M/s Jattana Restaurant & Motels Pvt. Ltd., Chandigarh V. ITO, Chandigarh

ITA 312/CHANDI/2015

• Counselvise Citation: 31221514 RSA 2015
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 27-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Depreciation; Non-deduction of tax
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 312/CHD/2015 ASSESSMENT YEAR: 2006-07) JATTAN RESTAURANT & VS. THE INCOME TAX OFFICER, MOTELS PVT. LTD., WARD 4 (4), H.NO.274, SECTOR 35-A, CHANDIGARH. CHANDIGARH. PAN NO. AABCJ44947P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.R.SHARMA RESPONDENT BY : SHRI S.K.MITTAL, DR DATE OF HEARING : 29.05.2015 DATE OF PRONOUNCEMENT : 29.05.2015 O R D E R PER H.L.KARWA, VP : THIS APPEAL FILED BY THE ASSESSEE IS DIR ECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2, CHANDIGARH DATED 2.2.2015 RELATING TO ASSESSMENT YEAR 2006-07. 2. IN THIS APPEAL, THE ASSESSEE RAISED FOLLOWING GROUNDS: 1. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHE LD BY THE COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH REJECTING THE A PPLICATION OF THE APPELLANT U/S 154 OF THE APPELLANT IS BAD IN LAW A ND IS BEYOND ALL THE CANNONS OF LAW AND JUSTICE. 2 2. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHEL D BY THE COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH REJECTING THE A PPLICATION OF THE APPELLANT U/S 154 WITH REGARD TO THE DISALLOWANCE O F RS 14,82,905/- U/S 40(A)(IA) BEING THE AMOUNT OF RENT PAID AFTER DEDUC TION OF TAX AT SOURCE BUT DEPOSITED LATE MORE SO WHEN THE PROVISION IN THIS B EHALF WAS NOT APPLICABLE DURING THE YEAR UNDER CONSIDERATION AND WAS APPLICA BLE WITH EFFECT FROM 01.04.2006 IS BAD IN LAW AND NEEDS TO BE SET ASIDE. 3. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHE LD BY THE COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH RE JECTING THE APPLICATION OF THE APPELLANT U/S 154 WITH REGARD TO THE DISALLOWANCE OF RS.5,31,891/- U/S 40(A)(IA) BEING THE AMOUNT OF FRA NCHISEE FEE PAID WITHOUT DEDUCTION OF TAX AT SOURCE WHEN THE PROVISION IN TH IS BEHALF WAS NOT APPLICABLE DURING THE YEAR UNDER CONSIDERATION IS B AD IN LAW AND NEEDS TO BE SET ASIDE. 4. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHE LD BY THE COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH REJECTING THE A PPLICATION OF THE APPELLANT U/S 154 WITH REGARD TO THE DISALLOWANCE O F RS 55,518/- BEING THE AMOUNT OF DEPRECIATION CLAIMED BY THE APPELLANT ON THE FIXED ASSETS AND MORE SO WHEN THE DEPRECIATION HAS BEEN ALLOWED IN T HE SUBSEQUENT YEAR ON SUCH ASSETS ON THE BASIS OF THE WDV IS BAD IN LAW A ND NEEDS TO BE SET ASIDE. 3. AT THE TIME OF HEARING OF THE APPEAL, SHRI M.R.SHARMA, LEARNED COUNSEL FOR ASSESSEE DID NOT PR ESS FOR GROUND NO.4 OF THE APPEAL STATING THAT THE ASSESSEE COULD NOT PRODUCE BILLS REGARDING FIXED ASSETS PERTAINING TO THE CLAIM OF DEPRECIATION. THIS GROUND OF APPEAL IS DISMISSED A S NOT PRESSED. 4. WHILE FRAMING THE ASSESSMENT FOR THE YEAR, UNDE R CONSIDERATION, THE ASSESSING OFFICER HAD, INTER-ALI A, DISALLOWED FOLLOWING AMOUNTS : I) RS.14,82,905/- UNDER SECTION 40(A)(IA) BECAUSE T HE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON THE RENT AS PER PROVISIONS OF SECTION 194-I OF THE INCOME TAX A CT, 1961. II) RS.5,31,891/- UNDER SECTION 40(A)(IA) SINCE THE 3 ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON FRANCHIS E FEE (ROYALTY) AS PER PROVISIONS OF SECTION 194-J OF THE INCOME TAX ACT, 1961. 5. SUBSEQUENTLY THE ASSESSEE FILED AN APPLICATION UNDER SECTION 154 OF THE ACT FOR RECTIFICATION OF T HE ORDER OF ASSESSMENT STATING THAT THE PROVISIONS RELATING TO DEDUCTION OF TAX AT SOURCE ON THE RENT AND FRANCHISE FEE (ROY ALTY) WERE BROUGHT ON STATUTE BY THE TAXATION LAWS (AMENDMENT) ACT, 2006 W.E.F. 13.7.2006 AND WERE NOT APPLICABLE TO TH E YEAR UNDER CONSIDERATION AND SO THE TAX WAS NOT REQUIRED TO BE DEDUCTED AT SOURCE ON PAYMENT OF RENT AND FRANCHISE FEE (ROYALTY). THE ASSESSING OFFICER REJECTED THE APP LICATION OF THE ASSESSEE VIDE HIS ORDER DATED 30.11.2012. THE ASSESSEE PREFERRED AN APPEAL AGAINST THE SAID ORDER BEFORE T HE LEARNED CIT (APPEALS) AND THE LEARNED CIT (APPEALS) VIDE HI S ORDER DATED 2.2.2015 UPHELD THE ORDER OF THE ASSESSING OF FICER. 6. I HAVE HEARD SHRI M.R. SHARMA, LEARNED COUNSEL FOR ASSESSEE AND SHRI S.K.MITTAL, LEARNED D.R FOR THE R EVENUE AND HAVE ALSO CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI M.R. SHARMA, LEARNED COUNSEL FOR ASSESSEE REIT ERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND S UBMITTED THAT THE PROVISIONS RELATING TO DEDUCTION OF TAX AT SOURCE ON RENT AND FRANCHISE FEE (ROYALTY) WERE INTRODUCED BY THE TAXATION LAWS (AMENDMENT) ACT, 2006 W.E.F. 13.7.200 6 AND WERE NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION AND SO THE TAX WAS NOT REQUIRED TO BE DEDUCTED AT SOURCE ON PA YMENT OF RENT AND FRANCHISE FEE (ROYALTY). HE FURTHER SUBM ITTED THAT 4 THE LEGISLATURE AMENDED THE SUB-CLAUSE (IA) OF CLAU SE (A) OF SECTION 40 OF THE INCOME TAX ACT TO EXTEND THE EXIS TING PROVISIONS TO PAYMENTS OF RENT AND ROYALTY. SUB-C LAUSE (IA) SO AMENDED ALSO PROVIDES FOR THE DEFINITIONS OF THE TERMS RENT AND ROYALTY. AS PER PROVISIONS OF SECTION 40(A)(I A) OF THE ACT FAILURE TO DEDUCT TAX OR TO PAY TAX AFTER DEDUCTION FROM AMOUNTS PAYABLE TO A RESIDENT, AS INTEREST, COMMISS ION OR BROKERAGE, FEES FOR PROFESSIONAL SERVICES OR FEES F OR TECHNICAL SERVICES, OR AMOUNTS PAYABLE TO A RESIDENT CONTRACT OR OR SUB- CONTRACTOR, RESULTS IN DISALLOWANCE OF SUCH PAYMENT S IN THE COMPUTATION OF INCOME OF THE PAYER. THE LEGISLATU RE HAS AMENDED THE AFORESAID SUB-CLAUSE (IA) OF CLAUSE (A) OF SECTION 40 OF THE ACT TO EXTEND THE EXISTING PROVISIONS TO PAYMENTS OF RENT AND ROYALTY. SHRI M.R. SHARMA, LEARNED COUN SEL FOR ASSESSEE SUBMITTED THAT VIDE CIRCULAR NO.1/2007, DA TED 27.4.2007, THE CBDT CLARIFIED THAT THE AMENDED PROV ISIONS OF SECTION 40(A)(IA) OF THE ACT RELATING TO PAYMENTS O F RENT AND ROYALTY ARE APPLICABLE FROM ASSESSMENT YEAR 2007-08 ONWARDS. THE CIRCULAR READS AS UNDER : 13. DEDUCTION NOT TO BE ALLOWED IN THE COMPUTATION OF INCOME IF TAX IS NOT DEDUCTED ON PAYMENTS OF RENT AND ROYALTY SECTIO N 40(A)(IA) 13.1 IN ACCORDANCE WITH THE EXISTING PROVISIONS OF SUB-CLAUSE (IA) OF C LAUSE (A) OF SECTION 40, FAILURE TO DEDUCT TAX, AS REFERRED UNDER THE PROVISIONS OF CHAPTER XVII-B, OR PAY TAX AFTER DEDUCTION FROM AMO UNTS PAYABLE, TO A RESIDENT, AS INTEREST, COMMISSION OR BROKERAGE, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES, OR AMOUNTS PAYABLE TO A RESIDENT CONTRACTOR OR SUB-CONTRACTOR, RESULTS IN DISALLOWANCE O F SUCH PAYMENTS IN THE COMPUTATION OF INCOME OF THE PAYER. 13.2 THE ACT HAS AMENDED THE AFORESAID SUB-CLAUSE (IA) OF CLAUSE (A) 5 OF SECTION 40 TO EXTEND THE EXISTING PROVISIONS TO PAYMENTS OF RENT AND ROYALTY. SUB-CLAUSE (IA) SO AMENDED ALSO PROVIDES FO R THE DEFINITIONS OF THE TERMS RENT AND ROYALTY. 13.3 APPLICABILITY: ASSESSMENT YEAR 2007-08 ONWARDS. 13.4 IN A FEW REPRESENTATIONS RECEIVED AFTER THE PASSAG E OF THE TAXATION LAWS (AMENDMENT), BILL, 2005 AND ASSENT THERETO ON 1 3 TH JULY, 2007, APPREHENSIONS WERE EXPRESSED THAT THE PROVISIONS OF SEC TION 40(A)(IA) AMENDED AS ABOVE WOULD BE EFFECTIVE FROM ASSESSMENT Y EAR 2006-2007 (I.E. IN RESPECT OF THE PAYMENTS MADE IN FINANCIAL YEAR 2 005-2006) WHEREAS THE AMENDED PROVISIONS OF SECTION 194-1 RELATING TO DEDUCTI ON OF TAX AT SOURCE ON RENT AND THOSE OF SECTION 194J RELATING TO DEDUC TION OF TAX ON FEES FOR PROFESSIONAL OR TECHNICAL SERVICES HAD BEEN INSERTE D IN SECTION 40(A)(IA) WITH EFFECT FROM 13 TH JULY, 2006, A DATE WHICH WOULD RELATE TO ASSESSMEN T YEAR 2007-08 AND NOT TO 2006-07. IT IS, THEREFORE, NECES SARY TO CLARIFY THAT IN ANY CASE IN WHICH TAX IS NOT DEDUCTED FROM PAYMENT O F RENT OR ROYALTY DURING THE FINANCIAL YEAR 2005-2006, NO DISALLOWANCE IN THE C OMPUTATION OF INCOME WOULD BE REQUIRED IN TERMS OF THE AMENDED PROV ISIONS OF SECTION 40(A)(IA). A PERUSAL OF SUB-CLAUSE (IA) MAK ES IT CLEAR THAT A DISALLOWANCE IS ATTRACTED ONLY WHEN TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND IT IS NOT DEDUCTED OR NOT PAID TO GOVERNMENT ACCOUNT. SINCE TAX IS DEDUCTIBLE UNDER THE AMENDED PROVISIONS OF SECTION 194-1 AND SECTION 194J FROM 13 TH JULY., 2006, ASSESSMENT YEAR 2007-2008 WOULD THE FIRST RELEVANT ASSESSMENT YEAR IN WHICH A DIS ALLOWANCE WOULD BE ATTRACTED FOR NOT DEDUCTING OR NOT DEPOSITING THE T AX IN TERMS OF THE PROVISIONS OF SECTION 40(A)(IA). 7. IN VIEW OF THE ABOVE, I HOLD THAT THE AUTHORITI ES BELOW WERE NOT JUSTIFIED IN DISALLOWING RS.14,82,905/- ON ACCOUNT OF RENT AND RS.5,31,891/- ON ACCOUNT OF FRANCHISE FEE (ROYA LTY) UNDER SECTION 40(A)(IA) OF THE ACT. THE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF ANDHRA CEMENT CO. LTD. VS. CIT , 232 ITR 364 (AP) HELD THAT IT IS WELL SETTLED THAT THE INCOME-TAX ACT AS IT S TANDS AMENDED ON THE FIRST DAY OF APRIL ON ANY FINANCIAL YEAR MUST APPLY TO THE ASSESSMENT OF THAT YEAR. ANY AMENDMENTS IN THE ACT WHICH 6 COME INTO FORCE AFTER THE FIRST DAY OF APRIL OF A F INANCIAL YEAR, WOULD NOT APPLY TO THE ASSESSMENT FOR THAT YEAR, EVEN IF THE ASSESSMENT IS ACTUALLY MADE AFTER THE AMENDMENTS COME INTO FORCE . 8. IN VIEW OF THE ABOVE, THERE WAS NO JUSTIFICATIO N IN REJECTING THE RECTIFICATION APPLICATION PREFERRED B Y THE ASSESSEE TO THE ABOVE EXTENT. THERE IS APPARENT MISTAKE ON RE CORD TO THE EXTENT THAT THE ASSESSING OFFICER HAS WRONGLY MADE DISALLOWANCES IN THE ASSESSMENT YEAR 2006-07 UNDER THE AMENDED PR OVISIONS OF SECTION 40(A)(IA) OF THE ACT, WHICH ARE APPLICABLE FROM THE ASSESSMENT YEAR 2007-08 ONWARDS. ACCORDINGLY, I DE LETE THE DISALLOWANCES OF RS.14,82,905/- BEING THE AMOUNT OF RENT PAID AND RS.5,31,891/- BEING THE AMOUNT OF FRANCHISE FEE /ROYALTY PAID WHICH WERE MADE UNDER SECTION 40(A)(IA) OF THE ACT FOR NON- DEDUCTION OF TAX AT SOURCE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED PARTLY AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF MAY, 2015. SD/- (H.L.KARWA) VICE PRESIDENT DATED : 29 TH MAY, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 7