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TMI Blog2005 (4) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds have been raised: "1. On the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that the reasons advanced by the appellant for not deducting tax at source appeared bona fide. 2. On the facts and in the circumstances of the case, the learned CIT(A) has erred in deciding that the demand raised against the appellant on account of non-deduction of tax at source will stand deleted if payments made by the appellant to the hotel have been included by the hotel in its income disclosed to the Department and advance-tax has been paid thereon and are found verifiable by the Asstt. CIT-TDS". 3. In appeals relating to under s. 201(1A) of the Act, the following two grounds have been raised: "1. On the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The CIT(A) observed that the Bombay High Court had granted an interim stay in the case of East India Hotels staying the recovery of demand raised under similar circumstances. He further observed that the assessee had raised a specific query in writing before the Asstt. CIT-TDS in this regard and for which no reply was forthcoming. According to the CIT(A), these circumstances indicated that there was a strong possibility that tax was not required to be deducted in respect of payments made to hotels under s. 194-I of the Act. Further, once the assessee came to know of the Departmental view on the subject, it immediately started deducting and paying the tax. Thus, on this ground the CIT(A) held that the assessee could be said to be under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Such agreements, usually entered into for lower tariff rates, are in the nature of rate contract agreements. A rate-contract, therefore, may be said to be a contract for providing specified types of hotel rooms at pre-determined rates during an agreed period. Where an agreement is merely in the nature of a rate contract, it cannot be said to be accommodation 'taken on regular basis', as there is no obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases would be occasional or casual. In other words, a rate contract is different for reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of s. 194-I while applying to hotel accommodation taken on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting the tax at source from the payments made to hotels We now proceed to examine this aspect of the matter. The provisions of s. 194-I were inserted by the Finance Act, 1994, w.e.f.1st June, 1994. Two appeals out of the present four appeals before us pertain to financial year 1994-95. The remaining two appeals pertain to financial year 1995-96. Thus, atleast for a part of one of the years before us, the provision was not in existence at all. It also means that for one of the years, it was the first year of operation for the provisions of s. 194-I. It needs to be appreciated that when a provision is inserted for the first time in the statute book, confusion generally prevails about its applicability. It takes quite some time for the dust t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payment made by the guest is for the use of any land or building or is he paying merely for services obtained from the hotel including lodging services. At times, the payment made by the guest may be a composite payment for room as well as other services. In that case, the bifurcation of the payment between the two may be difficult and the observations of the Calcutta High Court in the judgment cited supra will apply with full force. The point we are trying to drive home is that when s. 194-I was introduced for the first time, it was not envisaged that it would cover payments as room rent to hotels also till a contemporaneous exposition was brought out by the Board in the form of Circular No. 715 on 8th Aug., 1995. The question we pose t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the insertion of the Explanation in s. 191, the Department could not proceed to recover short deduction of tax from the payer of the income. However, after the insertion of the Explanation to s. 191, this hurdle has been removed whereby the Department can proceed to recover short deduction of tax from the payer. However, as per the said Explanation, only that part of the tax can be recovered from the payer which has not been paid by the assessee direct. In other words, if the payer has not deducted any tax or has made short deduction of tax, but the deductee has paid the entire tax, then no recovery can be made from the deductor. It is in view of this provision that the CIT(A) issued directions to the AO to verify whether ITC Ltd. (the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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