Case Law - Income Tax

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Pankaj Jhawar (Querist)
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29 October 2008 Could some one provide me the following case law:
Wipro GE Medical System Ltd. v ITO (TDS-III) (2005) 3 SOT 627 Bang

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Nilesh Shah

Nilesh Shah (Expert)
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09 November 2008 ORDER
Gopal Chowdhury, Judicial Member - These are appeals filed by the assessee directed against the orders of the CIT(A), Bangalore, dated 29-11-2001, in respect of orders under sections 201(1A) and 271C respectively, pertaining to the assessment years 1997-98 to 2000-01.
2. According to the ITO (TDS), the assessee was a defaulter since it failed to deduct tax from the rent and other services. Hence, interest under section 201(1A) was levied. Apart from charging interest, penalty under section 271C of the Act was also imposed for the same default. According to the Assessing Officer, the assessee-company made the following payments to M/s. Wipro Ltd.
Assessment year Rent Support services Shared services
1997-98 Rs. 6,60,000
1998-99 Rs. 7,00,000 Rs. 1,90,090 Rs. 37,52,000
1999-00 Rs. 8,00,000
2000-01 Rs. 8,00,000
Since the assessee was supposed to deduct tax in respect of rent under section 194(1) of the Act, the assessee was held as defaulter. Similarly, according to the ITO (TDS), the assessee ought to have deducted tax in respect of support services and shared services for the assessment year 1998-99. Deduction of TDS from rent is the common issue in all the years.
3. The learned counsel appearing on behalf of the assessee has submitted that what the assessee was paying was not actually rent because the two companies were sharing the office space and the assessee-company was utilizing the services and facilities of M/s. Wipro Ltd. for which payments were made. Our attention was drawn to page 7 of the order passed by the Commissioner of Income-tax (Appeals), where similar explanation of the assessee was recorded. Therefore, according to the learned counsel, the provisions of section 194-I are not applicable in the present case. Further, it was submitted that M/s. Wipro Ltd. has treated the amount received from the assessee as business income and not as house property income. Regarding the support services and shared services, it was submitted on behalf of the assessee that those cannot be the subject-matter of deduction of tax under section 194-I of the Act. It was submitted that the ITO (TDS) rectified his order and applied section 194J in respect of the aforesaid services. However, the provisions of section 194J is also not applicable in respect of support services and that has been accepted by the ITO and recomputed the interest under section 201(1A). It was further submitted on behalf of the assessee that although the assessee has been treated as a defaulter, but no tax demand was raised against the assessee since the amount of tax was already paid by M/s. Wipro Ltd. The learned counsel for the assessee placed reliance on the decision of the Delhi High Court in Azadi Bachao Andolan v. Union of India [2001] 252 ITR 471 and also the decision of the Bangalore Bench of the Tribunal in the case of Wipro Finance Ltd. v. ITO [2003] 81 TTJ (Bang.) 887, copy of which has been filed before us.
4. On the other hand, the learned DR opposed the prayer of the assessee and submitted that the assessee itself has mentioned in the books of account that whatever was paid to Wipro Ltd., was only rent. It was submitted that the definition of the word 'rent' is very wide, which includes any payment made for use and occupation of the premises and by whatever name, it may be called. Our attention was drawn to the Explanation to section194-I of the Act where the word 'rent' has been explained. According to the learned DR, the treatment given by Wipro Ltd., is not conclusive for the purpose of deciding the issue whether the payment made by the assessee was rent or not. The learned DR placed reliance on the decision of the Allahabad High Court reported in Raza Buland Sugar Co. Ltd. v. CIT [1980] 123 ITR 24 . Our attention was drawn to Law Lexicon at page 1654 where the meaning of the word 'rent' has been explained in relation to various case laws. The learned DR has filed a paper book, wherein at pages 1 and 2, are placed the copies of the books of account maintained by the assessee, to show that the assessee itself disclosed the payment made to Wipro Ltd., as rent.
5. We have heard both sides and perused the material on record. The main dispute in this case is about the payments made by the assessee to M/s. Wipro Ltd. in respect of rent for the previous years. The assessee admittedly did not deduct any tax under section 194-I of the Act, on the ground that whatever payment was made was not rent in the strict sense. There is no written agreement in respect of utilization of services or for occupation of the premises by the assessee. Admittedly, the assessee was occupying the premises for his business. The premises was owned by M/s. Wipro Ltd., for which payment was made by the assessee to Wipro Ltd. This payment is noting but a consideration for use and occupancy of the premises and other services. The word 'rent' has been explained in Explanation section 194-I of the Act, as follows :
“Explanation to section 194-I :
(i) 'rent' means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee :”
On perusal of the aforesaid provision, we find that the amount paid by the assessee for use and occupation of the premises together with furniture, fixtures, etc., is to be called as 'rent'. The definition is very comprehensive and includes all payments by whatever name it is called. In the present case, the assessee itself has called the payment as 'rent'. Therefore, looking to the nature of payment, we are of the considered view that the payment made by the assessee to M/s. Wipro Ltd. was 'rent'. Hence, section 194-I was to be applied. It is a fact that the assessee failed to deduct tax as required under section 194(1) of the Act. Therefore, interest under section 201(1A) is leviable for such default. However, in this case, M/s. Wipro Ltd. has already paid the tax which was otherwise to be deducted by the assessee. Therefore, according to the assessee, there was no default.
6. In our opinion, since the amount of tax has already been paid by the recipient, i.e., M/s. Wipro Ltd., the ITO (TDS) was justified in holding that there was no tax demand against the assessee. Although the assessee is to be treated as defaulter. However, since the assessee is a defaulter within the meaning of section 201 of the Act, hence, levy of interest was justified under section 201(1A) of the Act, for the period of default. Before us, no details are available as to when the payment of tax was made by Wipro Ltd. Therefore, we uphold the order of levy of interest under section 201(1A) of the Act. However, the matter is sent back to the Assessing Officer for fresh computation of the amount of interest. The interest has to be levied up to the period of non-payment of tax. No interest is to be levied from the date when tax was paid by Wipro Ltd.
7. Regarding payment of shared services and support services, for the assessment year 1998-99, according to the ITO, it is covered by section 194J of the Act. On perusal of the provisions of section 194J, we find that the said provision is applicable in respect of payment of fees for professional services or fees for technical services. The assessee has submitted before us that service charges were paid to Wipro Ltd., for providing training, audit and technical services. This fact is supported by the materials brought on record by the assessee and could not be controverted by the department. Therefore, looking to the nature of expenditure, we are of the view that the payments made by the assessee do not come within the purview of section 194J of the Act because the assessee did not make any payment as fees for professional and technical services. Therefore, in our opinion, the assessee cannot be held as defaulter in respect of the payments made for support services and shared services. Accordingly, we direct the ITO (TDS) not to levy interest under section 201(1A) in respect of these payments for the assessment year 1998-99.
8. Regarding penalty under section 271C of the Act, it has been submitted on behalf of the assessee that sufficient compliance was made because the tax demand was already paid by Wipro Ltd. Hence, there was a reasonable cause for not levying penalty. In this regard, the learned counsel for the assessee brought to our notice, the decision of the Bangalore Bench of the Tribunal in Wipro Finance Ltd. (supra), wherein a number of decisions were relied upon by the Tribunal on this issue. In the case of the Azadi Bachao Andolan (supra), the Hon'ble Delhi High Court has held that levy of penalty under section 271C for failure to deduct tax at source is not automatic. Absence of reasonable cause has to be established before levy of such penalty. Reasonable cause has been explained by the Hon'ble High Court as follows :
“At this juncture it is necessary to take note of sections 273A and 273B. Section 273A dealt with power to reduce levy of penalty, etc., by the Commissioner, in a case which relates to penalty under section 271(1)(c) of the Act. Waiver can be done only if the following conditions are satisfied, i.e., the assessee has :
(a) prior to the detection of the concealment of particulars of income or of inaccurate particulars furnished in respect of such income,
(b) voluntarily and in good faith made full and true disclosure of such particulars,
(c) co-operated in any enquiry relating to assessment of income.
A case of non-deduction of tax at source cannot prima facie be placed on a higher pedestal than concealment of income or furnishing inaccurate particulars. The situation is rather the reverse. Therefore, application of the ingredients/criteria applicable to section 273A to a case governed by section 273B cannot be held without logic or justification. The matter may be looked at from another angle. In a hypothetical case, penalty under section 271C is levied, and the matter is carried to the Tribunal in appeal. The Tribunal applies the parameters applicable to section 273A and cancels the penalty levied holding that reasonable cause existed. In that event, a case for reference under section 256(1) or (2) of the Act would not arise.”
Further reliance can be placed on Circular No. 276/201/95-IT(B), dated 29-1-1997, issued by the CBDT where it has been explained that if the due tax has already been recovered by the department, it would amount to sufficient compliance and no further liability should be raised under section 201(1A) of the Act.
9. In the present case, looking to the facts of the case, we find that the amount of tax was already paid by Wipro Ltd. Therefore, the ITO (TDS) raised nil demand against the assessee. That being the position, we are of the view that there was no reason for levy of penalty for the default. Accordingly, we direct the Assessing Officer to delete the penalties.
10. In the result, ITA Nos. 227 to 230/Bang./2002 are partly allowed and ITA Nos. 231 to 234/Bang./2002 are allowed.
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