M/S Lanco Amarkantak Power (P) Ltd.,, ... vs Department Of Income Tax

Dy. Commissioner of Income M/s. Lanco Amarkantak Tax Circle 14(2) Vs. Power (P) Ltd Hyderabad Plot No.4, Software Units Layout, Madhapur, Hyderabad PAN: AACCK 0633 Q (Appellant) (Respondent)

For Revenue: Shri Ramakrishna Bandi, DR For Assessee : Shri S. Rama Rao

Date of Hearing : 17/03/2015 Date of Pronouncement : 20/03/2015

ORDER

Per Smt. Asha Vijayaraghavan, J.M.

This appeal is preferred by the Revenue against the order of

the CIT (A)-V Hyderabad dated 31.01.2014 passed for A.Y 2006-

07.

2. Brief facts of the case are that the assessee is a company

incorporated with an object to carry on the business of power

generation and allied activities and it has been in the process of

setting up a Thermal Power Generating Station in Chhattisgarh.

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ITA No.1261 of 2014 Lanco Amarkantak Power Pvt Ltd Hyderabad

The AO found that an amount of Rs.1,23,51,998 is transferred

to capital work-in-progress and is representing payment of

service charges to Chhattisgarh State Industrial Development

Corporation Ltd. According to the AO, the said payment should

have been subjected to deduction of tax at source u/s 194J of

the Act. AO after considering the explanation of the assessee

held that the nature of the payment is Professional fee u/s

194J of the Act, the assessee ought to have deducted TDS

u/s 194J of the Act and since the assessee has not deducted

TDS, the company was treated as assessee in default and

held that out of Rs.1,21,51,998, an amount of Rs.82,00,034

was paid to CSIDC Limited towards service charges for the

F.Y.2005-06 and accordingly the amount of Rs.82,00,034

was considered in the asst. year under consideration and

accordingly calculated TDS u/s 201 (1) and interest u/s 201

(lA) amounting to Rs.12,80,979.

3. Before the ClT (Appeals)-II, Hyderabad, the assessee

submitted the following submissions, which are as under:

The Assessing Officer is the Income-Tax Officer, Ward-14(3), Hyderabad. In all the above cases the only issue is with .regard to deduction of tax in respect of payment of lease rentals and service

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charges to Chhattisgarh State Industrial Development Corporation Ltd. (CSIDC). According to the Assessing Officer, the appellant herein has to deduct tax at source in respect of the payment of lease rentals made to CSIDC. Before the Assessing Officer it was submitted that the CSIDC is collecting lease rentals and the charges on behalf of the government of Chhattisgarh. The agreements were entered into by the Managing Director, CSIDC on behalf of the Governor of Chhattisgarh. A copy each of the agreements entered into dated 03-08-2005, 21-06- 2006 and 09-09-2007 were submitted before the Assessing Officer and copies are submitted before the Hon'ble C1T(A). According to the said agreements, the government of Chhattisgarh allotted Ac.260.92 cents of land at Pathadi village, Korba District of Chhattisgarh for establishing electrical power generation and distribution unit. The ground rent is fixed at Rs. 13,00,732/- for first 30 years; All the agreements are similarly worded. The appellant submitted before the Assessing Officer that the amount is shown separately by the CSIDC as payable to the State government. It can be seen from the final accounts drawn on 31-03-2005 that the amount of lease rents are taken as the revenue receipt and is credited to State government account. Therefore, it is clear that the said lease rentals paid do not relate to the CSIDC but relates to the state government of Chhatisgarh. The said CSIDC collected the amounts as a Trustee for the government. Therefore, the appellant submitted that the provisions of Sec. 194-1 have no application.

The Assessing Officer, however, did not consider the explanation submitted. It is mentioned in the orders passed by him that as the appellant has not deducted tax, the company is treated in default. The Assessing Officer did not consider the fact that the amount was paid to government and no TDS need be made in view of the Sec. 196 of the Act.

It is submitted that for the purpose of establishing the power plant in Chhattisgarh, the lands were to be allotted by the Govt. For this purpose the government allotted its own land, besides acquisition of private

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lands. Compensation is paid towards the allotment all such lands belonging to others by the assessee to the government. The details of the lands acquired by the government from private parties and the land allotted by the government are submitted in an annexure. Wherever the acquisition was made from private parties by the government compensation for acquisition is payable by the government to the private parties. The assessee company reimbursed such compensation to the government besides making payment of compensation for the lands allotted by the government. Such compensation payable is paid by the assessee to the government through CSIDC. The government also incurs expenditure in acquiring the land from the private parties. Such expenditure incurred by the government in the process of acquisition of the lands is reimbursed by the assessee through CSIDC and the said payment is called the service charges. The assessee humbly submits that even the service charges are paid to the government. Further, the amount was not paid for any services rendered to the assessee. It may kindly be seen that the service charges are worked at 10% of the cost of land acquired from private parties. No services charges are paid with regard to the land allotted by the government to the assessee.

The. appellant submits that the service charges are not for rendering any services to the assessee and are paid to government through CSIDC towards expenditure incurred by government in acquiring and developing the land. Therefore, there is no requirement for deduction of tax at source against service charges.

In so far as lease rents are concerned, the same were paid to government.

The appellant submits that the Assessing Officer did not consider the fact whether the provisions of Sec. 194-1 have application to the facts or not. It is submitted that according to Sec. 194-1 any person who is making payment of rent at the time of credit of such income to the account of the payee tax has to be deducted at source. The income of the Chhatisgarh State government is not

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assessable to tax and, therefore, no tax need be deducted at source. According to the provisions of Sec. 196 of the I. T.Act, the provisions of the chapter would not apply to any payments made to the government and, therefore, there is no obligation for the appellant herein to deduct tax at source.

In this view of the matter, the appellant submits that the Assessing Officer is not justified in passing an order treating the appellant as in default and charging interest and the TDS.

In the circumstances, the appellant prays the Hon'ble Commissioner of Income- Tax (Appeals) to kindly cancel the orders passed by the Assessing Officer".

4. The CIT (Appeals)-II, Hyderabad, vide her letter dated 11-2-

2011 had called for a remand report from ITO 14(3)' Hyderabad.

The AO, vide his letter dated 18-5-2011, after perusing Rule 10

of the Chattisgarh Industries (allotment of shed, plots and land)

Rules, 1974, had opined that the services charges collected by

the CSIDC from the assessee was for the acquisition of the

private land/govt. Land. Since the CSIDC was facilitating the

acquisition of the private land/govt. Land from the state govt, the

services are akin to the technical consultancy and the same shall

fall under Explanation of 194J of the Act. The AO stated that

they were not charges of the nature of reimbursement. Further,

CSIDC was independent entity as from that of Govt. Of

Chhattisgarh. On the contention of the assessee that the above

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services charges were shown separately under capital account,

the AO opined that that would not in any way mitigate the

liability of TDS on account of deductor as the deductee i.e.

SCIDC had not offered the above service charges for income as it

was held in the case of 'Hindustan Coca-cola Beverage Ltd vs.

CIT (163 Taxman 355 (SC).

5. Before the CIT (A) the assessee contended that the

payments were made to Chhattisgarh State Industrial

Development Corporation Ltd., on behalf of Government of

Chhattisgarh and such amounts have been credited to the

account of Chhattisgarh State Industrial Development

Corporation Ltd. Therefore, the assessee contended that the

deduction of tax at source u/s 194J need not be effected.

6. The assessee filed a copy of the agreement between the

Assessee company and Government of Chhattisgarh represented

by Chhattisgarh State Industrial Development Corporation Ltd.

The assessee also filed copy of the final accounts of the said

Corporation which shows that the amounts received from the

assessee were credited to the account of the Government. In view

of the above, the assessee pleaded that the payments were made

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to the Government of Chhattisgarh and, therefore, no deduction

of tax at source need be made. Further it is also submitted that

the service charges have become payable in connection with the

acquisition of private land or for allotment of govt. land. It was

submitted that the payment was made purely in connection with

the acquisition of the land and therefore, is not liable for

deduction of tax at source. The alternative submission of the

assessee is that the Chhattisgarh State Industrial Development

Corporation Ltd is assessed to tax and filed its return of income

for the ay 2006-07. Therefore, the order u/s 201(1) is not

justified and interest should be limited to the date of filing of

return of income by the Chhattisgarh State Industrial

Development Corporation Ltd.

7. The ld CIT (A) held that he had verified the record and

found that the amounts were paid towards acquisition of land

which is not governed by the provisions of sec 194J of the Act.

The CIT (A) also found that Chhattisgarh State Industrial

Development Corporation Ltd is the representative on behalf of

the Govt. Of Chhattisgarh and therefore, the provisions of sec

194J are not applicable. The CIT (A) agreed with the contentions

of the assessee and cancelled the levy u/s 201(1) & 201(1A) of

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the I.T. Act charged by the AO.

8. The Revenue has raised the following grounds:

"1. The order of the CIT (A) is erroneous both on facts and in law.

2. The CIT (A) erred in holding that the service charges paid to Chattisgarh State Industrial Development Corporation (CSDIC) is not governed by the provisions u/s 194J of the I.T. Act by treating the same as payment to govt.

3. The CIT (A) erred in ignoring the fact that Chattisgarh State Industrial Development Corporation (CSIDC) is separate legal entity assessed to tax and not part of the State Govt. and hence the service charges paid to it are governed by the provisions u/s 194J of the I.T. Act".

9. We have heard both the parties and perused the record

carefully. Similar issue was adjudicated by the Tribunal relating

to the issue of demand raised u/s 201(1) and interest charged

u/s 201(1A) of the Act for not deducting tax at source u/s 194I

of the Act, wherein the Tribunal in ITA No.1775 to 1778 of 2012

in assessee's own case held as follows:

"8. We have considered rival submissions of the parties and perused the material on record. The dispute in the present case is limited to the fact as to whether as per the claim of the assessee, the lease rentals were actually paid to the State Govt. of Chattisgarh and CSIDC was acting merely as an agent of State Govt. or whether the lease rentals were paid to CSIDC itself. On perusal of 'summary of the

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state government' which forms part of the final accounts of CSIDC as on 31.03.2005 it is seen that it is a statement showing receipts on behalf of the state govt. from entrepreneurs wherein the lease rentals also finds place. It is also a fact that in course of the appeal proceedings before the CIT (A) a remand report was called for from the AO. On perusal of the remand report by the AO, a copy of which is at page 60 of the paper book, we find no mention about to whom the lease rentals were paid. It only deals with payment of service charges. Even so far as payment of service charges are concerned, it is the contention of the ld AR that it has been paid to the District Administration as per Rule 10 of the Industrial Policy of Govt. of Chattisgarh. In fact, the CIT (A) has also totally ignored this remand report submitted by the AO. Considering the totality of facts and the circumstances of the case, we deem it just and proper to remit these matters to the file of the AO for verifying the fact to whom the lease rentals and services charges have been paid. Accordingly, we set aside the orders passed by the CIT (A) for the years under consideration and direct the AO to decide the issue afresh after verifying the fact of payment of lease rentals and service charges which were claimed to have been paid to State Govt. The AO shall afford a reasonable opportunity of being heard to the assessee before deciding the issue for all the years under consideration".

10. Respectfully following the decision of the Coordinate Bench,

we deem it just and proper to remit these matters to the file of

the AO for verifying the fact to whom the lease rentals and

services charges have been paid. Accordingly, we set aside the

orders passed by the CIT (A) for the years under consideration

and direct the AO to decide the issue afresh after verifying the

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fact of payment of lease rentals and service charges which were

claimed to have been paid to State Govt. The AO shall afford a

reasonable opportunity of being heard to the assessee before

deciding the issue for all the years under consideration

11. In the result appeal filed by the Revenue is allowed for statistical purposes.

Order pronounced in the Open Court on 20th March, 2015.

Sd/- Sd/- (P.M. Jagtap) (Asha Vijayaraghavan) Accountant Member Judicial Member

Hyderabad, dated 20th March, 2015.

Vnodan/sps Copy to:

1. The Dy. Commissioner of Income Tax Circle 14(2) TDS Range 14, IT Towers, 4th Floor, B Block, Hyderabad

2. M/s. Lanco Amarkantak Power (P) Ltd, Plot No.4, Software Units Layout, Madhapur, Hyderabad

3. The CIT(A) - V Hyderabad

4. The CIT I Hyderabad

5. The DR, ITAT, Hyderabad

6. Guard File

By Order

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