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2015 (11) TMI 932 - DELHI HIGH COURT

2015 (11) TMI 932 - DELHI HIGH COURT - TMI - TDS under Section 194H - fee for services rendered - disallowance under Section 40(a)(ia) - Held that:- ITAT examined the nature of the MoU between Finian and VEEPL with particular reference to the clauses therein and concluded that Finian was transacting with VEEPL "on a principal to principal basis" and that it could not be said that the payment to VEEPL was for rendering services. Consequently, it was held that Section 194H of the Act was "not at a .....

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h payment was not a fair compensation.

Payment made to VEEPL which was corrected as ₹ 1,24,33,326. It was held that "this amount is related to payment of service charge for effecting consolidation of land and is a revenue expense to (be) separately debited to the Profit & Loss account."

With the Revenue having accepted the decision of the ITAT in the case of Finian, and with the Revenue being unable to bring out any distinguishing feature as far as the case of PBDPL, .....

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2th April 2013 passed by the Income Tax Appellate Tribunal ('ITAT') in ITA No. 1429/Del/2011 for Assessment Year ('AY') 2007-08. That order is common to two appeals before the ITAT - one appeal was by Zebian Real Estate Pvt. Ltd. ('ZREPL') (in respect of which the appeal has been filed by the Revenue in this Court) and the other by Zanobi Builders & Constructions Pvt. Ltd. ('ZBCPL'). As noticed by this Court in its order dated 20th October 2015, no appeal has .....

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of one of the Assessees i.e. ZREPL. 3. In ITA No. 257 of 2015, the question sought to be urged by the Revenue is whether the ITAT has erred in holding that ZREPL was not required to deduct tax at source under Section 194H of the Income Tax Act, 1961 ('Act') with regard to the payment made by it to Vikram Electric Equipment Pvt. Ltd. ('VEEPL') and in deleting the proportionate disallowance of the amount ordered by the Assessing Officer ('AO'), as confirmed by the Commissio .....

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of the Act and that in any event there should have been a deduction of tax at source while making the said payment under Section 194H of the Act. 5. The common feature in both orders of the ITAT i.e. the order dated 12th April 2013 in ITA No.1429/Del/2011 (Zebian Real Estate Pvt. Ltd. v. CIT) and the order dated 17th October 2014 in ITA No.1951/Del/2011 (Penthea Builders & Developers Pvt. Ltd. v. CIT) is that the ITAT has while allowing the appeals of the Assessees relied upon its earlier o .....

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was dismissed by this Court on 26th August 2015 in terms of the Court's decision dated 15th July 2015 in ITA No. 627 of 2012 and ITA No. 507 of 2013 (CIT v. DLF Commercial Project Corporation). As a result, the decision of the ITAT in ITO v. Finian Estates Developers P. Ltd., including its decision on the payment to VEEPL attained finality. 7. Nevertheless, the attempt by the Revenue in both these appeals is to show that the facts of the present cases are different from the facts in ITO v. F .....

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sessment proceedings in that case. The Court has also examined the Memorandum of Understanding ('MoU') entered into between Finian Estates Developers (P). Ltd. and VEEPL as well as MoUs entered into separately between ZREPL and PBDPL with VEEPL. 9. It may briefly be noted that both ZREPL and PBDPL are in the business of acquiring and developing land. They entered into separate development agreements with M/s. DLF Commercial Projects Corporation Ltd. ('DLF'), described as the ' .....

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by way of commission would be made to VEEPL only after it was able to acquire at least 27 acres of land. 10. One of the issues that arose even in the case of Finian Estates Developer (P) Ltd. ('Finian') was the nature of the payments made to VEEPL and whether it is a fee for services rendered which required deduction of tax at source. That question was decided against Finian both by the AO and the CIT (A). The appeal by Finian before the ITAT on the said aspect being ITA No. 1953/Del/201 .....

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nature of the MoU between Finian and VEEPL with particular reference to the clauses therein and concluded that Finian was transacting with VEEPL "on a principal to principal basis" and that it could not be said that the payment to VEEPL was for rendering services. Consequently, it was held that Section 194H of the Act was "not at all applicable". The ITAT noted that in terms of Clause 3.2 of the MoU no sum was due to be paid to VEEPL for the services rendered by it till it p .....

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ion of the ITAT on the above aspect in the case of Finian. 13. Turning to ITA No. 257 of 2015 filed by the Revenue in the case of ZREPL one of the pleas urged is that although the Consolidator VEEPL was same in both cases, the terms and conditions in the MoU with the 'acquirer' were different. It is submitted that while in the case of Finian the Consolidator invested its own funds for purchasing the land for the 'acquirer' in the present case of ZREPL the acquirer paid from its o .....

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d with there being nothing to distinguish it in relation to the case of ZREPL, the Court is not inclined to interfere with the impugned order of the ITAT which, in the opinion of the Court, has rightly relied upon its earlier decision in the case of Finian. 14. Turning to ITA No. 270 of 2015 being the Revenue's appeal in the case of PBDPL, an earnest effort was made by Mr. N.P. Sahni, learned Senior Standing counsel for the Revenue, to show that in the assessment proceedings before the AO th .....

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Pvt. Ltd. which is covered under the provision of Section 40(a) (ia) of the Act." The AO in the assessment order did make a reference to the figure of purchase of lands having been inflated by the Assessee by a sum of ₹ 4,20,15,681 being the amount paid to VEEPL. This was disallowed since according to the AO any payment whatsoever made to VEEPL would accrue only when 27 acres of land would be acquired. The AO correspondingly reduced the value of the closing stock by the said sum. Whe .....

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