2015 (11) TMI 113 - AT - Income Tax

Disallowance u/s 40(a)(ia) - amount paid to seconded employees on which tax is not deducted at source - Held that - Since the issue raised in this appeal is identical to the issue decided by this Bench of the Tribunal in the assessee s own case for the subsequent assessment year 2010-11 what has been paid to the deputed personnel is a salary and hence the assessee was not liable to deduct tax at source from the payment made by it to IHC as reimbursement of salaries in respect of various personnel deputed to the hotel of the assessee. The alternative contention of the counsel also has to be accepted in view of the clear provisions of the Explanation to s. 191. Assuming, without admitting, that the assessee was liable to deduct tax at source under s. 194J, still no demand for non-deduction of tax could have been raised against the assessee. This is because the deductor will be liable only if the recipient has not paid the tax on the amount received by him. In the instant case, it is not disputed that the deputed persons, wherever liable, have paid the tax on the salaries received by them and hence no further tax can be collected from the assessee. The order passed under ss. 201, and 201(1A) is bad in law and the CIT(A) had also erred in confirming the same. Needless to add, since the assessee was not liable to deduct tax under s. 194J, there is no question of levying any interest also under s. 201(1A) Both the Revenue Authorities has not examined the following aspects and held the issue against and in favour of the assessee; i.e., whether the tax has been duly deducted at source by the assessee s subsidiary company on the payment made by the assessee to the seconded employees from the assessee s subsidiary company, whether the payment made by the assessee company to the seconded employees from the assessee s subsidiary company amounts to advance payment to the assessee s subsidiary company which is reimbursable and does not amount to additional service charges payable by the assessee company to the assessee s subsidiary company and also the decisions cited by the assessee hereinabove, we hereby remit back the matter to the file of the Ld. Assessing Officer to consider all these aspects discussed hereinabove and pass appropriate order as per merits and law. - Decided in favour of assessee. Disallowance invoking Section-14A of the Act and Rule 8D of the Rules - Held that - This issue is also identical to the issue raised in the assessee s own case for the subsequent assessment year 2010-11. Since we have directed the Ld. Assessing Officer to delete the addition made on account of Section-14A with respect to investments made in the assessee s subsidiary company following the decision of the Chennai Bench of the Tribunal in the case EIH Associates Hotels Vs. CIT 2013 (9) TMI 604 - ITAT CHENNAI we hereby direct the Ld. Assessing Officer to verify whether the fact of the case is identical as to what is submitted by the Ld. A.R before us and if found to be so, delete the addition made on account of Section-14A of the Act. - Decided in favour of revenue for statistical purposes

Summary

Issues:
1. Disallowance under section 40(a)(ia) for non-deduction of tax on payment to seconded employees.
2. Disallowance under Section 14A and Rule 8D.

Analysis:

Issue 1: Disallowance under section 40(a)(ia) for non-deduction of tax on payment to seconded employees:
The Revenue appealed against the order of the Commissioner of Income-Tax(A)-VI, Chennai, challenging the directions to delete disallowances made under section 40(a)(ia) of the Act for not deducting tax on payments to seconded employees. The Assessing Officer disallowed the deduction, arguing that since the employees were not on the assessee's payroll and were from a subsidiary company, tax should have been deducted at source. However, the CIT (A) deleted the addition, stating that the payments were advances reimbursable by the subsidiary company, and tax had already been deducted by the subsidiary company. The Tribunal, in a previous case for the assessment year 2010-11, ruled in favor of the assessee, emphasizing that if tax was already deducted at source by the subsidiary company, no further tax deduction was required. The Tribunal remitted the matter back to the Assessing Officer to consider all aspects and pass an appropriate order.

Issue 2: Disallowance under Section 14A and Rule 8D:
The second issue involved directing the Assessing Officer to delete the disallowance made under Section 14A and Rule 8D. The Tribunal noted that this issue was identical to a previous case for the subsequent assessment year 2010-11. Following a decision of the Chennai Bench of the Tribunal, the Assessing Officer was directed to verify the facts and delete the addition made under Section 14A if found identical to the previous case. Consequently, the appeal of the Revenue was partly allowed for statistical purposes.

In conclusion, the Tribunal's judgment addressed the disallowances under section 40(a)(ia) and Section 14A, emphasizing the necessity of tax deduction at source and verifying the factual consistency for disallowances. The decision provided detailed reasoning based on legal provisions and precedents, ensuring a fair and comprehensive analysis of the issues raised in the appeal.