Sec 194I and 194J of TDS is applicable from the A.Y 2007-08 and not before come in to existence

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
At the time of hearing before us, it was pointed out by the learned counsel for the assessee that this issue is settled in favour of the assessee for AY 2005-06 because the similar disallowance was made in AY 2005-06. The learned CIT (A) allowed the relief to the assessee. The Revenue had filed appeal against the order of CIT (A) in AY 2005-06 but, in the said appeal, this ground was not raised. He clarified that in AY 2005-06, some other disallowances were also made which were also deleted by the CIT (A) and, in the Revenue’s appeal, the issue raised was only with regard to other disallowances and not against the disallowance of circuit expenses paid to various telecom companies. He furnished before us the copy of the CIT (A)’s order for AY 2005-06 as well as the grounds of appeal furnished before ITAT and also the decision of the ITAT. He also pointed out that the disallowance was made by the Assessing Officer on the only ground that the circuit charges paid by the assessee to various telecom companies were in the nature of rent and, therefore, the assessee was required to deduct TDS under Section 194I. He pointed out that Section 194I came into effect with effect from 13.7.2006 and would be applicable for AY 2007- 08. This aspect is also clarified by the CBDT in Circular No.1 of 2007.

Citation :
Assistant Commissioner of Income Tax,Circle-12(1),New Delhi.(Appellant)Vs. M/s Global One India Pvt.Ltd.,C-56, Neeti Bagh,New Delhi.PAN: AABCG2558B. (Respondent)

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH ‘C’: NEW DELHI

BEFORE SHRI G.D.AGRAWAL, VICE PRESIDENT AND

SHRI A.D.JAIN, JUDICIAL MEMBER

ITA No.774/Del/2011

Assessment Year: 2006-07

Assistant Commissioner of Income Tax,

Circle-12(1),

New Delhi.

(Appellant)

Vs.

M/s Global One India Pvt.Ltd.,

C-56, Neeti Bagh,

New Delhi.

PAN: AABCG2558B.

(Respondent)

Appellant by: Shri V.K.Saksena, CIT-DR.

Respondent by: Shri Satyen Sethi, Advocate.

ORDER

PER G.D.AGRAWAL, VP:

This appeal by the Revenue is filed against the order of learned CIT (A)-XV, New Delhi dated 15th November, 2010 for the AY 2006-07.

2. Following grounds are raised by the Revenue:-

“1. On the facts and circumstances of the case and in law, the order of the CIT (A) is erroneous, illegal and against the provisions of law which is liable to be set aside.

2. On the facts and circumstances of the case and in law, the ld.CIT (A) has erred in deleting the addition of Rs.28,97,10,110/- made on account of disallowance of circuit expenses paid to various telecom companies.”

3. At the time of hearing before us, it was pointed out by the learned counsel for the assessee that this issue is settled in favour of the assessee for AY 2005-06 because the similar disallowance was made in AY 2005-06. The learned CIT (A) allowed the relief to the assessee. The Revenue had filed appeal against the order of CIT (A) in AY 2005-06 but, in the said appeal, this ground was not raised. He clarified that in AY 2005-06, some other disallowances were also made which were also deleted by the CIT (A) and, in the Revenue’s appeal, the issue raised was only with regard to other disallowances and not against the disallowance of circuit expenses paid to various telecom companies. He furnished before us the copy of the CIT (A)’s order for AY 2005-06 as well as the grounds of appeal furnished before ITAT and also the decision of the ITAT. He also pointed out that the disallowance was made by the Assessing Officer on the only ground that the circuit charges paid by the assessee to various telecom companies were in the nature of rent and, therefore, the assessee was required to deduct TDS under Section 194I. He pointed out that Section 194I came into effect with effect from 13.7.2006 and would be applicable for AY 2007- 08. This aspect is also clarified by the CBDT in Circular No.1 of 2007.

4. The learned DR, on the other hand, relied on the order of the Assessing Officer.

5. We have carefully considered the submissions of both the sides and also perused the material placed before us. The Assessing Officer disallowed the payment of circuit expenses of `28.97 crores on the ground that the payment is towards leased line and, therefore, the payment for use of leased line is in the nature of rent liable for TDS under Section 194I. Since the assessee failed to deduct TDS, the Assessing Officer, applying Section 40(a)(ia), disallowed the circuit expenses paid to various telecom companies. The learned CIT (A) referred to CBDT Circular No.1 of 2007 dated 27th April, 2007 and has pointed out that the amended provision would be applicable with effect from AY 2007-08. For ready reference, the same is reproduced below:-

“13.4 In a few representations received after the passage of the Taxation Laws (Amendment) Bill, 2005 and assent thereto on 13th July, 2007, apprehensions were expressed that the provisions of section 40(a)(ia) amended as above would be effective from assessment year 2006- 07 (i.e. in respect of the payments made in 194-I relating to deduction of tax at source on rent and those of section 194J relating to deduction of tax on fees for professional or technical services had been inserted in section 40(a)(ia) with effect from 13th July, 2006, a date which would relate to assessment year 2007-08 and not to 2006-07. It is, therefore, necessary to clarify that in any case in which tax is not deducted from payment of rent or royalty during the financial year 2005-06, no disallowance in the computation of income would be required in terms of the amended provisions of section 40(a)(ia). A perusal of sub-clause (ia) makes it clear that a disallowance is attracted only when tax is deductible at source under Chapter XVII-B and it is not deducted or not paid to Government account. Since tax is deductible under the amended provisions of section 194-I and section 194J from 13th July, 2006, assessment year 2007-08 would be the first relevant assessment year in which a disallowance would be attracted for not deducting or not depositing the tax in terms of the provisions of section 40(a)(ia).”

6. When the CBDT itself has clarified that the amended provisions of Section 194I relating to deduction of tax at source for the purpose of Section 40(a)(ia) would be applicable for AY 2007-08, the Assessing Officer was not justified in making the disallowance. We also find that similar issue came up before the learned CIT (A) in AY 2005-06 wherein he accepted the assessee’s contention. Though in AY 2005-06, the Revenue filed the appeal against the order of CIT (A) on this point, but the ground relating to deletion of disallowance of circuit charges by the CIT (A) was not raised before the ITAT. Thus, the Revenue has accepted the order of the CIT (A) on this point for AY 2005-06. In such circumstances, we do not find any justification for interfering with the order of the learned CIT (A) in the year under consideration wherein he has followed the order of his predecessor for AY 2005-06 which is accepted by the Revenue. In view of the above, we do not find any merit in the appeal of the Revenue.

7. In the result, the appeal of the Revenue is dismissed.

Decision pronounced in the open Court on 23rd March, 2012.

Sd/- Sd/-

(A.D.JAIN) (G.D.AGRAWAL)

JUDICIAL MEMBER VICE PRESIDENT

Dated: 23.03.2012

VK.

Copy forwarded to: -

1. Appellant

2. Respondent

3. CIT

4. CIT (A)