M/s. Shoe Agency, Karnal V. ITO, Karnal

ITA 1514/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3902 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 26-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 28-03-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SRUJANI MOHANTY
• Assessee Lawyers: PARVESH KUMAR SHARMA
• Section: 40(a)(ia); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 1514(DEL)/2011 ASSESSMENT YEAR: 2007-08 SHOE AGENCY, INCOME-TAX OFFICER, C/O PARVESH KUMAR SHARMA, VS. WARD-2, KA RNAL. ADVOCATE, 493-L, MODEL TOWN, KARNAL. PAN-AAVFS9938G (APPELLANT) (RESPOND ENT) APPELLANT BY : SHRI PARVESH KUMAR SHARMA , ADVOCATE RESPONDENT BY : MS. SRU JANI MOHANTY, SR. DR ORDER PER K.G. BANSAL : AM THE ONLY SUBSTANTIVE GROUND TAKEN BY THE ASSESSEE IN THE APPEAL IS THAT THE LD. CIT(APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER THAT IMPROVEMENT TRUST IS NOT A GOVERNMENT OR SEMI-GOVERNMENT DEPARTMENT AND, THEREFORE, RENT P AID TO IT WAS LIABLE FOR TAX DEDUCTION AT SOURCE, FAILING WHICH THE SAME HAD TO BE DISALLOWED IN COMPUTING THE TOTAL INCOME. BRIEFLY, THE FACT S ARE THAT THE ASSESSEE PAID RENT OF RS. 2,38,000/- TO KARNAL IMPROVEMENT TRUST . TAX WAS NOT DEDUCTED AT SOURCE FROM THIS PAYMENT. THEREFORE, THE AO INVOKED THE ITA NO. 1514(DEL)/2011 2 PROVISION CONTAINED IN SECTION 40(A)(IA) AND DI SALLOWED THE PAYMENT WHILE COMPUTING THE INCOME. THIS ACTION WAS UPHELD BY THE LD. CIT(APPEALS). 2. THE ONLY CASE MADE OUT BY THE ASSESSEE IS THA T THE KARNAL IMPROVEMENT TRUST IS A GOVERNMENT AND, THEREFORE , THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOURCE U/S 194-I FROM RENT PAID BY THE ASSESSEE TO IT. IN THIS CONNECTION, RELIANCE HA S BEEN PLACED ON PARAGRAPH NO. 4 OF CIRCULAR NO. 699 DATED 30.1.1995. THIS CIRCULAR IS REPRODUCED BELOW:- [2] REQUIREMENT OF DEDUCTION OF INCOME-TAX AT S OURCE UNDER SECTION 194-I OF THE INCOME-TAX ACT-PAYMENTS OF IN COME BY WAY OF RENT MADE TO GOVERNMENT AND ENTITIES WHO SE INCOME IS EXEMPT FROM INCOME-TAX UNDER CLAUSES (20) AND (20A) OF SECTION 10 OF THE INCOME-TAX ACT-REGARDING 1. QUERIES HAVE BEEN RAISED AS TO WHETHER THE REQUIREMENT OF DEDUCTION OF INCOME-TAX AT SOURCE UNDER SECTION 194-I OF THE INCOME-TAX ACT APPLIES IN THE CASE OF PAYMENTS B Y WAY OF RENT TO THE GOVERNMENT, STATUTORY AUTHORITIES R EFERRED TO IN SECTION 10(20A) AND LOCAL AUTHORITIES WHOSE INCO ME UNDER THE HEAD INCOME FROM HOUSE PROPERTY OR INCOME FRO M OTHER SOURCES IS EXEMPT OF INCOME-TAX. 2. UNDER THE PROVISIONS OF SECTION 196 OF THE INCOME-TAX ACT, NO TAX IS REQUIRED TO BE DEDUCTED AT SOURCE FROM ANY SUMS PAYABLE TO THE GOVERNMENT. 3. THE MATTER WITH REGARD TO THE STATUTORY AUTH ORITIES AND THE LOCAL AUTHORITIES REFERRED TO ABOVE, HAS BEEN EX AMINED IN THE ITA NO. 1514(DEL)/2011 3 BOARD. SECTION 190 OF THE INCOME-TAX ACT PROVIDES FOR DEDUCTION OF INCOME-TAX AT SOURCE AS ONE OF THE MODES OF COLLECTION OF INCOME-TAX IN RESPECT OF AN INCOME NOTWITHSTANDING THAT THE REGULAR ASSESSMENT IN R ESPECT OF SUCH INCOME IS TO BE MADE IN A LATER ASSESSMENT YEAR. THE INCOME OF AN AUTHORITY CONSTITUTED IN INDIA B Y OR UNDER ANY LAW ENACTED EITHER FOR THE PURPOSE OF DEALING WITH AND SATISFYING THE NEED FOR HOUSING ACCOMMODATION OR FOR THE PURPOSE OF PLANNING, DEVELOPMENT OR IMPROVEMEN T OF CITIES, TOWNS AND VILLAGES, IS EXEMPT FROM IN COME-TAX UNDER SECTION 10(20A). SIMILARLY, THE INCOME OF A LOCA L AUTHORITY WHICH IS CHARGEABLE UNDER THE HEAD INCOME FROM H OUSE PROPERTY OR INCOME FROM OTHER SOURCES IS EXEMP T FROM INCOME-TAX UNDER SECTION 10(20). THERE IS NO OT HER CONDITION SPECIFIED IN THESE TWO CLAUSES OF SECTION 10 WHIC H IS NECESSARY TO BE SATISFIED IN ORDER TO AVAIL OF THE INCOME-TAX EXEMPTION. 4. IN VIEW OF THE AFORESAID, THERE IS NO REQ UIREMENT TO DEDUCT INCOME-TAX AT SOURCE ON INCOME BY WAY OF RENT IF THE PAYEE IS THE GOVERNMENT. IN THE CASE OF THE LOCA L AUTHORITIES AND STATUTORY AUTHORITIES REFERRED TO IN PARA 3 OF THIS CIRCULAR, THERE WILL BE NO REQUIREMENT TO DEDUCT INCOME-TAX AT SOURCE FROM INCOME BY WAY OF RENT IF THE PERSON RESPONSI BLE FOR PAYING IT IS SATISFIED ABOUT THEIR TAX-EXEMPT S TATUS UNDER CLAUSE (20) OR (20A) OF SECTION 10 ON THE BASIS OF A CERTIFICATE TO THIS EFFECT GIVEN BY THE SAID AUTHORITIES. 2.1 ON THE OTHER HAND, THE CASE OF THE LD. DR IS T HAT KARNAL IMPROVEMENT TRUST IS NOT A GOVERNMENT AND, THEREFORE, TAX H AD TO BE DEDUCTED FROM THE RENT PAID TO IT FOR THE PURPOSE OF CLAIMING DED UCTION OF RENT. ITA NO. 1514(DEL)/2011 4 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE LD. COUNSEL HAS RELIED ON PARAGR APH NO. 4 OF CIRCULAR NO. 699. IT IS MENTIONED THAT THERE IS NO REQUIREMENT TO DEDUCT INCOME-TAX AT SOURCE ON INCOME BY WAY OF RENT IF THE PAYEE IS TH E GOVERNMENT. IN THE CASE OF THE LOCAL AUTHORITIES AND STATUTORY AUTHORITIE S REFERRED TO IN PARAGRAPH NO. 3 OF THE CIRCULAR, THERE WILL BE NO REQUIREME NT TO DEDUCT INCOME-TAX AT SOURCE FROM INCOME BY WAY OF RENT IF THE PERSON R ESPONSIBLE FOR PAYING IT IS SATISFIED ABOUT THEIR TAX-EXEMPT STATUS UND ER CLAUSE (20) OR (20A) OF SECTION 10 ON THE BASIS OF A CERTIFICATE TO THIS EFFECT GIVEN BY THE SAID AUTHORITIES. THE PARAGRAPH ITSELF MAKES IT C LEAR THAT A LOCAL AUTHORITY OR A STATUTORY AUTHORITY IS NOT A GOVERNMENT. IN CASE ITS INCOME IS EXEMPT, A CERTIFICATE CAN BE FILED TO THIS EFFECT, WHICH WI LL OBVIATE THE NECESSITY OF DEDUCTION OF TAX AT SOURCE. CLAUSE (2) OF SEC TION 10 DEALS WITH THE INCOME OF A LOCAL AUTHORITY, WHICH MEANS A PANCH AYAT, MUNICIPALITY, MUNICIPAL COMMITTEE, OR DISTRICT BOARD OR CANTONM ENT BOARD. THUS, THE KARNAL IMPROVEMENT TRUST DOES NOT FALL UNDER TH E DEFINITION OF LOCAL AUTHORITY. CLAUSE (20A) HAS BEEN OMITTED BY FINA NCE ACT, 2002, WITH EFFECT FROM 1.4.2003. THIS CLAUSE WAS APPLICABL E TO THE ASSESSEE, BUT DOES NOT EXIST ON THE STATUTE BOOK IN THIS YEAR. THEREFORE, THE ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE FROM THE RENT PA ID TO IT. FAILURE TO DO SO ITA NO. 1514(DEL)/2011 5 WILL AUTOMATICALLY LEAD TO DISALLOWANCE OF THE E XPENDITURE BY WAY OF RENT. THAT IS WHAT, THE LOWER AUTHORITIES HAVE DONE. 4. IN THE RESULT, THE APPEAL IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 27 MAY, 2011. SD/- SD/- (RAJPAL YADAV) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 27TH MAY, 2011. SP SATIA COPY OF THE ORDER FORWARDED TO:- SHOE AGENCY, KARNAL. ITO, WARD 2, KARNAL.. CIT CIT(A) THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.