ORDER
Yadav, J.M.
1. These appeals are preferred on behalf of the assessee against the confirmation of penalty levied by the assessing officer under section 271-C of the Income-tax Act, 1961 (hereinafter called the Act), by the Commissioner of Income-tax (Appeals).
2. Though the assessee has raised various grounds of appeals, but all grounds relate to the validity of levy of penalty under section 271-C of the Act.
3. We have heard the rival submissions and carefully perused the orders of the authorities below and the documents placed on record.
4. The facts in brief are that a Form No. 26-C for payment made to contractor under section 194-C filed by the assessee for the financial years 1998-99 and 1999-2000 were taken up for verification by the assessing officer and notice under section 133(6) was issued to the assessee. During the course of verification it was noticed that the assessee has made payment to Pradeep Oil Corporation of Rs. 23,07,000/- in financial year 1998-99 and Rs. 81,42,000/- in financial year 1999-2000, which was in the nature of warehousing charges. The TDS was deducted at 2 per cent, the rates applicable to the contractor as per 194-C of the Act. Survey was conducted to examine the issue and it was noticed that the assessee company has entered into an agreement with Pradeep Oil Corporation on 11/11/1998 and took possession of the warehouse to warehouse its products. For ready reference, the relevant portion of the agreement is extracted as under :-
“The warehouser is a licensee in respect of railway land of 96750 sq. ft. at 13 KM Rohtak Road, Shakur Basti, Delhi (plot) whereon the Warehouser had constructed, and is maintaining, inter-alia, a warehouse of constructed area of 47000 sq. ft. (Premises); and the company has approached the Warehouser for warehousing its products.
AND WHEREAS the Warehouser has expressed his willingness and ability to warehouse the products is entitled so to do.
1. The warehouser agrees to warehouse the products only of the company owned either by the company or its authorized representative dealers. The company envisages that during the period of agreement, its products in not less than 300 trucks per day shall be handled by the Warehouser. The parties have mutually agreed that the company shall pay warehouser service charges of a minimum of Rs. 37,000/- per day irrespective of the actual number of trucks carrying the products for handling products of upto 300 trucks a day, and payment shall be made month by month and every month. If there shall be warehousing of products more than 300 trucks a day, the additional warehousing service charges shall be decided by the parties by mutual discussion.
As the warehouser shall make necessary arrangements in the warehouse to meet the traffic envisaged by the company, the company shall pay at the time of entering into this agreement Rs. 1,35,00,000/- (Rs. One crore thirty five lakh only) which amount shall be adjusted in equal amounts in the bills for warehousing service charges over the period of the first 30 months of this agreement.”
5. During the course of survey, statement of the Manager (Finance) of the assessee company was recorded in which he has deposed that the assessee has a warehouse at 13-KM Stone, Rohtak Road, Shakur Basti, New Delhi. Besides, in the copy of the resolution of the company dated 9/11/2000 it has also been stated that the company has a warehouse at 13-KM Stone, Rohtak Road, Shakur Basti, New Delhi. Accordingly, show-cause notice was issued to the assessee as to why the payments to Pradeep Oil Corporation may not be treated as a warehousing charges and TDS deducted as per section 194-I i.e. @ 20 per cent. In response thereto the assessee has submitted that it was an arrangement for services to the party under the contract and by no stretch of imagination, can this be construed to be payment of rentals. The assessing officer examined the facts of the case in the light of the Circular No. 715 dated 8/8/1995 and 718 dated 22/7/1995 and also in the light of the agreement executed between the parties and held that this composite agreement is in essence the arrangement for taking the premises on rent, hence the payment is covered under section 194-I of the Act and tax needs to be deducted for payment thereof as per section 194-I of the Act. He accordingly charged interest under section 201(1A) of the Act and initiated the penalty proceedings under section 271-C of the Act for short deduction of tax. Again in the penalty proceedings the assessee raised the same plea, which was turned down by the assessing officer and slapped consolidated penalty of Rs. 48,86,450/- for the financial year 1998-99 and 1999-2000 against which an appeal was filed before the Commissioner of Income-tax (Appeals) assailing the penalty order on various grounds. The CIT (Appeals) again re-examined all the grounds raised before him and directed the assessing officer to apply the rate of 15 per cent instead of 20 per cent, following his order in quantum.
6. Being not satisfied with the order of the CIT (Appeals) the assessee has preferred an appeal before the Tribunal and besides reiterating his contentions raised before the lower authorities, the learned counsel for the assessee has submitted that the recipient of the amount had shown it to be its business income and not a property income and the same was accepted by the Revenue. Hence the Revenue cannot treat this payment as payment of rent. He has also raised a plea of a reasonable cause for non-deduction of proper tax under section 194-I of the Act. In support of his various submissions the assessee has relied upon the following judgments :-
(i) Board’s Circular in F. No. 275/201/95-IT(B), Dated : 29.01.97.
(ii) Ikea asia pacific (P) Ltd. Vs. JCIT in I.T.A. No. 479 (Del) of 2001.
(iii) Cement Marketing Co. of India Ltd. Vs. ACST (1980) 124 ITR 15 (SC);
(iv) Hindustan Steel Ltd. Vs. State of Orissa (1972) 83 ITR 26 (SC);
(v) ITO Vs. Sood Enterprises (1992) 41 I.T.D. 234 (Del.);
(vi) Detecon Indian Project Office Vs. ITO (1994) 210 I.T.D. 260 (Del.);
(vii) Addl. CIT Vs. Mohammed & Sons (1985) 154 ITR 220 (Raj.);
(viii) CIT Vs. Gangaram Chapolia (1976) 103 ITR 613 (Orissa);
(ix) CIT Vs. Shanta Electrical Industries (1986) 160 ITR 774 (Del.);
(x) Azadi Bachao Andolan Vs. Union of India (2001) 252 ITR 471 (Del.);
(xi) Woodward Governor India P. Ltd. Vs. CIT (2002) 253 ITR 745 (Del.);
(xii) CIT Vs. Rishikesh Apartments Co-operative Housing Society Ltd. (2002) 253 ITR 310 (Guj.);
(xiii) CIT Vs. Nestle India Ltd (2000) 243 ITR 435 (Del.);
(xiv) Gwalior Rayon Silk Co. Ltd. Vs. CIT (1983) 140 ITR 832 (M.P.); &
(xv) CIT Vs. New India Assurance Co. Ltd. (1983) 140 ITR 818 (MP).
The learned counsel for the assessee, shri R. Ganesan, has made a reference to the Board’s Circular in F. No. 275/201/95-IT(B) dated 29/1/1997, according to which no demand visualized under section 201(1) of the Act, should be enforced after the tax deductor has satisfied that the tax due has been paid by tax deductor assessee. In the instant case, tax due has been paid. Hence no penalty under section 271-C is leviable.
7. The learned Departmental Representative, on the other hand, has placed reliance upon the order of the lower authorities. Besides, placing reliance upon the finding of the Commissioner of Income-tax (Appeals), the learned Senior Departmental Representative, Mr. Salil Gupta, has also made a reference to the letter of Pradeep Oil Corporation to the assessee dated 30.11.2002, in which it was stated by the recipient that the alleged receipt was shown as business receipt in its return of income, but the assessment was framed under section 143(1)(a) of the Act and the Revenue has no occasion to examine the nature of receipt. Hence the treatment of the receipt by the recipient, would not affect the gravity of offence committed by short deduction of tax. With regard to CBDT’s Circular, Mr. Salil Gupta has urged that it has been clarified in this Circular also that non-enforcement of tax, if paid by the deductee assessee, would not effect the chargeability of interest under section 201 (1A) of the Act till the date of payment of tax by deductee assessee or the liability for penalty under section 271-C of the Act. A reference was also made with regard to order of the ITAT by which order of charging interest under section 201(1A) was confirmed by the Tribunal. The nature of payment was also examined by the Tribunal in the aforesaid order and finally held that it was a payment of Rent.
8. Having considered the rival submissions and from a careful perusal of the record, we find that section 194-C deals with the payments made to contractors or sub-contractors for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract executed between the contractor and different types of assesses envisaged in sub-section (i) of section 194-C of the Act whereas section 194-I deals with the payment of rent by a person not being an Individual or a Hindu Undivided family, who is responsible for paying to any person any income by way of the rent. In Explanation (1) to section 194-I the word “rent” has been defined and according to the explanation the rent means any payment by whatever name called under any lease, sub-lease, tenancy or any other agreement or arrangement of he use of any land or any building (including the factory building), together with furniture, fitting and the land appurtenant thereto whether or not such building is owned by the payee, meaning thereby any payment in respect of use of any property to a person to whom the property belongs in any manner the payment is called to be a rent and while making the payment of this rent the payer is required to deduct @ 15 per cent if payee is individual or HUF and @ 20 per cent in other cases.
9. For ready reference, we may prefer to extract the relevant portion of sections 194-C and 194-I, as under : –
“194-C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor] for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and –
(a) the Central Government or any State Government; or
(b) any local authority; or
(c) any corporation established by or under a Central, State of Provincial Act; or
(d) any company; (or)
(e) any co-operative (society ; or)
(f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with any satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or
(g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or
(h) any trust; or
(i) any University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commissions Act, 1956 (3 of 1956); (or)
(j) any firm,
shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, (deduct an amount equal to –
(i) one per cent in case of advertising;
(ii) in any other case two per cent, of such sum as income-tax on income comprised therein.]
(2) any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax of income comprised therein;”
“194 – I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to (a resident) any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, (deduct income-tax thereon at the rate of –
(a) fifteen per cent if the payee is an individual or a Hindu undivided family; and
(b) twenty per cent in other cases;)
Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred any twenty thousand rupees :
Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44-AB during the financial year immediately proceeding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section.)
Explanation, – For the purpose of this section, –
(i) “rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee;”
10. From a careful perusal of section 194-C and 194-I,we find that section 194-C deals only with the payment with a contractor and sub-contractor for the work carried out by the contractor or sub-contractor and it has not relevance with regard to the payment for the use of the land or property.
11. Turning to the case in hand, we find that an agreement was executed between the assessee and M/s. Pradeep Oil Corporation, who has a warehouse at 13 – KM Stone, Rohtak Road, Shakur Basti, Delhi. It is stated in this agreement that M/s. Pradeep Oil Corporation is a licensee in respect of railway land, on which warehouse has been constructed. As per this agreement, the arrangement of warehousing was made initially for a period of three years from the date of entry of the first truck of the product. This agreement can be further renewed by a notice of assessee company in writing at least 6 months prior to the date of the expiry of the agreement upon the same terms and conditions for further period of three year and the warehousing service charges payable by the company to the warehouse shall be increased by 18 per cent of the warehousing service charges payable for the immediately preceding year. The warehouser further agrees to warehouse the products only of the company, owned either by the company or its authorized representative or dealers. The company envisages that during the period of agreement its product is not less than 300 trucks shall be handled by the warehouser. It was also mutually agreed that the assessee company shall pay warehousing charges to the warehouser of a minimum Rs. 37,000/- per day irrespective actual number of trucks carrying the product for handling the products upto 300 trucks a day. It was further agreed that the assessee company shall pay at the time of entering into this agreement a sum of Rs. 1,35,00,000/-, which shall be adjusted in equal instalments in the bills of warehousing charges over the period of first 30 months of this agreement and future rent month by month. It was further agreed that the assessee company shall pay at the time of entering into this agreement an amount of Rs. 67,50,000/- which shall be refunded without interest thereon by the warehouser to the company upon the expiry of the arrangement under this agreement. The warehouser shall simultaneously provide to the company a bank guarantee for the said amount. Accordingly to clause 5, all charges, taxes, levies, duties payable, on the products warehoused in the warehouse to the Govt. and/or any other authorities shall be paid promptly by the company directly to the concerned authorities and the warehouser shall not be responsible and/or liable for the same for any reason whatsoever.
12. From a plain reading of various clauses of this agreement only one inference would be drawn that the warehouse was taken on almost a fixed rent and the warehouser has not right to warehouse the goods or any other person without the permission of the assessee company. More so, according this agreement, this warehouse was let out/given to the assessee company for a period of three years after taking a huge advance. Once it is evident from the documents and the conduct of the parties that the assessee has taken this warehouse on rent, we are unable to understand how the assessee has claimed that it has made the payment to a contractor or a sub-contractor and claimed deduction of TDS under section 194-C of the Act, as section 194-C only deals with the payment to contractors for the work carrying out by them. The facts of the case make abundantly clear that the payments ware made by the assessee company to the warehouse as rent of the warehouse taken to warehouse its goods or at the most as a warehousing charges. Though Circular No. 715 dated 8.8.1995 it has been made clear by the Board that if the composite arrangement is in essence of the agreement for taking premises on rent, the tax will be deducted under section 194-I for payments thereof. Though Circular No. 718 dated 22.8.1995 while replaying a query “whether the tax is to be deducted at source from warehousing charges?” The Board has clarified that the term “rent” as defined in Explanation (i) below section 194-I means any payment by whatever name called under any lease, sub-lease, tenancy or any other arrangement or arrangement for the use of any building or land. Therefore, ware-housing charges will be subject to deduction of tax under section 194-I.
13. We have also carefully examined the Circular No. 275 dated 29th January, 1997, which was relied on by the assessee and appearing at page No. 1 of the compilation and we find that through this Circular it has been clarified by the Board that no demand visualized under Section 201(1) of the Act should be enforced after the tax depositor has satisfied the official in-charge of the TDS that tax due had been paid by the deductee-assessee. The Board has further clarified that non-enforcement of demand would not alter the liability to charge interest under section 201(1A) of the Act till the date of payment of taxes by the deductee- assessee or liability for the penalty under section 271-C of the Act. No where it has been stated or clarified either in the Act or by the CBDT that once the short deducted tax has been paid by the deductee – assessee, no penalty under section 271-C can be levied. We have also examined the letter written by Pradeep Oil Corporation to the assessee regarding the treatment given by them to the receipts of the aforesaid payments of ware-housing charges and we find that the declaration of the receipt as business receipt does not change the nature of payment in the hands of the assessee. Whatever nature of receipt was declared by M/s. Pradeep Oil Corporation in its hands, it was not examined by the Revenue authorities as the returns were processed under section 143(1)(a) of the Act. As such, the contention of the assessee that this payment was shown in the hands of the recipients as business receipts and was accepted by the Revenue do not refrain the Revenue from examining the real nature of payment made by the assessee to Pradeep Oil Corporation. During the course of hearing, our attention was also invited to the order of the Tribunal in the assessee’s case on an issue of charging of interest under section 201(1) read with section 201(1A) of the Act and on its perusal, we find that the Tribunal has examined the nature of payments of this warehousing charges in the light of various judicial pronouncements and the terms of agreement and finally held that the agreement between the parties is only for the use of the land and ware-house and no service of any type are provided by the ware-houser. With regard to the question of bonafide belief/reasonable cause vis-à-vis the stand of the assessee that the payment was made to a contractor and provisions of section 194-C of the Act are applicable rather than those of section 194-I, the Tribunal has held that before the impugned assessment year the CBDT has clarified by replying a query i.e. “whether the tax is to be deducted at source from ware-housing charges? through its Circular No. 718 dated 22/2/1985 that the term “rent” as defined in Explanation (1) below section 194-I means any payment by whatever name called under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any building or land.
Therefore, ware-housing charges will be subject to deduction of tax under section 194-1.” This clarification was issued by the Board on 22/8/1995 and despite the clarification the assessee has deducted TDS @ 2 per cent applicable to contractor as per section 194-C during the financial year 1998-98 and 1999-2000. The Circulars of the CBDT are public documents and these are given wide publicity because they affect the tax liabilities of the citizens. While dealing with the chargeability of tax the Tribunal has also held that the assessee should have understood the intention of the Department and acted accordingly. It was further held by the Tribunal that it is no a case where the assessee can say that is had sought legal advise to support its action since none has been brought forth. The assessee had the legal brains at its disposal and the Tribunal really wonder as to why even after the Circular of the Board the assessee chose to act in the manner that it did. The Tribunal accordingly rejected the submissions of the assessee that there was a reasonable cause or a bonafide for its deduction of tax at the rate applicable to payment to contractors envisaged under section 194-C of the Act. The Tribunal accordingly upheld the action of the Revenue initiated under section 201(1) read with section 201(1A) of the Act. This order of the Tribunal on the impugned issues still holds the field as it has not been reversed by the appellate authorities.
14. We, however, again examined the entire facts in order to determine whether the Revenue is justified for levying the penalty under section 271-C of the Act and we find that since the doubt, if any, with regard to the nature of payment of ware-housing charges has been clarified by the Board in 1995, there is no plausible reasons as to why and how the assessee had been claiming the payment of rent of ware-house or at the most ware-housing charges as a payment to contractors under section 194-C of the Act and deducted the TDS @ 2 per cent only. We have also carefully examined the judgments referred to by the parties and we find that the judgments were rendered on different issues based on different facts and circumstances of the case. Since all these judgments are distinguishable on facts, no assistance can be drawn from them in favour of the assesee.
15. Keeping in view the totality of facts and circumstances of the case, we do not find any force in the contentions of the assessee that under misconception of legal provisions, he has deducted the tax at 2 per cent, the rates applicable to contractors as per section 194-C of the Act. We, therefore, of the view that the Revenue authorities are justified in levying the penalty under section 271-C of the Act for the assessee’s default of short deduction of tax inasmuch as the assessee is required to deduct the TDS @ 20 per cent, rate applicable on payment of rent as per section 194-I of the Act, but the assessee has intentionally only deducted the lesser TDS @ 2 per cent under the garb that its case falls under section 194-C of the Act. Accordingly, the orders of the Commissioner of Income-tax (Appeals) who has confirmed the penalty are hereby upheld.
16. In the result, the appeals filed by the assessee are dismissed.