2014 (1) TMI 283 - AT - Income Tax

Deletion of disallowance u/s 40(a)(ia) of the Act - Applicability of section 194J of the Act - Held that - The assessee s contention, even as observed by the Bench during hearing, that no tax could possibly be deducted at source by it as the payment stood effected only by way of deduction by ZTL - Even assuming liability to TDS, the obligation for the same would lie with the payer-ZTL, as it is only it who has under the circumstances made the payment (to itself) by expropriating a liability outstanding for payment - That is, even if the said payment is liable to TDS, it is only ZTL who was required to deduct tax at source thereon, and deposit the same to the credit of the central government, and not the assessee, who could not be charged with the non- deduction of tax at source - with the said liability, much less the consequence/s - This is as the deduction of tax at source by the assessee was unfeasible, representing an impossibility the order deleting the disallowance u/s. 40(a)(ia) for non-deduction of tax at source upheld Decided against Revenue.

Issues involved:
- Appeal against the Order by the Commissioner of Income Tax (Appeals)-17, Mumbai partly allowing the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 for the assessment year 2007-08 regarding the deletion of disallowance u/s. 40(a)(ia) of the Act in the sum of Rs.10,60,000.

Analysis:

1. Deletion of disallowance u/s. 40(a)(ia) of the Act:
The Revenue appealed against the deletion of disallowance u/s. 40(a)(ia) of the Income Tax Act, 1961 amounting to Rs.10,60,000. The assessee, a company engaged in TV serial production, claimed expenses including uplinking charges. The Assessing Officer disallowed the amount under section 40(a)(ia) due to non-deduction of tax at source. The assessee contended that the uplinking charges were essentially a business loss and not subject to TDS. The Tribunal noted that the payment was a compensation for uplinking charges incurred by the broadcaster due to production delays. The Revenue argued that the payment should be considered contractual and hence subject to TDS under section 194C. However, the Tribunal found that the payment did not fall under section 194J and was akin to a business loss. The Tribunal held that even if TDS was applicable, the obligation lay with the payer, ZTL, and not the assessee, as the payment was made through deduction by ZTL. Consequently, the Tribunal upheld the deletion of disallowance u/s. 40(a)(ia) for non-deduction of tax at source.

2. Application of sections 194C and 194J:
The Tribunal discussed the applicability of sections 194C and 194J in the context of the payment made by the assessee. While the Revenue argued for the application of section 194C, the Tribunal found that the payment was more in the nature of a business loss rather than a contractual payment. The Tribunal emphasized that the obligation to deduct tax at source, if applicable, rested with the payer, ZTL, who made the payment through deduction. The Tribunal clarified that the payment being disputed did not negate its treatment as a business loss. The Tribunal concluded that the payment did not fall under section 194J and upheld the deletion of disallowance u/s. 40(a)(ia) based on these considerations.

3. Liability for tax deduction at source:
The Tribunal addressed the issue of liability for tax deduction at source, emphasizing that the payer, ZTL, was responsible for deducting tax at source on the payment made. The Tribunal agreed with the Commissioner of Income Tax (Appeals) that the assessee, being the recipient of the payment through deduction, was not liable for the non-deduction of tax at source. The Tribunal held that the deduction of tax at source by the assessee was unfeasible and upheld the deletion of disallowance u/s. 40(a)(ia) based on this reasoning.

In conclusion, the Tribunal dismissed the Revenue's appeal against the deletion of disallowance u/s. 40(a)(ia) for non-deduction of tax at source on the payment made by the assessee, emphasizing the payer's liability for tax deduction at source and the nature of the payment as a business loss rather than a contractual obligation under sections 194C and 194J.

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