2017 (9) TMI 293 - AT - Income Tax

TDS u/s 194I - Non deduction of tax on provision of rent charged to P&L A/c - assessee declared rent as inadmissible expense u/s 40(a)(ia) - Held that - we find merit in the contentions of the assessee that he has already made suo motto disallowance of lease rental u/s 40(a)(ia) of the Act at the time of filing the return of income and paid income tax accordingly without claiming any expenditure on the ground that the provision of rent were of contingent nature never ever paid. We therefore are inclined to set aside the order of the FAA and hold that the provisions of section 194-I of the Act are not applicable where the assessee has not claimed the deduction of the expenses. The AO is directed accordingly. The ground raised by the assessee is allowed. TDS liability on internet charges and leaseline charges - whether TDS u/s 194-C or 194-I or 194-J - Held that - Assessee has availed internet services and paid internet /lease charges for the same. According to the AO, the said payment of lease rent/internet charges were liable to tax u/s 194-I of the Act. As per the contentions of assessee he has only availed the internet connection and was not using any asset, plant or machinery which involved payment of rent. In our considered view these charges are not falling within the provisions of section 194-I. Moreover the case of the assessee is squarely covered by the various decisions referred to by the ld AR. Accordingly we set aside the order of ld. CIT(A) on this issue by allowing the ground raised by the assessee.

Summary

Issues:
1. Whether provisions for rent were subject to Deduction of Tax At Source under section 194-I of the Income Tax Act, 1961.
2. Whether TDS was attracted on internet charges and lease line charges.

Analysis:

*Issue 1:*
The appeals pertained to the addition on account of section 201 and 201(1A) of the Income Tax Act, 1961, concerning provisions for rent. The Assessing Officer found discrepancies in TDS deduction on rent provisions of ?2,83,91,800. The assessee claimed it was a provision created due to pending litigation with the landlord and was never paid. The AO treated the assessee in default under sections 201 and 201(1A) and raised a demand. The CIT(A) upheld the AO's decision. However, the ITAT held that since the assessee made a suo motu disallowance under section 40(a)(ia) of the Act and did not claim any deduction for the provision, TDS provisions were not applicable. The ITAT allowed the assessee's appeal, setting aside the CIT(A)'s order.

*Issue 2:*
Regarding TDS on internet and lease line charges, the AO claimed TDS under section 194-I was applicable. The assessee argued that these charges were for internet services and not for the use of any asset, plant, or machinery. The CIT(A) upheld the AO's decision. The ITAT, after considering the contentions and relevant case laws, found that the charges were solely for internet usage and did not fall under sections 194-I, 194-C, or 194-J of the Act. Citing various decisions, the ITAT allowed the assessee's appeal and directed the AO(TDS) accordingly.

In a related appeal for the same assessment year, the ITAT applied the findings from the first appeal and allowed the appeal of the assessee. Consequently, the appeals of the assessee were allowed in both cases, and the orders were pronounced on 28th August 2017.