The Gauhati Bench of Income Tax Appellate Tribunal (ITAT),held that if the payee has no liability to pay tax on exempt income, the liability to deduct tax at source in the hands of the payer cannot be fastened, therefore, assessee cannot be held to be ‘assessee in default’.
In the office/business premises of the assessee, M/s. Jack N Jill at Dimapur a Tax Deducted at Source (TDS) survey under Section 133A(2A) of the Income Tax Act,1961 was conducted. It was found that the assessee had failed to deduct tax at source under Section 194-I of the Income Tax Act on payment of rent of Rs.39,53,040/- to different persons during the financial year. Assessee was show caused why it should not be treated as an ‘assessee in default’ under Section 201(1) of the Income TaxAct for nondeduction of tax at source.
The Assessing Officer (AO) held that the assessee is deemed to be an ‘assessee in default’ under Section 201(1) of the Income Tax Act in respect of Rs.3,82,104 being tax deductible @ 10% under Section 194-I of the Income Tax Act on the payment of rent, and further charged interest under Section 201(1A) of the Income Tax Act in respect of the said TDS liability.
Aggrieved by the order, the assessee lodged an appeal with the Commissioner of Income Tax (Appeals) [CIT (A)], who upheld the decision made by the Assessing Officer (AO) and ruled against the assessee. Subsequently, the assessee filed an appeal with the Income Tax Appellate Tribunal (ITAT).
The Authorized Representative (AR) referred to the certificates of all the four payees in respect of they being Scheduled Tribe and asserted that rent paid by the assessee to the four persons is not includible in computing their respective total income in view of the provisions contained under Section 10(26) of the Income Tax Act and is exempt from tax.
The AR further contended that assessee was not obliged to deduct tax at source out of the rent, more particularly when it is not controverted that such rent is exempt from income-tax in the hands of the payees, as per the provisions of Section 10(26) of the Income Tax Act.
The Departmental Representative (DR) submitted that the assessee is in default in respect of not deducting tax at source on the rent payments made by it, exceeding the threshold limit of Rs.1,80,000/- per year.
The Bench comprising of Sanjay Garg, Judicial Member and Girish Agrawal, Accountant Member observed that the assessee is in default in respect of not deducting tax at source on the rent payments made by it, exceeding the threshold limit of Rs.1,80,000/- per year.Further, the Tribunal stated that if the payee has no liability to pay tax on such income, the liability to deduct tax at source in the hands of the payer cannot be fastened. Thus, the assessee was not liable to deduct tax at source from the payment of rents paid by it.
Hence, the assessee is not to be treated as ‘assessee in default’ and the appeal was allowed.
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