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2009 (2) TMI 277 - AT - Income TaxTDS u/s 194I - Payment of licence fee - Upfront fee - lessor has paid advance tax - Whether demand raised u/s. 201/201(1A) can be barred by limitation? - quantum of self-assessment - Whether disputable question of fact and law can be rectified u/s 154 by CIT(A) - HELD THAT - When we consider the language of Section 194I and consider the provisions of Section 190 and 199, then the rule of harmonious interpretation requires us to interpret that the word 'income' referred in Section 194I does not refer to the income of that particular AY in which the payee has made the 'entry'. This is also obvious from the fact that the payer may not be aware of the method of accounting adopted by the payee. The payer may be crediting interest on mercantile basis while the payee may be offering it on the cash basis. The adoption of cash basis by the payee will not be a ground for non-deduction of tax at source by the payer. Hence, it is to be held that the upfront fee which has been held as rent by the ld CIT(A) was an income in the hands of the payee and therefore, the assessee was required to deduct the tax at source at the time of credit of such an amount. Considering the definition of the rent given in Section 194I and taking into consideration the finding of the ld CIT(A), which has not been challenged by the assessee, it is held that upfront fee is rent on which tax was required to be deducted at source u/s 194I. Liability to Pay tax and Interest - reasonable period for completion of assessment proceedings - Whether there is any limitation for passing order u/s 201/201A ? - In the case before the Hon'ble Kerala High Court in the case of Secretary, Sultan Battery Cooperative Housing Society Ltd. v. CIT 2002 (10) TMI 37 - KERALA HIGH COURT , a plea was raised that order u/s 201(1A) is barred by limitation on the ground of Section 231. The Hon'ble Kerala High Court has not considered the decision of the Hon'ble Apex Court in the case of Bhatinda District Coop. Milk Producers Union Ltd. 2007 (10) TMI 300 - SUPREME COURT . So, according to us the decision of the Hon'ble Delhi High Court in the case of CIT v. NHK Japan Broadcasting Corporation 2008 (4) TMI 182 - DELHI HIGH COURT is applicable and the AO could not have initiated the proceedings after the end of the four years from the relevant financial year. Accordingly, order u/s 201(1) and 201(1A) for the AY's 2002-03 and 2003-04 are barred by limitation. Though we are holding that the order for the AY 2002-03 and 2003-04 are barred by limitation, yet we are deciding the issue on merits so that in case our finding in respect of limitation is reversed, the matter on merits stands decided. Assessee has filed the returns and has paid tax on the licence fee. AO has not raised demand u/s 201(1) for the AY's 2002-03, 2003-04 and 2004-05. As per Circular referred by The Hon'ble Apex Court in the case of Hindustan Coco Cola Beverages P. Ltd. 2007 (8) TMI 12 - SUPREME COURT , if the deductee assessee has paid advance tax after considering the licence fee then no interest u/s 201(1A) will be chargeable, as the Board Circular has mentioned that interest u/s 201(1 A) is to be charged till the date of payment of tax by the deductee-assessee. Hence, the issue of computation of interest u/s 201(1A) for the AY 2002-03 will have to be worked again by the AO in respect of licence fee. Since we have held that the assessee was required to deduct tax at source from the upfront amount and therefore, the AO was right in raising demand u/s 201 and 201(A). However, this is without prejudice to our earlier finding that the order for the AY's 2002-03 and 2003-04 are barred by limitation. For the AY 2003-04, AO has raised demand u/s 201(1A) in respect of TDS deductible on the licence fee - We are not aware as to whether the recipient has paid the tax on licence fee as advance tax or self-assessment tax. As per the finding given for the AY 2002-03, the issue of computation of interest u/s 201(1A) is restored back on the file of the AO. The interest should be charged till the date when the recipient has satisfied the tax liability on the licence fee. For the AY 2004-05 - After going through the computation of total income and profit and loss account, we are satisfied that the assessee has paid advance tax after taking into account the lease rent. Hence, when the assessee has paid the advance tax on the lease rent, then interest u/s 201(1A) will not be chargeable in view of the Board Circular that such interest is to be charged up to the date when the deductee has paid the advance. In the case of Union Home Products v. Union of India 1995 (2) TMI 52 - KARNATAKA HIGH COURT held that interest charged u/s 234A, 234B and 234C is compensatory in character. No need of a hearing is to be given to the assessee for charging such interest. Section 271C provides penalty for failure to deduct tax at source - Since a separate provision has been made for imposing penalty for default committed in not deducting tax at source, hence, it is clear that provisions of Section 201(1A) are compensatory. Since the tax stood already paid, therefore, there was no case of charging of interest u/s 201(1A) for the AY 2004-05. For the AY 2005-06 - AO has raised the demand for short deduction of TDS - Since the return for the AY 2005-06 has been filed and licence fee credited in PAL account is the same, which is receivable on the basis of the turnover, hence, there was no case of raising demand in respect of short deduction of tax because the deductee has already satisfied the demand. Hence, the demand in respect of 201 is deleted while the demand in respect of interest u/s 201(1A) is upheld. It has been clear by Explanation introduced in Section 191 that the revenue can raise demand against the deductor also in case the deductee fails to pay the tax. Thus, the liability of the deductor does not end in case the deductee fails to pay the tax. When the deductee pays the tax then only interest u/s 201(1A) is to be charged. Keeping in view these provisions, the AO was justified in charging interest u/s 201(1A). Application u/s 154 - mistake apparent from records - Perhaps, the ld CIT(A) held that order is not barred by limitation for the AY 2002-03 on the basis of the decision of the jurisdictional High Court referred by the AO in his application. However, the decision in the case of Secretary, Sultan Battery Cooperative Housing Society Ltd. v. CIT 2002 (10) TMI 37 - KERALA HIGH COURT . We had already discussed this decision. While disposing of the appeal of the revenue, we have held that order of the AO for the AY 2002-03 was barred by limitation. Moreover, disputable question of fact and law cannot be rectified u/s 154 of the IT Act. Hence, the ld CIT(A) was not justified in reversing this finding by passing an order u/s 154 and holding that the order was not barred by limitation. In view of the decision in the case of CIT v. Mcdowell A Co. Ltd. 2008 (3) TMI 301 - KARNATAKA HIGH COURT , the ld CIT(A) was not justified in passing the order u/s 154 on the basis that he has misread the Circular No. 5 and he has overlooked the provisions of Section 4(1). Hence, the order passed by the ld CIT(A) is set aside after holding it that the order is without jurisdiction. In the result, appeals for the AY's 2002-03, 2003-04 and 2004-05 filed by the revenue are dismissed. Appeal for the AY 2005-06 filed by the revenue is partly allowed. Appeal filed by the assessee for the AY 2002-03 is allowed.
Issues Involved:
1. Whether the learned CIT(A) was justified in holding that upfront fee was not income by way of rent and therefore, no tax was deductible at source. 2. Whether the learned CIT(A) was justified in holding that passing an order on the basis of notice issued on 27th November 2007 for assessment years 2002-03 and 2003-04 is barred by limitation. 3. Whether the learned CIT(A) was justified in deleting the demands raised under Section 201(1) towards short deduction of tax on licence fee on the ground that the recipient has shown the amount as income in its return for the relevant previous year and the tax has also been paid. 4. Whether the learned CIT(A) has erred in holding that interest under Section 201(1A) for the assessment years 2003-04 to 2005-06 has been wrongly levied, since the recipient has paid advance tax on the above amount of annual licence fee. Issue-wise Detailed Analysis: 1. Upfront Fee as Income by Way of Rent: The learned CIT(A) held that the upfront fee paid by the assessee to the lessor was not income by way of rent for the financial year under consideration and therefore, no tax was required to be deducted at source. The upfront fee was to be adjusted against 50% of the licence fee for the 30 years starting from the previous year 2002-03 relevant to assessment year 2003-04. The CIT(A) referred to the assessment order of the lessor where the upfront fee had not been taxed for the assessment year 2002-03. Thus, the assessee was not in default under Section 201(1) for non-deduction of tax at source under Section 194I from the amount of upfront fee paid to the lessor. 2. Limitation for Passing Order: The learned CIT(A) held that the orders passed by the Assessing Officer were barred by limitation because the notice for TDS verification was issued on 29th November 2007. Thus, the orders passed for assessment years 2003-04 and 2004-05 were beyond the permissible time limit. The CIT(A) relied on several judicial decisions, including CIT v. NHK Japan Broadcasting Corporation and Raymond Woollen Mills Ltd. v. ITO, to conclude that the orders passed under Section 201(1)/201(1A) were without jurisdiction for the assessment years 2002-03 and 2003-04. 3. Deletion of Demands under Section 201(1): For the assessment years 2002-03, 2003-04, and 2004-05, the CIT(A) found that the recipient had paid the tax on the licence fee, and hence, the Assessing Officer was not justified in raising the demand under Section 201(1). This finding was in line with the decision of the Hon'ble Apex Court in Hindustan Coca Cola Beverages P. Ltd. v. CIT, which stated that no demand should be enforced after the tax deductor has satisfied the officer-in-charge of TDS that taxes due have been paid by the deductee-assessee. 4. Interest under Section 201(1A): The CIT(A) held that interest under Section 201(1A) had been wrongly levied for the assessment years 2003-04 and 2004-05 because the lessor had paid advance tax on the annual licence fee. For the assessment year 2005-06, the CIT(A) found that the Assessing Officer was not justified in raising the demand under Section 201(1) because the recipient had already paid the tax. Interest under Section 201(1A) was deleted for the assessment year 2005-06 on the ground that the advance tax and self-assessment tax paid was more than the amount of tax short deducted at source. Conclusion: The appeals for the assessment years 2002-03, 2003-04, and 2004-05 filed by the revenue were dismissed. The appeal for the assessment year 2005-06 filed by the revenue was partly allowed. The appeal filed by the assessee for the assessment year 2002-03 was allowed. The order passed by the learned CIT(A) dated 30th September 2008 was set aside as it was without jurisdiction.
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