2012 (5) TMI 396 - AT - Income Tax

Disallowance u/s 40(a) while computing exemption u/s 11 on account of non deduction of TDS - held that - Section 40 is applicable only when deductions under Sections 30 to 38 are being made in computing the income chargeable under the head profits and gains of business or profession under Section 28. The exception in Section 40 is carved out, only for the purpose of Section 28 and not for computing the exemption of income of a charitable trust under Section 11. - Decided in favor of assessee.

Summary

Issues:
1. Disallowance of Rs. 3,06,457/- under Section 40(a)(ia) disregarding the charitable nature of the assessee's income.
2. Addition of Rs. 20,192/- as OT income not received by the appellant.

Issue 1:
The appeal was filed against the order passed by CIT(A)-1, Mumbai for the assessment year 2007-2008, where the assessee contended that Section 40(a)(ia) should not be applicable to a trust like theirs, registered under Section 12A and computing income under Section 11. The Assessing Officer disallowed payments for non-deduction of TDS under Sections 193 & 194, adding them to the total income. The CIT(A) upheld the disallowance, stating that Section 40(a)(ia) applied to the assessee. The assessee argued that TDS provisions are not applicable to charitable trusts, citing a similar ITAT Amritsar Bench order. The Senior DR contended that TDS provisions apply to all assesses, emphasizing the CIT(A) and Assessing Officer's findings.

The tribunal analyzed the provisions of Section 11 (exempt income for charitable purposes) and Section 40 (deductions for profits and gains from business or profession). Section 40 carves out exceptions for deductions under Sections 30 to 38, specifically for computing income under the head "profits and gains of business or profession." The tribunal concluded that Section 40(a) disallowances enhance business profits under Section 28 and are not applicable to charitable trusts computed under Section 11. Therefore, the disallowance under Section 40(a)(ia) for non-deduction of TDS was deemed unjustified for the charitable trust, and the appeal was partly allowed, deleting the disallowance of Rs. 3,06,457/-.

Issue 2:
The assessee did not press for ground No.2 regarding the addition of Rs. 20,192/- as OT income, leading to its dismissal for not being pressed.

In conclusion, the tribunal allowed the appeal partly, ruling in favor of the assessee regarding the disallowance under Section 40(a)(ia) for non-deduction of TDS, considering the charitable nature of the trust's income computed under Section 11.