The Delhi Bench of Income Tax Appellate Tribunal (ITAT)has held that the payment of rent and maintenance charges to different entities under a single agreement could not be treated as Tax Deduction at Source (TDS) default.
In the instant case an appeal had been filed by the assessee HV Global Pvt. Ltd., on the ground that the Commissioner of Income Tax Appeal CIT(A) had erroneously made an addition and interest, assessing the TDS liability on illegal and untenable ground and also that the addition which had been made on the notice issued under Section 201(1)/201(1A)of the Income Tax Act 1961 had treated the assessee in default on failure to deduct the TDS by making rent and maintenance charge to separate on single contract.
Section 201 (1) of the Income Tax Act 1961 deals with the consequence of non-payment of TDS, that is if any person failed to deduct TDS or failed to pay to the government then such person shall be deemed to be assessee default and he shall be liable to pay penalty unless AO is not satisfied with the reasonableness or sufficient ground for such failure. Section 201(1A) says that such person under (1) shall be liable to pay a simple interest on the amount failed to pay or deduct.
Manoj Kumar on behalf of the assessee, submitted that the agreement for possessing rental premise had clearly shown that the ‘payment of rent’ and the payment of maintenance charges were specified separately and he also submitted that such payments could not be mixed with provisions of TDS.He further submitted that assessee could not be treated as the assessee in default as the rent and maintenance charges were made to different entities under single agreement.
Kumar Pranav on behalf of revenue contended that this arrangement had been made to avoid the higher deduction of TDS rate.
The Delhi Bench of CM Garge (JudicialMember) and Pradip Kumar Kedia (Accountant Member) observed that the assesseecouldn’t be made liable under the provisions of subsections (1) and (1A) of section 201 of theIncome Tax Act 1961 as the payments of rent and common area maintenance charges had been made to distinct entities/companies.
The bench also observed that the payments received were split into two companies of the same group on a single contract, one for rent and the other for maintenance. The bench deleted the impugned liability u/s 201(1) and 201(1A) of the Income Tax Act 1961 and allowed the appeal.
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