These three appeals filed by the revenue are directed against common order of the CIT(A), Vijayawada dated 6.12.2012 for the assessment years 2009-10, 2010-11 & 2011-12.
2. The brief facts of the case are that the assessee is a company engaged in the business of running hotels in the name and style of ‘Sandeepa’ & ‘Srivatsa’ by availing the license taken from Tirumala Tirupathi Devasthanams (TTD), Board in the name of Directors of the assessee company. A survey u/s 133A of the Income Tax Act, 1961 (hereinafter called as 'the Act') was carried out in the business premises of the assessee on 22.12.2010. During the course of survey, it was noticed that the assessee has been paying rent to TTD, but failed to deduct tax at source on rental payments. When this was put to the assessee, the assessee has submitted that the TTD has obtained no deduction certificate u/s 197 of the Act, from the department for nondeduction of tax at source on rent payments and hence, the assessee has not deducted tax at source. The A.O. after considering the explanations of the assessee, observed that the payments made by the assessee to its Directors are in the nature of rent for which the assessee required to deduct tax at source u/s 194I of the Act. Since, the assessee failed to deduct tax at source on payments made to its Directors, hold the assessee as an assessee in default u/s 201(1) of the Act, and computed TDS on total rent payments for the assessment years 2009-10 to 2011-12.
3. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee submitted that the A.O. was erred in treating the assessee as an assessee in default u/s 201(1) of the Act, despite the fact that the recipient of rent M/s. TTD is exempt from deduction of tax at source on rental payments by virtue of certificate obtained u/s 197 of the Act, from the assessing officer. The assessee further submitted that the Directors of the company had obtained a license from M/s. TTD for running hotel at Tirumala hills and the license has been assigned to the company for operating the hotel. The company is carrying on the business of running and maintenance of hotel in the said premises at Tirumala hills and the income from which has been considered in the hands of the assessee. The rent has been paid by the directors of the assessee company to the lessor M/s. TTD, however, the company has directly paid the rent to M/s. TTD on the advice of the directors and the same has been debited to the personal account of the directors in the books of the company. The assessee further submitted that the license has been granted in the name of the directors and rental receipts has been issued in the name of the directors, therefore, the A.O. was completely erred in holding that the payments made by the assessee company to the TTD are constructive payments made to the directors of the company, which falls within the meaning of rent as defined u/s 194I of the Act.
4. The CIT(A) after considering the relevant explanations of the assessee, observed that the TTD is an entity governed by the provisions u/s 12A of the Act, and also it has obtained a certificate u/s 197 of the Act, for non-deduction of tax at source on rental payments, therefore, the assessee was not obliged to deduct tax at source on such rental payments to M/s. TTD. The CIT(A) further observed that since the income of the recipient is exempt u/s 12A of the Act and also fact that it has obtained certificate u/s 197 of the Act, by following the apex court decision in the case of Hindustan Coca Cola Beverages Pvt. Ltd. Vs. CIT reported in (2007) 293 ITR 226 (SC) has held that if recipient has included the impugned receipts and paid tax on such receipts, in that case, the payer of the impugned amount need not have to deduct tax at source in so far as such payments are concerned, as such tax had already been discharged by recipient himself. Accordingly, opined that the assessee was not an assessee in default in so far as the impugned deduction of tax is concerned for all the assessment years are concerned. Aggrieved by the CIT(A) order, the revenue is in appeal before us.
5. The Ld. D.R. submitted that on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that there was no TDS liability on the payments made to TTD in the hands of the assessee company. The D.R. further submitted that the Ld. CIT(A) ought not to have relied upon the decision of Hon’ble Supreme Couirt in the case of Hindustan Coca Cola Beverages Pvt. Ltd. Vs. CIT reported in (2007) 293 ITR 226, as the facts of the case are entirely different from the facts of the present case. The D.R. further submitted that in this case, the license has been granted in the name of the directors of the company, whereas the rent has been paid by the assessee to the directors. Though the assessee has directly paid the rent to M/s. TTD, the payments are in the nature of constructive payments made to the directors of the company for use of the license held by them, therefore, the CIT(A) was erred in holding that the assessee not as an assessee in default u/s 201(1) of the Act.
6. On the other hand, the Ld. A.R. for the assessee strongly supported order of the CIT(A). The A.R. further submitted that the company has paid rent to M/s. TTD on behalf of the directors as the directors had license in their individual capacity and M/s. TTD has issued receipts in the name of the directors, therefore, the assessee is not obliged to deduct tax at source on such rental payments. The A.R. further submitted that M/s. TTD is an entity governed by the provisions of section 12A of the Act and also obtained non deduction certificate u/s 197 of the Act, towards rental payments, therefore, the assessee need not to deduct tax at source on such payments. The A.O. without appreciating the facts simply held the assessee as an assessee in default u/s 201(1) of the Act.
7. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. held the assessee as an assessee in default u/s 201(1) of the Act, towards rental payments made to M/s. TTD, on the ground that the impugned payments are in the nature of constructive payments made to the directors of the company for use of license, which falls under the meaning of ‘rent’ as defined u/s 194I of the Act. According to the A.O., though the assessee has directly made payments to M/s. TTD, the license is in the name of the individual directors in turn, which was assigned to the company for operating hotel, therefore, the said arrangement between the directors and the company is in the nature of sub-leasing which falls within the ambit of section 194I of the Act. It is the contention of the assessee that the company has made the payments on behalf of the directors of the company and also on the advice of the directors and the same has been debited to director’s personal account in the books of the company, therefore, the company not obliged to deduct tax at source u/s 194I of the Act on the impugned payments. The assessee further contended that the license has been granted in the name of the directors and M/s. TTD has obtained certificate u/s 197 of the Act in the name of the directors of the company and hence, the directors have made the payments without deduction of tax at source u/s 194I of the Act on impugned payments. The assessee neither availed license from the TTD nor paid rent on its own, therefore, the A.O. was erred in holding the assessee as an assessee in default u/s 201(1) of the Act.
8. Having heard both the sides and considered materials on record, we find that the directors of the company had obtained license from M/s. TTD for operating two hotels at Tirumala hills. The rental agreement has been entered in the name of the two directors. Though, the assessee has paid the amount directly to M/s. TTD, it has paid the amount on behalf of the directors. We further observed that M/s. TTD has issued rental receipts in the name of individual directors. We further noticed that M/s. TTD is an entity governed by section 12A of the Act had obtained certificate u/s 197 of the Act for non-deduction of tax at source on rental receipts from the tenants. Since, the income of the recipient M/s. TTD is exempt from tax and also fact that the recipient has obtained no deduction certificate u/s 197 of the Act, the assessee not obliged to deduct tax at source on the impugned payments. No matter, whether the payment has been made by the assessee directly or paid on behalf of the directors, as long as the recipient income is exempt and also the recipient had got a certificate u/s 197 of the Act, for non-deduction of tax at source on the impugned payment, the assessee need not to deduct tax at source on such payments.
9. The CIT(A) after considering the relevant facts has rightly directed the A.O. to delete additions made towards short deduction of tax at source on rental payments for the assessment year 2009-10 to 2011-12, by observing as under:
“I have gone seen the submissions made by the AR and gone through the orders made under section 201(1) and 201(1A) for the assessments under consideration besides perusing the case laws relied upon. It is borne out of records that the two directors of the appellant company obtained bids to run the restaurants for TTD Devastanam and obtained most of the services from the appellant company on which there is no dispute. The directors have to pay rent to TTD for utilizing the infrastructure of the TTD for the said purpose on which deduction under section 1941 is applicable on which also there is no dispute. But, however the TTD is an entity governed by the provisions of section 12A and that the TTD has obtained 197 certificates to get payments without deduction of TDS, The directors have not affected TDS while paying monthly rents to TTD. Here it may be noted that at times the monthly rents were paid by the appellant company on behalf of the directors and debited the director's account. Thus, whoever may he paying the rents, i.e., either by the directors in their individual capacity or by the appellant company on behalf of the directors; TTD was issuing the receipts in the name of these two individual directors only. Since the TTD was governed by the provisions of section 12A and that it has obtained 197 certificates to receive payments without deduction of fax at source from payers, in as much as TTD is concerned, nothing unusual has happened. But, in so far as the AO is concerned, wherever the appellant has remitted rents to TTD on behalf of the two directors, the appellant is bound to make TDS and thus, in so far as the amounts remitted by it on behalf of the individual directors are concerned, the AO held the appellant company as an assessee in default and made an order under section 201(1) and 201(1A) for all the three impugned assessment years under challenge. When the receipts in the hands of TTD are not taxable as it is tax exempt in terms of exemption granted to it under section 12A and that TTD has obtained 197 certificates for receipts without deduction of tax at source and the Apex Court in the case of Hindustan Coca Cola Beverages P. Ltd. v. CIT, reported in (2007) 293 ITR 226 (SC) has held that if recipient has included the impugned receipts and paid tax on such receipts in that case the payer of the impugned amount need not have to deduct tax at source in so far as such payment are concerned, as such tax had already been discharged by the recipient himself. In light of such a position of law, I am of the opinion that the appellant was not an assessee in default in so far as the impugned deduction of tax is concerned for all the assessment years are concerned. In fact, it may be mentioned here that there was no TDS liability on the payments made to TTD in the hands of the appellant company.”
The facts remain unchanged. The revenue fails to bring on record any evidence to prove the findings of CIT(A) is correct. Therefore, we uphold the CIT(A) order and dismiss appeals filed by the revenue for the assessment years 2009-10, 2010-11 & 2011-12.
10. In the result, the appeals filed by the revenue are dismissed.