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TMI Blog2012 (4) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... uzaffarnagar, relating to the Financial Years 1995-96 to 2001-02 (Assessment Years 1996-97 to 2002-03). It may be mentioned here that the Revenue in the memo of appeals have wrongly mentioned Senior Manager, State Bank of India as the respondent in place of Senior Manager, Oriental Bank of Commerce. All the appeals have been admitted on the following substantial question of law. "Whether the Hon'ble ITAT is justified in holding that the property was owned by several co-owners having a definite and ascertainable share in the property, the limit of Rs.1,20,000/- would apply to each of the payees/co-owners separately and also holding that the M/s.Atma Ram and Brothers would not constitute an AOP merely on the fact that income accrues jointly to more persons than one, ignoring the fact that section 194 I cast obligation on the payer to deduct TDS from the payee, which in this case is M/s Atma Ram and Brothers and not the members of the AOP and also the fact that the property has not been physically divided in between the five succeeding HUFs?" Briefly stated the facts giving rise to these appeals are as follows: A plot of land was purchased by Late Sri P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk stopped deduction of tax at source under Section 194-I of the Act. It may be mentioned here that after the receipt of the letter, the Bank has been paying rent to all the co-owners as per their respective shares by separate cheques. The Income Tax Officer initiated proceedings under Sections 201(1) and 201(1A) of the Act on the ground that the Bank was not justified in stopping the deduction of tax at source and vide order dated 18th September, 2002 had held that the Bank was paying rent to AOPs styled as M/s. Atma Ram and Brothers and, therefore, the Manager, State Bank of India, Hanuman Road, Shamli, district Muzaffarnagar was an assessee in default under Section 201(1) for non deduction of tax at source under Section 194-I of the Act in respect of payment of rent to M/s. Atma Ram and Brothers, AOP, for the period 1.4.1995 to 31st March, 2002. A demand of Rs.4,32,373/- towards taxes and surcharge and interest of Rs.2,95,917/- was raised. The assessee feeling aggrieved preferred separate appeals before the Commissioner of Income Tax(Appeals), who vide order dated 31st January, 2003 allowed the appeal and set aside the order passed by the Assessing Officer. The Revenue feeling a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d executed by the owners of the premises there was specific recital that the premises was owned by 15 persons and their shares were also defined. After the receipt of the letter sent by Sri Rakesh Gupta, one of the co-owners, the Bank had been paying rent to each co-owner separately by cheque and the individual amount paid to each co-owner being less than Rs.1,20,000/- in a year, the provisions of Section 194-I was not at all attracted. He also referred to the clarification issued by the Central Board of Direct Taxes vide Circular No.715 dated 8th August, 1995, particularly to the question no.21 and its answer, which is to the following effect. "Question 21: Whether the limit of Rs.120,000/- per annum would apply separately for each co-owner of a property? Answer: Under section 194-I, the tax is deductible from payment by way of rent, if such payment to the payee during the year is likely to be Rs.1,20,000 or more. If there are a number of payees, each having a definite and ascertainable share in the property, the limit of Rs.1,20,000 will apply to each of the payees/co-owners separately. The payers and payees are, however, advised not to enter into sham agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of this section shall apply accordingly." The scope and effect of the newly inserted Section 194-I has been elaborated by the Central Board of Direct Taxes vide Circular No.684 dated 10th June, 1994. The relevant portion of the aforementioned Circular is reproduced below: "Provision for deduction of income-tax at source from income by way of rent.- 52. An effective method of widening the tax base is to enlarge the scope of deduction of income-tax at source. Apart from bringing in more persons in the tax net, it also helps in the reporting of correct incomes. An item of income which needs to be covered within the scope of deduction of income-tax at source is the income by way of rent. In a number of countries, such income is subject to deduction of income-tax at source. 52.2.The Finance Act, 1994, has, therefore, inserted a new section 194-I in the Income-tax Act relating to deduction of income-tax at source from rent. The new section provides that income-tax has to be deducted at source at the rate of twenty per cent. On payments of rent beyond one hundred and twenty thousand rupees in a financial year made by any person other than an individual or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 26 of the Act provides that where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with Sections 22 to 25 shall be included in his total income. In view of the Hindu Succession Act, 1956, the share of each legal heir is well determined and, therefore, in view of Section 26 of the Act they could not be assessed in the status of an association of persons but could be assessed individually in respect of their share." Similar view has been taken by the Calcutta High Court in the case of Gora Chand Sen vs. Commissioner of Income-Tax, (1985) 154 ITR 435 wherein it has been held as follows: "3.It has not been disputed that the property in dispute was owned by the two Sens in equal shares. Therefore, the shares were definite and ascertainable within the meaning of Section 26 of the I.T. Act. Section 26 provides that "Where property consisting of buildings or buildings ..... X X X X Extracts X X X X X X X X Extracts X X X X
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