DUNCAN INSURANCE AQENCY LTD, MUMBAI V. ITO 6(2)(2), MUMBAI

ITA 5729/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0984 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 21-07-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 27-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: A V NERURKAR
• Keywords: Opportunity of being heard
• Section: 40(a)(ia); 264; 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI R.K. PANDA. ACCOUNTANT MEMBER I.T.A. NO. 5729/MUM/2009 ASSESSMENT YEAR : 2006-07 M/S. DUNCAN INSURANCE AGENCY LTD. CEAT MAHAL, 463, DR. ANNIE BESANT ROAD, WORLI, MUMBAI-400 030 PAN: AABCD3993K VS. INCOME-TAX OFFICER-6(2)(2) ROOM NO. 562, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 APPELLANT RESPONDENT ASSESSEE BY : SHRI A.V. NERURKAR RESPONDENT BY : SHRI JITENDRA YADAV ORDER DATE OF HEARING: 21.07.2010 DATE OF ORDER: 29.07.2010 PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 29 TH JULY, 2009 OF THE CIT(A)-VI, MUMBAI RELATING TO ASSESSMENT YEAR 2006-07. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE RE ADS AS UNDER: COMMISSIONER OF INCOME-TAX (APPEALS) VI, MUMBAI ERRED IN DISALLOWING U/S. 40A(IA) OF THE INCOME-TAX ACT, 1961, THE RENT PAID TO INDIVIDUAL CO-OWNER ON THE GROUND THAT THE TAX SHOULD HAVE BEEN DEDUCTED AT SOURCE ON THE BASIS OF THE TOTAL RENT PAID FOR THE WHOLE UNIT IN SPITE OF THE PROVISIONS OF SECTION 2 6 OF THE INCOME-TAX ACT, 1961. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSIN G OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVE D THAT THE ASSESSEE HAS PAID RENT OF RS.9.49 LAKHS TO SIX PART IES IN RESPECT OF CERTAIN PREMISES TAKEN ON RENT. ACCORDING TO TH E ASSESSING I.T.A. NO. 5729/MUM/2009 M/S. DUNCAN INSURANCE AGENCY LTD. ========================== 2 OFFICER SINCE THE AMOUNT OF RENT EXCEEDS THE MAXIMU M AMOUNT OF RENT IN RESPECT OF WHICH TAX IS NOT DEDUCTIBLE A T SOURCE U/S. 194 OF THE INCOME-TAX ACT, 1961, THE ASSESSEE SHOUL D HAVE DEDUCTED TAX AT THE SPECIFIED RATE FROM THE RENT PA ID TO THE FOLLOWING PARTIES: I) S. HARMINDER SINGH AND S. HARPREET SINGH RS.1,93 ,824 II) MRS. ANRADHA KAPUR AND MRS. ARCHANA KAPUR RS.1 ,67,904 III) MRS. JAGJIT BAMI AND MRS. SHIELA RANI RS.1,98, 264 IV) MRS. CHARU WALI KHANNA AND MR. DHURUV KHANNA RS .1,58,700 --------------- RS.7,18,692 ========= 4. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE RENT SO PAID SHOULD NOT BE DISALLOWED IN TE RMS OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 5. THE ASSESSEE EXPLAINED THAT OUT OF THE SIX UNITS TA KEN BY THE COMPANY ON RENT FOUR UNITS ARE HELD AS JOINT PR OPERTY BY THE OWNERS. THE RENT PAID TO THEM IS AS PER THEIR RESP ECTIVE SHARE IN THE PROPERTY. THE ASSESSEE FILED THE COPIES OF THE AGREEMENT ENTERED WITH THE LANDLORD AND FILED BANK STATEMENT AND SUBMITTED THAT THE CHEQUES ISSUED TO EACH OF THE CO -OWNER IS BELOW RS.10,000 EACH PER MONTH. HENCE NO DEDUCTION OF TAX IS REQUIRED. 6. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WI TH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT T HE AGREEMENT MADE WITH THE PARTIES DO NOT PROVIDE ANY SPLIT IN T HE MONTHLY RENT OF LESS THAN RS.10,000. THEREFORE, THE CONTEN TION OF THE ASSESSEE THAT DEDUCTION OF TAX IS NOT APPLICABLE IN THIS CASE AS THE SHARE OF EACH CO-OWNER IS BELOW THE LIMIT FIXED U/S. 194I OF THE ACT IS NOT CORRECT. HE OBSERVED THAT THE ASSES SEE COMPANY HAS MADE A DELIBERATE ATTEMPT TO SPLIT UP THE COMPO SITE RENT PAID TO THE LESSOR IN TWO PARTS JUST WITH A VIEW TO EVADE THE TAXABILITY UNDER THE PROVISIONS OF SECTION 194I AND 40(A)(IA). HE I.T.A. NO. 5729/MUM/2009 M/S. DUNCAN INSURANCE AGENCY LTD. ========================== 3 ACCORDINGLY REJECTED THE CONTENTION OF THE ASSESSEE AND DISALLOWED AN AMOUNT OF RS.7,18,692. 7. BEFORE CIT(A) THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER AN D FURTHER SUBMITTED THAT EACH CO-OWNER HAS GIVEN A DECLARATIO N CONFIRMING THE RECEIPT OF HIS SHARE OF RENT AND DEC LARING THE SAME AS HIS INCOME IN THE RELEVANT YEAR. IT WAS SU BMITTED THAT THE MONETARY LIMIT FIXED FOR DEDUCTION OF TAX SHOUL D BE APPLIED IN THE CASE OF EACH CO-OWNER SEPARATELY AND NOT ON THE COMPOSITE RENT PAID TO THE CO-OWNERS. HOWEVER, THE CIT(A) WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASS ESSEE. HE OBSERVED THAT THE LEASE AGREEMENT SIGNED BY THE ASS ESSEE WITH THE CO-OWNERS FOR THE LEASE OF THE FLAT DO NOT MENT ION THE EXACT SHARE OF EACH CO-OWNER IN THE PROPERTY AND THE AMOU NT OF RENT ACCORDING TO THE SHARE TO BE PAID TO EACH OF THE CO -OWNER. IN OTHER WORDS, THE SHARE OF EACH CO-OWNER IN THE PROP ERTY IS NOT SPELT OUT OR ASCERTAINABLE. HE ALSO REFERRED TO TH E CBDT CIRCULAR NO. 715 AND HELD THAT THE SAID CIRCULAR IS NOT APPL ICABLE TO THE FACTS OF THE PRESENT CASE SINCE THE SHARE OF EACH C O-OWNER IS NOT ASCERTAINABLE. HE ACCORDINGLY UPHELD THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 8. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALL THE FOUR FLATS ARE OWNED JOINTLY, CHEQUES HAVE BEEN PAID IN EQUAL AMOUNTS TO EACH OF THE CO-OWNER AND THE CO-OWNERS H AVE DECLARED SUCH RENTAL INCOME IN THEIR RESPECTIVE RET URNS OF INCOME. THEREFORE IT IS IMPLIED THAT THE SHARE OF EACH OF THE CO- OWNER IS ASCERTAINABLE AND THE CBDT CIRCULAR NO. 71 5 DATED 8 TH AUGUST, 1995 IS CLEARLY APPLICABLE TO THE FACTS OF THE PRESENT CASE. HE SUBMITTED THAT IT WAS NEVER ASKED BY THE ASSESSING OFFICER TO PROVE THAT THE CO-OWNERS ARE HAVING 50% SHARE EACH IN THE RESPECTIVE PROPERTIES. I.T.A. NO. 5729/MUM/2009 M/S. DUNCAN INSURANCE AGENCY LTD. ========================== 4 9. THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE OR DERS OF THE ASSESSING OFFICER AND THE CIT(A). 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFI CER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE AS SESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BE FORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE H AS PAID RENT OF RS.7,18,692 IN RESPECT OF FOUR FLATS, THE DETAILS O F WHICH ARE FILED BY THE ASSESSEE IN THE PAPER BOOK PAGE 18 AND WHICH ARE AS UNDER: NAME OF THE PARTY PAN NO. FLAT NO. AREA (SQ.FT.) AMOUNT (P.M.) TOTAL GRAND TOTAL HARMINDER SINGH ADCPS8930J 1207 673 8,076 96,912 HARPREET SINGH ABSPK2804P 1207 8,076 96,912 193824 ARCHANA KAPUR AARPK0112G 1207A 636 6,996 83,952 ANURADHA KAPUR AGJPK0459J 1207A 6,996 83952 167904 SHIELA RANI ACDPR7218N 1208 673 8,261 99,132 JAGJIT BAMI AAFPB9931J 1208 8,261 99,132 198264 CHARU WALI KHANNA AAMPK6666J 1209 511 6,613 79,356 DHURUV KHANN ATNPK2398F 1209 6,612 79,344 158700 718692 11. ACCORDING TO THE REVENUE THE PROVISIONS OF SECTION 194I ARE APPLICABLE SINCE THE PAYMENT IN RESPECT OF EACH FLAT HAS EXCEEDED THE PRESCRIBED LIMIT AND THEREFORE, THE RE NT HAS TO BE DISALLOWED IN VIEW OF THE PROVISIONS OF SECTION 40( A)(IA). ACCORDING TO THE ASSESSEE SINCE THE CHEQUES HAVE BE EN PAID IN EQUAL AMOUNT TO THE CO-OWNERS AND SINCE THE CO-OWNE RS HAVE DECLARED SUCH RENTAL INCOME IN THEIR RESPECTIVE RET URNS OF INCOME AND SINCE THE AMOUNT PAID TO EACH CO-OWNER I S BELOW RS.10,000 PER MONTH IN EACH CASE, THEREFORE, IN VIE W OF THE CBDT CIRCULAR NO. 715 NO DEDUCTION OF TAX IS REQUIR ED FROM SUCH PAYMENTS UNDER THE PROVISIONS OF SECTION 194I OF THE ACT. IT IS FURTHER THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SINCE IT WAS NEVER ASKED TO PROVE THA T EACH OF THE CO-OWNER IS HAVING 50% SHARE IN THE RESPECTIVE FLAT S, THEREFORE, I.T.A. NO. 5729/MUM/2009 M/S. DUNCAN INSURANCE AGENCY LTD. ========================== 5 THE ASSESSEE NEVER FURNISHED SUCH DETAILS. WE FIND THE CBDT IN CIRCULAR NO. 715 DATED 8 TH AUGUST, 1995 VIDE QUESTION NO. 21 HAS CLARIFIED THE ISSUE WHICH READS AS UNDER: 'Q. 21 WHETHER THE LIMIT OF RS.1,20,000 PER MONTH W OULD APPLY SEPARATELY FOR EACH CO-OWNER OF A PROPERTY? ANS. UNDER SECTION 194-I, THE TAX IS DEDUCTIBLE FRO M PAYMENT BY WAY OF RENT, IF SUCH PAYMENT OF THE PAYEE DURING THE YEAR IS LIKELY TO BE RS.1,20,000 OR MORE. IF THERE ARE A NUMBER OF PAYEES, EACH HAVING DEFINITE AND ASCERTAINABLE SHARE IN THE PROPERTY, THE LIMIT OF RS.1,20,000 WILL APPLY TO EACH OF THE PAYEE/CO-OWNE R SEPARATELY. THE PAYERS AND PAYEES ARE, HOWEVER, ADVISED NOT TO ENTER INTO SHAM AGREEMENTS TO AVID T DS PROVISIONS. 12. SINCE IN THE INSTANT CASE THE ASSESSEE HAS NOT CONCLUSIVELY PROVED THAT THE SHARE OF EACH OF THE C O-OWNER IN THE PROPERTY IS DEFINITE AND ASCERTAINABLE SO AS NOT TO ATTRACT THE PROVISIONS OF SECTION 194I OF THE ACT, WE, IN THE I NTEREST OF JUSTICE DEEM IT PROPER TO RESTORE THE MATTER BACK T O THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE WITH EV IDENCE TO HIS SATISFACTION THAT THE SHARE OF EACH OF THE CO-OWNER IN THE RESPECTIVE FLATS IS DEFINITE AND ASCERTAINABLE. TH E ASSESSING OFFICER SHALL DECIDE THE ISSUE AFRESH AND IN ACCORD ANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND BY THE AS SESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 29 TH JULY, 2010 SD/- (D. MANMOHAN) VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 29 TH JULY, 2010 I.T.A. NO. 5729/MUM/2009 M/S. DUNCAN INSURANCE AGENCY LTD. ========================== 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-VI, MUMBAI 4. THE CIT, CITY-6, MUMBAI 5. THE DR D BENCH. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES, MUMBAI TPRAO