ORDER
Deepak R. Shah, Accountant Member
1. All these appeals by revenue are directed against the order of the learned Commissioner (Appeals)-XXX, New Delhi, dated 19-4-2005 in an appeal against order under Section 201(1) of the Income Tax Act (hereinafter referred to as the Act) treating the assessee as assessee in default for failure to deduct tax at source.
2. The assessee herein is a dealer in car, spares and services of vehicles manufactured by Maruti India Ltd. The assessee entered into a business collaboration agreement on 16-12-1997 with M/s. West Delhi Automobiles (P.) Ltd. (in short ‘WDAPL’). Pursuant to the agreement the assessee made certain payments. The assessee treated the same as payment to contractor and accordingly, deducted tax at source under Section 194C of the Act. The assessing officer held that in substance the payment is towards hire charges by way of rent for the premises of M/s. WDAPL utilized in the business of dealership of the car. He accordingly held that the assessee should have deducted tax @ 20 per cent on such payment under Section 194-I of the Act. Learned Commissioner (Appeals) interpreting the agreement held that the assessee was to pay commission @ Rs. 1,000 per vehicle so learned He accordingly treated the payment as commission within the meaning of Section 194H of the Act. He also held that if the payee has offered the income and taxes have been paid, the demand should not be enforced against the assessee. For this purpose, he relied upon the instructions of CBDT No. 275/201/95-IT(B), dated 29-1-1997. As regards interest under Section 201(1A), it was held that consequential effect will be given by the assessing officer once he has verified from the deductee assessee the quantum of taxes paid by him and the manner in which it has been done. The revenue is in further appeal before us.
2.1 The learned DR invited our attention to various clauses in the so-called business collaboration agreement dated 16-12-1997. In the said agreement, it is clear that M/s. WDAPL is in possession of premises being 13,460sq. ft. of covered area and 11,200 sq. ft. open area. This premises was offered to the assessee as dealer for display/sale, repair, parking and servicing of the Maruti make vehicles. To give a colour, it was agreed that the assessee will pay commission @ 1,000 per vehicle with a minimum assured payment of at least for 300 to 350 vehicles. It was also agreed that the assessee will send about 1,000 to 1,200 vehicles per month for carrying out services of washing and cleaning and for which a sum of Rs. 140 per vehicle was payable as service charges. Minimum service charges in respect of servicing of vehicles was agreed for 900 vehicles per month. Though it is agreed that the assessee shall have no right as tenant, in substance the payment is for the use of the space and hence, in correct spirit should be treated as payment of rent for the premises and accordingly tax should have been deducted under Section 194-I of the Act. Thus, the order of Commissioner holding that the payment should be treated as commission or brokerage within the meaning of Section 194H is erroneous. As regards finding that if payee has offered the income, necessary material should be made available to the assessing officer so as to absolve the assessee from any further liability. However, the nature of payment should continue to be that of rent and neither as commission nor as contractual payment.
2.2 Learned Counsel for assessee, on the other hand, submitted that under the business collaboration agreement, the assessee was not required to deduct any tax at source. Thus, even though the assessee has deducted tax at source under Section 194C, it is not a payment to a contractor. In this case, two persons have joined hands for ultimate business as dealer and servicing of Maruti make vehicles. The assessee is appointed as authorized dealer but has no experience on such line. M/s. WDAPL, the payee has space as well as sufficient manpower to undertake sales and servicing also. Thus, the payment is not falling under any of the Section like 194C or 194H or 194-I. Apart from providing the space, the payee has provided a generator set, hydraulic lift, air compressor, tube well, water tank and other equipments etc. The dealership commission received by the assessee is shared with M/s. WDAPL and for which a formula is worked out. As per the formula, the assessee is to pay a sum of Rs. 1,000 per vehicle sold and Rs. 140 per vehicle serviced. The assessee has given a minimum assurance to pay commission at least for 300 to 350 vehicles per month and to send at least 900 cars for servicing per month. However, this does not change the nature of business collaboration agreement and considering the various other terms like appointment of manager and supervisor by the payee, appointment of security personnel for maintenance and protection of the premises and car by the assessee and in absence of any right by way of tenancy in favour of assessee which are specifically denied, the assessee cannot be considered as having paid the same by way of rent only. Thus, Section 194-I cannot be attracted in such a situation. Even Section 194H do not apply as the payment is not directly by way of commission as envisaged in Section 194H but is only a mode of sharing the revenue with the payee. Thus, the payment should be treated as payment to a contractor within the meaning of Section 194C and hence, no further liability should be enforced upon the assessee herein. He further submitted that though the assessee has not filed any appeal before the Tribunal against the impugned order, in terms of Rule 27 of the ITAT Rules, the assessee as a respondent may support the order of learned Commissioner (Appeals) on any of the grounds decided against him. He further submitted that the payee has offered the income for all the years in the return filed by it with the Income Tax Officer, Co. Circle 29(1), New Delhi. Since the payee has already paid the tax on the amount paid by the assessee in terms of Board’s instruction, no further demand can be inflicted upon the assessee.
3. We have considered relevant facts, arguments advanced and also perused the orders; of the authorities below. To clarify the matter, the relevant clauses of business collaboration agreement are extracted herein:
This Business Collaboration Agreement is executed at Mew Delhi on this the 16-12-1997 day of December, 1997 between:
M/s. West Delhi Automobiles Pvt. Ltd., a Company registered under Companies Act, having its registered office at LD-52, Prakash Deep, 7, Tolstoy Marg, New Delhi, through Shri Sunil Singhla, son of Shri Purshottam Dass, hereinafter referred to as party of the first part.
AND
M/s. Bhasin Motors (India) Pvt. Ltd., a company incorporated under the Companies Act having its registered office at 28, Raja Garden, New Delhi, through Shri J.B. Bhasin, son of Shri G.S. Bhasin, duly authorized by the Board of Directors vide Resolution No. , dated 24-11-1997 (hereinafter referred to as the party of the second part).
WHEREAS the party of the first part is tenant/lessee of premises No. B-I, Udyog Nagar, New Delhi. Party of the second part is authorized dealer and distributor of Maruti Udyog Limited for sale and service of Maruti Udyog Limited for sale and service of Maruti Cars/Vans and other vehicles etc.
1.That parties have mutually agreed to enter into the Business Collaboration Agreement on the terms and conditions hereinafter set out.
2. The party of the first part has offered 13,460 sq. ft. covered area and 11,200 sq. ft. approx. open area in the west side portion of building and decorated for display/sale, repair, parking and service (washing and cleaning) of Maruti vehicles (as shown in Annexure-C, map).
3. The party of the first part has provided one generator set, one hydraulic lift, air compressor, tubewell, water tank and other equipments etc. for service/washing of Maruti vehicles.
4. That party of the second part has assured the party of first part that about 6,000 vehicles per year shall be sold/delivered from the premises of M/s. Bhasin Motors (India) Pvt. Ltd. and the party of the second part shall pay to the party of the first part, a sum of Rs. 1,000 per vehicle/car as commission charges. It has been further agreed between the parties that in case if the number of cars sold are less than 500 a month in that eventuality the party of the second part shall be bound to make the payment of 300-350 vehicles per month to the party of the first part at the rate of Rs. 1,000 each vehicle.
5. That the party of second part has further assured to the party of the first part that it will provide about 1,000 to 1,200 vehicles each month for carrying out services (washing & cleaning) in the premises and will pay @ Rs. 140 for each vehicle (car) as service charges. It has been further agreed between both the parties that in case party of the second part provides less than the number assured as above to servicing the vehicle in that eventuality the party of the second part will be bound to make the payment of 900 (nine hundred) vehicles to the party of the first part of servicing charges at the rate of Rs. 140 per vehicle.
6.** ** **
7.That party of the first part shall provide Manager/Supervisor, andthe salary of the same shall be paid by the party of first part. The party of the first part is entitled to enhance any number of employees which may be required for supervising the sale.
8. That the party of the second part has assured the party of the first part to employ security guards and other staff for the proper maintenance and protection of the premises as well as for the safety of the cars which are displayed in the premises.
9. & 10. ** ** **
11. That the party of the second part shall have no right to permit any other person, party or firm to carry on the business from the premises in question as it has been categorically agreed between the party of the first: part and the party of the second part that the possession of the premises shall remain with the party of the first part and the party of the second part is only permitted to display the cars and make sale from the premises. The party of the second part shall have no right to either claim tenancy or otherwise as it purely a business collaboration agreement and the party of the first part shall always remain the lawful possession holder thereof.
12. That it has been further agreed between the parties that the sale would be directly made under the supervision of the Manager/ Supervisor of the party of the first part. Party of the second part has right to employ the manpower at his own cost for running the business and make provisions for displaying the cars.
It is settled law that while examining the true nature of payment, the nomenclature given by the parties thereto though relevant’ but is not decisive of the matter. It is seen that the payee, who was in possession of certain premises had agreed to use the same in this business collaboration agreement in mutual interest. The payee has installed various machinery and equipments for servicing of the vehicles. The payee has also decorated for the display, repair and parking of the vehicles. The qualified staff like Manager and Supervisor are provided by the payee and their salaries are also borne by the payee. Similarly, the servicing of the vehicle are done exclusively by the staff of payee. Accordingly, it cannot be said that the assessee merely to use the premises has made all the payments. While the authorized dealership of the vehicles remains with the assessee, since it is not having qualified staff for sales and supervision of sales staff as well as servicing of vehicles, it has availed the services of M/s. WDAPL. The payments are quantified on the basis of number of vehicles sold and number of vehicles serviced. Thus, it is a mode of sharing revenue between the two parties. However, in such a circumstance, it cannot be said that the payment was either as rent simpliciter or as commission. Thus, the same cannot be considered as rent within the meaning of Section 194-I or as commission within the meaning of Section 194H of the Act. As rightly contended by Shri Chadha that though the assessee has not filed appeal against the impugned order, he can still support the order of Commissioner (Appeals) on any of the grounds decided against him. We accordingly hold that the payment is contractual payment pursuant to the business collaboration agreement and hence, the assessee was obliged to deduct tax under Section 194C only which it has done. Thus, no further liability under Section 201(1) can be fastened on the assessee. We also find that as per the acknowledgement of return filed by payee, the amount paid by the assessee is included in the income and hence, the same cannot be further recovered from the assessee. For the reasons stated above, the appeals of revenue are to be dismissed.
4. In the result, all the appeals are dismissed.