2014 (9) TMI 1016 - AT - Income Tax

Disallowance under section 40(a)(ia) - non deduction of TDS on Royalty and Commission - Held that - There is no default on the part of the assessee in respect of deduction of tax at source. There is sufficient evidence regarding the payment shown as income by the respective parties (payee) in their return filed and so the ITO failed to appreciate that tax cannot be collected once again by the Department if it is already paid by the payee. No expenditure was outstanding or payable as on Balance Sheet date i.e. 31.03.2009 for which TDS has to be collected and hence section 40(a)(ia) cannot be invoked in the light of the order of the ITAT Special Bench in the case of Merilyn Shipping & Transports. 2012 (4) TMI 290 - ITAT VISAKHAPATNAM . Identical issue was considered by the ITAT A Bench in the case of Amit Naresh Sinha (2014 (9) TMI 1000 - ITAT PANAJI wherein one of us is a party) wherein the Bench had taken the view that if an amount is paid disallowance under section 40(a)(ia) is not permissible - Decided in favour of assessee.

Summary

Issues:
- Appeal against deletion of addition under section 40(a)(ia) for failure to deduct tax on royalty and commission.
- Interpretation of section 40(a)(ia) regarding deduction of tax at source.
- Application of ITAT Special Bench decision in Merilyn Shipping & Transports case.
- Judicial discipline in following Special Bench decisions.

Analysis:
1. The appeal pertains to the deletion of an addition under section 40(a)(ia) for the failure to deduct tax on royalty and commission. The assessee declared income from royalty of film clippings and songs to various channels and paid royalty and commission during the year under appeal. The AO disallowed a figure of Rs. 36,57,581 for not deducting tax at source.

2. The CIT(A) held that section 40(a)(ia) applies only to amounts shown as payable on the Balance Sheet date, not for payments already made. The CIT(A) referred to the ITAT Special Bench decision in the Merilyn Shipping & Transports case, stating that the provision does not apply when the amount is already paid or credited.

3. The Revenue contended that the decision in the Merilyn Shipping & Transports case was upheld by the Allahabad High Court in the case of Vector Shipping Services. The Revenue argued that even if another view is possible, the one favorable to the assessee should be taken, and section 40(a)(ia) should not be invoked.

4. The ITAT A Bench in a separate case held that if an amount is paid, disallowance under section 40(a)(ia) is not permissible. The Tribunal emphasized judicial discipline in following Special Bench decisions until overturned by a higher court. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order.

5. The decision underscores the importance of interpreting tax provisions in line with judicial precedents and upholding judicial discipline in following Special Bench decisions until overruled by a higher court. The judgment provides clarity on the application of section 40(a)(ia) regarding deduction of tax at source and highlights the significance of consistent interpretation across different cases.