Citation of the Case: Luxmi Rice Mills vs. ITO (ITAT Delhi), Income tax (Appeal) no. 1497 of 2015, Date of Judgment: 29/10/2015
Brief of the Case
ITAT Delhi held In the case of Luxmi Rice Mills vs. ITO that there is no TDS liability on the assessee on account of reimbursement of expenses. In the present case, the assessee reimbursed the expenses to the bank and the bank ought to have deducted the TDS when there was a contract in between the bank and the NBHC, but there was no contract between the assessee and NBHC. Therefore, provisions of section 40a (ia) were not applicable as the assessee was not required to deduct TDS u/s 194C on the reimbursement of the expenses.
Facts of the Case
The assessee was engaged in the manufacturing of rice and its bye-products and filed the return of income, declaring an income of Rs. 1,04,790/-, which was processed u/s 143(1). Later on, the case was selected for scrutiny. During the course of assessment proceedings the AO noticed that the assessee had debited warehouse paddy rent to the tune of Rs. 5,76,808/-, which comprised of Rs. 60,000/- paid to M/s Hanuman Rice Mills on 28-11-2009 and Rs. 5,16,808/- paid to Haryana Warehousing Corporation and Central Warehousing Corporation. The AO was of the view that the assessee was under obligation to deduct the tax on the rent payment of Rs. 5,16,808/- u/s 194-I of the Act, which had not been done by the assessee. He asked the assessee to explain as to why the TDS on rent payment had not been deducted. The assessee submitted that since the rent had been paid to the State Government and Central Government, no TDS was deductible. The assessee also furnished the copy of Circular no. 699 dated 30-1-1995 issued by the CBDT. The AO did not find merit in the submissions of the assessee and made the addition of Rs. 5,16,808/-.
The AO also noticed that the assessee had claimed NBHC bank guard pay to the tune of Rs. 2,37,757/- and no TDS was deducted as per the provisions of section 194C of the Act. The said amount was also disallowed u/s 40a (ia) and added to the income of the assessee.
Contention of the Assessee
The ld counsel of the assessee submitted that the assessee paid warehouse rent to Central Warehousing Corporation and Haryana Warehousing Corporation and it was under a bonafide belief that no tax was to be deducted at source u/s 194-I on rent paid to the government of India/ Haryana, amounting to Rs. 2,06,452/- and Rs. 3,10,356/- respectively and similarly, the assessee was also under bonafide belief that no tax was to be deducted at source u/s 194C on guards’ salary reimbursed to bank amounting to Rs. 2,37,757/-. It was further stated that in the tax audit report also in form no. 3CB in part-B at sl. No. 27(a), the auditor had mentioned “Yes” in response to the query of TDS compliance and had also mentioned in clause (b) “Nil” in response to query of TDS non-compliance.
It was further submitted that nothing was payable as on 31st March, therefore, disallowance u/s 40a (ia), made by the AO, was not justified. Reliance was on the decision of the ITAT Visakhapatnam, Special Bench in the case of Merilyn Shipping & Transport Vs. JCIT and the judgment of the Hon’ble Allahabad High court in the case of CIT vs. Vector Shipping Services Pvt. Ltd. 357 ITR 642. Reliance was also placed on the following case laws: Hon’ble Delhi High Court in the case of CIT vs. M/s DLF Commercial Project Corporation (ITA nos. 627/2012 & 507/2013 dated 15-7-2015); and ITAT Mumbai Bench ‘J’ in the case of Shri Jitendra Mansukhlal Shah Vs. DCIT (ITA nos. 2293 & 2294/Mum/2013 – order dated 4-3-2015).
Contention of the Revenue
The ld counsel of the revenue reiterated the observations made by the authorities below and further submitted that ‘payable’ does not mean payable at the end of the year and that the amount can be payable on day to day basis. He strongly supported the impugned order passed by the CIT (A).
Held by CIT (A)
The CIT (A) confirmed the action of the AO. It was held that the assessee failed to produce any document in support of its contention that the parties to whom payments have been made are covered u/s 10(20) or 10(20A), on the basis of which it is claiming exemption from the provisions of section 194-I. Accordingly, the disallowance of Rs. 5,16,808/-, made by the AO u/s 40a (ia), was upheld. CIT (A) also observed that the AO provided numerous opportunities to the assessee during the course of assessment proceedings. He, therefore, dismissed this contention of the assessee that the AO had passed the order in hurry and without giving proper opportunity.
As regards to another disallowance of Rs. 2,37,757/-, CIT (A) held that if the contention of the assessee was considered to be true that the contract was between the bank and NBHC and that the payment on guards and supervisors were finalized by the bank and the guards were changed from time to time by the bank, then why the assessee was paying money to NBHC bank guard. Accordingly, the contention of the assessee was considered to be futile and baseless. According to CIT (A), the assessee was liable to deduct TDS u/s 194C of the Act, as the payment was contractual in nature.
Held by ITAT
In the present case, it is an admitted fact that the assessee reimbursed the salary to the guards of the bank and there was no contract in between the assessee and NBHC. Guards were deputed by the bank, but the expenses were reimbursed by the assessee. On a similar issue, the Hon’ble Delhi High Court in the case of CIT Vs. DLF Commercial Project Corporation in ITA 627/2012 and 507/2013 vide order dated 15-7-2015, while deciding the issue relating to reimbursement of service charges vis a vis non-deduction of TDS, decided the issue in favour of assessee and held that since the payments made by the assessee therein were only for the reimbursement of expenses incurred by the payee on behalf of the assessee, the Court held that no TDS was required to be deducted by the assessee. It was further decided that the law obliges only amounts which fulfill the character of “income” to be subject to TDS in such cases; for other payments towards expenses, the deduction to those entitled (to be made by the payeee) the obligation to carry out TDS is upon the recipient or payee of the amounts.
In the present case also, the assessee reimbursed the expenses to the bank and the bank ought to have deducted the TDS when there was a contract in between the bank and the NBHC, but there was no contract between the assessee and NBHC. Therefore, provisions of section 40a (ia) were wrongly applied by the ld. AO, as the assessee was not required to deduct TDS u/s 194C on the reimbursement of the expenses.
As regards to the other issue relating to the payment of rent paid to the warehousing Corporation, the CIT (A) categorically observed that the assessee was asked to produce evidence that the Haryana Warehousing Corporation and Central Warehousing Corporation are entities which are government and statutory authorities or local authorities covered u/s 10(20) or 10(20A), but the assessee was not in a position to produce any evidence.
It is well settled that when any assessee claims any benefit or exemption under any provision of the statute, it is for the assessee to produce the relevant documents or evidence, on the basis of which it is claiming such a benefit or exemption. However, in the present case, it is noticed that the AO in the assessment order nowhere stated that he asked the assessee to produce such evidence. I, therefore, deem it appropriate to set aside this issue back to the file of AO, to be decided afresh in accordance with law, after providing due and reasonable opportunity of being heard to the assessee.
Accordingly, appeal of the assessee partly allowed.