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2016 (3) TMI 752 - AT - Income TaxDisallowance u/s 43B - premium on transfer of lease-hold rights of land owned by BMC - Held that - premium on transfer of lease-hold right is not collected under any provisions of any law in force in India, we hold that said premium on transfer of lease-hold rights of land owned by BMC is not a fee as defined u/s 43B(a) of the Act and is not hit by Section 43B(a) of the Act and the same cannot be disallowed for non- compliance of provisions of Section 43B of the Act We hold that the liability to pay the premium to BMC on transfer of lease-hold rights of the land owned by the BMC in favour of purchaser/assignees was an un-ascertained liability being a contingent liability during the impugned assessment year as the said premium per-se both as a statutory and as well as being a contractual liability were subject matter of legal dispute and challenge before the Hon ble Bombay High Court of which the assessee was fully aware . The assessee was also not making payment to BMC knowingly fully well that it is an unascertained and contingent liability as the matter as to legality and validity of the said premium both as statutory and contractual liability were under challenge and legal dispute being sub-judice with the Hon ble Bombay High Court, when the assessee filed his return of income in October 2007 with the Revenue claiming the said expenditure of ₹ 12,00,000/- as deduction u/s 37(1) of the Act in the computation of income filed along with return of income with the Revenue. Thus, in our considered view, the said expenses of ₹ 12,00,000/- claimed by the assessee as an expenditure in the return of income filed with Revenue is not deductible as revenue expenditure u/s 37(1) of the Act, while computing income of the assessee being disputed , un-ascertained liability and contingent liability which was subject to challenge and dispute before the Hon ble Bombay High Court both with respect and regard to being classified as statutory as well as contractual liability at the time of filing of return of income with the Revenue by the assessee in October 2007 . Thus, based on our above discussion and reasoning, the grounds of the appeal raised by the assessee are rejected and are dismissed TDS u/s 194C - Labour charges paid by invoking the provisions of section 40(a)(ia) - non deduction of tds - Held that - The assessee has taken a plea that the assessee being individual there was no liability to deduct the tax at source u/s 194C of the Act as per the then prevailing section 194C of the Act as the assessee is builder and developer and appoints contractor to work for it. The assessee has also submitted that Section 194C was amended w.e.f. 01-06-2007 whereby individuals who are under ambit of tax-audit u/s 44AB of the Act as stipulated vide amendments in the Section itself were also brought into the mischief of Section 194C(1) of the Act w.e.f 01-06-2007 but the impugned assessment year being 2007-08, there was no liability on the assessee to deduct tax at source on these payment . The CIT(A) has not adjudicated this plea of the assessee raised for the first time by the assessee before the CIT(A) that provisions of Section 194C of the Act was not applicable on the assessee being an individual as being builder and developer himself and not a contractor . In our considered view, the matter needs to be set aside and restored to the file of the A.O. for determination of issue de-novo , after verification of the facts as to whether the payments made by the assessee to the said parties were made by the assessee in the capacity of the builder and developer and not as contractor to come out of mischief of the un-amended Section 194C of the Act as was existing in the statute during the assessment year 2007-08 - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Disallowance under Section 43B of the Income Tax Act, 1961. 2. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Disallowance under Section 43B of the Income Tax Act, 1961: The assessee, engaged in the business of development and construction of buildings, made a provision of Rs. 12,00,000 for transfer fees payable to Brihanmumbai Municipal Corporation (BMC). The AO disallowed this provision under Section 43B, stating that the liability had not crystallized and was a disputed contractual liability. The CIT(A) upheld the AO's decision, emphasizing non-compliance with Section 43B(a) since the amount was not paid. The Tribunal observed that the legality of BMC's demand for transfer fees was challenged in various writ petitions before the Bombay High Court, which ruled that BMC had no authority to claim such fees. The Tribunal noted that the demand was neither a statutory liability nor a contractual liability as per the lease deed. Consequently, the Tribunal held that the provision for transfer fees was a contingent liability and not deductible under Section 37(1) of the Act, dismissing the assessee's appeal on this ground. 2. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961: The AO disallowed Rs. 3,02,575 for labor charges paid by the assessee, invoking Section 40(a)(ia) due to non-deduction of tax at source under Section 194C. The assessee argued that as an individual, it was not required to deduct tax at source under the then-prevailing Section 194C(1). The CIT(A) upheld the AO's decision, stating that the assessee was liable to deduct tax at source. The Tribunal noted that the assessee, being a builder and developer, claimed that the payments were made in the capacity of a builder and not as a contractor. The Tribunal found merit in the assessee's argument that the amended Section 194C, which included individuals under tax audit, came into effect from 01-06-2007, after the relevant assessment year. The Tribunal set aside the issue to the AO for de-novo determination, instructing the AO to verify whether the payments were made in the capacity of a builder and developer, and not as a contractor, and to grant the assessee an opportunity to present evidence. Conclusion: The Tribunal dismissed the appeal regarding the disallowance under Section 43B, holding the provision for transfer fees as a contingent liability. However, it partly allowed the appeal for statistical purposes on the issue of disallowance under Section 40(a)(ia), remanding the matter to the AO for fresh examination.
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