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TMI Blog2018 (9) TMI 867X X X X Extracts X X X X X X X X Extracts X X X X ..... l position prevalent in the said F.Y., the obligation to deduct tax was not on the assessee -we uphold the impugned order of the Ld. CIT(A) holding that the assessee was not liable to deduct tax at source from the amount in question paid towards internet connectivity charges and specialised line rental u/s 194J and dismiss Ground No. 1 of the Revenue’s appeal. TDS u/s 194I - liability to deduct tax at source from the amount paid towards internet connectivity charges and specialized line rental - Held that:- In the case of Destimoney Securities Pvt. Ltd. vs ITO [2017 (8) TMI 714 - ITAT MUMBAI] at similar situation held that the lease line charges were paid by the assessee to the internet service provider for faster internet access on dedicated lease line and as such the said payment had been made for use of telecommunication services / connectivity for transmission of voice / data facility provided by the vendors and not for use of any asset involved in provision of such facility / service covered in section 194I of the Act - the assessee, therefore was not liable to deduct tax at source u/s 194I of the Act and he could not be treated as the assessee in default u/s 201(1)/201(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case giving rise to these appeals are as follows. The assessee in the present case is a company. A survey u/s 133A of the Act was carried out in the case of the assessee. On the basis of documents found during the course of survey, the A.O. was of the view that the assessee company had not complied with the TDS provisions properly in the following cases: i. TDS was not made at all on payment of ₹ 1,52,37,877/- during F.Y. 2011-12, being communication charges, which is liable for TDS u/s 194J @ 10%. ii. TDS u/s 194C of the Act was made on payment of ₹ 1,71,71,481/- for manpower supply which is in the nature of managerial service and liable for TDS u/s 194J. iii. It also appeared from the Form 16 for the F.Y. 2011-12, issued by the deductor company to its employees that benefit of deduction on House Rent Allowance and benefit of interest on self-occupied house property were allowed simultaneously. 3. The assessee company, therefore, was called upon by the A.O. to explain as to why it should not be treated as assessee in default within the meaning of section 201(1) of the Act for non-deduction / short deduction of tax at source. In rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit of interest on self-occupied house property as alleged by the A.O., it was submitted on behalf of the assessee company before the A.O. that there were some employees who had let out their properties to earn rental income and were themselves staying in the rental premises. It was submitted that there was no cap on the amount of interest to be allowed in such cases and accordingly interest paid was entirely allowed as deduction from the rental income while working out the loss under the head income from house property. Simultaneously, deduction u/s 10 was also allowed to the said employees on account of house rent allowance u/s 10 after taking into consideration the rent actually paid by them. This explanation of the assessee was not found acceptable by the A.O. According to him, when their properties were given on rent by the concerned employees, it was not permissible to the assessee company as a deductor to allow the interest portion only. He held that the employees who had been allowed exemption for house rent allowance on the basis of rent paid thus were not entitled to deduction on account of interest on housing loan and the benefit of such interest was allowed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to appreciate the AO's view that internet charges represent fees for technical services or royalty. As regards the line charges there is no discussion in the AO's order as to why the said payment should be treated as royalty or liable to section 194J. The said line charges can be treated as rental for the line taken on lease and therefore deduction can possibly be made r-r/s.l94l rather than section 194J. I, therefore, direct the AO to restrict the determination of tax deductable by way of TDS in respect of line charges to 2% or as applicable in case of plants u/s 194J. This ground is therefore partly allowed. TDS default in respect of manpower supply charges From the AO s observation as reproduced it appears that the AO has treated providing of Security Guard as managing the manpower so supplied. The AO has failed to point out how the supply of labour may be termed as managerial, professional or technical activity u/s 194J. The appellant submission on the point is reproduced as under: From the copy of contract as well as confirmation of M/s. Zealot Industrial Logistics Servies it is crystal clear that the labour (manpower) supplied were mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal 1. That under the facts and circumstances of the case, the CIT(A) 24, Kolkata has erred in the case of expenses made under the head INTERNET EXPENSES AND SPECIALIZED LINE RENT by observing that the provision was introduced in the Finance Act, 2012, thus TDS is not applicable u/s 194J of the I.T. Act 1961 without considering the fact that explanation below Section 9(1)(vi) was introduced with retrospective effect from 01.07.1976. 2. That under the facts and circumstances of the case, the CIT(A) 24, Kolkata has erred in holding that in case of deduction of tax at source on salary, the employer can simultaneously allow benefit of exemption of HRA and benefit on loss on account of interest payment on housing loan of self-occupied property as the provisions relating to the same are independent. Actually the employer can allow the benefit of any one of the two, while deducting the tax at source on salary and in case due to some peculiar circumstances, the employee is eligible for both the benefits, he has to file an Income Tax return to claim the benefit. The Assessee deductor failed to furnish any documentary evidences in this regard to prove that the double b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee was not liable to deduct tax at source from the amount paid towards internet connectivity charges and specialised line rental u/s 194J, the Ld. CIT(A) held that the amount of specialised line rental paid by the assessee was covered by section 194I and directed the A.O. to treat the assessee company as the assessee in default for its failure to deduct tax at source from the said amount u/s 194I. This decision of the Ld. CIT(A) has been challenged by the assessee in the solitary ground raised in its appeal. As submitted by the learned counsel for the assessee in this regard, the amount in question was paid by the assessee company towards multi protocol label switching, virtual private networks, port rental charges, internet port rental charges, mailing solution charges etc. to Reliance Broadband and other service providers. The said payment thus was made by the assessee company for utilisation of the standard facilities which were provided by the various service providers. In the case of Destimoney Securities Pvt. Ltd. vs ITO (ITA No. 4106/Mum/2014), a similar issue had come up for consideration before Mumbai Bench of this Tribunal. In the said case, it was held by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to raise any material contentions to reduce or controvert the decisionrendered by the Ld. CIT(A) on this issue or the reasons given while arriving at the same. We, therefore, find no justifiable reasons to interfere with the order of the Ld. CIT(A) and upholding the same, we dismiss ground no 2 of the revenue s appeal. 11. As regards the remaining appeal of the revenue being ITA No. 712/K/2016, it is observed that the issue involved therein relating to penalty u/s 271C is consequential to the issue of treating the assessee company as the assessee in default for the alleged non-deduction or short deduction of tax at source from the concerned payments. Since the said issue has already been decided by us in the foregoing portion of this order while disposing of the respective appeals of the assessee and revenue holding that the assessee company could not be treated as the assessee in default u/s 201(1)/201(1A) of the Act, the consequential penalty imposed by the A.O. u/s 271C of the Act for the alleged default of the assessee for compliance with the relevant TDS provision is liable to be cancelled. We accordingly uphold the impugned order of the Ld. CIT(A) cancelling the penalty im ..... 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