IIFCL PROJECTS LTD., NEW DELHI V. ITO, WARD- 12(1), NEW DELHI

ITA 5163/DEL/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4170 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 09-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Keywords: Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI SMC BENCH, NEW DELHI BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA NO. 5 16 3 /DEL/201 7 [A.Y. 20 13 - 14 ] IIFCL PROJECTS LTD., VS. ITO, WARD - 12 ( 1 ) 3 RD FLOOR, AMARDEEP BUILDING NEW DELHI 14, KASTURBA GANDHI MARG NEW DELHI PAN : AACCI 8987 R [ ASSESSEE ] [RESPONDENT] DATE OF HEARING : 2 8 . 1 2 .2017 DATE OF PRONOUNCEMENT : 04 .01 .201 8 ASSESSEE BY : SHRI R.S.SINGH V I, C . A. REVENUE BY : MS. ASHIMA NEB, SR. DR ORDER THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE LD. CIT(A) - 18 , NEW DELHI VIDE ORDER DATED 01 .0 5 .201 7 FOR A.Y . 20 13 - 14 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING SOLITARY GROUND OF APPEAL: THE LD. CIT(A) HAS ERRED IN FACTS AND IN LAW BY NOT DELETING THE ADDITION MADE BY LD. INCOME TAX OFFICER (ITO) OF AN AMOUNT OF RS. 32,80,000/ - AS THE ITO HAD ERRED TO CONCL UDE THAT THE APPELLANT HAS INCURRED RENTAL EXPENSE WITHOUT DEDUCTING THE TAX DEDUCTED AT SOURCE TO ITS HOLDING COMPANY I.E. IIFCL AND INVOKING THE PROVISIONS SEC 40(A) (IA ) OF THE ACT. 3 . BRIEFLY STATED, THE FACT S OF THE CASE ARE THAT THE ASSESSING OFF ICER OBSERVED THAT THE ASSESSEE HAD CLAIMED RENTAL EXPENSES TO THE TUNE OF RS.32.80 LACS. VIDE NOTE - SHEET ENTRY DATED 03 - 09 - 2015, THE AR WAS ASKED TO FILE THE PARTY - WISE DETAILS OF THE RECIPIENT OF THE R ENT ALONG WITH TDS DETAILS. VIDE LETTER DATED 21 - 09 - 2 015, THE AR CONTENDED THAT THE SAID RENT OF RS.32.80 LACS IS A REIMBURSEMENT TO 1J FCL (PARENT COMPANY OF THE ASSESSEE! FOR SHARING OF PREMISES. IT WAS CLAIMED THAT THE OPERATING PREMISES WAS PARTLY OCCUPIED BY THE ASSESSEE ALONG WITH IIFCL AND RENT IS PAID FOR SHARING, HENCE THERE IS NO REQUIREMENT OF DEDUCT ION OF TDS. FURTHER, IN SUPPORT, THE AR FILED A CERTIFICATE FROM - LIFCL BEARING NO.II FCL:GAD:SUBSIDIARIES:2015 - 16/ DATED 6 TH NOVEMBER 2015 WHICH READ S AS UNDER: THIS IS TO CERTIFY THAT INDIA INFRASTRUCTU RE FINANCE COMPANY LIMITED (IIFCL) HAS TAKEN 2924 SQ.FT. CARPET AREA AT 9 TH FLOOR OF H T HOUSE, K G MARG, NEW DELHI ON RENT FROM M/S. HINDUSTAN TIMES LIMITED, THE OWNERS W.E.F. 1 ST APRIL, 2011 OUT OF WHICH AROUND 1070 SQ.FT. CARPET AREA IT HAS ALLOCATED TO IIFCL PROJECTS LIMITED (IPL), A SUBSIDIARY OF IIFCL. IPL IS REIMBURSING THE RENT TO IIFCL SINCE THEN FOR THE AREA BEING USED BY THEM AND THE SAME DOES NOT AMOUNT TO SUB - LETTING. 4. HOWEVER, TH E ASSESSING OFFICER FOUND THIS CONTENTION OF THE ASSESSEE TO B E NOT TENABLE. THE PREMISE S IN QUESTION WAS TAKEN ON RENT BY IIFCL AND A PART OF THE SAME WAS SUBSEQUENTLY SUB - LETTED TO THE ASSESSEE, AGAINST WHICH THE ASSESSEE PAID THE RENT. THE TRANSACTION IN QUESTION IS SQUARELY COVERED UNDER THE EXPLANATION OF RENT U /S 194 - 1 OF THE ACT, WHICH SAYS AS UNDER: RENT MEANS ANY PAYMENT, BY WHATEVER NAME CALLED, UNDER ANY LEASE, SUB - LEASE, TENANCY OR ANY OTHER AGREEMENT OR ARRANGEMENT FOR THE USE OF (EITHER SEPARATELY OR TOGETHER) ANY, - ( A ) LAND; OR ( B ) BUILDING (INCLUDING FA CTORY BUILDING); OR WHETHER OR NOT ANY OR ALL OF THE ABOVE ARE OWNED BY THE PAYEE; ACCORDINGLY, THE SAID PAYMENT REQUIRED THE DEDUCTION OF TAX AT SOURCE (TDS) UNDER THE PROVISIONS OF SECTION 194 - 1 OF THE ACT. THE FAILURE TO DO SO ATTRACTS, INTER - ALIA, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ACCORDINGLY, THIS ITEM IS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSE E. ACCORDINGLY, THE ASSESSING OFFICER ADDED A SUM OF RS. 32,80,000/ - TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 5 . I HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE A.O AND THE LD. CIT(A). THE LD. COUNSEL FOR THE ASSESSEE SHRI R.S. SINGHVI HAS POINTED OUT THAT THE ISSUE IS COVERED BY THE DECISION OF THE ITAT, DELHI BENCH IN THE CASE OF ACIT VS. RESULT SERVICE PVT. LTD IN ITA NO. 2846/DEL/2011 FOR ASSESSMENT YEAR 208 - 09 WHEREIN IT HAS BEEN HELD AS UNDER: THE ASSESSEE IS A 100% SUBSIDIARY OF HOL DING COMPANY OF MCANN ERICKSON INDIA PVT LTD. MCANN ERCIKSON INDIA HAS TAKEN ON RENT OFFICE PREMISES LOCATED AT DELHI AND MUMBAI. COPIES OF THESE TWO LEASE AND LICENCE DEEDS ENTERED WITH THE JL LANDLORDS ARE ON RECORD. THE HOLDING COMPANY, MCCANN ERICKSON INDIA PVT. LTD., HAS PERMITTED ASSESSEE TO USE PART OF THESES PREMISES. IAESSEE HAD REIMBURSED THE AMOUNT TO HOLDING COMPANY WITHOUT DEDUCTING TDS. THE RENT FOR THE WKCFLE PREMISES WAS PAID DIRECTLY BY THE HOLDING COMPANY TO THE LESSORS AND THE TAX WAS D EDUCTED AS PER PROVISIONS OF SECTION 194 - I OF THE INCOME - TAX ACT, *4961. THE CLAUSE 5 OF THE LEASE DEED FOR DELHI PREMISES DATED 22.10.2007 BETWEEN CEPCO INDUSTRIES PVT. LTD. AND MCCANN ERICKSON INDIA PVT. LTD. READ AS FOLLOWING : 5 ITA NO. 5163 /DEL/201 7 '5. THE LESSEE MAY USE TH E DEMISED PREMISES OR PARTS THEREOF FOR THEIR COMMERCIAL USE AS WELL AS FOR THE OFFICES OF ITS SUBSIDIARIES AND ASSOCIATES AND ALLIED COMPANIES AND FOR THE PURPOSES OF COMPANIES / FIRMS AND BUSINESS IN WHICH THE DIRECTORS OF THE LESSEE ARE INTERESTED OR CO NCERNED, HOWEVER, ANY SUCH COMPANIES / SUBSIDIARIES SHALL NOT ACQUIRE ANY INTEREST IN THE DEMISED PREMISES AND LIABILITY FOR PAYMENT OF RENT, OTHER OUTGOING, ETC. SHALL REMAIN SOLE RESPONSIBILITIES OF THE LESSEE.' SIMILARLY, THE LEASE & LICENCE AGREEMENT B ETWEEN NATIONAL ORGANIC CHEMICAL INDUSTRIES LIMITED AND MAFATLAL INDUSTRIES LIMITED AND MCCANN ERICKSON INDIA PVT. LTD. ALSO PROVIDE IN CLAUSE 7 (D) AS UNDER 'D. NOT TO SUB - LET OR GIVE ON LEAVE AND LICENSE BASIS OR ON ANY OTHER BASIS THE LICENSED PREMISES OR ANY PORTION THEREOF, NOR PERMIT ANY THIRD PARTY TO USE AND OCCUPY THE LICENSED PREMISES OR ANY PORTION THEREOF SAVE AND EXCEPT TO ITS SUBSIDIARIES, AFFILIATES, GROUP ENTITIES, ASSOCIATES, WHICH SHALL BE WITHOUT ANY PRIOR WRITTEN CONSENT OF THE LICENSOR. ' THE ASSESSEE IS PAYING RENT TO THE HOLDING COMPANY AS REIMBURSEMENT SINCE LAST MANY YEARS. THIS POSITION HAS BEEN ACCEPTED BY THE DEPARTMENT ALL THROUGH AND IT HAS BEEN NEVER DISPUTED EVEN WHEN PROVISIONS FOR TDS WERE ON STATUTE SINCE 1994. SECTION 194 - I OF THE INCOME - TAX ACT, 1961 WAS INSERTED IN ACT W.E.F. 01.06.1994. SIMILARLY, THIS POSITION WAS ALSO NOT DISPUTED EVEN AFTER THE AMENDMENT IN SECTION 40(A)(IA) OF THE 6 ITA NO. 5163 /DEL/201 7 ACT BY THE TAXATION LAW (AMENDMENT) ACT, 2006 W.E.F. 1.4.2006. ON THIS ISSUE, THERE IS N O MATERIAL CHANGE IN THE FACTS AND LAW DURING THE YEAR UNDER CONSIDERATION. THE LEASE DEED PROVIDES FOR USE OF THE PREMISES BY THE SUBSIDIARY COMPANIES. THE ACTUAL PAYMENTS MADE BY THE LESSEE (HOLDING COMPANY) TO THE LESSOR AND NECESSARY TAX WAS DEDUCTED T HEREFROM. THE HOLDING COMPANY HAS ALSO NOT DEBITED THE WHOLE OF RENT TO ITS BOOKS OF ACCOUNT. IT HAS ONLY DEBITED THE RENT WHICH PERTAINS TO THE PART OF THE PREMISES OCCUPIED BY IT. THEREFORE, IN OUR CONSIDERED VIEW, THERE WAS NO LESSOR AND LESSEE RELA TION SHIP BETWEEN THE HOLDING COMPANY AND ASSESSEE WHER E THE PROVISI ON OF S E CTION 194I ARE ATTRACTE D. KEEPING THESE FACTS IN VI EW, WE FIND MERITS IN THE ORDER OF THE CIT (A) IN DELETING TH E ADDITION MADE U/S 40(A)(IA) OF THE ACT. WE SUSTAIN THE ORDER OF THE CIT (A) AND DISMISS REVENUE'S APPEAL. 6. SINCE THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS OF THE CASE IN RESULT SERVICE PVT. LTD [SUPRA], FOLLOWING THE SAME, I FIND THE ASSESSING OFFICER TO BE NOT JUSTIFIED IN MAKING THE ADDITION. ACCORDINGLY , THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION SO MADE BY HIM. THUS, THE ORDER OF THE LD. CIT(A) IS REVERSED. GROUND RAISED BY THE ASSESSEE STANDS ALLOWED. 7 ITA NO. 5163 /DEL/201 7 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO. 5163/DEL/2017 IS ALLOWED. THE ORDER IS PRO NOUNCED IN THE OPEN COURT ON 04 . 0 1 .201 8 . SD/ - [B.P. JAIN] ACCOUNTANT MEMBER DATED: 04 TH JANUARY , 2017 VL/ COPY FORWARDED TO: 1 . ASSESSEE 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI