Consolidated cases for Section 40(a)(ia) for the orders passed during the Calendar year 2020
These decisions also covers sections 10 (26), 10(15)(iv)(f), 10(23AA), 10(4), 10A, 10AA,147, 11, 12, 12, 12A, 13, 133A, 139(1), 145, 147, 148, 172, 192, 194(c), 194A, 194A(3)(v), 194C, 194C(1), 194C(7), 194C(c), 194H, 194I, 194J, 195, 195(1), 195(7), 2(28A), 2(43), 201, 201(1), 201(IA), 246A, 251, 254(1), 254(1) Indian Income-tax Act, 271C, 30, 30 to 38, 31A, 37(1), 38, 40(a) (i), 40(a)(ii), 40A(3), 5(2), 80JJA, 9(1)(v)(b), 9(1)(vi), 90, 90(2), 91, Art. 5, Art. 7, Form No. 15G/15H
==> In favour of Revenue (SC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Failure to deduct tax at source-Payment exceeding Rs.20,000 to each truck owners-Contract with a cement factory to transport cement with truck owners is a sub-contractor-Disallowance is not limited only to amount outstanding and this provision equally applies in relation to expenses that had already been incurred and paid by assessee-S. 40(a)(ia) as introduced by Finance (No. 2) Act, 2004 with effect from 1-4-2005 is applicable to and from assessment year 2005-06-Disallowance is held to be justified. [S. 40A(3), 194C]
The appellant is a partnership firm, had entered into contract with Aditya Cement Limited for transporting cement to various places in India. As the appellant was not having thetransport vehicles of its own, it had engaged the services of other transporters for the purpose. On verifying the AO observed that while making payment to the truck operators/owners, the appellant had not deducted tax at source even if the net payment exceeded Rs. 20,000/-. The appellant contended, inter alia, that the trucks hired were belonging to different operators/owners who were not the sub-contractors or contractors; that theycame from different parts of India and mostly required cash payment for dieseland other running expenses; that the appellant had no liability to deduct tax at source because it had not made payments exceeding Rs. 20,000/-in a single transaction; and that the provisions of Section 40(a)(ia) were not applicable to the appellant. the Assessing Officer held that the payments to different truck operators/owners were made directly by the appellant firm and not the consignor company; that the appellant firm was responsible for transportation of goods of the company asper the contract for which, the appellant received payment from the company after tax being deducted at source therefrom. The AO also held that theappellant firm paid freight charges to the truck operators/owners from the income so earned; and the remaining amount was shown as commission. AO held that looking to the nature of dealings of the parties where the single payment exceeded the sum of Rs 20, 000 the amount was disallowed by applying the provision of S. 40(a) (ia) of the Act. Order of the AO is affirmed by the CIT(A),Tribunal and also High Court. On appeal affirming the decision of High Court, the Court held that , disallowance u/s 40(a)(ia), 40A(3) etc are intended to enforce due compliance of the requirement of other provisions of the Act and to ensure proper collection of tax as also transparency in dealings. The interest of a bonafide assessee who had made the deduction as required and had paid the same to the revenue is safeguarded. No question about prejudice or hardship arises (ii) Payment made for hiring vehicles for the business of transportation of goods attracts TDS u/s 194C, (iii) Disallowance u/s 40(a)(ia) is not limited to the amount outstanding ("payable") but also to expenses that had already been incurred and "paid" by the assessee, (iv) Disallowance u/s 40(a)(ia) as introduced by the Finance (No.2) Act, 2004 w.e.f. 01.04.2005 is applicable to AY 2005-2006, (v) Benefit of amendment made in the year 2014 to s. 40(a)(ia) is not available to the facts of the appellant as the appellant has neither deducted the tax at source nor deposited the tax before filing of the return. (CA No. 7865 of 2009 dt 29-07-2020) (AY.2005-06)
Shree Choudhary Transport Company v. ITO (2020) 426 ITR 289 / 192 DTR 161 / 315 CTR 849 / 272 Taxman 272(SC)
Editorial: Affirmed the order in Shree Choudhary Transport Company v. ITO [2009] 225 CTR 125 (Raj) (HC) (ITA No 117 /JU / 2008 dt 29-08-2008) followed, Palam Gas Service v. CIT (2017) 394 ITR 300(SC) Distinguished ,CIT v. Hardarshan Singh [2013] 350 ITR 427/ 216 Taxman 283 / 263 CTR 466 (Delhi) (HC) PIU Ghosh v. DY CIT. [2016] 386 ITR 322/ 73 taxmann.com 226 /(2017) 295 CTR 340 (Cal) (HC), CIT v. Calcutta Export Company [2018] 404 ITR 654/ 255 Taxman 293 /302 CTR 201(SC)
==> In favour of Revenue (All.)(HC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-interest, commission-When exemption u/s 11 is denied the assessee is liable to deduct tax at source-Addition made by the AO is held to be justified. [S. 10(23AA), 11, 12A, 13]
AO applied the provision of S.40(a)(ia) and disallowed the exemptions. CIT(A) deleted the addition, which is affirmed by the Tribunal. On appeal by the revenue the Court held that ,once exemption u/s 11 was denied, assessee is required to deduct TDS. Accordingly the order of the AO disallowances of the expenses is affirmed.
CIT v. Army Wives Welfare Association Lucknow (2020) 185 DTR 395 / 312 CTR 375 / 271 Taxman 139 / 116 taxmann.com 215 (All.)(HC)
==> In favour of Revenue (Bom.)(HC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Non-resident-Interest-Usance charges paid on letters of credit issued by Indian Banks for import of raw materials-Income of non-Resident-Liable to deduct tax at source [S. 2(28A), 5(2), 9(1)(v)(b), 195(1)]
Dismissing the appeals the Court held that since the usance charges for letters of credit were covered in the definition of interest under section 2(28A) the assessee was obliged to deduct tax at source under section 195(1). According to the definition in section 2(28A) the expression “interest” included any service fee or other charge in respect of any credit facility which has not been utilized. Therefore, the charges paid by the assessee in respect of the credit facility (letter of credit) amounted to interest. Distinguished Gnanasigamani Nadar v. Canara Bank (1990) 1 MLJ 401, Dhakeshwari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC) and Esthuri Aswathiah v. CIT (1967) 66 ITR 478 (SC). Court also held that though the usance charges were paid to the Indian bankers by way of letter of credit charges and commission, nevertheless, such payments, were part of the transactions which involved purchase or import of raw material from non-residents. The issuing bank of the assessee had merely acted as its agent. The usance charges were the income of the non-resident as envisaged in the provisions of section 9(1)(v)(b) read with section 5(2) and therefore, the provisions of section 195(1) were attracted and the assessee was obliged to deduct tax at source before making such payment failing which, such expenditure, could not be deducted under section 40(a)(i). (AY.2009-10) India
Furniture Products Ltd. v. CIT (2020) 429 ITR 432 / 196 DTR 345 / (2021) 318 CTR 57 / 276 Taxman 427 (Bom.)(HC)
==> In favour of Revenue (Mad.)(HC) S. 40(a)(iib)
Amounts not deductible-Value added tax-Violation of principle of natural justice-Writ petition dismissed on the ground of alternative remedy. [Art. 14, 19(1)(g), 226]
Dismissing the petition the Court held in the present case, we are not inclined to entertain the writ petition at this stage without prejudice to the rights of the aggrieved parties to approach the appropriate forum in accordance with law in the event the occasion so finally arises Accordingly, the Writ Petition stands dismissed.
Tamil Nadu State Marketing Corpn. Ltd. v. UOI (2020) 196 DTR 293 / 217 CTR 965 (Mad.)(HC)
==> In favour of Revenue (Cuttack)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Failure to deduct tax at source-Disallowance is restricted to thirty percent.
Tribunal held that the amendment brought to section 40(a)(ia) of the Income-tax Act, 1961 by the Finance Act, 2014 with effect from April 1, 2015, made it clear that the intent of the Legislature was to reduce the hardship, and that in the case of non-deduction or non-payment of tax deduction at source on payments made to residents as specified in section 40(a)(ia) the disallowance shall be restricted to 30 per cent. of the amount of expenditure claimed. Thus the Assessing Officer was directed to restrict the disallowance to 30 per cent. made under section 40(a)(ia). (AY 2011-12) Kendrapara Co-Operative Bank Ltd. v. ACIT (2020) 82 ITR 188 (Cuttack)(Trib.)
==> In favour of Revenue (Cuttack)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Labour charges-Failure to deduct tax at source-As per amendment brought to Finance Act, 2014 in s. 40(a)(ia) w.e.f. 01.04 2015, disallowance is restricted to 30% of amount of expenditure claimed-Amendment is applicable to retrospective effect. [S. 194C, 194H]
The assessee had claimed labour charges, Architect Fees and towards expenses under head commission, which were in nature of payments made towards contract payment u/s. 194C, professional fees payment u/s 194H and commission payment u/s. 194H. Assessee had also failed to deposit TDS amount so deducted from payments made towards expenses on account of labour charges, professional fees and commission to Central Govt. A/c within specified time limit. AO made disallowance u/s. 40(a)(ia) of the Act. CIT(A) confirmed the disallowance. On appeal the Tribunal held that as per amendment brought to Finance Act, 2014 in s. 40(a)(ia) w.e.f. 01.04 2015 if 100% disallowance made u/s 40(a)(ia), that would be restricted to 30% only giving retrospective effect. Intent of legislature to reduce hardship, it was proposed that in case of non-deduction or non-payment of TDS on payments made to residents as specified in s. 40(a)(ia), disallowance should be restricted to 30% of amount of expenditure claimed. (AY. 2014-15)
Om Sri Nilamadhab Builders Pvt. Ltd. v. ITO (2020) 185 DTR 201 / 203 TTJ 229 (Cuttack)(Trib.)
==> In favour of Revenue (Delhi)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Provision for expenses-Specific provision ascertained amount-Liable to deduct tax at source. [S. 37(1), 145]
Assessee airline made provision for certain expenditures such as airport handling expenses, crew accommodation expense, IT communication charges and provision for certain other expenses. Assessee had not deducted tax on source on above sum stating that it was provision and payees were not identified and assessee was following accrual system of accounting. AO held that as the assessee had made ascertained provision of expenditure and provision for expenditure was made under specified head thereby ascertaining amount, it could not be said that payee was not identified. The Appellate Tribunal held that the assessee was required to be deducted at said year-end provisions towards expenditure made by assessee. (AY. 2010-11, 2011-12)
Inter Globe Aviation Ltd. v. ACIT (2020) 181 ITD 225 / 194 DTR 81 / 207 TTJ 191 (Delhi)(Trib.)
==> In favour of Revenue (Delhi)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Quantum of disallowance-Provision would cover payable but also those sum which are payable at any time during year.
Assessee had made payments to company on account of shipment expenses without deducting tax at source. Assessing officer disallowed 30 per cent of shipping expense for non-deduction of TDS. CIT(A) affirmed the order of the AO. On appeal the Tribunal held that since assessee did not deduct TDS on full amount paid or payable during year under consideration, Assessing Officer had rightly made disallowance. (AY. 2015-16)
Amit Yadav v. ITO (2020) 185 ITD 353 (Delhi)(Trib.)
==> In favour of Revenue (Mum)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-TDS to be deducted on payment for sale promotion, legal and professional fees, etc.-Even if it was not credited to the respective parties account-Disallowance is confirmed . [ S. 201(1), 201(IA) ]
TDS on the year end provisions in respect of expenditures on account of sale promotion, legal and professional fees, internet and programming costs and further debited these provisions to its profit and loss account, was to be deducted on such expenditures even if the same was not credited to the respective parties account. ( AY. 2009-10,2010-11 )
Tata Sky Ltd v. ACIT (2020) 195 DTR 177 / 208 TTJ 194 (Mum)(Trib.)
==> In favour of Revenue (Mum.)(Trib.) S. 40(a)(i)
Amounts not deductible-Deduction at source-Non-resident-Testing charges-Not liable to deduct tax at source-Services rendered outside India-Reimbursement expenses-No disallowance could be made-Amendment by Finance Act, 2014, restricting disallowance to 30 per cent of amount paid on which tax had not been deducted at source, will have no retrospective operation-OECD Model Tax Convention, Art 12. [S. 9(1)(vii), 40(a) (i), 195]
Assessee made payments to non-residents towards IVTC charges for services rendered for assessee outside India. AO held that as per amendment made by Finance Act, 2010 in provisions of section 9(1)(vii) with retrospective effect from 1976, FTS was liable to tax in India, even though services were rendered outside India accordingly the amount was disallowed. Tribunal held that a retrospective amendment cannot fasten obligation to deduct tax when not in force at time when payment was made and since non-resident service providers were not liable to tax in respect of FTS at time of remittance for services rendered outside India, no disallowance can be made. Reimbursement of expenses in relation to providing said technical services also could not be disallowed under section 40(a)(i) for failure to deduct tax at source. Tribunal also held that amendment to section 40(a)(ia) brought by Finance Act, 2014, restricting disallowance to 30 per cent of amount paid on which tax had not been deducted at source, will have no retrospective operation. (AY. 2008-09 to 2010-11)
SGS India (P.) Ltd. v. ACIT (2020) 182 ITD 498 (Mum.)(Trib.)
==> In favour of Revenue (Mum.)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Transaction duly considered in Income-Tax returns of payee-No disallowance could be made-Advertisement-Franchisee news paper-Liable to deduct tax at source. [S. 194C, 201(1)]
Tribunal held that when Transaction duly considered in Income-Tax returns of payee, no disallowance could be made. The AO is directed to verify the return of payee. The Tribunal also held that the Explanation to section 194C defines the term “work” to include “advertising”. Hence, the very fact that the assessee had given the advertisement material to constituted a contract entered into by the assessee hence, all the ingredients of section 194C were present and the assessee was liable for deduction of tax at source on the payment. (AY.2010-11)
Mehra Eyetech P. Ltd. v. Add. CIT (2020) 80 ITR 35 (SN) / 195 DTR 282 / 206 TTJ 769 (Mum.)(Trib.)
==> Set aside (SC) S. 40(a)(iib)
Amounts not deductible-Validity of provision-Exclusive Jurisdiction of High Court to consider-Cause of action for challenge to vires of provision arose on issue of show-cause notice-High Court is directed to dispose of writ petition on merits. [Art. 14, 226]
The Assessing Officer disallowed the value added tax expense claimed by the on the ground that it was an exclusive levy by the State Government and therefore squarely covered by section 40(a)(iib) of the Act. On a writ petition, the High Court set aside the assessment order to the extent of the disallowance in terms of section 40(a)(iib), on the ground of violation of principles of natural justice. While the matter was pending before the Assessing Officer the assessee filed a writ petition challenging the validity of section 40(a)(iib) as discriminatory and violative of article 14 of the Constitution of India. The High Court dismissed the petition without deciding the validity of section 40(a)(iib) observing that the vires of the provision need not be entertained as the matter was still sub judice before the Income-tax authority. On appealallowing the appeal, that when the vires of section 40(a)(iib) of the Act were challenged, which could be decided by the High Court alone in exercise of powers under article 226 of the Constitution of India, the High Court ought to have decided the issue with regard to the vires of section 40(a)(iib) on the merits, irrespective of whether the matter was sub judice before the Income-tax authority. The vires of a provision go to the root of the matter. Once the show-cause notice was issued by the Assessing Officer calling upon the assessee to show cause why the value added tax expenditure should not be disallowed in accordance with section 40(a)(iib), the cause of action arose for the assessee to challenge the vires of section 40(a)(iib) of the Act and the assessee might not have to wait till the assessment proceedings before the Income-tax authority were finalised. The stage at which the assessee approached the High Court and challenged the vires of section 40(a)(iib) of the Act could be said to be an appropriate moment. The High Court was to decide the writ petition on the merits and decide the question with respect to challenge to the vires of section 40(a)(iib) of the Act on the merits. Matter remanded. (AY.2017-18)
Tamil Nadu State Marketing Corporation Ltd. v. UOI (2020) 429 ITR 327 / 196 DTR 289 / 317 CTR 961 / (2021) 276 Taxman 378 (SC)
==> Set aside (Mad.)(HC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Belated filing of form No.26Q-Matter remanded to Assessing Officer-No substantial question of law. [S. 194C(7)]
Court held that Tribunal having not confirmed disallowance under s. 40(a)(ia) but remanded the matter to the AO to consider whether the assessee has filed Form No. 26Q belatedly and to examine as to whether the fee has to be collected, there is no ground to interfere with the order passed by the Tribunal; no substantial question of law arises for consideration. CIT v. Valibhai Khanbhai Mankad (2013) 92 DTR 261 (Guj.)(HC) distinguished (AY.. 2012-13)
CIT v. Sri Parameswari Spinning Mills (P.) Ltd. (2020) 196 DTR 206 (Mad.)(HC)
==> Set aside (Bang.) )(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Service rendered by foreign agent-Contradictory finding-New workmen-Should be regular workmen employed in financial year relevant to assessment year-Matter remanded to the AO. [S. 80JJA, 195, 254(1)]
Tribunal held that there were contradicting finding by the lower authorities hence the matter remanded the AO for ascertaining factual facts. As regards the claim u/s. 80JJA the Tribunal held that the new workmen should be regular workmen employed in financial year relevant to assessment year.Matter remanded to the AO. (AY.2014-15)
Aquarelle India P. Ltd. v. Dy. CIT (2020)77 ITR 2 (SN) (Bang.) )(Trib.)
==> Set aside (Delhi) )(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Payment of gateway charges and other bank charges-Matter remanded to the Assessing Office.
Tribunal held that the issue of payment of gateway charges and bank charges was to be remitted to the Assessing Officer with a direction to decide the issue afresh in the light of the decision of the Tribunal in the assessee’s case for the AY. 2009-10 and decide the issue in accordance with the facts and the law.(AY. 2007-08, 2008-09)
MakeMy Trip (India) Pvt. Ltd. v. Dy.CIT (2020) 82 ITR 71 (Delhi) )(Trib.)
==> Set aside (Delhi) )(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Failure to deduct tax on interest paid on loan-Recipient had declared the interest in the return-The assessee is directed to substantiate that recipient has shown the interest in his return. [S. 194A, 201(IA)]
Tribunal held that the considering the totality of the facts of the case and in the interest of justice the issue was restored to the Assessing Officer with a direction to grant one opportunity to the assessee to substantiate that the recipient had filed its return declaring the interest amount in the income and paid due taxes thereon and decide the issue keeping in mind the provisions of section 201(1A). (AY.2010-11)
Barnala Steel Industries Ltd. v. JCIT (2020) 78 ITR 29 (SN) (Delhi) )(Trib.)
==> Set aside (Delhi)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Disallowance is applicable not only on payable amount but also on paid amount and under both circumstances TDS should be deducted-If payee had accounted for commission as his income and had shown it in his return of income and also paid tax thereon, then no disallowance could be made. [S. 201]
AO disallowed commission payment made by assessee for non-deduction of TDS thereon. CIT(A) deleted disallowance on ground that said amount was shown as paid in balance sheet. Tribunal held that disallowance under S. 40(a)(ia) is applicable not only on payable amount but also on paid amount and under both circumstances TDS should be deducted. If payee had accounted for commission as his income and had shown it in his return of income and also paid tax thereon, then no disallowance could be made in terms of second proviso to S. 40(a)(ia) read with first proviso to S. 201 of the Act. Matter remanded. (AY. 2010-11)
ITO v. Swati Housing & Construction (P.) Ltd. (2020) 180 ITD 854 (Delhi)(Trib.)
==> Set aside (Hyd.)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Interest payment-Second proviso to section 40(a)(ia) coming into effect from 01-04-2012 by Finance Act, 2012, disallowance was to be deleted and, matter was to be remanded back for disposal afresh. [S. 201(1)]
During assessment proceedings, Assessing Officer held that assessee had made payments of interest without deducting tax at source. He disallowed said payments. Assessee raised a plea before the Tribunal that since it had not been treated as assessee in default under section 201(1), disallowance under section 40(a)(ia) was not warranted. Tribunal held that in view of second proviso to section 40(a)(ia) coming into effect from 1-4-2012 by Finance Act, 2012 disallowance was to be deleted and, matter was to be remanded back for disposal afresh. (AY. 2013-14)
BBR Projects (P.) Ltd. v. ITO (2020) 184 ITD 842 (Hyd.)(Trib.)
==> Set aside (Indore) )(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Failure to deduct tax at source-Filing Forms 15G and form no 15H before CIT(A)-Addition is unsustainable-CIT(A) ought to have verified from the banks-AO is directed to delete the addition. [S. 251]
AO disallowed interest paid to two persons for failure by the assessee to deduct tax at source on the payments. The assessee filed form 15G and form 15H before the CIT(A) but the latter did not consider them. On appeal the Tribunal held assessee had filed form 15G or form 15H. The CIT(A) should have considered the evidence supplied by the assessee and if he was not satisfied, got it verified from the bank. The AO to delete the addition.(AY.2008-09)
Hiralal Jain v. ITO (2020) 77 ITR 333 (Indore) )(Trib.)
==> Set aside (Jaipur) )(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Commission-Non-Resident-Matter remanded for verification. [S. 195]
Tribunal held that neither the Assessing Officer nor the Commissioner (Appeals) had examined the actual nature of services rendered by the agents so as to bring them in the ambit of the fee for technical services. If the payment made by the assessee was not chargeable to tax in the hands of the recipient it was not liable for tax deduction at source merely because of the Explanation to section 195 as it is a prerequisite contention for invoking provisions of section 195 that the payment is chargeable to tax in India in the hands of the recipient. (AY. 2015-16)
Maharaja Shree Umaid Mills Ltd. v. Dy.CIT (2020) 83 ITR 498 (Jaipur) )(Trib.)
==> Set aside (Pune)(Trib) S.40(a)(i)
Amounts not deductible-Deduction at source-Non-resident-Payment towards information systems and Telecommunications-Agreement was filed as additional evidence Matter restored for reconsideration in light of fresh evidence submitted by assessee [ S.40(a)(ia), 254 (1) ]
AO disallowed such amount u/s.40(a)(i)/(ia) of the Act because the assessee failed to deduct tax at source on payments. The assessee filed agreement as additional evidence . The matter was remitted back to the AO for fresh assessment in light of the additional evidence provided by the assessee. (AY.
2010-11)
John Deere India Pvt. Ltd.v. ACIT (2020) 191 DTR 388 / 206 TTJ 213 (Pune)(Trib)
==> In favour of Assessee (SC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Interest paid without deduction of tax at source-Second proviso is held to be applicable.
Dismissing the appeal of the revenue the Court held that applicability of the second proviso of Section 40 (a)(ia) of the Act to the Assessment Year 2010-11. This issue is also covered against the Revenue vide decision of this court in Ansal Land Mark Township (P.) Ltd v. CIT (2015) 377 ITR 635 (Delhi)(HC) (AY. 2010-11)
PCIT v. Noida Software Technology Park Ltd. (2020) 113 taxmann.com 144 (Delhi)(HC) Editorial: SLP is granted to the revenue PCIT v. Noida Software Technology Park Ltd (2020) 269 Taxman 10 (SC)
==> In favour of Assessee (SC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Payee has shown the income in their return of income-No disallowance can be made.
Dismissing the appeal of the revenue the Court held that , the Tribunal is justified in deleting the addition as the payee has shown the in their return of income. Followed CIT v. Rajinder Kumar (2013) 362 ITR 241 (Delhi)(HC CIT v. Ansal Land Mark Township Pvt. Ltd (2015) 377 ITR 635 (Delhi) (HC).
PCIT v. Shivaai Industries (P.) Ltd. (2019) 112 taxmann.com 404 (Delhi)(HC)
Editorial: SLP is granted to the revenue, PCIT v. Shivaai Industries (P.) Ltd. (2020) 269 Taxman 53 (SC)
==> In favour of Assessee (SC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-interest paid to resident-Second proviso to S.40(a)(ia) is applicable-No disallowance can be made.
High Court dismissed the appeal of the revenue by holding that ,second proviso to S. 40(a)(ia) is applicable to relevant assessment year. Followed Ansal Land Mark Township (P) Ltd v CIT (2015) 377 ITR 635 (Delhi) (HC). (AY. 2010-11)
PCIT v. Noida Software Technology Park Ltd. (2020) 113 taxmann.com 144 / 269 Taxman 11 (Delhi)(HC)
Editorial: SLP of revenue is admitted, PCIT v. Noida Software Technology Park Ltd. (2020) 269 Taxman 10 (SC)
==> In favour of Assessee (SC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Payee reflected the said amount as it tax liability-No disallowance can be made.
AO made disallowance in respect of certain payments made by assessee on which tax had not been deducted at source. Tribunal deleted said disallowance on ground that payee had reflected said amount as its tax liability in its return. High Court affirmed the order of the Tribunal. Followed CIT v. Rajinder Kumar (2014) 362 ITR 241 (Delhi) (HC), CIT v. Ansal Land Mark Township Pvt Ltd (2015) 377 ITR 635 (Delhi) (HC).
PCIT v. Shivaai Industries (P.) Ltd. (2020) 269 Taxman 54 (Delhi) (HC)
Editorial: SLP is granted to the revenue ; PCIT v. Shivaai Industries (P.) Ltd. (2020) 269 Taxman 53 (SC)
==> In favour of Assessee (Bom.)(HC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Contractors-Provisions are not applicable where neither the assessee nor the party engaged by assessee was a contractor-No disallowances can be made. [S.194(c)]
Assessee vide two separate agreements had agreed with owners to undertake projects of construction of Complex and Plaza. Terms of those agreements do not indicate that assessee was appointed as merely a contractor to construct those projects. AO held that provisions of S. 194C were attracted and assessee was obliged to effect tax deduction at source. CIT(A) as well as Tribunal deleted the addition. On appeal by the revenue the court held that the assessee had merely engaged. its contractor. neither assessee nor the contractor could be styled as contractors, not liable to deduct tax at source. Order of Tribunal is affirmed.
ACIT v. Alfran Construction Pvt. Ltd. (2020) 186 DTR 53 / 313 CTR 365 (Bom.)(HC)
==> In favour of Assessee (Guj.)(HC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Payment to truck owners towards freight charges-Commission agent-Form 15I was collected within time-Deletion of disallowance is held to be justified. [S. 194C]
Court held that in remand proceedings the assessee had filed on sample basis the details of the commission income earned by him, though not for the entire year, and the Assessing Officer during the remand proceedings had not controverted this nor pointed out any defect in the submission filed by the assessee, that the assessee merely acted as an agent, that all the details of the truck owners were furnished before the Assessing Officer and that the assessee was absolved of the liability to deduct tax at source once he had collected form 15I. Accordingly the Tribunal dismissed the appeal of the Department. On appeal by the revenue the Court held that an over view of the matter, the reasoning assigned by the Tribunal was convincing. No question of law arose. The Tribunal did not err in deleting the addition made under S. 40(a)(ia) on account of non-deduction of tax under S. 194C holding that the assessee was a mere commission agent.(AY. 2007-08)
PCIT v. Dilipkumar Bapusaheb Patole (2020) 422 ITR 426 / 107 CCH 456 / 275 Taxman 449 (Guj.)(HC)
==> In favour of Assessee (Karn.)(HC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Failure to pay tax deducted at source-Amendment by Finance Act, 2010 allowing deduction of payment where tax deducted in subsequent year, or during previous year but paid after due date for filing return-Amendment retrospective-Disallowance is held to be not valid. [S. 139(1)]
For the AY. 2005-06, the AO disallowed a sum of Rs. 55,17,037 in terms of s 40(a)(ia) of the Act. The assessee filed an appeal before the CIT(A) who held that the amendment brought about by the Finance Act, 2010 in S. 40(a)(ia) of the Act was retrospective in nature and deleted the addition. The Tribunal held that the provisions of S. 40(a)(ia) of the Act as amended by the Finance Act, 2010 were not retrospective in nature and reversed the order of the CIT(A) The Tribunal also dismissed the miscellaneous petition filed by the assessee. On appeal the court held that the Tribunal was wrong in holding that the amendment made by the Finance Act, 2010 in the provisions of S. 40(a)(ia) of the Act was not retrospective in operation. Followed CIT v.Calcutta Export Co. (2018) 404 ITR 654 (SC). (AY.2005-06)
A. Y. Garments International Pvt. Ltd. v. Dy. CIT (2020) 426 ITR 495 / 273 taxman 162 (Karn.)(HC)
==> In favour of Assessee (Karn.)(HC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Recipient has declared the income-No loss to revenue-No disallowances can be made-Amendment with effect from 1-4-2013 is declarative and curative in nature. [S. 271C]
Court held that the provisions of section 40(a)(ia), as they existed prior to insertion of the second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee’s tax withholding lapses did not result in any loss to the exchequer. In order to cure these shortcomings of the provision, and thus obviate the unintended hardships, an amendment in law, was made. In view of the well-settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of the second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. The insertion of the second proviso to section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from April 1, 2005, being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. It was not disputed that the payments made by the assessee to the sub-contractors had been offered to tax in their respective returns of income, uncontroverted by the authorities. There was no actual loss of revenue. Hence S. 40(a)(ia) was not applicable. (AY.2005-06)
CIT v. S.M. Anand (2019) 105 CCH 0508 / (2020) 422 ITR 209 (Karn.)(HC)
==> In favour of Assessee (Ker.)(HC) S. 40(a)(iib)
Amounts not deductible-Royalty, licence, fee, etc. (Gallonage fee, licence fee and shop rental (kist))-Disallowable-licence granted to assessee for retail trade could not be sustained-Surcharge on sales tax-Surcharge on sales tax or turnover tax paid by assessee-company was not a 'fee or charge' coming within sweep of section 40(a)(iib), thus, same could not be disallowed. [S. 37(1)]
Assessee-company, a State Government Undertaking, was engaged in wholesale and retail trade of beverages within State. Assessee was holding FL-1 licence with respect to retail trade of foreign liquor in sealed bottles, without privilege of consumption within premises. It was also having FL-9 licence for wholesale of foreign liquor, which it was selling to FL-1, FL-3, FL-4, 4A, FL-11, FL-12 licence holders. Assessee claimed the said payment is not disallowable Assessing Officer held that gallonage fee, licence fee and shop rental (kist) levied with respect to said FL-9 licence being an exclusive levy imposed on assessee was to be disallowed under section 40(a)(iib) Order of the Assessing Officer is affirmed by the Appellate Tribunal. On appeal the Court held that in wholesale trade in foreign liquor under FL-9 licence was an exclusive trade in State permitted to assessee, therefore, levy of gallonage fee, licence fee and shop rental (kist) with respect to FL-9 licences granted to assessee would clearly fall within purview of section 40(a)(iib) and amount paid in this regard was liable to be disallowed. Court also held that gallonage fee, licence fee, or shop rental (kist) with respect to FL-1 licence granted to assessee for retail business in foreign liquor was not exclusively levied upon assessee as it was also levied upon one other State Government undertaking therefore, disallowance made in respect of gallonage fee, licence fee or shop rental (kist) paid with respect to FL-1 licence granted to assessee for retail trade could not be sustained. Court also held that surcharge on sales tax was introduced only as an increase in tax payable. A 'tax' cannot be equated with 'fee or charge' therefore, surcharge on sales tax or turnover tax paid by assessee-company was not a 'fee or charge' coming within sweep of section 40(a)(iib), thus, same could not be disallowed. (AY. 2014-15 2015-16)
Kerala State Beverages (Manufacturing and Marketing) Corporation Ltd. v. ACIT (2020) 274 Taxman 12 / 191 DTR 267 / 316 CTR 180 (Ker.)(HC)
==> In favour of Assessee (Mad.)(HC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Amendment made to section 40(a)(ia) by Finance Act, 2010 inserting proviso therein would apply retrospectively with effect from assessment year 2005-06.
Dismissing the appeal of the revenue the Court held that amendment made to section 40(a)(ia) by Finance Act, 2010 inserting proviso therein would apply retrospectively from date of inception of said section with effect from assessment year 2005-06. Followed CIT v. Calcutta Export Co. (2018)404 ITR 654 (SC).(AY. 2005-06)
CIT v. Archean Granites (P) Ltd. (2020) 273 Taxman 511 (Mad.)(HC)
==> In favour of Assessee (Mad.)(HC) S. 40(a)(i)
Amounts not deductible-Deduction at source-Non-resident-Interest on foreign currency Loan-Specific exemption from Ministry of Finance for interest-Not liable to deduct tax at source-No disallowances can be made. [S. 10(15)(iv)(f), 37(1), 195]
Dismissing the appeal of the revenue the Court held that , since the assessee had specific exemption from the Ministry of Finance, Government of India there was no liability to deduct tax at source on the payment made by it towards interest on the foreign currency loan taken by it. S. 40(a) was not attracted. The exemption given to the assessee by the Government had not been revoked or withdrawn on any such contingency at any point of time. Even if the foreign currency loan in question was utilised to repay the domestic loan taken as working capital loan earlier and employed by the assessee for industrial development the exemption given by the Government would not be lost. Therefore, the additions made under S. 40(a) were rightly deleted by the appellate authorities. (AY.2000-01)
CIT v. Seven Seas Distillery (Pvt.) Ltd. (2020) 422 ITR 229 / 185 DTR 105 / 312 CTR 272 / 271 Taxman 229 (Mad.)(HC)
==> In favour of Assessee (Mad.)(HC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Payment to contractor-Belated filing of form No 26Q-No disallowance could be made for failure to deduct tax at source. [S. 194C(c)]
Dismissing the appeal of the revenue the Court held that though the assessee has filed belated form No 26Q no disallowance could be made for failure to deduct tax at source in respect of payment to contractors. (AY. 2012-13)
CIT v. Sri Parameswari Spinning Mills (P.) Ltd. (2020) 196 DTR 206 (Mad.)(HC)
==> In favour of Assessee (Pat.)(HC) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Payment to contarctor-Failure to furnish form No 15J-PAN no of was collected at the time of payment-No dialloawance can be made. [S. 194C(7), R. 31A]
Dismissing the appeal of the reveniue the High Court held taht Section 194C(6) & (7) are independent of each other and cannot read together to attract disallowance under Section 40(a)(ia) read with Section 194C of the Act. ReferredACIT v. Arihant Trading Co. (2019) 176 ITD 397 (Jaipur)(Trib.) (AY. 2012-2013).
CIT v. Shri Parameshwari Spinning Mills P. Ltd. (2020) 317 CTR 898 (Pat.)(HC)
==> In favour of Assessee (Bang.)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Export of computer software-Disallowance would increase profits of business eligible for deduction-Validity of initiation of reassessment proceedings not adjudicated. [S.10A, 10AA,147, 148, 195]
Tribunal held that even if the expenditure was disallowed, it would increase the profits of the business eligible for deduction under section 10A / 10AA of the Act and consequently the deduction should be allowed on such enhanced profits. This position had been confirmed by the Central Board of Direct Taxes in its Circular No. 37 of 2016, dated November 2, 2016 ([2016 388 ITR (St.) 62). Relied on CIT v. Gem Plus Jewellery India Ltd(2011) 330 ITR 175 (Bom.),(HC) ITO v. Keval Construction (2013) 354 ITR 13 (Guj.)(HC) and CIT v. M. Pact Technology Services Pvt Ltd. (I. T. A. No. 228 of 2013, dated July 11, 2018) (Karn.) (HC) Tribunal held that since there was no tax liability ultimately there was no necessity for adjudicating the validity of initiation of the reassessment proceedings. (AY.2009-10)
JCIT v. Mphasis Ltd. (2020) 84 ITR 630 (Bang.)(Trib.)
==> In favour of Assessee (Bang.)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Interest other than interest on securities-Form 15G/15H-Procedural defects-Disallowance is held to be not justified. [S. 194A, Form No. 15G/15H]
During relevant years, assessee paid interest to depositors in excess of Rs. 10 thousand but no tax at source was deducted because depositors had furnished Form No. 15G/15H.AO held that apart from obtaining declaration in Form No. 15G/15H, assessee should have furnished those forms to Commissioner within prescribed period, since assessee failed to do so, AO disallowed the interest u/s 40(a)(ia) of Act. CIT(A) deleted the addition. Tribunal held that requirement of filing of Form 15G or 15H with prescribed authority viz., Commissioner, is only procedural and that cannot result in disallowance under S.40(a)(ia) of the Act. Followed CIT v. Sri Marikamba Transport Co (2015) 379 ITR 129 (Karn.)(HC) (AY. 2012-13, 2013-14)
JCIT v. Karnataka Vikas Grameena Bank. (2020) 181 ITD 672 / 79 ITR 207 (Bang.)(Trib.)
==> In favour of Assessee (Bang.)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-lease rentals-lease under finance lease arrangement, no tax at source was to be deducted-Disallowance is held to be not valid. [S. 194C, 194I]
Assessee contended that payment in question was not in nature of rent within meaning of section 194I and, therefore, no tax was to be deducted at source at time of making payment to finance company-Assessing Officer, however, held that amount paid was in nature of a payment to a contractor for execution of a work and assessee ought to have deducted tax at source under section 194C of the Act. On appeal the Tribunal held that payment of lease rentals under a finance lease would not attract provisions of section 194C hence disallowance is held to be not justified.(AY. 2008-09)
Texas Instruments (India) (P.) Ltd. v. ACIT (2020) 183 ITD 7 / 195 DTR 347 / 207 TTJ 586 (Bang.)(Trib.)
==> In favour of Assessee (Chand) )(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Freight payment to Transporters-Each goods receipt below prescribed limit-Not liable to deduct tax at source. [S. 194C]
Tribunal held that there were separate goods receipts for every transportation sub-contracted by the assessee. Every goods receipt was therefore to be treated as a separate contract and with each such contract not exceeding the prescribed limit for tax deduction at source, there was no requirement of deducting tax at source. No disallowance can be made. AY. 2007-08)
Bal Krishan Sood v. ITO (2020)84 ITR 307 (Chand) )(Trib.)
==> In favour of Assessee (Cochin)(Trib.) S. 40(b)(iv)
Amounts not deductible-Partner-Interest-Partners Declaring interest in their returns and assessments completed in their hands-Double taxation of same income both in hands of partners as well as firm-Interest payment is held to be allowable.
Tribunal held that the partners of the assessee-firm had declared interest received from the assessee-firm in their returns of incomes and accordingly, the assessments were completed in the hands of the partners. This amounted to double taxation of the same income both in the hands of the partners as well as in the hands of the assessee-firm. Though the Commissioner (Appeals) had directed the Assessing Officer to rectify the assessments in the hands of the partners, this exercise may not be practical since the assessment order pertained to the assessment year 2007-08. Since the entire exercise done by the Assessing Officer in the facts and circumstances of the case was revenue neutral, interest paid to the partners based on the opening balance was to be granted deduction.(AY.2007-08) Sangeeth Nursing Home v. ACIT (2020) 79 ITR 36 (SN) (Cochin)(Trib.)
==> In favour of Assessee (Delhi) )(Trib.) S. 40(a)(ia)
Amount not deductible-Deduction at source-Fees for professional or technical services-Discount offered to distributors-Non-Resident-Not liable to deduct tax at source-Allowable as expenditure. [S. 9(1)(vi), 37(1), 194J, 195]
Tribunal held that the relationship between the assessee and its holding company was that of Principal and Principal and not that of Principal and agent. The discount which was offered to the distributors was given for promotion of sales. This element could not be treated as commission. Accordingly no disallowance can be made for failure to deduct tax at source. (AY.2011-12)
Nokia India Pvt. Ltd. v. Add.CIT (2020) 82 ITR 16 (SN) (Delhi) )(Trib.)
==> In favour of Assessee (Delhi) )(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Non-resident-Amendment made by Finance Act (No. 2) to section 40(a)(ia) with effect from 01-04-2015, is curative in nature and thus said provision has to be applied retrospectively.
Tribunal held that amendment made by Finance Act (No.2) to section 40(a)(ia) with effect from 0104-2015 whereby disallowance of expenses under section 40(a)(ia) on account of TDS has to be restricted to 30 percent of expenses as against 100 percent, is curative in nature and thus same has to applied retrospectively. Where assessee made payments of commission in assessment year in question without deducting tax at source, said payments were to be disallowed to extent of 30 percent only. (AY. 2014-15)
Muradul Haque v. ITO (2020) 184 ITD 58 / 84 ITR 396 (Delhi) )(Trib.)
==> In favour of Assessee (Delhi) )(Trib.) S. 40(a)(i)
Amounts not deductible-Deduction at source-Non-resident-Service rendered outside India-Not liable to deduct tax at source.
Allowing the appeal Tribunal held that in the light of the agreement and material on record on the findings that the agents had their bases abroad, the services were rendered by them outside India and the assessee was not required to deduct tax at source while making the payments in question, for this year also, the disallowance was to be deleted.(AY. 2014-15)
Divya Creations v. ACIT (2020) 83 ITR 433 (Delhi) )(Trib.)
==> In favour of Assessee (Delhi) )(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Payment Received as partner of joint venture-Amount paid to joint venture partner diverted by overriding title-Disallowance not sustainable.
Tribunal held, that from the memorandum of understanding entered into by both the joint venture partners it was demonstrated that the parties were individually responsible for their respective share of services to the client and they individually assumed the risks. The respective parties were not entitled to the profit or loss arising from the services performed by the other party. The amount paid to H represented diversion of income by overriding title. The disallowance of the expenses invoking the provisions of section 40(a)(ia) of the Act was not sustainable. (AY. 2011-12)
Peartree Enterprises Pvt. Ltd. v. Dy.CIT (2020) 83 ITR 436 (Delhi) )(Trib.)
==> In favour of Assessee (Delhi) )(Trib.) S. 40(a)(ii)
Amounts not deductible-Rates or tax-Education cess and higher and secondary education cess-No disallowance can be made. [S. 147, 148]
Tribunal held that education cess and higher and secondary education cess were eligible for deduction while computing income chargeable under the head of profits and gains of business. Though cess may be collected as part of Income-tax that did not render such cess either a rate or a tax on profits which could not be deducted in terms of provision of section 40(a)(ii). The Assessing Officer was not justified in disallowing the amount of cess paid on Income-tax. Followed Sesa Goa Ltd. v. JCIT(2020) 117 taxmann.com 96 (Bom.) (HC) (AY.2007-08)
Thomson Press India Ltd. v. ACIT (2020) 81 ITR 63 (SN) (Delhi) )(Trib.)
==> In favour of Assessee (Delhi) )(Trib.) S. 40(b)(iii)
Amounts not deductible-Working partner-Remuneration-Interest-Rejection of books of account and assessment adopting 8 Per cent. of gross turnover as net profit-Separate deduction towards interest on partner’s capital account and remuneration to partner is to be allowed, when net profit is estimated from gross receipts. [S. 133A]
Tribunal held, that the partnership deed contained a provision for interest on capital at 12 per cent. per annum and clause 17 provided for remuneration to whole time working partners and the method of computation of remuneration. By a supplementary deed the manner of paying remuneration to the working partners had been revised. In the assessment years 2009-10 to 2011-12, the assessee had claimed interest on capital and remuneration to the partners, which was verifiable from the computation of income. The AO was directed to allow remuneration to the partners and interest on capital as per the provisions of law. Interest on the partners’ capital account and remuneration to partners was allowable as deduction even after estimation of the net profit from the gross receipts.(AY.2012-13)
Mayasheel Construction v. Dy. CIT (2020)77 ITR 8 (SN) (Delhi) )(Trib.)
==> In favour of Assessee (Delhi)(Trib.) S. 40(a)(i)
Amounts not deductible-Deduction at source-Non-resident-Provision for guarantee fee are not interest-Not liable to deduct tax at source-DTAA-India-Netherlands [ S.9 (1)(vii), Art, 11, 12 (5))(b) ]
It is merely a promise to possibly perform a future act and there was no obligation to pay immediately. Thus, court held that guarantee fee cannot be considered as an interest. The provision of guarantee fees service is not fees for Technical services under article 12 of DTAA. In view of this, assessee is not required to deduct tax at source.(AY. 2009-10 , 2010-11)
Lease Plan India P. Ltd. v. Dy. CIT (2020) 206 TTJ 981 (Delhi)(Trib.)
==> In favour of Assessee (Delhi)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Car lease rentals-Directed to furnish evidence that whether the payee had shown receipts as their income. [S.37(1)]
Tribunal held that as per the second proviso inserted in section 40(a)(ia) was declaratory and curative and was a retrospective effect from April 1, 2005. It is incumbent upon the assessee to furnish necessary evidence to demonstrate that the payees had shown receipts as their income. The assessee was directed to furnish necessary evidence and the Assessing Officer was directed to examine the evidence and decide the issue afresh.(AY.2012-13, 2015-16)
Avaya India Pvt. Ltd. v. Add. CIT (2020) 78 ITR 305 (Delhi)(Trib.)
==> In favour of Assessee (Delhi)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Commission paid to the foreign agents-Service rendered outside India-Not liable to deduct tax at source. [S. 9(1)(vii), 195]
The ssessee had paid commission paid to the foreign agents. On a perusal of the MOU signed by the assessee with the agents, AO held that the nature of services to be provided by the foreign agents are in the nature of managerial/technical services covered under S. 9(1)(viii) of the Act being paid by a resident and these are not being utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any sources outside India. The AO held that remittances made by the assessee on account of commission to foreign agent as "sales commission", are covered under the expression 'Fee for Technical Services' (FTS) as defined in S. 9(1)(vii)(b) of the Act and are to be deemed income of the payee accrued or arising in India and consequently is liable for withholding tax, and hence disallowed the expense under S.40(a)(i) of the Act. On appeal the Tribunal held that Cee-Jan Beevers is a non-resident Indian and resident of Belgium whereas MK group LLC is a resident of USA. M/s Cee-Jan Beevers is covered by the India Belgium Double Taxation Avoidance Agreement which if read with the protocol dated 26/4/1993 and the Treaty between India and the USA is applicable. So also case of M/s MK group LLC is covered by the Double Taxation Avoidance Agreement between India and USA. In either case the payment of commission would not be 'Fee for Technical Services' (FTS) since such services did not "make available" any technical knowledge, experience, skill, know-how or processes or consists of the development and transfer of technical plan or a technical design. The services rendered by these two foreign entities are outside India and in respect of the sales effected by them, and at the same time neither of these entities had any permanent establishment in India, not liable to deduct tax at source. (AY. 2009-10, 2010-11)
Sahasra Electronics P. Ltd. v. ACIT (2020) 185 DTR 193 (Delhi)(Trib.)
==> In favour of Assessee (Delhi)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Deducting tax at one Per Cent. instead of two per cent-No disallowance can be made.
Tribunal held that the assessee had deducted tax on the sum the rate of one per cent. instead of two per cent. Therefore there was no failure of deduction of tax. If there was any offence or violation it was deduction of tax at lower rates compared to what was prescribed. Relied on CIT v. S. K. Tekriwal [2014 361 ITR 432 (Cal) (HC) (AY. 2011-12)
Dy. CIT v. EXL Service.Com (India) Ltd. (2020) 83 ITR 11 (SN) (Delhi)(Trib.)
==> In favour of Assessee (Delhi)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Discount offered to distributors for promotion of sales-Not commission-Not liable to deduct tax at source-No disallowances can be made-Trade discount allowable as business expenditure. [S. 194H]
Allowing the appeal, that the relationship between the assessee and HCL was that of principal to principal and not that of principal to agent. The discount which was offered to distributors was given for promotion of sales. This element could not be treated as commission under section 194H of the Act. The disallowance under section 40(a)(ia) was not called for.(AY.2008-09, 2012-13)
Nokia India Pvt. Ltd. v. Add.CIT (2020) 83 ITR 69 (SN) (Delhi)(Trib.)
==> In favour of Assessee (Delhi)(Trib.) S. 40(a)(i)
Amounts not deductible-Deduction at source-Non-resident-Reimbursement of salary cost-No disallowance can be made. [S. 192, 195]
The Tribunal held that the employment of the assessee and as per the terms, the associated enterprise was paying salaries in the home country of the secondees and, therefore, there was reimbursement by the assessee. The assessee had been paying to its own employees. The assessee had deducted tax at source under section 192. The provisions of section 195 did not apply. There was no merit in the disallowance. (AY.2015-16)
Boeing India Pvt. Ltd. v. ACIT (2020) 81 ITR 94 (SN) (Delhi)(Trib.)
==> In favour of Assessee (Delhi)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Payment to group companies-Reimbursement of expenses-Not liable to deduct tax at source. [S. 195]
Dismissing the appeal of the revenue the Tribunal held that the reimbursement of expenses paid to group companies, not liable to deduct tax at source hence no disallowance can be made. (ITA No. 5614/Del/ 2017 dt. 9-9-2020. (AY. 2013-14)
ACIT v. APCO Worldwide (India) Pvt Ltd (2020) BCAJ-October-P. 38 (Delhi)(Trib.)
==> In favour of Assessee (Delhi)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Principal to Principal-Supply of cellular mobile phones, benefit extended to distributors could not be treated as commission liable for withholding tax under S. 194H or u/s. 194J of the Act. [S. 194H, 194J]
Assessee company was primarily engaged in business of trading and manufacturing of mobile handsets, spare parts and accessories. It entered into an agreement for supply of Cellular Mobile Phones with distributor HCL. Relationship between assessee and HCL was that of principal to principal and not that of principal to agent. Discount which was offered to distributors was given for promotion of sales-Whether in absence of a principal-agent relationship, benefit extended to distributors could not be treated as commission liable for withholding tax under S. 194H. Further the AO had not given any reasoning or finding to extent that there was payment for technical service liable for withholding under S. 194J, hence, merely making an addition under S. 194J without actual basis for same on part of AO was not just and proper. The addition was deleted. (AY. 2010-11)
Nokia India (P.) Ltd. v. DCIT (2020) 181 ITD 645 /114 taxmann.com 442 (Delhi)(Trib.)
==> In favour of Assessee (Delhi)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-The amendment to S. 40(a)(ia) by the Finance (No.2) Act, 2015 w.e.f. 01.04.2015, which restricts the disallowance for failure to deduct TDS to 30% of the expenditure instead of 100%, is curative in nature and should be applied retrospectively. [S.194H]
The assessee is an individual who is engaged inthe business of trading in fabric and job work. The AO disallowed the commission, incentives paid to employees and other for failure to deduct tax at source. Order of the AO is affirmed by the CIT(A). On appeal the Tribunal held that amendment to s. 40(a)(ia) by the Finance (No.2) Act, 2015 w.e.f. 01.04.2015, which restricts the disallowance for failure to deduct TDS to 30% of the expenditure instead of 100%, is curative in nature and should be applied retrospectively.(ITA NO 114 / Del/2019 dt 18-06-2020) (AY. 2014-15)
Muradul Haque v. ITO (2020) 117 taxmann.com 251 (Delhi) )(Trib.)
==> In favour of Assessee (Gauhati) )(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Payment to Tribal persons-Payments are not chargeable to tax-No disallowance can be made . [ S.10 (26), 194C, 194I ]
Amounts paid towards hiring of loader and excavator and land rent to Tribal persons not being chargeable to tax no disallowance can be made for failure to deduct tax at source. Referred Chandra Mohan Snku & Ors v .UOI (2015 ) 118 DTR 65 /276 CTR 385 ( FB) ( Tripura ) ( HC) ( AY. 2013-14 )
Komorrah Limestone Mining Company Ltd. v. ACIT (2020) 203 TTJ 518 (Gauhati) )(Trib.)
==> In favour of Assessee (Gauhati) )(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Scheduled Tribes-Not liable to deduct tax at source as the receipt is not taxable in their hands-Payments to other persons matter remanded to the AO to verify whether payees had included receipts in computation of their total income. [S.10 (26), 195(7)]
Dismissing the appeal of the revenue the Tribunal held that , Scheduled tribes are exempt from the provisions of the Act by virtue of section 10(26) of the Act. As a result, there was no occasion to deduct tax at source on the sum payable to them. No disallowance can be made for failure to deduct tax at source. As regards other payees had included the receipts in their computation of total income and return of income, it would be sufficient compliance with the provisions requiring deduction of tax at source and no disallowance should be made under section 40(a)(ia) of the Act.Matter remanded.(AY. 2013-14)
ITO v. S. S. Netcom Pvt. Ltd. (2020)84 ITR 67 (SN) (Gauhati) )(Trib.)
==> In favour of Assessee (Kol.) )(Trib.) S. 40(a)(ii)
Amounts not deductible-Rates or tax-Education cess is allowable as deduction.
Tribunal held that education cess is not tax and hence allowable as deduction Referred the CBDT Circular No. 91/58/66-ITJ(19) dated 18-05-1967, wherein it has been clarified that the effect of omission of the word 'cess' from Sec. 40(a)(ii) of the Act is that only taxes paid are to be disallowed and not cess. Relevant extract of circular is as under:-
"Recently a case has come to the notice of the Board where the ITO has disallowed the 'cess' paid by the assessee on the ground that there has been no material change in the provisions of s. 10(4) of the old Act and s. 40(a)(ii) of the new Act. The view of the ITO is not correct. Clause 40(a)(ii) of the IT Bill, 1961 as introduced in the Parliament stood as under:
"(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of or otherwise on the basis of any such profits or gains". When the matter came up before the Select Committee, it was decided to omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the years 1962-63 and onwards. The Board desire that the changed position may please be brought to the notice of all the ITOs so that further litigation on this account may be avoided"
Chambal Fertilizers and Chemicals Ltd. vs. JCIT (ITA No. 52/2018 dt 31-7-2018 which after taking into account aforementioned CBDT circular held that Sec. 40(a)(ii) applies only to taxes and not to education cess. Relevant extract of the decision is reproduced for ease of reference:-"13. On the third issue in appeal no. 52/2018, in view of the circular of CBDT where word "Cess" is deleted, in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is not tax in that view of the matter, we are of the considered opinion that the view taken by the tribunal on issue no. 3 is required to be reversed and the said issue is answered in favour of the assessee."
ITC Limited v. ACIT (ITA No. 685/Kol/2014 dt28-11-2018 (AY,2009-10), Peerless General Finance & Investment Co. Ltd. v DCIT (ITA No. 937/Kol/2018) dt 24-4-2019 (AY.2010-11)
Reckitt Benckiser (I.) Pvt. Ltd. v. Dy. CIT (2020) 81 ITR 577 (Kol.) )(Trib.)
==> In favour of Assessee (Kol.)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Short deduction of tax at source-No disallowance can be made. [S. 194C]
The AO held that failure to deduct the whole or any part of the tax entails disallowance, the assessee having failed to deduct tax as required under the provisions of section 194C the disallowed the expenses, which is affi78rmed by the CIT(A). On appeal the Tribunal held that the disallowance under section 40(a)(ia) did not apply in a case involving short deduction of tax at source.(AY.2009-10)
A. K. Industries v. ACIT (2020) 78 ITR 462 (Kol.)(Trib.)
==> In favour of Assessee (Luck.)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Shipping expenses in nature of freight-Agent acting on behalf of Non-Resident ship owner or Charterer-Not required to deduct tax at source. [S. 172, 194C, 195]
Tribunal held, that Circular No. 723 dated September 19, 1995 provides that since the agent acts on behalf of the non-resident ship-owner or charterer, he steps into the shoes of the principal. Accordingly, the provisions of section 172 would apply and those of sections 194C and 195 would not apply. Therefore the disallowance was not required to be made.(AY. 2013-14)
Suresh Khatri v. ITO (2020) 82 ITR 29 (Luck.)(Trib.)
==> In favour of Assessee (Mum) )(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Sales rebate-Discount-No element of work as defined under clause (iv) of Explanation to Section 194C of Act-Not liable to deduct tax at source-No disallowance can be made .[ S.194C, 194H ]
The assessee simply sells its products to dealers/distributors who, in turn, sell them to the end users. Therefore, there was no element of work as defined under clause (iv) of Explanation to Section 194C of the Act. Therefore, under no circumstances, S. 194C of the Act would be applicable to the discount/rebate.(AY. 2016-17 , 2017-18)
ASUS India Pvt. Ltd. v. ACIT (2020) 208 TTJ 1 (Mum) )(Trib.)
==> In favour of Assessee (Mum.)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Channel placement fees-Short deduction of tax at source-No disallowance can be made. [S. 9(1)(vi), 194C, 194J]
Assessee was engaged in producing/promoting television programmes/movies and broadcasting of same on satellite television channels. It paid channel placement fees to cable operators and submitted that it had deducted tax at source in terms of section 194C. Assessing Officer held that said charges would be covered within ambit of definition of term 'royalty' as per Explanation 6 in section 9(1)(vi) and, accordingly, held that same would fall within ambit of deduction of tax provisions as per section 194J instead of section 194C. Since, there was short deduction of tax at source, Assessing Officer disallowed differential sum under section 40(a)(ia). Tribunal followed CIT v. Times Global Broadcasting Co. Ltd. [2019] 105 taxmann.com 313 (Bom.) holding that when placement charges were paid by assessee to cable operators/MSOs for placing signals on a preferred band, it was a part of work of broadcasting and telecasting covered by sub-clause (b) of clause (iv) of Explanation to section 194C. Accordingly the Assessing Officer was directed to delete the disallowance. (AY.2013-14)
Star India (P.) Ltd. v. ACIT (2020) 185 ITD 559 / 81 ITR 8 (SN) (Mum.)(Trib.)
==> In favour of Assessee (Mum.)(Trib.) S. 40(a)(i)
Amounts not deductible-Deduction at source-Non-resident-Advertisement expenses-Expenditure not claimed as deduction-No disallowance can be made-Matter remanded. [S. 30 to 38, 195]
Tribunal held that when the expenditure not claimed under section 30 to 38 of the Act as deduction no disallowance can be made. Matter remanded for verification. (AY. 2015-16)
Interactive Avenues (P.) Ltd. v. DCIT (2020) 196 DTR 249 / 208 TTJ 945 / (2021) 187 ITD 463 (Mum.)(Trib.)
==> In favour of Assessee (Mum.)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Placement fees under contract between Cable operators-Neither commission nor royalty-Not liable to deduct tax source-No disallowance can be made. [S. 9(1)(vi), 194C, 194J]
Tribunal held that when services were rendered as per the contract by accepting the placement fee or carriage fee, the fees were similar to the services rendered against the payment of standard fees paid for broadcasting of channels on any frequency. The placement fees were paid under the contract between the assessee and the cable operators. Therefore, the carriage fees or placement fees were not in the nature of commission or royalty. The Assessing Officer was directed to delete the disallowance.(AY.2013-14)
Star India P. Ltd. v. ACIT (2020) 81 ITR 8 (SN) (Mum.)(Trib.)
==> In favour of Assessee (Mum.)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Professional fees-Recipient paying tax on payment made-Disallowance is held to be not justified.
Tribunal held the assessee fairly stated that the Assessing Officer could determine whether the recipient had already disclosed the receipt in its return and had paid due taxes thereon. This was a statutory claim made by the assessee in terms of the second proviso to section 40(a)(ia) which provides that once the recipient had already paid the taxes on a particular payment made by the assessee to the recipient, the disallowance under section 40(a)(ia) could not be invoked in the hands of the payer, i. e., the assessee. The Assessing Officer was directed accordingly. (AY.2014-15)
Trans Freight Containers Ltd. v. Dy.CIT (2020) 78 ITR 5 (SN) (Mum.)(Trib.)
==> In favour of Assessee (Mum.)(Trib.) S. 40(a)(i)
Amounts not deductible-Deduction at source-Royalty-Fees for technical services-Not liable to deduct tax at source on referral fee paid to the foreign concern as the same did not fall within the realm of “Fees for included services” and there was no Permanent Establishment of the said foreign concern in India-No disallowance can be made-DTAA-India-USA. [S. 9(1)(vii), 90(2), Art. 7, 12]
Tribunal held that referral fee did not fall within realm of “FTS” as envisaged in Article 12 of India-USA, DTAA; and (ii) that as said payment made to foreign concern for services which were rendered entirely in USA, constituted its business profits within meaning of Article 7 of India-USA DTAA, therefore, in absence of any PE of said foreign concern in India, said amount could only be brought to tax in USA. Even as per s. 90(2), in pursuance of beneficial provisions of India-USA DTAA, as referral fees received by foreign concern was not taxable in India, therefore, no obligation was cast upon assessee to have deducted any TDS on said payment. No disallowance can be made. (AY. 2012-13)
Knight Frank (India) Pvt. Ltd. v. ACIT (2020) 185 DTR 292 / 203 TTJ 117 (Mum.)(Trib.)
==> In favour of Assessee (Mum.)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-When no deduction is claimed while computing business income, no disallowance can be made for failure to deduct tax at source. [S. 30, 38]
Allowing the appeal of the assessee the Tribunal held that , when the assessee has not claimed the deduction while computing the business income, for failure to deduct tax at source,provisions of Section 40(a) (i) can not be invoked. (AY. 2015-16)
Interactive Avenues Pvt. Ltd. v. DCIT (2020) 196 DTR 249/ 208 TTJ 945 / (2021) 187 ITD 463 (Mum.)(Trib.)
==> In favour of Assessee (Mum.)(Trib.) S. 40(a)(ii)
Amounts not deductible-Rates or tax-Tax paid abroad-State (local) taxes paid by assessee in countries having DTAA with India which are not eligible for relief under s. 90 or 91 do not attract disallowance under s. 40(a)(ii)-Matter remanded to the Assessing Officer for verification-Commission payment outside India-Not liable to deduct tax at source-Purchase pf software-Matter remanded.[S. 2(43), 9(1)(vii), 37(1), 40(a)(ii), 90, 91, 195]
Tribunal held that State (local) taxes paid by assessee in countries having DTAA with India which are not eligible for relief under s. 90 or 91 do not attract disallowance under s. 40(a)(ii)-Matter remanded to the Assessing Officer for verification. Relied Reliance Infrastructure P. Ltd. v. CIT (2017) 390 ITR 271 (Bom.) (HC), Not followed Dy. CIT v. Tata sons Ltd. (2010) 48 DTR 321 (Mum.) )(Trib.). Tribunal also held that the commission paid outside India for service rendered out side India, not liable to deduct tax at source. As regards purchase of software the matter remanded to the Assessing Officer to ascertain the facts and decode accordance with the (AY. 2009-10)
ACIT v. Tata Consultancy Services Ltd (2020) 188 DTR 39 / 203 TTJ 146 (Mum.)(Trib.)
==> In favour of Assessee (Pune)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Income deemed to accrue or arise in India-Royalty-Payment to software-Not liable to deduct tax at source-DTAA-India-France. [S. 195, Art. 5, 12]
The Tribunal held that assessee was allowed the use of the software for its own business purpose and there was no permission to sub-licence the same. There is a specific bar on the assessee in not sublicensing the software, which were to be used for its sole business needs. In other words, the consideration was for the use of software for its own business purpose and not for the use of, or the right to use, any copyright of software. As the consideration payable by the assessee for use of LARA, DIVA and Ocean was only for the use of the software for its own business purpose and not having right to copyright, the same will not constitute ‘Royalties’ within Article 13(3) of the DTAA. On the plain language of section 9(1)(vi) de hors the effect of Explanation 4, the consideration does not fall in the realm of ‘royalty’. The Retrospective insertion of Explanation 4 to s. 9(1)(vi) cannot necessitate tax withholding during the period when the provision was actually not a part of the enactment, so as to warrant disallowance u/s 40(a)(i). (AY. 2012-13)
CMA CGM Agencies India P. Ltd. v. Dy.CIT (2020) 186 DTR 1 (Pune)(Trib.)
==> In favour of Assessee (Pune)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Interest other than interest on securities-Co-operative bank-Members-Not liable to deduct tax at source. [S. 194A(3)(v)]
Assessee, a co-operative bank, made payments towards interest to its members without deducting tax at source under section 194A of the Act. The Assessing Officer made disallowance under section 40(a)(ia) on ground that assessee ought to have deducted tax at source under section 1 94A on interest paid to HUF and unregistered firms, as they were not legal members of assessee in accordance with bye-laws of assessee as definition of "person" in bye-laws did not include HUF and unregistered firms. Allowing the appeal the Tribunal held that these entities were admitted as members by way of an application made by them to bank and then passing of a resolution to extent of their admission as members of bank in assessee's board of directors meeting. Accordingly the disallowance was deleted (AY. 2013-14)
Nilkanth Urban Co-operative Bank Ltd. v. ACIT (2020) 194 DTR 137/ 207 TTJ 893 / (2021) 186 ITD 131 (Pune)(Trib.)
==> In favour of Assessee (Rajkot)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Commission to foreign parties-Short deduction of tax at source-No disallowance can be made-Model OECD Convention-Art. 7. [S.
9(1)(i))]
Dismissing the appeal of the revenue the Tribunal held that commission was in nature of business income for recipient of income/payee/non-residents and was not taxable in India in terms of section 9(1)(i) in absence of business connection in India. The assessee was not liable for short deduction of tax at source and, therefore, disallowance under section 40(a)(ia) was not permissible.(AY. 201112,2012-13)
DCIT v. DML Exim (P.) Ltd. (2020) 184 ITD 432 (Rajkot)(Trib.)
==> In favour of Assessee (Vishakha)(Trib.) S. 40(a)(ia)
==> In favour of Assessee (Vishakha)(Trib.) S. 40(a)(ia)
Amounts not deductible-Deduction at source-Exhibitor of film-Payment to distributor on revenue shared basis-Neither Contractual payment nor rent-Not liable to deduct tax at source. [S. 194C(1), 201(1)]
The assessee was exhibiting films and making payments to the distributor. The revenue was shared between the theatre owner and the film distributor and it was neither a contractual payment nor a rent payment. The assessee relied on Circular No. 681, dated March 8, 1994 (1994)206 ITR 299 (St) and Circular No. 736 dated February 13, 1996 (1996) 218 ITR 97 (St) to support the contention that the payment was neither in the nature of contractual payment nor rental payment but towards its share for screening the film. Tribunal held that the payment was made by the theatre owner who was exhibiting the films, and could not be held as rental payment. Similarly, the assessee was screening the films being the theatre owner, and it could not be held that the payment was a contract payment. Therefore, the Assessing Officer had not made out the case of either contractual payment or rental payment for holding that it attracted the tax deduction at source. The Department also did not make out a case that the assessee was in default for non-deduction of tax at source under section 201(1). Hence, the disallowance was unsustainable and accordingly, the addition was deleted.(AY.2013-14) Sri Parameswari Projects P. Ltd. v. ITO (2020) 79 ITR 529 (SMC) (Vishakha)(Trib.)
==> AA (Bom.)(HC) S. 40(a)(ii)
Amounts not deductible-Any rate or tax levied-Education cess is held to be deductible. [S. 246A, 254(1) Indian Income-tax Act, 1922, S. 10(4)]
Court held that in the Indian Income-tax Act, 1922, S. 10(4) had banned allowance of any sum paid on account of “any cess, rate or tax levied on the profits or gains of any business or profession”. In the corresponding section 40(a)(ii) of the Income-tax Act, 1961 the expression “cess” is quite conspicuous by its absence. In fact, legislative history bears out that this expression was in fact to be found in the Income-tax Bill, 1961 which was introduced in Parliament. However, the Select Committee recommended the omission of expression “cess” and consequently, this expression finds no place in the final text of the provision in section 40(a)(ii) of the Act. The effect of such omission is that the provision in section 40(a)(ii) does not include, “cess” and consequently, “cess” whenever paid in relation to business, is allowable as deductible expenditure. This is also the view of the Central Board of Direct Taxes as reflected in Circular No. F. No. 91/58/66-ITJ(19), dated May 18, 1967. The Central Board of Direct Taxes Circular, is binding upon the authorities under the Act like the Assessing Officer and the appellate authority. The, education cess is held to be deductible. Though the claim to deduction of education cess and higher and secondary education cess was not raised in the original return or by filing a revised return, the assessee had addressed a letter claiming such deduction before the assessment could be completed. However, even if we proceed on the basis that there was no obligation on the Assessing Officer to consider the claim for deduction in such letter, the Commissioner (Appeals) or the Appellate Tribunal, before whom such deduction was specifically claimed, was duty bound to consider such claim. Followed CIT v. Orient (Goa) P Ltd [2010] 325 ITR 554 (Bom.) (HC) (AY.2008-09, 2009-10)
Sesa Goa Ltd. v. JCIT (2020) 423 ITR 426 / 117 taxmmann.com 96 / 193 DTR 41 / 316 CTR 446 (Bom.)(HC)
