2015 (5) TMI 743 - AT - Income Tax

Disallowance of dividend / interest paid to chit subscribers due to non deduction of TDS - Disallowane of expenses on collection of subscription for other group companies - Disallowance of expenses - Additional evidence put before tribunal for consideration by assessee - Held that - We find that this issue has been decided by the ITAT in the assessee s own case 2015 (4) TMI 938 - ITAT HYDERABAD for A.Y. 2005-06 dated 24th September, 2014 wherein it has been held that the issue involved in the appeal of the Revenue is squarely covered in favour of the assessee by the decision of the coordinate bench of this Tribunal in assessee s own case 2012 (2) TMI 468 - ITAT HYDERABAD for assessment year 2008-09 rendered vide order dated 24.2.2012, wherein a similar disallowance made by the Assessing Officer was held to be unsustainable, following the decision of the Madras high Court in the case of Bilahari investments (P)Ltd. 2006 (6) TMI 59 - MADRAS HIGH COURT , wherein it was held that the dividend distributed by the assessee did not part-take the character of interest and consequently, the assessee was not liable to deduct tax at source. Disallowance of expenses - We do not find any infirmity in the CIT (A) s disallowing meager expenditure of ₹ 2.00 lakhs only, as a very little expenses would be actually deployed for collection of subscription from other group companies. Collection was done as minor additional work along with their regular employment. We confirm the order of the CIT (A) on this issue. Additional evidence - We admit the additional evidence as the same substantiated the merits of the case and the evidence goes to the root of the issue, relying on the decision of the Hon ble Bombay High Court in the case of Smt. Prabhavati S. Shah 1998 (2) TMI 107 - BOMBAY High Court and Abhay Kumar Shroff 1997 (6) TMI 75 - ITAT PATNA . We set aside the issue to the file of the AO to consider the additional evidence and re-decide the issue in accordance with law. - Appeal filed by the Revenue is dismissed and the appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on dividend/interest payments.
2. Proportional disallowance of expenses related to collection on behalf of subsidiary companies.
3. Disallowance under Section 40(a)(ia) for non-deduction of TDS on payments to M/s Ushakiron Movies Ltd.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on dividend/interest payments:
The Department argued that the CIT (A) erred in deleting the addition made towards dividend/interest paid without TDS under Section 40(a)(ia) of the Act. The CIT (A) held that the dividend paid by the assessee company to chit members was not in the character of interest payment, and therefore, Section 194 was not applicable. The ITAT found that this issue had been decided in favor of the assessee in its own case for A.Y. 2005-06 and 2008-09, where it was held that the dividend did not partake the character of interest and no TDS was required. This decision was upheld by the Andhra Pradesh High Court and the Supreme Court. Respectfully following these judicial pronouncements, the ITAT dismissed the Department's grounds of appeal on this issue.

2. Proportional disallowance of expenses related to collection on behalf of subsidiary companies:
The AO disallowed proportional expenses amounting to Rs. 18,87,903, arguing that the expenditure was not incurred in connection with the assessee's business. The CIT (A) restricted the disallowance to Rs. 2.00 lakhs, noting that only a small portion of the expenses could be attributed to the collection of subscriptions for other group companies. The ITAT agreed with the CIT (A), confirming that the disallowance of Rs. 2.00 lakhs was reasonable, as the collection was done as minor additional work along with regular employment. The ITAT found no infirmity in the CIT (A)'s order and dismissed the Revenue's appeal on this issue.

3. Disallowance under Section 40(a)(ia) for non-deduction of TDS on payments to M/s Ushakiron Movies Ltd:
The AO disallowed Rs. 52,12,366 under Section 40(a)(ia) for non-deduction of TDS on payments made to M/s Ushakiron Movies Ltd, arguing that these payments were part of a composite contract requiring TDS. The CIT (A) upheld this disallowance, stating that all payments made under the MOU for marketing services were subject to TDS. The assessee appealed, submitting additional evidence showing that the payee had included these payments in their regular income and paid taxes. The ITAT admitted this additional evidence, noting its relevance to the issue and set aside the matter to the AO for reconsideration in light of the new evidence. Thus, the ITAT allowed the assessee's appeal for statistical purposes.

Conclusion:
The ITAT dismissed the Revenue's appeal and allowed the assessee's appeal for statistical purposes, directing the AO to reconsider the issue of TDS on payments to M/s Ushakiron Movies Ltd based on the additional evidence provided. The order was pronounced in the Open Court on 11th February 2015.