Judgment:
1. This is bunch of six appeals filed by the Revenue against six identical orders dated 31-10-2005 of CIT(A), Jalandhar, for the assessment years mentioned in the caption of this order. Since the issues involved in all the appeals are identical, these were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. In these appeals, the Revenue has raised following two identical grounds for all the assessment years: 1. That on the facts and in the circumstances of the case the learned Commissioner of Income-tax (Appeals) has erred in vacating the demand created under Sections 201 and 201(1A) of the Act holding that ownership of rented premises should be considered individually in the hands of the co-owners of the property in question.
2. That the ld. CIT(A) has failed to appreciate that Calcutta High Court in its judgment in 219 ITR 327 (Cal.) have held that composite congregation of persons co-owning one property falls under Section 194-I(b) of the Income-tax Act. As such TDS on rent was liable to be deducted.
The facts of the case are that the assessee was a company running automobile business at the premises taken on rent at different places from different land-lords. These premises taken on rent were at Ludhiana, Jalandhar, Amritsar, Chandigarh, Karnal and Patiala and in each property, there were two co-owners who had separately let out their respective shares to the assessee on rent. The assessee had separately paid rent to each land-lord and at the time of such credit/payment of rent, the assessee also deducted tax at source at the rate of 15 per cent and paid the same in the Government account within due dates. In terms of provisions of Section 194-I(a) of the Income-tax Act, 1961 (In short 'the Act'). All the co-owners were separately being assessed to tax for the last several years and the rent so received from the assessee was separately shown in their individual returns and was assessed as such. Even the investments in the properties given on rent were separately shown in the books of account and accounted for in the returns filed for the past years. However, the Assessing Officer referred to the provisions of Section 26 of the Act and observed that even if for the purpose of Income-tax assessment, the property income was to be assessed in the hands of individual co-owners for the reason that the share of each co-owner was definite and ascertainable yet the provisions of Section 194 were a separate code in itself. The provisions of Section 194-I were applicable to a person responsible for payment of rent. The Assessing Officer observed that since there were more than one co-owners of the property, the co-owners were to be treated as any other person for the purpose of deduction of tax at source under Section 194-I(b) of the Income-tax Act because the rent had not been paid to individual or HUF. The Assessing Officer also relied on the judgment of Calcutta High Court in the case of Smt.
Bishaka Sarkar v. Union of India . Thus, the Assessing Officer held that the assessee was required to deduct tax at source at the rate of 20 per cent. Since the assessee had deducted tax at the rate of 15 per cent, the Assessing Officer worked out the short payment and raised the demand in respect of short deduction and also charged interest under Section 201/201(IA). As a result, the assessee raised demand of varying amount for these assessment years aggregating to Rs. 53,64,960 (the details are on pages 5 and 6 of the order of the Assessing Officer).
3. Being aggrieved, the assessee impugned the action of the Assessing Officer in appeals before the CIT(A). It was submitted before the CIT(A) that the shares of individual co-owners were definite and ascertainable. The assessee had paid rent to individual co-owners and deducted the tax at the rate of 15 per cent. Certificates for TDS were also issued to individual co-owner. It was also submitted that such rental income has been separately assessed to tax in the hands of each co-owner in their individual capacity for the several past assessment years. The individual co-owners had also declared such income in their individual returns and paid the tax due on income received from the assessee by way of rent. It was also argued that the very fact that such rental income had been assessed to tax in the individual hands showed that Revenue had not treated such income belonging to the AOP.It was also submitted that the case of Calcutta High Court in the case of Smt. Bishaka Sarkar (supra) was distinguishable on facts because that was a case of tenancy in common standing in the name of four landlords and said conglomeration of four persons was treated as common to fall within the category of other cases as per Section 194-I(b) of the Act. It was submitted that since the assessee had paid the rent to individual co-owners having their separate and specific share and it was not a case where the rent was paid to one entity and thereafter divided among the co-owners, the judgment of Calcutta High Court in the case of Smt. Bishaka Sarkar(supra) was not applicable to the facts of the present case. It was further submitted that the assessee had deducted tax in respect of income of the individual who had separately filed the individual returns disclosing therein such rental income.
They also paid tax due on the income declared in the return. It was submitted that once the tax has been paid by the co-owners in their respective returns, the Assessing Officer was not justified in raising the demand in the hands of the assessee. Reliance was also placed on the following judgments:CIT v. Manager, Madhya Pradesh State Co-operative Development Bank Ltd.CIT v. M.P. Agro Morarji Fertilizers Ltd. (iv) The decision of ITAT, Bombay Bench in the case of Mahindra & Mahindra Ltd. v. ITO [1996] 55 TTJ (Bom.) 174.
Accepting the contention of the assessee, the ld. CIT(A) allowed the appeals of the assessee and held that the judgment of Calcutta High Court in the case of Smt. Bishaka Sarkar (supra) was distinguishable on facts and hence not applicable. He also held that the case of the assessee was covered under Section 194-I(a) and not under Section 194-I(b) of the Act. He also accepted the various decisions of Madhya Pradesh High Court in the cases cited above and also referred to the judgment of Bombay High Court in the case of CIT v. Mahindra & Mahindra Ltd. [2000] 242 ITR (St.) 187 where the SLP filed against the judgment of Bombay High Court was dismissed. The view taken by the Bombay High Court and Madhya Pradesh High Court, where it was held that if regular assessment of an employee was made and tax on income was paid by him, it was not correct to hold that the employer was still in default in respect of short deduction of tax. Considering the fact that in this case, the co-owners had declared the rental income in their individual returns and paid the tax thereon, the ld. CIT(A) held that the Assessing Officer was not justified in raising the demand against the assessee. The relevant findings recorded by the CIT(A) are as under: I have carefully considered the submissions from both the sides in the light of the findings of the Assessing Officer and have also gone through the provisions of Sections 26, 194-I of Income-tax Act and copies of returns submitted in the cases of some of the land-lords. It is an admitted fact that all the landlords are assessed to tax in their individual capacity with Dy. CIT, Range, Phagwara and have shown the rental income earned from the appellant in their returns. For the rental income paid to the individual land-lords, the appellant by following the provisions of Section 194-I(a) of Income-tax Act, deducted the tax at the rate of 15 per cent on the rental income. Section 194-I mentions that at the time of credit of rental income to the account of payee the tax will be deducted and as seen from the account statements filed by the appellant before the Assessing Officer the rental income was credited to the individual accounts of the land-lords and then the tax was deducted. The provisions of Section 26 were invoked by Assessing Officer in the order (it was not the contention of the appellant before the Assessing Officer) and having invoked Section 26 and the shares of the land-lords being definite and ascertainable the Assessing Officer by referring to the decision of Hon'ble Calcutta High Court (supra) came to conclusion that though the income of such property cannot be assessed as income of the AOP itself. It was the contention of the Assessing Officer during appellant proceedings that irrespective of the said fact Section 194-I represents complete code in itself and there being more than one individual then provision of Section 194-I(b) are applicable than Section 194-I(a). Accepting that Section 194-I(a) represents complete code the responsibility of payer (appellant) to deduct the tax at source at the rate of 15 per cent or 20 per cent is dependent on the credit of rental income to the account of the payee and as per details lying on the record the payer credited the rental income to the individual account of the payees. As per the only rent deed on the record between the appellant and the two owners i.e. Smt.
Pradeep Kaur Lally and Mr. Jaswinder Singh Lally for the premises at G.T. Road, Paragpur, Jalandhar, the annual rent for which was fixed for Rs. 49,51,320 for the financial year 2004-05, the rental income was credited to account of individual payees and property having been co-owned by two persons i.e. more than one individual but shares being definite and rental income credited to their individual accounts the case for the payer falls under Section 194-I(a) of the Income-tax Act. Herein I agree with the appellant that reliance placed by Assessing Officer on the facts of the case decided by Hon'ble Calcutta High Court (supra) was misplaced because of its distinguishing facts. Therein, it was a case of tenancy in common standing in names of four landlords jointly and said conglomeration of four persons was treated as common within the other cases [as per Section 194-I(b)] then that of an individual or HUF. The Assessing Officer stressed that herein also the rent is derived from the property held in common and fragmentation of rent later on is not material but co-owners in this case had specific shares and assessed to tax in individual capacity and by paying rental income to individuals the appellant rightly invoked Section 194-I(a) of Income-tax Act. Further, the appellant having already deducted the rent at the prescribed rate which according to the Assessing Officer was a case of short deduction and the individual payees having already clear their tax liability, the Assessing Officer was not competent to demand further tax from the appellant in the light of the various decisions pronounced by the Hon'ble Madhya Pradesh High Court as well as Hon'ble Bombay High Court (supra) as related upon by the appellant. It is mentioned here that the SLP filed by the department against the decision of Hon'ble Bombay High Court in the case of Mahindra and Mahindra Ltd. (supra) have been rejected by the Hon'ble Apex Court as reported at 242 ITR (St.) 187. The assessments in the case of land-lords having already been completed, therefore, as per decisions above the action of the Assessing Officer in demanding further tax from the appellant in respect of tax short deducted, if any, relating to such landlords cannot be upheld. Accordingly, the demand of Rs. 7,42,500 created by the Assessing Officer is deleted.
The Revenue is aggrieved with the orders of the CIT(A). Hence, this appeal before us.
4. The ld. D.R. heavily relied on the orders of the Assessing Officer and submitted that the case of the assessee was covered by the judgment of Calcutta High Court in the case of Smt. Bishaka Sarkar (supra) as the rent had been paid to various co-owners. He submitted that the case of the assessee was covered under Section 194-I(b) of the Act and not under Section 194-I(a) of the Act. He further submitted that the very fact that rental income has been taxed in the hands of individual co-owners under Section 26 of the Act does not mean that the case of the assessee was not covered under Section 194-I(b) of the Act. Thus, he submitted that the assessee ought to have deducted tax at the rate of 20 per cent instead of tax deducted at the rate of 15 per cent.
5. The ld. counsel for the assessee, on the other hand, heavily relied on the orders of the CIT(A) and reiterated the submissions which were made before the authorities below.
6. We have heard both the parties and given our thoughtful consideration to the rival contentions, examined the facts, evidence and material placed on record. We have also gone through the orders of the authorities. The undisputed facts of the case are that assessee had taken on rent the premises at different places and in each case there were two land-lords. The fact that share of each co-owner was definite and ascertainable, has not been doubted by the Revenue. The rental income received by the co-owners had been disclosed in the individual returns for the last several assessment years and has been accepted as such. It is also not disputed that the individual investments in the respective properties were duly reflected in the hands of each individual/ co-owners. The rental income from these properties has never been assessed to tax in the hands of an AOP. According to Revenue, the case of the assessee is covered under Section 194-I(b) because the rent is not paid to an individual or HUF. However, the claim of the assessee is that the rent has been paid and credited to individual co-owners whose share was definite and ascertainable and even the TDS has been deducted in individual cases and TDS certificates have also been issued in each case separately. Section 194-I refers to deduction of tax at source at the time of credit of rent to the account of the payee or at the time of payment thereof in cash or through bank draft/ cheque. The most important aspect to be considered is credit or payment of rent to a payee. In this case admittedly payees for the purpose of credit/payment were individual co-owners. Therefore, the case of the assessee would fall under Section 194-I(a) and not under Section 194-I(b) of the Act. The Revenue has separately relied on the judgment of Calcutta High Court in the case of Smt. Bishaka Sarkar (supra). But we find that the facts of the present case are distinguishable from the facts of the case of Smt. Bishaka Sarkar (supra). In that case, the admitted position that there was a tenancy in common standing in the names of four land-lords jointly. Therefore, the land-lords were taken as a composite conglomeration of four persons was treated as common to fall under Section 194-I(b). Thus, it was held that the tenant was required to deduct tax at source at the rate of 20 per cent as per provisions of Section 194-I(b) of the Act. But in the present case, there is nothing on record to show that this was a tenancy in common i.e. congregation of four persons. The Revenue has not placed any material or evidence to record to show that the rent was paid to conglomeration of four persons as a group and thereafter was distributed among the co-owners. We are, therefore, of the opinion that the case was covered under Section 194-I(a) of the Act and, therefore, the assessee rightly deducted tax at source at the rate of 15 per cent within meaning of Section 194-I(a) of the Act. Further, it is a fact that the rental income received from the assessee had been declared by the co-owners in their respective cases and the tax has also been paid thereon. Even if the tax has been deducted at source by the assessee, it did not absolve the co-owners from the liability of accounting for such income in their returns and payment of tax thereon which they did in their Individual cases. Once the payees of the rent had declared such income and had paid tax thereon, the Assessing Officer was not correct in treating the assessee as default for the short payment of TDS because the liability already stood discharged on the date when the Assessing Officer initiated such proceedings. The judgments of Madhya Pradesh High Court in the cases of M.P. Agro Morarji Fertilizers Ltd. (supra), Manager, Madhya Pradesh State Co-operative Development Bank Ltd. (supra) and Life Insurance Corporation (supra) and further judgment of Bombay High Court in the case of Mahindra & Mahindra Ltd. (supra) also support this view. Even the SLIP filed by the Revenue against the judgment of Bombay High Court in the case of Mahindra & Mahindra Ltd. (supra) was dismissed by the Hon'ble Supreme Court.
6.1 There is another aspect of the matter. The responsibility of the person for deducting tax at source at the rate prescribed in the statute is to the extent mentioned therein. The amount in respect of which tax has been deducted at source neither forms part of the income of the person deducting the tax nor he is entitled to claim credit for tax paid in his own case. He does it on behalf of a person who receives such income. The provisions for deduction of tax at source are based on the concept of "pay as you earn". Nevertheless it does not absolve recipients of income of the nature specified in the sections liable for TDS from disclosing such income in their own returns and payment of tax due thereon. Failure to do so result in taking penal action in the cases of recipients of income including liability of interest under Sections 234B and 234C for short payment of tax. The credit for TDS is to be claimed by recipients of such income in their own cases. In case the person who is responsible for deduction of tax at source is charged with short deduction of tax at source, neither recipients of income could claim credit for the short deduction of tax in their own case nor the assessee can recover this amount from the payees. Since this is not the income of the assessee, it cannot claim deduction of such payment in its own case. Considering the fact that co-owners had already declared rental income in their respective returns and paid the tax thereon, it would be harsh on the assessee to again recover this amount from it when the same already stood paid by those in whose case the same was liable to be paid. It is not a case where the payees had not at all paid the tax and Revenue is deprived of such tax. Thus, revenue is not justified in raising a demand which is not payable to it.
Therefore, for these reasons also, the orders of CIT(A) do not merit any interference.
7. Thus, in the light of these facts and circumstances of the case, we are of the considered opinion that the well-reasoned and well-discussed orders of the CIT(A) do not merit any interference. Accordingly, the same are upheld and the respective grounds of appeal of the Revenue are dismissed for all the assessment years.