M/s. Tao Publishing Pvt. Ltd., V. Deputy Commissioner of Income-tax,

ITA 1139/PUN/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0486 (ITAT-PUNE)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 30-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M C NANIWADEKAR
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . . , BEFORE SHRI R.K. PANDA, AM . / ITA NO.1139/PN/2016 / ASSESSMENT YEAR : 2005-06 M/S. TAO PUBLISHING PVT. LTD., 17, KOREGAON PARK, PUNE 411001 PAN : AAACR8224J . / APPELLANT V/S DCIT, CIRCLE-7, PUNE . / RESPONDENT / APPELLANT BY : SHRI M.C. NANIWADEKAR / RESPONDENT BY : SHRI SUHAS KULKARNI / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER DATED 25-02-2016 OF THE CIT(A)-V, PUNE RELATING TO ASSES SMENT YEAR 2005-06. 2. DISALLOWANCE OF RS.15 LAKHS U/S.40(A)(IA) OF THE ACT FOR VIOLAT ION OF PROVISIONS OF SECTION 194I BY THE ASSESSING OFFICER AND UPH ELD BY THE CIT(A) IS THE ONLY ISSUE RAISED IN THE GROUNDS OF APPEAL. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A COMPANY CARRYING ON THE BUSINESS OF PRINTING AND PUBLISHING OF MAGAZ INES AND BOOKS AND TRADING IN BOOKS AND CDS. IT FILED ITS RETURN O F INCOME ON 30-10-2005 DECLARING TOTAL LOSS OF RS.5,34,230/-. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED TH AT ASSESSEE / DATE OF HEARING :09.11.2016 / DATE OF PRONOUNCEMENT: 11.11.2016 2 ITA NO.1139/PN/2016 COMPANY HAS DEBITED AN AMOUNT OF RS.32,34,652/- UNDER T HE HEAD ADVERTISING AND PUBLICITY. ON VERIFICATION OF THE SAME HE OBSE RVED THAT AN AMOUNT OF RS.15 LAKHS HAS BEEN PAID AS SPONSORSHIP TO SHUNYO FOUNDATION FOR MAINTENANCE OF NALA PARK GARDEN, VIZ. OSHO TEERTH GARDEN WHERE ADVERTISING BOARDS OF THE ASSESSEE COMPAN Y ARE DISPLAYED. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EX PLAIN AS TO WHY SUCH EXPENDITURE SHOULD NOT BE DISALLOWED DU/S.40(A)(IA) O F THE ACT AS NO TAX HAS BEEN DEDUCTED ON THE SAID AMOUNT. THE ASSESSEE SUBMITTED ITS REPLY WHICH HAS BEEN REPRODUCED BY THE A SSESSING OFFICER IN THE BODY OF THE ASSESSMENT ORDER AND WHICH READS AS UNDER : GARDEN SPONSORSHIP EXPENSES : THE COMPANY HAS PAID AN AMOUNT OF RS. 15,00,000/- TO SHUNYO FOUNDATION FOR MAINTENANCE OF THE FAMOUS PUBLIC PARK KNOWN AS OSHO TEETH GARDEN LOCATED AT KOREGAON PARK, PUNE. THE SAID GARD EN IS A FAMOUS TOURIST PLACE AND EVERY DAY HUNDREDS OF PEOPLE VISIT THE SAID GARDEN. SHUNYO FOUNDATION, POONA IS LOOKING AFTER THE MAINTENANCE T HE SAID GARDEN. THE DAY TO DAY EXPENSES FOR UPKEEP, BEAUTIFICATION AND MA INTENANCE OF THE OSHO TEERTH PARK IS INCURRED BY SHUNYO FOUNDATION. THE CO MPANY HAS SPONSORED AN AMOUNT OF RS. 15,00,000/- TO THE SAID FOUNDATION TO MEET THE MAINTENANCE EXPENSES OF THE ABOVE PARK. THE COMPANY HAS INCURRED THE SAID EXPENDITURE AS SOCIAL RESPONSIBILITY, AS THE BENEFIT OF THE SAME IS AVAILED BY HUNDRED'S OF PEOPLE WHO VISIT THE SAID PARK ON DAIL Y BASIS. COPY OF THE LEDGER ACCOUNT FOR PAYMENT MADE TO SHUNYO FOUNDATIO N IS ENCLOSED HEREWITH FOR YOUR HONOUR'S KIND REFERENCE AND RECORD .. WE FURTHER WOULD LIKE TO INFORM YOUR HONOUR THAT SHUNYO FOUNDATION IS RESPONSIBLE TO MAINTAIN THE PARK AND THE PAYMENT TO LABOUR CONTRAC TORS ARE MADE BY SHUNYO FOUNDATION AND NOT BY THE COMPANY. SHUNYO FO UNDATION HAS DEDUCTED TAX AT SOURCE FROM PAYMENTS MADE TO LABOUR C ONTRACTORS AND DEPOSITED THE SAME WITH TILE GOVERNMENT AUTHORITY. CO PY OF THE TDS ANNUAL RETURN FORM NO. 26. FILED BY SHUNYO FOUNDATION FOR THE F.Y.2004-05 IS ENCLOSED HEREWITH FOR YOUR HONOUR'S KIND CONSIDERATION AND RECORD.' WE DRAW YOUR HONOURS KIND ATTENTION TO CLAUSE NOS. B- 25 & C-55 OF THE MEMORANDUM OF ASSOCIATION OF THE COMPANY, AUTHORI ZING THE BOARD OF DIRECTORS TO INCUR SUCH EXPENDITURE. WE ENCLOSE HEREW ITH THE COPY OF THE RELEVANT PAGES OF THE MEMORANDUM OF ASSOCIATION CONTAI NING THE ABOVE CLAUSES FOR YOUR HONOURS KIND CONSIDERATION AND RECORD . FURTHER, THE COMPANY GETS THE BENEFIT OF DISPLAYING EVERY MONTH TH E OSHO TIMES MAGAZINE (MONTHLY ISSUE) AND BOOKS THAT ARE PRINTED AN D PUBLISHED BY THE COMPANY. 3 ITA NO.1139/PN/2016 4. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THAT TH E ASSESSEE COMPANY HAS ADMITTED THAT IT GETS BENEFIT OF DISPLAYING EV ERY MONTH THE OSHO TIME MAGAZINE (MONTHLY ISSUE) AND BOOKS THAT ARE P RINTED AND PUBLISHED BY THE COMPANY. IT IS THEREFORE CLEAR THAT THE ASSESSEE COMPANY HAS BEEN USING NALA PARK GARDEN/OSHO TEERTH G ARDEN BELONGING TO OSHO ASHRAM FOR DISPLAYING MAGAZINES AND BOOKS FOR WHICH COMPENSATION OF RS.15 LAKHS HAS BEEN MADE THROUGH SHUNY O FOUNDATION WHICH INCURS THE SAME ON MAINTENANCE OF THAT PARK. THEREFORE, THE ASSESSEE COMPANY WAS LIABLE TO DEDUCT TAX U/S.194I OF THE ACT. SINCE THE ASSESSEE HAS FAILED TO DO SO THE ASS ESSING OFFICER, INVOKING THE PROVISIONS OF SECTION 40(A)(IA), MADE DISALLOWANCE O F RS.15 LAKHS AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5. BEFORE THE CIT(A) THE ASSESSEE MORE OR LESS REITERATE D THE SAME ARGUMENTS. HOWEVER, THE CIT(A) ALSO WAS NOT IMPRESSED BY THE ARGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD THE AC TION OF THE ASSESSING OFFICER BY OBSERVING AS UNDER : 4.6 I HAVE PERUSED THE MATERIAL ON RECORD AND THE SU BMISSIONS MADE BY THE APPELLANT CAREFULLY. I FIND FROM THE SUBMISSION MA DE AND THE DOCUMENTS PRESENTED DURING THE COURSE OF APPEAL HEARING, THAT A NALLAH ON THE LAND BELONGING TO THE COLLECTOR, WAS CONVERTED INTO AN EC OLOGICAL GARDEN OPEN TO THE PUBLIC, WHICH WAS MAINTAINED BY SHUNYO FOUNDATIO N. PERUSAL OF THE DOCUMENTS, SUBMITTED BEFORE ME ALSO INDICATE THE PROPO SAL BY THE SHUNYO FOUNDATION REQUESTING THE APPELLANT COMPANY TO CONTR IBUTE TO THE MAINTENANCE OF THE PARK AND THE APPELLANT COMPANY I NFORMING THE SHUNYO FOUNDATION OF PUTTING UP THIS REQUEST BEFORE THE BOAR D OF DIRECTORS OF THE APPELLANT COMPANY. FROM THE FACTS ON RECORDS, IT IS SEE N THAT THE BOARD OF DIRECTORS FINALLY AGREED TO CONTRIBUTE TO THE MAINTE NANCE OF THE ECOLOGICAL PARK. BOTH THE SHUNYO FOUNDATION AND THE APPELLANT COMPANY PROPAGATE THE OSHO PHILOSOPHY. IT WAS SEEN BY THE AO, THAT THE ADVERT ISEMENT BOARD OF ASSESSEE COMPANY WAS DISPLAYED ON THE NALLAH PARK GARDEN I.E. THE OSHO TEERTH GARDEN. FROM THE SUBMISSION OF THE APPELLANT CO MPANY MADE BEFORE THE AO, THE AO FOUND THAT THE APPELLANT COMPANY GET S BENEFIT OF DISPLAYING, EVERY MONTH, THE OSHO TIMES MAGAZINE (MONTHLY ISSUE) AN D BOOKS THAT ARE PRINTED AND PUBLISHED BY THE COMPANY. ON PERUSAL OF T HE ABOVE, I TEND TO AGREE WITH THE FINDINGS OF THE AO. THE APPELLANT CO MPANY HAD ITSELF DEBITED THE SAID EXPENDITURE OF RS. 15,00,000/- UNDER THE HEA D ADVERTISEMENT AND PUBLICITY', AND HAS ALSO ADMITTED BEFORE THE AO THAT IT DISPLAYED ADVERTISEMENT BOARDS, BOOKS ETC. ON THE SAID NALLAH PARK. THOUGH AN ATTEMPT HAS BEEN MADE 4 ITA NO.1139/PN/2016 BY THE APPELLANT COMPANY, TO USE THE NOMENCLATURE OF MAINTENANCE TO THE SAID PAYMENT, BY PRODUCING DOCUMENTS AND LETTERS BETWEEN S HUNYO FOUNDATION AND THE APPELLANT COMPANY, THIS DOES NOT CHANGE THE N ATURE OF THE PURPOSE FOR WHICH THE PAYMENT AND THE HEAD UNDER WHICH, IT IS MA DE. THE DOCUMENTS PRODUCED ARE BETWEEN TWO CLOSELY RELATED ENTITIES, T HOUGH, LEGALLY MAY BE SEPARATE ENTITIES, WORKING WITH THE SAME PURPOSE OF PR OPAGATING THE PHILOSOPHY OF OSHO, AND HENCE, THE DOCUMENTS CANNOT BE RELIED ON TO DECIDE ON THE NATURE OF THE PAYMENTS, WHEN FACTS INDICATE O THERWISE. IN VIEW OF THE ABOVE, THE AO HAS THEREBY CORRECTLY HELD THAT THE AP PELLANT COMPANY IS REQUIRED TO DEDUCT TAX U/S. 1941 OF THE ACT WHICH IT FAILED TO DO. I, THEREFORE, UPHOLD THE DISALLOWANCE MADE BY THE AO U/S. 40(A) OF THE IT ACT, BY TREATING THE PAYMENT AS PAYMENT MADE FOR DISPLAYING MAGAZINES A ND BOOKS AND FOR WHICH, A COMPENSATION OF RS. 15,00,000/- HAS BEEN MADE TO THE SHUNYO FOUNDATION, WHICH INCURS THE SAME ON MAINTENANCE OF T HE PARK. ACCORDINGLY GROUND NO. 2 (A) & 2 (B) ARE DISMISSED. 5.1 AGGRIEVED WITH SUCH ORDER OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE G ARDEN IS OPEN TO THE PUBLIC AND THERE IS NO CHARGE THAT THE AS SESSEE HAS EXCLUSIVE ACCESS TO THE GARDEN. REFERRING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MAHARASHTRA ST ATE ELECTRICITY DISTRIBUTION COMPANY LTD. REPORTED IN 375 ITR 23 HE SUBM ITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT THE EXPRESSION RENT WOULD ENTAIL THE ELEMENT OF POSSESSION. THE PERSON USING IT HAS SOME DEGREE OF POSSESSORY CONTROL, AT LEAST MOMENTARILY, ALTHOUGH IT CANNOT ENTRUST THE USER TITLE TO THE SUBJECT MATTER O F THE CHARGE. EVEN THE MERE RIGHT TO USE IS VESTED WITH AN ELEMENT OF POSSE SSORY CONTROL OVER THE SUBJECT MATTER. HOWEVER, IN THE INSTANT CASE THERE IS NO SUCH POSSESSION BY THE ASSESSEE AND THE GARDEN IS FREE TO T HE PUBLIC AT LARGE. MERELY BECAUSE THE ASSESSEE HAS DISPLAYED ITS ADVERTISE MENT BOARDS THE AMOUNT PAID FOR MAINTENANCE OF THE PUBLIC GARDEN CANNOT B E TREATED AS RENT UNDER THE PROVISIONS OF SECTION 194I. REFERRING TO T HE PROVISIONS OF SECTION 194I THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE EXPLANATION TO THE PROVISIONS OF SECTION 194 I AND SUBMITTED THAT FOR THE PURPOSE OF THIS SECTION RENT MEA NS ANY PAYMENT 5 ITA NO.1139/PN/2016 BY WHATEVER NAME CALLED UNDER ANY LEASE, SUB-LEASE, TENAN CY OR ANY OTHER AGREEMENT OR ARRANGEMENT FOR THE USE OF ANY LAND OR BUILDING, LAND APPURTENANT TO A BUILDING ETC. THEREFORE, THE PROVIS ION OF SECTION 194I IS NOT APPLICABLE. THE PAYMENT OF RS.15 LAKHS HAS BE EN PAID TO SHUNYO FOUNDATION FOR BEAUTIFICATION AND MAINTENANCE OF THE PARK WHICH IS USED BY THE PEOPLE AT LARGE. HE ACCORDINGLY SU BMITTED THAT THE ORDER OF THE CIT(A) SHOULD BE SET ASIDE AND THE GROUND R AISED BY THE ASSESSEE SHOULD BE ALLOWED. 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 8. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH T HE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PA PER BOOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE ME. THE ONLY DISPUTE IN THE APPEAL FILED BY THE ASS ESSEE IS REGARDING THE APPLICABILITY OF PROVISIONS OF SECTION 194I ON TH E AMOUNT OF RS.15 LAKHS PAID TO SHUNYO FOUNDATION FOR MAINTENANCE OF N ALA PARK GARDEN/OSHO TEERTH GARDEN WHERE ADVERTISEMENT BOARD OF THE ASSESSEE COMPANY ARE DISPLAYED. IT IS THE CASE OF THE ASSESSING O FFICER THAT THE ASSESSEE COMPANY HAS BEEN USING NALA PARK GARDEN/OSHO TEERTH GARDEN BELONGING TO OSHO ASHRAM FOR DISPLAYING MAGAZINES A ND BOOKS PUBLISHED BY IT FOR WHICH COMPENSATION OF RS.15 LAKHS HAS BE EN PAID THROUGH SHUNYO FOUNDATION WHICH INCURS THE SAME ON MAIN TENANCE OF THE PARK. THEREFORE, THE COMPANY IS REQUIRED TO DEDUCT TAX AT SOURCE U/S.194I OF THE I.T. ACT. SINCE THE ASSESSEE FAILED TO DO SO THE ASSESSING OFFICER, INVOKING THE PROVISIONS OF SECTION 40(A)(IA), MADE ADDITION OF RS.15 LAKHS WHICH HAS BEEN UPHELD BY THE CIT(A). IT IS TH E SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE AMOUNT OF RS.15 LAKHS PAID TO SHUNYO FOUNDATION FOR MAINTENANCE OF THE GARDEN AND THEREFORE THE 6 ITA NO.1139/PN/2016 SAME IS FOR COMMERCIAL EXPEDIENCY. SINCE THE ASSESSEE DOE S NOT HAVE ANY POSSESSORY CONTROL OVER THE LAND WHICH IS USED BY THE PUBLIC AT LARGE AS A TOURIST SPOT, THEREFORE, THE PROVISIONS OF SECTION 194 I ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 9. I FIND SOME FORCE IN THE ABOVE ARGUMENT OF THE LD. COU NSEL FOR THE ASSESSEE. I FIND THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LIMITED (SUPRA) WHILE DECIDING THE APPLICABILITY OF PROVISIONS OF SECTION 194I HA S HELD AS UNDER : 37. IN OUR VIEW, THE EXPRESSION RENT WOULD ALSO ENTAI L AN ELEMENT OF POSSESSION. IN EACH OF THE INSTANCES CONTEMPLATED BY THE EXPLANATION TO SECTION 194-1, WE SEE IN THEM AN ELEMENT OF POSSESSION, BE IT LAND, BUILDING (INCLUDING FACTORY BUILDING), LAND APPERTA INING TO A BUILDING, PLANT' EQUIPMENT, FURNITURE OR FITTINGS. THE PERSON U SING IT HAS SOME DEGREE OF POSSESSORY CONTROL, AT LEAST MOMENTARILY, ALTH OUGH IT CANNOT ENTRUST THE USER TITLE TO THE SUBJECT MATTER OF THE CH ARGE. EVEN THE MERE RIGHT TO 'USE' IS VESTED WITH AN ELEMENT OF POSSESSORY CON TROL OVER THE SUBJECT MATTER. IN THE PRESENT CASE, WT CHARGES ARE BER EFT OF SUCH POSSESSORY CONTROL AND HENCE IN OUR VIEW, COMPLETELY OU TSIDE THE PURVIEW OF THE EXPLANATION TO SECTION 194-1. 10. SINCE IN THE INSTANT CASE THE ASSESSEE HAS PAID AN AMOUNT OF RS.15 LAKHS TO SHUNYO FOUNDATION FOR MAINTENANCE OF NALA PARK GARDEN WHICH BELONGS TO OSHO ASHRAM AND THE PARK IS OPEN TO T HE PUBLIC AT LARGE AND SINCE THE ASSESSEE DOES NOT HAVE ANY POSSES SORY CONTROL OVER THE SAID LAND, THEREFORE, THE PROVISIONS OF SECTION 194I, IN MY OPINION, IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE AMO UNT OF RS.15 LAKHS PAID BY THE ASSESSEE IS FOR PUBLICITY AND IS AN ALLOWAB LE EXPENDITURE ON ACCOUNT OF COMMERCIAL EXPEDIENCY. MERELY BECAUSE THE ASSESSEE HAS DISPLAYED THE SAID ADVERTISEMENT BOARD TO DISPLAY THE OSHO TIME MAGAZINES AND BOOKS THAT ARE PRINTED AND PUBLISHED BY THE ASSESSEE, THE SAME IN MY OPINION CANNOT BE A GROUND TO INVOKE THE PROVISIONS OF SECTION 194I FOR THE AMOUNT PAID TO SHUNYO FOUNDATION, WHICH INCURS THE EXPENDITURE FOR MAINTENANCE OF THAT PARK . THE 7 ITA NO.1139/PN/2016 ASSESSING OFFICER, IN MY OPINION, HAS WRONGLY INVOKED THE PRO VISIONS OF SECTION 194I TO THE AMOUNT OF RS.15 LAKHS PAID TO SHUNYO FOUNDATION FOR MAINTENANCE OF NALA PARK GARDEN AND THE CIT(A) WAS ALS O EQUALLY WRONG IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER. IN V IEW OF THE ABOVE DISCUSSION, I SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11-11-2016. SD/- ( R.K. PANDA ) ACCOUNTANT MEMBER PUNE ; DATED : 11 TH NOVEMBER, 2016. '# $# / COPY OF THE ORDER FORWARDED TO : / BY ORDER , $ % / TRUE COPY // // TRUE COPY // &' % * / SR. PRIVATE SECRETARY *, / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A) - 5, PUNE 4. THE PR.CIT, - 4, PUNE 5. $ %%* , * , SMC BENCH / DR, ITAT, SMC BENCH PUNE; 6. 2 / GUARD FILE.