2016 (5) TMI 965 - AT - Income Tax

TDS u/s 194I - TDS liability on payment development charges, lease charges and other charges paid to RIICO - Held that - Lease document has used the Development charges and Economic rent to be payable by the assessee. As the document has used two different phrases to connote different obligation therefore in our view development charges can not be read as rent within the purview of the section 194 I. further lease document has provided the consequences of nonpayment of the development charges by the assessee, if the assessee failed to pay the development charges, as mentioned in the agreement, the possession was liable to be taken over by the RIICO, therefore the development charges can not be considered as rent. See M/s Gupta Fabtex Pvt Ltd Versus Deputy Commissioner Of Income Tax (TDS) , Jaipur 2016 (1) TMI 664 - ITAT JAIPUR - Decided against revenue

Summary

Issues Involved:
1. Liability of the assessee to deduct Tax Deducted at Source (TDS) on payments made to RIICO.
2. Imposition of tax liability and interest under sections 201(1) and 201(1A) of the Income Tax Act, 1961.
3. Discrepancy in the payment amount considered by the Additional Commissioner of Income Tax (ACIT).
4. Applicability of TDS provisions to payments made by an educational institution for land purchase.
5. Legality of the ACIT's order.

Issue-Wise Detailed Analysis:

1. Liability of the Assessee to Deduct TDS on Payments Made to RIICO:
The primary contention was whether the payments made by the assessee to RIICO for development charges, lease charges, and other charges were subject to TDS under Section 194I of the Income Tax Act, 1961. The assessee argued that these payments were capital expenditures for the acquisition of land and not for the use of land, thus Section 194I was not applicable. The Tribunal referred to a similar case, M/s. Gupta Fabtex (P) Ltd. vs. DCIT (TDS), where it was held that development charges paid for acquiring leasehold rights are not subject to TDS under Section 194I. The Tribunal concluded that the payments made by the assessee were for acquiring rights in the leasehold property, not for the use of land, and hence, Section 194I was not applicable.

2. Imposition of Tax Liability and Interest under Sections 201(1) and 201(1A):
The assessee contested the imposition of tax liability of ?20,91,094 under Section 201(1) and interest of ?5,63,221 under Section 201(1A), totaling ?26,54,315. The Tribunal, following the decision in the case of M/s. Gupta Fabtex (P) Ltd., ruled that since the payments were not subject to TDS under Section 194I, the imposition of tax liability and interest was incorrect and should be quashed.

3. Discrepancy in the Payment Amount Considered by ACIT:
The assessee pointed out an apparent mistake in the payment amount considered by the ACIT, which was ?2,09,10,940 instead of the actual payment of ?1,99,10,940. The Tribunal acknowledged this discrepancy and noted that the incorrect imposition of TDS and interest due to this error should be rectified.

4. Applicability of TDS Provisions to Payments Made by an Educational Institution:
The assessee, an educational institution approved under Section 10(23C)(vi), argued that the payments made to RIICO were for purchasing land to conduct educational activities, and thus, TDS provisions should not apply. The Tribunal, agreeing with the assessee's contention and following the precedent set in the case of M/s. Gupta Fabtex (P) Ltd., held that the payments were for acquiring leasehold rights and not for the use of land, making the TDS provisions inapplicable.

5. Legality of the ACIT's Order:
The assessee claimed that the ACIT's order was bad in law and should be quashed. The Tribunal, after reviewing the facts and the applicable legal precedents, concluded that the ACIT's order imposing TDS and interest was indeed incorrect and legally unsustainable.

Conclusion:
The Tribunal allowed the appeal of the assessee, ruling that the payments made to RIICO were for acquiring leasehold rights and not for the use of land, thereby not attracting TDS under Section 194I. Consequently, the imposition of tax liability and interest under Sections 201(1) and 201(1A) was quashed. The Tribunal also noted the discrepancy in the payment amount considered by the ACIT and ruled in favor of the assessee on all counts. The order was pronounced in the open court on 13/05/2016.