PRADEEP PARIKH, A.M.: All these four appeals are by Department for financial years 1994-95 n d 1995-96. ITA Nos. 4009 and 4011/Del/2004 are in respect of order under s. 201(1) of IT Act, 1961 (the Act). ITA Nos. 4008 and 4010/Del/2004 are in respect of orders under s. 201(1A) of Act. Since common issue is involved in all four appeals, we find it convenient to dispose all of them together by this combined order. In appeals relating to orders under s. 201(1) of Act, following two grounds have been raised: "1. On facts and in circumstances of case, learned CIT(A) h s erred in holding that reasons advanced by appellant for not deducting tax at source appeared bona fide. On facts and in circumstances of case, learned CIT(A) has erred in deciding that demand raised against appellant on account of non-deduction of tax at source will stand deleted if payments made by appellant to hotel have been included by hotel in its income disclosed to Department and advance-tax has been paid thereon and are found verifiable by Asstt. CIT TDS". In appeals relating to under s. 201(1A) of Act, following two grounds have been raised: "1. On facts and in circumstances of case, learned CIT(A) has erred in holding that non-deduction of tax at source on payments made by appellant to hotel for accommodation of its crew members was under bona fide belief and in deleting interest charged under s. 201(1A) of IT Act. On facts and in circumstances of case, learned CIT(A) has erred in deleting interest charged under s. 201(1A) of IT Act, when relief allowed in quantum appeal is subject to verification by Asstt. CIT TDS." It was observed by AO that assessee had arrangement with hotels for accommodation of its crew members. He referred to provisions of s. 194-I and was of view that assessee was required to deduct tax at source from rent paid to hotels. He also drew support from Board's Circular No. 715, dt. 8th Aug., 1995, wherein in reply to question No. 20, it was clarified that payments made for hotel accommodation taken on regular basis will be in nature of rent subject to TDS under s. 194-I of Act. assessee, not having deducted tax at source, was accordingly held to be assessee in default and demand for short deduction was raised for both years. Such demand for financial year 1994-95 amounted to Rs. 58,12,114 and for financial year 1995-96, it amounted to Rs. 96,97,823. Simultaneously, demand for interest under s. 201(1A) was also raised which amounted to Rs. 14,53,015 and Rs. 9,69,780, respectively. CIT(A) observed that Bombay High Court had granted interim stay in case of East India Hotels staying recovery of demand raised under similar circumstances. He further observed that assessee had raised specific query in writing before Asstt. CIT-TDS in this regard and for which no reply was forthcoming. According to CIT(A), these circumstances indicated that there was k possibility that tax was not required to be deducted in respect of payments made to hotels under s. 194-I of Act. Further, once assessee came to know of Departmental view on subject, it immediately started deducting and paying tax. Thus, on this ground CIT(A) held that assessee could be said to be under bona fide belief and hence no demand should be raised against it. He also directed AO to verify whether payee had paid advance-tax on its income or not and if so, demand raised against assessee should be deleted. first contention of learned Departmental Representative was that from financial year 1997-98, assessee has started deducting tax under s. 194-I and has paid tax also. Thus, contention was that legal position has been accepted by assessee itself which otherwise is also very clear from t h e provisions of s. 194-I and of Explanation thereto. learned Departmental Representative also referred to Circular No. 715, dt. 8th Aug., 1995 [reported at (1995) 127 CTR (St) 13], to contend that if rooms in hotel are taken on regular basis, provisions of s. 194-I will get attracted. He assailed order of CIT(A) by stating that plea of bona fide belief cannot be accepted because assessee is multi-national company assisted by battery of legal luminaries. Thus, he kly supported orders of AO. learned counsel for assessee, at outset, drew our attention to Board's Circular No. 5, dt. 30th July, 2002 [reported at (2002) 176 CTR (St) 29]. In particular, he referred to para 3 of circular which is reproduced below: "3. However, often, there are instances where corporate employers, tour operators and travel agents enter into agreements with hotels with view to merely fix room tariffs of hotel rooms for their executives/guests/customers. Such agreements, usually entered into for lower tariff rates, are in nature of rate contract agreements. rate-contract, therefore, may be said to be contract for providing specified types of hotel rooms at pre-determined rates during agreed period. Where agreement is merely in nature of rate contract, it cannot be said to be accommodation taken on regular basis , as there is no obligation on part of hotel to provide room or specified set of rooms. occupancy in such cases would be occasional or casual. In other words, rate contract is different for reason from other agreements, where rooms are taken on regular basis. Consequently, provisions of s. 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreements". In this connection, it was contended by him that same plea had been taken before CIT(A) also and CIT(A) had decided appeal in favour of assessee after taking into consideration this plea. With regard to bona fides of assessee, it was submitted that in present appeals, financial years 1994-95 and 1995-96 are involved. first clarification from Board in form of Circular No. 715 came on 8th Aug., 1995. Therefore, for financial year 1994-95, there was no clarification available at all. Not only that, assessee itself sought clarification from Department and immediately on getting clarification, assessee started deducting tax at source. It was also pointed out that whereas first clarification from Board was in August, 1995, assessee had sought clarification prior to that vide its letter dt. 14th July, 1995. clarification in connection with rate contract came as late as in 2002. Referring to stay that was granted in many cases and in view of above submissions, it was vehemently argued that assessee was certainly under bona fide belief that it was not required to deduct tax at source from payments made to hotels. We have duly considered rival contentions and material on record. I n first ground, Department has challenged decision of CIT(A) holding that assessee was under bona fide belief in not deducting tax at source from payments made to hotels. We now proceed to examine this aspect of matter. provisions of s. 194-I were inserted by Finance Act, 1994, w.e.f. 1st June, 1994. Two appeals out of present four appeals before us pertain to financial year 1994-95. remaining two appeals pertain to financial year 1995-96. Thus, atleast for part of one of years before us, provision was not in existence at all. It also means that for one of years, it was first year of operation for provisions of s. 194-I. It needs to be appreciated that when provision is inserted for first time in statute book, confusion generally prevails about its applicability. It takes quite some time for dust to settle down and as Board starts receiving feed back and queries from various quarters, it starts issuing clarifications. One of earliest judgments on s. 194-I is that of Calcutta High Court in case of Smt. Bishaka Sarkar vs. Union of India & Ors. (1996) 134 CTR (Cal) 558: (1996) 219 ITR 327 (Cal). In this judgment, High Court observed that definition for purpose of this Act of nomenclature rent as expounded in Explanation column of sections itself, amply reveals that same is projected as generic term which includes within ambit of payment made on whatsoever account for occupation of tenanted portion. After taking into account definition of rent, it apparently appears to be composite concept. Once rent is comprehended as composite concept then it is not capable of being fragmented. moment any attempt will be made to have germane expression fragmented by splitting up amount covered by rent, it will cease to be rent and same will not satisfy test of definition. This exposition by Hon'ble High Court is capable of triggering chain of thoughts relating to various facets and fall outs of new provision. first thought which may occur is whether provision envisages situation where there is no landlord-tenant relationship, as in case of hotel, guest staying in hotel is not tenant but customer of hotel. Secondly, thought may occur as to whether payment made by guest is for use of any land or building or is he paying merely for services obtained from hotel including lodging services. At times, payment made by guest may be composite payment for room as well as other services. In that case, bifurcation of payment between two may be difficult and observations of Calcutta High Court in judgment cited supra will apply with full force. point we are trying to drive home is that when s. 194-I was introduced for first time, it was not envisaged that it would cover payments as room rent to hotels also till contemporaneous exposition was brought out by Board in form of Circular No. 715 on 8th Aug., 1995. question we pose to ourselves is whether one could have envisaged such broad interpretation for new provision. In our opinion, certainly not. Further, despite this fluid situation of law, assessee before us sought clarification from Department even before first circular was issued by Board. In our considered view, these circumstances are enough to prove bona fides of assessee. law is not static and can certainly not remain so. Development of law is continuous process and its interpretation also keeps on changing as situations keep on changing. This principle is enshrined in doctrine of "updated construction". This explains that even eight years after insertion of s. 194-I, Board had to come out with further clarification by way of Circular No. 5, dt. 30th July, 2002, to explain that where agreements with hotels are entered into with view to merely fix room tariff, they would be considered as rate contract agreements and s. 194-I would not apply. In fact, in present appeals, this was one of contentions of assessee before CIT(A) also. Of course, CIT(A) has not given categorical finding to this effect, nonetheless, we are more concerned with bona fides of assessee before us which we kly feel, were there. Accordingly, first ground of Department stands rejected. Sec. 191 of Act provides that where tax has not been deducted at source, income-tax shall be payable by assessee direct. Till insertion of Explanation in s. 191, Department could not proceed to recover short deduction of tax from payer of income. However, after insertion of Explanation to s. 191, this hurdle has been removed whereby Department can proceed to recover short deduction of tax from payer. However, as per said Explanation, only that part of tax can be recovered from payer which has not been paid by assessee direct. In other words, if payer has not deducted any tax or has made short deduction of tax, but deductee has paid entire tax, then no recovery can be made from deductor. It is in view of this provision that CIT(A) issued directions to AO to verify whether ITC Ltd. (the deductee in this case) has paid advance-tax on income received by it from assessee. direction of CIT(A) being in accordance with law, we see no infirmity in it and Department should not have any grievance about it. Therefore, this ground also has no force. When assessee is held by us not to be in default for not deducting tax at source, question of recovery of interest under s. 201(1A) also does not arise and hence same is rightly deleted by CIT(A). In result, all appeals of Department are dismissed. *** ASSISTANT COMMISSIONER OF INCOME TAX v. BRITISH AIRWAYS