2005 (1) TMI 609 - AT - Income Tax

Deduction of tax at source - Payments made in respect of rent and other services - Assessee in default - Penalty levied u/s 271C - HELD THAT - In the present case the assessee itself has called the payment as rent . Therefore looking to the nature of payment we are of the considered view that the payment made by the assessee to M/s. Wipro Ltd. was rent . Hence section 194-I was to be applied. It is a fact that the assessee failed to deduct tax as required u/s 194(1) of the Act. Therefore interest u/s 201(1A) is leviable for such default. However in this case M/s. Wipro Ltd. 2002 (8) TMI 258 - ITAT BANGALORE has already paid the tax which was otherwise to be deducted by the assessee. Therefore according to the assessee there was no default. In our opinion since the amount of tax has already been paid by the recipient i.e. M/s. Wipro Ltd. the ITO (TDS) was justified in holding that there was no tax demand against the assessee. Although the assessee is to be treated as defaulter. However since the assessee is a defaulter within the meaning of section 201 of the Act hence levy of interest was justified u/s 201(1A) of the Act for the period of default. Before us no details are available as to when the payment of tax was made by Wipro Ltd. Therefore we uphold the order of levy of interest u/s 201(1A) of the Act. However the matter is sent back to the Assessing Officer for fresh computation of the amount of interest. The interest has to be levied up to the period of non-payment of tax. No interest is to be levied from the date when tax was paid by Wipro Ltd. Payment of shared services and support services - Looking to the nature of expenditure we are of the view that the payments made by the assessee do not come within the purview of section 194J of the Act because the assessee did not make any payment as fees for professional and technical services. Therefore in our opinion the assessee cannot be held as defaulter in respect of the payments made for support services and shared services. Accordingly we direct the ITO (TDS) not to levy interest u/s 201(1A) in respect of these payments for the assessment year 1998-99. Penalty under section 271C - Looking to the facts of the case we find that the amount of tax was already paid by Wipro Ltd. Therefore the ITO (TDS) raised nil demand against the assessee. That being the position we are of the view that there was no reason for levy of penalty for the default. Accordingly we direct the Assessing Officer to delete the penalties. In the result Appeals are partly allowed and ITA are allowed.

Summary

Issues Involved:
Appeals against orders u/s 201(1A) and 271C for assessment years 1997-98 to 2000-01.

Section 201(1A) - Rent Deduction Issue:
The assessee failed to deduct tax from rent and services payments to M/s. Wipro Ltd. Assessee argued payments were not rent but for shared services. The ITO levied interest u/s 201(1A) and penalty u/s 271C. Assessee cited legal precedents to support their position.

Section 201(1A) - Rent Deduction Decision:
The Tribunal found the payments to M/s. Wipro Ltd. constituted rent u/s 194-I. Although tax was not deducted, as Wipro Ltd. paid the tax, no default existed. Interest u/s 201(1A) was justified but sent back for fresh computation.

Section 201(1A) - Shared Services Issue:
For assessment year 1998-99, the ITO treated shared services payments as covered by section 194J. Assessee argued these payments were not for professional or technical services.

Section 201(1A) - Shared Services Decision:
The Tribunal determined that payments for shared services did not fall under section 194J. Therefore, no interest u/s 201(1A) was to be levied for these payments.

Section 271C - Penalty Issue:
Assessee argued no penalty should be levied as tax was paid by Wipro Ltd., citing legal precedents and CBDT circular. The Tribunal considered the reasonable cause for not levying penalty.

Section 271C - Penalty Decision:
As the tax was already paid by Wipro Ltd., the Tribunal found no reasonable cause for penalty imposition. The Assessing Officer was directed to delete the penalties.

In conclusion, some appeals were partly allowed, and others were fully allowed based on the Tribunal's findings on the rent deduction, shared services payments, and penalty issues.