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II. Direct Taxes Case Laws:
1. Rajesh Projects (India) Pvt. Ltd. Vs. CIT (TDS), W.P. (C) 8085/2014, Date of Order: 16.02.2017, High Court of Delhi
Issue:
Whether TDS needs to be deducted u/s 194-I on lease rental
payments made to GNOIDA constituted under section 3 of the Uttar Pradesh
Industrial Development Act?
Held: Yes
Brief facts:
The assessee is engaged in developing, constructing and selling
residential units, plots and flats. It entered into a long-term 90 years
lease with the Greater Noida Industrial Development Authority (GNOIDA),
for development and sale of land in various housing colonies. In terms
of the lease deed entered into with the lessor, the petitioner paid
upfront consideration and the balance was payable in terms of annual
instalments according to the terms and conditions of the lease deed.
Along with the lease premium, each lease deed contained stipulation that
interest payments would also be made to the lessor. The assessee was
served with notices under Sections 201 /201 (lA) of the Income Tax Act,
1961 for the F.Y. 2010- 11 to 2012-13 for non-deduction and non-payment
of TDS required to be deducted from the payments of lease
rent/interest/other payments for acquisition of a plot of land on lease
from GNOIDA. The Revenue was of the opinion that these interest amounts
resulted in income in the hands of the authority which is taxable and
that the failure of the assessees, in deducting TDS is without legal
foundation. The assessee, In regard to the query of the Assessing
Officer (“AO”) pertaining to the non-deduction and non-payment of tax at
source, submitted that Noida Development Authority has directed the
assessee company not to deduct TDS from the lease rent as it has been
constituted as an authority under Section 3 of the Uttar Pradesh
Industrial Development Act, 1976 and it is a notified institution under
section 194A(3) (iii) (f) of the Act by the CBDT. Therefore, provisions
of Section 194-I of the Act are inapplicable to it.
The
income tax authorities ignored the explanations provided and issued
notices of demand under Section 156 of the Income Tax Act treating the
assessee company as assessee-in-default and has also levied interest
thereon. The assessee preferred appeal to the CIT(A). Later, the AO
issued further notice of demands for other periods under Section 221(1),
which were duly replied to. In these circumstances, assessee approached
the Hon’ble court for appropriate relief, contending that the GNOIDA’s
position on this issue is that amounts payable to it cannot be subjected
to tax deduction, since it is a “local authority”. The GNOIDA also
argued that in the explanation to Section 10(20) of the Income Tax Act,
1961, a "Municipality as referred to in clause (e) of Article 243P of
the Constitution" falls under the ambit of a “local authority” and
Article 243P clause (e) of the Constitution of India, states that
―Municipality means an institution of self-government constituted under
Article 243Q and that GNOIDA has been declared as an "Industrial
Township" with effect from 24th December, 2001. The GNOIDA therefore
argues that, it falls squarely under the meaning of a 'Municipality' and
this is a 'local authority'.
Held:
It was held by the Hon’ble High Court that the prerequisite for
characterization of a unit or body as a municipality is that it should
be self-governing and its members shall be filled by persons chosen by
direct election from the territorial constituencies in the Municipal
area and for such purpose (i.e. election) ―each Municipal area shall be
divided into territorial constituencies to be known as ward. In the case
of GNOIDA, this essential characteristic is absent. However, the court
affirms and upholds that GNOIDA is an institution established by a state
act. And based on this analysis concluded that:
1.
Amounts paid as part of the lease premium in terms of the
time-schedule(s) to the Lease Deeds, or bi-annual or annual payments for
a limited/specific period towards acquisition of lease hold rights are
not subject to TDS, being capital payments. (This view is also
reinforced by the Income Tax Circular No. 35/2016 dated 13 October, 2016
issued by the CBDT)
2.
Amounts constituting annual lease rent, expressed in terms of
percentage of the total premium for the duration of the lease, are rent,
and therefore subject to TDS.
3.
Amounts which are payable towards interest on the payment of lump sum
lease premium, in terms of the Lease which are covered by Section 194-A
are covered by the exemption under Section 194A(3)(iii)(f) and
therefore, not subjected to TDS. Consequently, payments made by banks
towards interest accruing on deposits, etc. are not deductible.
And
since the assessee was unable to deduct and pay tax due to the
directions of GNOIDA the court ordered that all pending payments be made
by GNOIDA instead of the assessee.
Hence, the appeal was allowed.
(Please click here for judgment)
2. DCIT
Vs. M/s. Allied Blenders and Distillers Pvt. Ltd., I.T.A. Nos. 2447
& 2446 / 2015, Date of Order: 21.02.2017, ITAT - Mumbai
Issue:
Whether purchases can be treated as bogus merely on the basis of
assessee’s dealing with parties who were found out to be hawala dealers
by the sales tax department?
Held: No
Brief Facts:
The assessee was engaged in the business of manufacturing, marketing
and sale of Indian made foreign liquor and other allied products. The AO
during the course of assessment proceedings received an information
from DGIT(Investigation), Mumbai that the assessee has entered into
bogus transactions from three hawala parties without taking actual
delivery of goods the details. In this regard, assessee stated that he
had purchased from these parties various gift articles for promoting its
sales and a few Xerox copies of photographs taken during the
promotional activity were also filed. The assessee also filed a copy of
stock register, evidencing the receipt and issue of gift articles
besides copies of confirmations from shopkeepers, etc which as per the
AO were self made, incomplete and without PAN. Therefore, the assessment
u/s 143(3) was completed by making various additions inter alia of
bogus purchase of Rs.4,92,43,370/-. Being aggrieved by that, the
assessee filed an appeal before CIT(A). The Ld. CIT had affirmed the
additions made by AO on account of bogus purchase. Therefore, assessee
preferred an appeal before the Hon’ble ITAT.
Held:
The Hon’ble ITAT has placed reliance on the judgment given in case of
M/s MPIL Steel Structures Ltd V/s DCIT in ITA No.6602/Mum/2014
(AY-2011-012) and held that in our opinion, the purchase made by the
assessee could not be disbelieved merely on the basis of information
received from the third party without carrying out any meaningful
enquiry and further verification on the various records and information
filed during the course of assessment proceedings. We are not in
agreement with conclusion drawn by the FAA upholding the action of the
AO. The assessee has discharged his primary onus by showing the books of
account and payment by way of account payee cheques and producing bills
and vouchers for sales of goods, therefore, the addition could not be
sustained.
The
assessee was also not given a copy of the statements recorded from the
hawala operators and therefore no cross-examination could be asked by
the assessee which is also against the equity and the principle of
natural justice Moreover, the assessee was not named principle
beneficiary by any of the suppliers of goods to be purchased from hawala
entries and therefore it would be unreasonable to infer that the
assessee might have availed the benefit of hawala transactions. we are
of the considered opinion that the order passed by the FAA is not
correct and cannot be sustained. We, therefore, following the ratio laid
down in the decisions referred to above are inclined to set aside the
order of ld.CIT(A) and direct the AO to delete the addition.
(Please click here for judgment)
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