Zebian Real Estate Pvt Ltd v ITO,
Business expenditure —
Consolidation charges — Allowability — Tax deduction at source —
Applicability of s 194H — Assessee was engaged in business of real
estate and other allied activities — Assessee filed belated return
claiming loss — Assessment completed, disallowing carry-forward of loss
and adding payment of consolidation charges made by assessee without
deducting TDS — CIT(A) confirmed addition
stating that assessee paid
charges to consolidator for transfer of rights and that consolidator was
working as agent to assessee hence TDS ought to have been deducted
under s 194 — Held, in facts of case Finian Estates Developers (P) Ltd
142 TTJ 545 (Del), it was held that MOU between assessee and
consolidator made it clear that consolidator or its agent agreed to
assign their rights to purchase land in favour of assessee — Above
clause also made it evident that unless assessee decided to procure less
than 27 acres of land through consolidator, consolidator, was to
procure 27 acres of land for assessee, failing which, no payment was to
be made by assessee to consolidator — This clearly showed that
consolidator was transacting on principal to principal basis and it
could not be said that payment was made by assessee to consolidator for
rendering of any service — Provisions of s 194H were, therefore, not at
all applicable — Moreover, amount paid to consolidator was duly
reflected by assessee in purchases closing stock — No sales had been
made during year under consideration — It had not been shown to be
otherwise — Therefore, no disallowance was called for — Provisions of s
40(a)(ia) in any case do not apply, assessee having not claimed any
deduction for any expenses on account of payment to consolidator, either
in its profit and loss account or in computation of taxable income
filed — It was found that facts in present case were in pari materia
with those in Finian Estates — Thus, finding of CIT(A) to effect that
relationship between assessee-company and consolidator was that of
principal and agent and not of principal and principal, was not found to
be correct — Since no sales were made, no disallowance was called for —
Assessee's appeals accepted.