Assistant Commissioner of Income-tax, Circle 22(1) v. British Airways
[Citation -2005-LL-0429-17]

Citation 2005-LL-0429-17
Appellant Name Assistant Commissioner of Income-tax, Circle 22(1)
Respondent Name British Airways
Court ITAT-Delhi
Relevant Act Income-tax
Date of Order 29/04/2005
Assessment Year 1994-95 , 1995-96.
Judgment View Judgment
Keyword Tags deduction of tax at source • non-deduction of tax • deduct tax at source • bona fide belief • quantum appeal • interim stay
Bot Summary: CIT- TDS. 4.It was observed by the AO that the assessee hadarrangement with hotels for the accommodation of its crew members. The assessee, not having deducted the taxat source, was accordingly held to be an assessee in default and a demand forshort deduction was raised for both the years. 6.Thefirst contention of the learned Departmental Representative was that fromfinancial year 1997-98, the assessee has started deducting tax under section194-I and has paid the tax also. With regard to the bona fides of the assessee, it was submitted that in thepresent appeals, financial years 1994-95 and 1995-96 are involved. Referring to the stay that was granted inmany cases and in view of the above submissions, it was vehemently argued thatthe assessee was certainly under a bona fide belief that it was not required todeduct tax at source from the payments made to hotels. In the first ground, the Department has challenged thedecision of the CIT(A) holding that the assessee wasunder a bona fide belief in not deducting the tax at source from the paymentsmade to hotels. 9.Section 191 of the Act provides that where tax has notbeen deducted at source, income-tax shall be payable by the assessee direct.


ITAT DELHI BENCH B ASSISTANT COMMISSIONER OF v. BRITISH AIRWAYS INCOME TAX, CIRCLE 22(1) April 29, 2005 JUDGMENT PRADEEPPARIKH, AM. -All these four appeals are by theDepartment for financial years 1994-95 and 1995-96. ITA Nos. 4009 and4011/Del./2004 are in respect of order under section 201(1) of IT Act,1961 (the Act). ITA Nos. 4008 and 4010/Del./2004 are in respect of orders undersection 201(1A) of Act. Since common issue is involved in all fourappeals, we find it convenient to dispose all of them together by this combinedorder. 2.In appeals relating to orders under section 201(1) of Act, thefollowing two grounds have been raised: "1.Onthe facts and in circumstances of case, learned CIT(A) has erred inholding that reasons advanced by appellant for not deducting tax atsource appeared bona fide. Onthe facts and in circumstances of case, learned CIT(A)has erred in deciding that demand raised against appellant on accountof non- deduction of tax at source will stand deleted if payments made by theappellant to hotel have been included by hotel in its income disclosedto Department and advance-tax has been paid thereon and are foundverifiable by Asstt. CIT-TDS". 3.In appeals relating to under section 2O1(1A) of Act,the following two grounds have been raised: "1.On facts and in circumstances of case, learned CIT(A) has erredin holding that non-deduction of tax at source on payments made by theappellant to hotel for accommodation of its crew members was under bonaMe belief and in deleting interest charged under section 2O1(1A) of IT Act. 2.On facts and in circumstances of case, learned CIT(A) has erredin deleting interest charged under section 2O1(1A) of IT Act, when therelief allowed in quantum appeal is subject to verification by Asstt. CIT- TDS." 4.It was observed by AO that assessee hadarrangement with hotels for accommodation of its crew members. He referredto provisions of section 194-I and was of view that assessee wasrequired to deduct tax at source from rent paid to hotels. He also drewsupport from Board's Circular No. 715, dated 8th Aug., 1995, wherein inreply to question No. 20, it was clarified that payments made for hotelaccommodation taken on regular basis will be in nature of rent subject toTDS under section 194-I of Act. assessee, not having deducted taxat source, was accordingly held to be assessee in default and demand forshort deduction was raised for both years. Such demand for financial year1994-95 amounted to Rs. 58,12,114 and for financialyear 1995-96, it amounted to Rs. 96,97,823. Simultaneously, demand for interestunder section 201(1A) was also raised which amounted to Rs. 14,53,015 and Rs.9,69,780, respectively. 5.The CIT(A) observed that Bombay High Court had grantedan interim stay in case of East India Hotels staying recovery of demandraised under similar circumstances. He further observed that assessee hadraised specific query in writing before Asstt. CIT-TDSin this regard and for which no reply was forthcoming. According to CIT(A), these circumstances indicated that there was ak possibility that tax was not required to be deducted in respect ofpayments made to hotels under section 194-I of Act. Further, once theassessee came to know of Departmental view on subject, it immediatelystarted deducting and paying tax. Thus, on this ground CIT(A) held that assessee could be said to be under abona fide belief and hence no demand should be raised against it. He alsodirected AO to verify whether payee had paid advance-tax on itsincome or not and if so, demand raised against assessee should bedeleted. 6.Thefirst contention of learned Departmental Representative was that fromfinancial year 1997-98, assessee has started deducting tax under section194-I and has paid tax also. Thus, contention was that legalposition has been accepted by assessee itself which otherwise is also very clearfrom provisions of section 194-I and of Explanation thereto. Thelearned Departmental Representative also referred to Circular No. 715, dated8th Aug., 1995 [reported at (1995) 127 CTR (St) 13], to contend that if therooms in hotel are taken on regular basis, provisions of section 194-I willget attracted. He assailed order of CIT(A) bystating that plea of bona fide belief cannot be accepted because theassessee is multi-national company assisted by battery of legal luminaries.Thus, he kly supported orders of AO. 7.The learned counsel for assessee, at outset, drewour attention to Board's Circular No. 5, dated 30th July, 2002 [reported at(2002) 176 CTR (St) 29]. In particular, he referred to para 3 of circularwhich is reproduced below: "3.However, often, there are instances where corporate employers, tour operatorsand travel agents enter into agreements with hotels with view to merely fixthe room tariffs of hotel rooms for their executives/guests/customers. Suchagreements, usually entered into for lower tariff rates, are in nature ofrate contract agreements. rate-contract, therefore, may be said to be acontract for providing specified types of hotel rooms at pre-determined ratesduring agreed period. Where agreement is merely in nature of ratecontract, it cannot be said to be accommodation 'taken on regular basis', asthere is no obligation on part of hotel to provide room or specifiedset of rooms. occupancy in such cases would be occasional or casual. Inother words, rate contract is different for reason from other agreements,where rooms are taken on regular basis. Consequently, provisions of section194-I while applying to hotel accommodation taken on regular basis would notapply to rate contract agreements." Inthis connection, it was contended by him that same plea had been takenbefore CIT(A) also and CIT(A) had decided theappeal in favour of assessee after taking into consideration this plea.With regard to bona fides of assessee, it was submitted that in thepresent appeals, financial years 1994-95 and 1995-96 are involved. firstclarification from Board in form of Circular No. 715 came on 8th Aug.,1995. Therefore, for financial year 1994-95, there was no clarificationavailable at all. Not only that, assessee itself soughtclarification from Department and immediately on getting clarification,the assessee started deducting tax at source. Itwas also pointed out that whereas first clarification from Board was inAugust, 1995, assessee had sought clarification prior to that vide itsletter dated 14th July, 1995. clarification in connection with ratecontract came as late as in 2002. Referring to stay that was granted inmany cases and in view of above submissions, it was vehemently argued thatthe assessee was certainly under bona fide belief that it was not required todeduct tax at source from payments made to hotels. 8.We have duly considered rival contentions and thematerial on record. In first ground, Department has challenged thedecision of CIT(A) holding that assessee wasunder bona fide belief in not deducting tax at source from paymentsmade to hotels. We now proceed to examine this aspect of matter. Theprovisions of section 194-I were inserted by Finance Act, 1994, w.e.f. 1stJune, 1994. Two appeals out of present four appeals before us pertain tofinancial year 1994-95. remaining two appeals pertain to financial year1995-96. Thus, atleast for part of one of years before us, provisionwas not in existence at all. It also means that for one of years, it wasthe first year of operation for provisions of section 194-I.It needs to beappreciated that when provision is inserted for first time in statutebook, confusion generally prevails about its applicability. It takes quite sometime for dust to settle down and as Board starts receiving feed backand queries from various quarters, it starts issuing clarifications. One of theearliest judgments on section 194-I is that of Calcutta High Court in thecase of Smt. Bishaka Sarkar v. Union of India & Ors. (1996) 134 CTR (Cal.) 558: (1996) 219 TTR 327 (Cal.). In this judgment, HighCourt observed that definition for purpose of this Act of thenomenclature rent as expounded in Explanation column of sectionsitself, amply reveals that same is projected as generic term whichincludes within ambit of payment made on whatsoever account for occupationof tenanted portion. After taking into account definition of rent, itapparently appears to be composite concept. Once rent is comprehended as acomposite concept then it is not capable of being fragmented. moment anyattempt will be made to have germane expression fragmented by splitting upthe amount covered by rent, it will cease to be rent and same will notsatisfy test of definition. This exposition by Hon'ble High Courtis capable of triggering chain of thoughts relating to various facets andfall outs of new provision. first thought which may occur is whetherthe provision envisages situation where there is no landlord-tenantrelationship, as in case of hotel, guest staying in hotel is nota tenant but customer of hotel. Secondly, thought may occur as towhether payment made by guest is for use of any land or building oris he paying merely for services obtained from hotel including lodgingservices. At times, payment made by guest may be composite paymentfor room as well as other services. In that case, bifurcation of thepayment between two may be difficult and observations of CalcuttaHigh Court in judgment cited supra will apply with full force. point weare trying to drive home is that when s. 194-1 was introduced for firsttime, it was not envisaged that it would cover payments as room rent to hotelsalso till contemporaneous exposition was brought out by Board in formof Circular No. 715 on 8th Aug., 1995. question we pose to ourselves iswhether one could have envisaged such broad interpretation for newprovision. In our opinion, certainly not. Further,despite this fluid situation of law, assessee before us soughtclarification from Department even before first circular was issued bythe Board. In our considered view, these circumstances are enough to prove thebona fides of assessee. law is not static and can certainly not remainso. Development of law is continuous process and its interpretation alsokeeps on changing as situations keep on changing. This principle is enshrined inthe doctrine of "updated construction". This explains that even eightyears after insertion of section 194-I, Board had to come out with afurther clarification by way of Circular No. 5, dated 30th July, 2002, toexplain that where agreements with hotels are entered into with view tomerely fix room tariff, they would be considered as rate contractagreements and section 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 beforeus which we kly feel, were there. Accordingly, first ground of theDepartment stands rejected. 9.Section 191 of Act provides that where tax has notbeen deducted at source, income-tax shall be payable by assessee direct.Till insertion of Explanation in section 191, Department could notproceed to recover short deduction of tax from payer of income.However, after insertion of Explanation to section 191, this hurdle hasbeen removed whereby Department can proceed to recover short deduction oftax from payer. However, as per said Explanation, only that part of thetax can be recovered from payer which has not been paid by assesseedirect. In other words, if payer has not deducted any tax or has made shortdeduction of tax, but deductee has paid entire tax, then no recovery canbe made from deductor. It is in view of this provision that CIT(A) issued directions to AO to verify whether ITCLtd. (the deductee in this case) has paid advance-tax on income received byit from assessee. direction of CIT(A) beingin accordance with law, we see no infirmity in it and Department should nothave any grievance about it. Therefore, this ground also has no force. When theassessee is held by us not to be in de fault for not deducting tax at source,the question of recovery of interest under section 2O1(1A)also does not arise and hence same is rightly deleted by CIT(A). 10.In result, all appeals of Department aredismissed. *** Assistant Commissioner of Income-tax, Circle 22(1) v. British Airway
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