TMI Blog2008 (5) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of CIT vs. Eli Lilly Co. (I) (P) Ltd. [ 2006 (11) TMI 107 - HIGH COURT , DELHI] held that while some salary might have accrued to these four executives outside India, the vital incidence of the payment of the salaries to them abroad had not actually been made by the assessee. The assessee was not liable to deduct tax at source. Since the four executives had paid the interest, there was no justification for claiming interest from the assessee. Hon'ble Delhi High Court in the case of CIT vs. Majestic Hotel Ltd.[ 2006 (6) TMI 104 - DELHI HIGH COURT] held allowing the appeals, that the assessee was in default on account of its failure to make the deduction at source. That default would render it liable to pay the tax amount as also interest on the same after taking credit for the payments, if any, already made by the deductee. Learned CIT(A), on the basis of material produced before him found that appropriate taxes on such income apparently have been paid by the recipient/licensor M/s Ramco Ind. Ltd. and, directed the AO to allow such deduction subject to verification and confirmation by AO. Learned CIT(A) also noted that since the taxes have been paid by the licens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a composite agreement for renting out the entire factory building including plant and machinery, tools, and residential quarters subject to minimum payment of Rs. 40 lakhs. Merely, because the name of agreement is given as licence agreement is not enough to thwart the provisions of s. 194-I of the IT Act. In this view of the matter, we do not find any infirmity in the orders of authorities below. Provisions of s. 194-I are applicable to this case. We therefore, confirm the orders of authorities below and dismiss ground No. 1 in all the appeals of the assessee. Interest under s. 201(1A) - charging interest upto the terminal date - Assessee has filed all the relevant details before learned CIT(A) which are noted in the appellate order with regard to total income of the recipient including the licence fees paid by assessee, TDS/advance tax paid and self-assessment tax paid. The assessee in the paper book also filed certificate from M/s Ramco Ind. Ltd., acknowledgment of filing of return, in which it was explained that licence fee is included in the total income and quarterly taxes have been paid. The decision in the case of Rajasthan Rajya Vidyut Prasaran Nigam Ltd. [ 2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans of taking over right for production or manufacturing of AC pressure pipes to utilize all the production facilities provided at the premises of the company including use of all facilities, utilities, machines, factory, office premises, and the residential quarters which are in Sch. A, Band C as part of the agreement. The licensee shall pay the licence fees to Ramco Ind. Ltd. as under: (i) As per cls. 7 and 8 of the agreement-minimum fees is Rs. 40 lakhs if the production is below 10,000 tonnes. (ii) Rs. 400 per ton on production upto 20,000 tonnes. (iii) Rs. 500 per ton on that portion of production in excess of 20,000 tonnes. 4. As per cl. 20 of the agreement, the licensee shall be free to sub-let or under-let the whole or part of the factory to any other company. During the course of TDS verification, it was found that the licensee company has paid the licence fees but failed to deduct TDS under s. 194-I of the IT Act. The assessee contented that as per agreement, the company used its production facilities and charges are billed on the basis of actual production obtained by assessee company from its unit and hiring of equipments, plant and machinery and production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the licensor including use of all the facilities, utility, machine, factory, office, tools, equipments and residential quarters as per schedule attached with the agreement. The AO therefore, held that it is a composite agreement for whole of the factory including plant and machinery, etc. subject to payment noted above. The AO therefore, held that provisions of s. 194-I are applicable and that since the assessee failed to deduct tax at source, therefore, the assessee shall be deemed to be in default under s. 201(1)/201(1A) of the Act, and as such, assessee is liable for tax and the interest in all the financial years under consideration. Assessee was directed to pay total demand of Rs. 7,32,849, Rs. 16,39,692 and Rs. 10,87,005 in all the financial years under appeal. 6. The above order of the AO was challenged before learned CIT(A). The assessee reiterated the submissions made before AO. Briefly, it was submitted that the assessee entered into an agreement with M/s Ramco Ind. Ltd., Maksi, for obtaining the right to manufacture including production, operation and maintenance of the fully functional asbestos cement pressure pipes, manufacturing unit located at Maksi, Distt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee and evidence filed were forwarded to the AO for the remand report. The Addl. CIT, Range-2, filed his comments before learned CIT(A) in which, it was precisely explained that assessee entered into lease agreement and paid the lease rent to M/s Ramco Ind. Ltd. for use of land and building including factory building and assessee was allowed to utilize all the production facilities in the premises of the licensor including the office premises and residential quarters. The assessee is also entitled to sublet or under-let whole or part of the said factory to any other company. The AO therefore, submitted that entire factory building including quarters etc. were let out to the assessee therefore, it is a case which falls under s. 194-I of the IT Act. The assessee also filed submissions before learned CIT(A) on the above remand report. 8. The learned CIT(A) considering the provisions of s. 194-I and decision of Calcutta High Court in the case of Smt. Bishaka Sarkar vs. Union of India (1996) 134 CTR (Cal) 558 : (1996) 219 ITR 327 (Cal) and decision of Andhra Pradesh High Court in the case of Krishna Oberoi vs. Union of India (2002) 176 CTR (AP) 543 : (2002) 257 ITR 105 (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount cannot be again recovered from the assessee as per clear judicial views available on the subject as are cited by the assessee before him because same would amount to double taxation. The appeals of the assessee were accordingly partly allowed. 11. Learned counsel for assessee did not press ground No. 3 in all the appeals of the assessee. The same are therefore, dismissed. Now, we take up the remaining grounds in both the appeals for disposal of the appeals as under: Departmental appeals-IT Appeal Nos. 176 to 178/Ind/2005 12. In all the Departmental appeals, the Revenue has taken argumentative grounds of appeals. Learned Departmental Representative submitted that no evidence has been furnished to substantiate that tax on the related income covered by s. 194-I has been paid by M/s Ramco Ind. Ltd. Learned Departmental Representative submitted that certain expenses. etc. have been claimed by M/s Ramco Ind. Ltd., therefore, learned CIT(A) was not justified in holding that taxes have been paid by recipient/payee M/s Ramco Ind. Ltd. Learned Departmental Representative further submitted that no evidence has been filed to prove that taxes are paid and that learned CIT(A) wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, cannot be treated to pay tax under s. 201 for non-deduction of TDS. He has relied upon decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. vs. CIT (2007) 211 CTR (SC) 545 : (2007) 293 ITR 226 (SC) in which Hon'ble Supreme Court held without deciding the question whether the Tribunal could have reopened the appeal for rectifying an error apparent on the record, that, in view of Circular No. 275/201/95-IT(B), dt. January, 1997, and since the assessee had paid the interest under s. 201 (IA) and there was no dispute that the tax due had been paid by the deductee (Pradeep Oil), the Tribunal came to the right conclusion that the tax could not be recovered once again from the assessee. He has also relied upon decision of Rajasthan High Court in the case of CIT vs. Rathi Gum Industries (1995) 127 CTR (Raj) 413 : (1995) 213 ITR 98 (Raj) in which, it was held if the taxes have already been paid by the recipient on such income, the IT Department may not be justified to recover the said amount of the tax, but so far as the liability of interest is concerned, that cannot be considered to be non-existent on account of deposit of tax by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the learned CIT(A). The Departmental appeals fall and are accordingly dismissed. Assessee's appeals-ITA Nos. 115 to 117/Ind/2005 16. On ground No. 1 in all the appeals of the assessee. the assessee challenged the order of the learned CIT(A) in upholding that provisions of s. 194-I of the IT Act are applicable to the amount of licence fees paid/payable to M/s Ramco Ind. Ltd. for utilization of its production facilities. 17. Learned counsel for assessee reiterated the submissions made before authorities below and referred to pp. 1 to 12 of the paper book, which is licence agreement and also referred to pp. 13 to 140 which are details of the plant and machinery given on licence to the assessee. Paper book 143 is the details of the residential quarters handed over to the assessee. He has referred to p. 8 of the written submissions on CBDT Circular No. 736, dt. 13th Feb., 1996 clarifying that in respect of sharing of proceeds of film exhibition between a film distributor and a film exhibitor owning a cinema theatre, the provisions of s. 194-I do not attract because the exhibitor does not let out the cinema hall to the distributor. He has submitted that building and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that provisions of s. 194-I are not applicable. Learned Departmental Representative submitted that entire factory building and plant and machinery were given to the assessee therefore, it was a composite agreement to give the entire land and building in question along with right to manufacture therefore, the case of the assessee would fall under s. 194-I of the IT Act. 19. We have considered rival submissions and material available on record. Sec. 194-I of the IT Act provides- Any person, not being an individual or an HUF, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, (deduct income-tax thereon at the rate of- (a) fifteen per cent if the payee is an individual or an HUF; and (b) twenty per cent in other cases: Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire facility including land and building including factory building and furniture and fittings and plant and machinery. The agreement in question is therefore, composite agreement for the whole factory building including plant and machinery and residential quarters and the consideration paid is for the entire factory building including plant and machinery. The assessee has not clarified as to how it can use effectively the plant and machinery without using the factory building. The details of gross block of fixed assets on 31st March, 2003 as filed at paper book-A/13 show that the total gross value of land. building and plant and machinery was Rs. 9,35,08,298 out of which, the value of plant and machinery is Rs. 6,94,04,216. It would therefore, prove that the value of land and building, furniture, fittings, including factory building was also having substantial value which cannot be given to the assessee without any consideration for use and occupation. Schedule A attached with the agreement also prescribed that entire factory building of pipe plant excluding warehouse has been handed over by M/s RIL to M/s KSGML. This would also support the findings of the authorities below tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or arrangement for the use of any land or building, etc. It was further held that the assessee was engaged in running of five star hotel and customers are provided furnished rooms and other facilities for consideration which is known as room charges. However, certain companies entered into agreement to utilize hotel services for accommodating their officials and lesser amount is charged. In that context, the petitioner approached the corporate customers requesting them not to deduct TDS under s. 194-I. It was therefore, held that the charges paid to the petitioner by its customers for use and occupation of hotel rooms should be regarded as rent within the meaning of s. 194-I. Learned CIT(A) also noted that after this decision the Board clarified that so long as the accommodation has been taken on regular basis in a hotel, the same would be subjected to TDS. The findings of learned CIT(A) based upon on these decisions have not been contradicted through any material on record. The same would therefore, support the findings of the AO. 21. Learned counsel for assessee relied upon order in the case of National Panasonic India (P) Ltd. in which, the payment to C F agents was not a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt received in the nature of income from the tax deductor, thereafter such amount is so appropriated by the Department by passing the order. Since learned CIT(A) already held that taxes have already been paid by the payee M/s Ramco Ind. Ltd., therefore, AO was directed to recalculate interest under s. 201(1A) with reference to the terminal date of processing of return under s. 143(1)/regular assessment order under s. 143(3), whichever is earlier, in the case of M/s Ramco Ind. Ltd. 24. Learned counsel for assessee reiterated the submissions made before authorities below and submitted that this finding of the learned CIT(A) is not in accordance, with law. He has submitted that though interest is mandatory and compensatory in nature, however, the table given and certificate by M/s Ramco Ind. Ltd. at paper book 145 proves that recipient has taken into consideration the licence fees in determination and payment of advance taxes. The shortfall was below 10 per cent on which, self-assessment taxes and interest have been paid on quarterly basis. He has submitted that there was thus no loss of interest to the Revenue therefore, interest cannot be calculated upto terminal date of processi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the return, it will be clear that recipient has paid the tax. Learned CIT(A) has failed to note that as per s. 201(1A), the interest could be levied on the amount of such taxes from the date on which such tax was deductible to the date on which such tax is actually paid. Since the assessee filed all the relevant papers to show that taxes have been paid on time by M/s Ramco Ind. Ltd. therefore, the decision in the case of Rajasthan Rajya Vidyut Prasaran Nigam Ltd. is clearly applicable to support the contention of the assessee. However, we find that neither the AO nor the learned CIT(A) has given any finding as to when the taxes have been paid by M/s Ramco Ind. Ltd. therefore, it would be appropriate to restore the matter to the AO to verify the dates of payments before charging or calculating any interest in the matter because it is definite that the recipient has already paid tax. We accordingly set aside the orders of authorities below and restore this issue to the file of AO with direction to verify the dates of payments of taxes and pass appropriate reasoned order in the light of the findings given in this order. The AO shall give reasonable sufficient opportunity of being ..... X X X X Extracts X X X X X X X X Extracts X X X X
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