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TMI Blog2012 (7) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... in deduction of tax at source, provisions of sec. 40a(ia) are not attracted - ITA No.4196/Del/2010 - - - Dated:- 25-5-2012 - SMT. DIVA SINGH, SHRI A.N. PAHUJA, JJ. Assessee by S/Shri Ajay Vohra Rohit Jain,ARs Revenue by Ms. Nandita Kanchan, DR O R D E R A.N.Pahuja:- This appeal filed on 10.09.2010 by the Revenue against an order dated 18.06.2010 of the learned CIT(A)-XXVI, New Delhi, raises the following ground:- 1. The learned CIT(A) has erred in deleting the addition of `₹ 1963858/- made by the Assessing Officer arising out of payment of commission without considering the fact that assessee had deducted tax @5% on rental payments instead of 15% as envisaged in section 194-I of the Income-tax Act, 1961. 2. Facts, in brief, as per relevant orders are that return declaring income of `₹ 10,37,048/- filed on 31.10.2007 by the assessee, engaged in the business of trading in spectacles, sun glasses and related accessories, after being processed on 14.03.2008 u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act), was taken up for scrutiny with the service of a notice u/s 143(2) of the Act issued on 16.09.2008. Duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether tax was deductible at source under chapter XVIIB, the same should have been deducted or, after deduction should have been paid as per law on due dates. The only question is whether the tax was rightly deducted by the appellant or not. The AO had held that the transactions were covered by the provisions of section 194I not 194H as claimed by the appellant and hence the entire expenses were disallowed. 5.4 The provisions of Finance Bill No.2 of 2004, while amending the provisions of Section 40(a), inserted sub-clause (ia) in clause (a) of section 40, with a view to augment compliance of TDS provision. The above provision is constitutionally valid, as was held in the case of M/s Tube Investments of India Ltd. Vs. ACIT (2000) 185 Taxman 438 (Madras). In the case of the appellant, the appellant had duly deducted TDS in respect of the payments made to the above referred three parties u/s 194-H. The tax so deducted was also paid to the Government, a fact not disputed by the learned Assessing Officer. The provisions of section 194-H are also covered under Chapter XVII-B of the Income-tax Act and hence since the appellant after having deducted TDS by bonafide belief under that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the TDS deducted u/s 194-H was correct in view of the terms between the appellant and three franchisees. In view of this, this ground of appeal is also decided in favour of the appellant. 4. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR while carrying us through the impugned order submitted that provisions of section 40(a)(ia) of the Act are applicable even in the case of short deduction of tax at source. While carrying us through the relevant agreements, the ld. DR vehemently argued that these agreements are for renting the premises and not for payment of commission, the assessee having carried on the business in the rented premises.. The ld. DR added that decisions in DCIT vs.S.K.Tekriwal,48SOT 515(Cal.) DCIT vs. Chandabhoy and Jassobhoy,49 SOT 448(Mum.) are not applicable in this case. 5. The ld. AR on behalf of the assessee, on the other hand, while carrying us through the relevant clauses of the three agreements contended that payment was on account of commission and nowhere in the agreement it is stipulated that possession and control over the premises vested with the assessee. The payment was actually fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent executed on 2.9.2006 contemplates that the assessee in order to expand his business of optical ,intends to give franchise to shri Sidharth Jatia,party no.2;clause (i) says that party no.2 has arranged his shop at Shahadra; clause(ii) says party no.2 shall exclusively deal with optical goods; clause (iii) says party no.1 i.e. the assessee shall supply the goods as its own stock and as such ownership shall remain with the assessee.It also stipulates that shri Jatia shall work as franchisee to sell the goods for which he will receive commission on mutually agreed terms on item to item and from time to time; clause (iv) says rent of the premises shall be borne by party no.2;clause (v) (vi) say that sale proceeds shall be deposited in the bank a/c of the assessee and clause (vii) says that the assessee shall not be responsible for pilferage while clause (viii) stipulates accounting of stock;clause ix) to xii) stipulate sharing of various expenses and liability towards income tax etc..As is evident from a bare reading these clauses in the agreement, the said agreement is for franchise of selling goods of the assessee on commission basis and the rent of the shop is to be borne by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from these terms and conditions of the agreement, the agreement is for franchise of selling goods of the assessee on commission basis and the possession of the shop shall remain with owner shri Garg. 6.2 Now adverting to third agreement with wife of the assessee, at the outset, we find that this agreement was executed on 9.7.2003 and as per clause 8 of the agreement , the agreement is valid for three years and thereafter, it is to be renewed at the market rates prevalent at that time. As per clause 6 12 of this agreement, commission is payable at the end of the year i.e.31st March every year. Apparently, validity of this agreement having expired on 8.7.2006,unless it was renewed, this agreement is not relevant for the year under consideration. In the absence of the relevant agreement, the ld. CIT(A),in our opinion, was not justified in concluding that the agreement with Mrs. Manisha Kalra was franchise agreement or that the tax was deducted on payments to Mrs. Manisha Kalra u/s 194H of the Act under a bonafide belief. Despite specific directions during the course of hearing of the appeal, the assessee did not place before us a copy of the renewed agreement applicable in the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon ble jurisdictional High Court, we find that there is a specific clause in agreements that the exclusive possession will be with the franchisee and not the assessee in two agreements with shri Sidharth jatia and Mahesh Garg. In such a situation, especially when the assessee is not only not in physical possession and there being no fixed rent payable while the francisee have to receive commission on the basis of turnover or on mutually agreed terms, it is evident that the aforesaid two agreements are truly of franchise and can, by no stretch of imagination, be treated as a tenancy in favour of the assessee. Thus, the assessee rightly deducted TDS in terms of provisions of sec. 194H of the Act in respect of payments to these two persons.. 6.4 Now adverting to the provisions of sec. 40(a)(ia) of the Act, which provide for disallowance of any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII ..... 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