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TMI Blog2012 (7) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... e of a notice u/s 143(2) of the Act issued on 16.09.2008. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee paid a commission of `Rs. 3,60,000/- to his wife Smt. Manisha Kalra; Rs. 7,78,506/- to M/s Star Enterprises and `Rs. 8,25,352/- for the shop at Saket. To a query by the AO, the assessee replied that the aforesaid payment is on account of rent commission on which tax was deducted at source and deposited to the credit of the Government. However, while referring to the profit and loss account, the AO pointed out that the assessee debited shop rent for only two shops at Pacific Mall & Rajouri Garden at Rs. 4,69,120/- & Rs. 13,20,000/- respectively while in respect of other shops at Greater Kailash-1, Saket, Noida and Shahadra, the assessee did not debit any rent. Instead the rental payment has been disguised as rent commission. While rejecting the contentions of the assessee that payment was actually commission , the AO treated the payment as rent and concluded that the assessee was required to deduct tax at source @15% as envisaged u/s 194I of the Act and not @5% in terms of provisions of section 194- H of the Act. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y bonafide belief under that section had paid the tax to the department, it cannot be said that the appellant had violated the provisions of section 40(a)(ia). As explained in the explanatory memo to Finance Bill No.2 of (2004), the purpose of the above provisions was to augment TDS compliance and not to decide the liability or otherwise of prudent business expenditure. The Hon'ble Delhi High Court in the case of CIT Vs. NIIT Ltd. (2009) 184 Taxman 472 (Delhi) had held that whether on facts, the agreement between the parties was a franchisee agreement and not a lease agreement and it could not be said that rent was being paid by the assessee to franchisees, the appellant was not liable to deduct tax u/s 194-I in respect of amount shared by it and remitted to franchisees. 5.5 I find that while ascertaining the facts, the learned AO has not given due credence to the agreement signed by the appellant with the three franchisees. The Assessing Officer has given an unsubstantiated finding that the appellant had disguised the rental payment as commission expenses. However, on careful perusal of three franchisees, I find that the above arrangement was not in the nature of lease of propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. The payment was actually for use of the premises for the assessee's business. While referring to decision in Liberty Sales Service Vs. Jakki Mull and Sons 66 (1997) DLT 506, the ld.AR vehemently argued that agreements were franchise for selling the goods traded in by the assessee and nowhere the control and possession of the premises passed on to the assessee; the agreement was for pooling of joint resources. In this connection, the ld. AR also referred to decisions in CIT vs. Career Launcher India Ltd. in ITA no.939/2010(Del.); M/s Hughes Escort Communications Ltd. Vs. DCIT in I.T.A. No.752/D/05& CIT vs. NIIT Ltd.,318 ITR289(Del.). While referring to decision in CIT Vs. Kotak Securities Ltd. (2011) 245 CTR 3 (Bom.) , the ld. AR further pointed out that the assessee was under the bonafide belief that tax was required to be deducted at source in terms of provisions of section 194-H and not sec.194-I of the Act. The ld. AR further argued that since tax had been deducted at source, but under a different provision according to the Revenue, provisions of sec. 40a(ia) of the Act are not attracted in such a situation, as held in DCIT vs.S.K.Tekriwal,48SOT 515(Cal.) & DCIT vs. Chandabh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shop is to be borne by the second party i.e. the franchisee himself. 6.1 As regards agreement with Mr. Mahesh Garg exceuted on 17.3.2006, in order to run retail outlet in the name of '1961'in the commercially licensed property at GF-8,Anupam Shopping Arcade,PVR Saket,New Delhi ,occupied by shri Garg, the assessee approached the said person. Clause 1 of the agreement envisages permission of shri Mahesh Garg, to allow the assessee to set up the outlet; clause 2 stipulates that trademark'1961' shall remain the exclusive property of the assessee. Shri Garg shall not do any business of sun glass boutique for next six years after termination of the agreement as per clause 3 while clause 4 stipulates that the agreement shall be for 3+3+3 years, renewable thereafter on mutually agreed terms; clause 5 envisages that cost of running, operation and maintenance of outlet shall be met by the assessee while shri Garg shall remain exclusive owner and in possession of the licensed premises, as per clause 7;clause 8 envisages payment of Rs. 66,850/- plus applicable taxes or 12% of the turnover, whichever is higher as franchisee commission to Shri Garg while clause 9 stipulates that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt applicable in the year under consideration, until the writing of this order. In these circumstances, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the issue in relation to disallowance attributable to payment to Mrs. Manisha Garg, afresh, in accordance with law, after ascertaining as to whether or not agreement with Mrs. Manisha Garg was renewed and of course after allowing sufficient opportunity to both the parties. . Needless to say that while redeciding the appeal, the ld. CIT(A) shall pass a speaking order, bringing out clearly as to whether the renewed agreement , if any, is franchise agreement or tenancy agreement . 6.3 In view of the foregoing, as is evident from the various clauses of the agreement with shri Mahesh Garg ,he is the exclusive owner and in possession of the property while shri Sidharth Jatia is required to arrange for the shop and pay rent. Nowhere from these two agreements emerges that the assessee is in possession of the premises utilized for carrying on the business. If the assessee was to be tenant, then Revenue must first prove that the assessee is in exclusive possession o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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