total gross value of land. building and plant and machinery out of which, the value of plant and machinery. It would therefore, prove that the value of land and building, furniture, fittings, including factory building was also having substantial value which cannot be given to the assessee without any consideration for use and occupation. Schedule A attached with the agreement also prescribed that entire factory building of pipe plant excluding warehouse has been handed over by M/s RIL to M/s KSGML. Since entire factory building is given to the assessee and the licensor had no control over the factory building, therefore, it cannot be believed that it, was a case of licence agreement. In the case of lease, the creation of interest in the rented property is there, which we find in this case because the right to enjoyment in the entire property has been created in favour of the assessee therefore, it falls within a definition of rent as prescribed in Expln. (i) to s. 194-I of the IT Act. The assessee has not made out any case that it was getting the goods manufactured from the licensor on job basis. We are of the view that the agreement in question is a composite agreement for renting out the entire factory building including plant and machinery, tools, and residential quarters subject to minimum payment of Rs. 40 lakhs. Merely, because the name of agreement is given as licence agreement is not enough to thwart the provisions of s. 194-I of the IT Act. In this view of the matter, we do not find any infirmity in the orders of authorities below. Provisions of s. 194-I are applicable to this case. We therefore, confirm the orders of authorities below and dismiss ground No. 1 in all the appeals of the assessee. Interest under s. 201(1A) - charging interest upto the terminal date - Assessee has filed all the relevant details before learned CIT(A) which are noted in the appellate order with regard to total income of the recipient including the licence fees paid by assessee, TDS/advance tax paid and self-assessment tax paid. The assessee in the paper book also filed certificate from M/s Ramco Ind. Ltd., acknowledgment of filing of return, in which it was explained that licence fee is included in the total income and quarterly taxes have been paid. The decision in the case of Rajasthan Rajya Vidyut Prasaran Nigam Ltd. 2005 (8) TMI 83 - RAJASTHAN HIGH COURT is clearly applicable to support the contention of the assessee. However, we find that neither the AO nor the learned CIT(A) has given any finding as to when the taxes have been paid by M/s Ramco Ind. Ltd. therefore, it would be appropriate to restore the matter to the AO to verify the dates of payments before charging or calculating any interest in the matter because it is definite that the recipient has already paid tax. We accordingly set aside the orders of authorities below and restore this issue to the file of AO with direction to verify the dates of payments of taxes and pass appropriate reasoned order in the light of the findings given in this order. The AO shall give reasonable sufficient opportunity of being heard to the assessee. As a result, this ground of appeals of the assessee is allowed for statistical purposes. As a result, all the appeals of assessee are allowed partly for statistical purposes. As a result, Departmental appeals are dismissed and assessee's appeals are partly allowed for statistical purposes.
Issues Involved:
1. Applicability of Section 194-I of the IT Act for the licence fees paid for utilization of production facilities. 2. Liability of the assessee for non-deduction of TDS under Section 194-I. 3. Levy of interest under Section 201(1A) of the IT Act. Issue-wise Detailed Analysis: 1. Applicability of Section 194-I of the IT Act: The primary issue was whether the licence fees paid by the assessee to M/s Ramco Ind. Ltd. for utilizing its production facilities fall under the purview of "rent" as defined in Section 194-I of the IT Act. The assessee argued that the agreement was for the use of production facilities, including plant and machinery, and not for renting the premises. They relied on Board Circulars Nos. 715 and 736, which clarified that hiring of equipment, plant, and machinery is not covered under Section 194-I. However, the AO and CIT(A) concluded that the agreement was a composite one for the entire factory, including land, building, plant, and machinery, which falls under the definition of "rent" in Section 194-I. The Tribunal upheld this view, noting that the agreement included the use of all facilities, utilities, machines, factory, office premises, and residential quarters, thereby making it a composite agreement for renting out the entire factory premises. 2. Liability for Non-Deduction of TDS: The assessee contended that since the agreement was for the use of production facilities and not for renting the premises, TDS under Section 194-I was not applicable. However, the AO held that the assessee failed to deduct TDS on the licence fees, making them liable under Sections 201(1) and 201(1A) of the IT Act. The CIT(A) upheld this view, stating that the essence of the agreement was the use of the entire factory premises, including land and building, which falls under the definition of "rent." The Tribunal agreed, emphasizing that the agreement was a composite one for the entire factory, including plant and machinery, and thus, the provisions of Section 194-I were applicable. Consequently, the assessee was deemed to be in default for non-deduction of TDS. 3. Levy of Interest under Section 201(1A): The CIT(A) upheld the AO's decision to levy interest under Section 201(1A), stating that charging interest is mandatory and automatic. However, the CIT(A) directed the AO to recalculate the interest with reference to the terminal date of processing the return under Section 143(1) or passing the assessment order under Section 143(3), whichever is earlier. The assessee argued that since the licensor had paid the taxes, there was no loss of interest to the Revenue, and thus, interest should not be calculated up to the terminal date. The Tribunal noted that the assessee had provided evidence of taxes paid by M/s Ramco Ind. Ltd. and directed the AO to verify the dates of tax payments before calculating interest. The Tribunal set aside the CIT(A)'s order on this issue and restored the matter to the AO for verification and appropriate action. Conclusion: The Tribunal dismissed the Departmental appeals and partly allowed the assessee's appeals for statistical purposes. The Tribunal upheld the applicability of Section 194-I to the licence fees paid by the assessee, confirming their liability for non-deduction of TDS. However, the Tribunal directed the AO to verify the dates of tax payments by the licensor before calculating interest under Section 201(1A). The Tribunal's decision emphasized the composite nature of the agreement and the mandatory nature of interest under Section 201(1A), subject to verification of tax payments.
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