2018 (5) TMI 1775 - AT - Income Tax

TDS u/s 194C - non-deduction of tax at source from the payment of printing charges by assessee trust - Held that - Assessee in the present case is an association of paediatric doctors with the principal object of general public advancement. During the year under consideration, it had published journal from the funds received from sponsorship fees and the journals so published were issued to the members free of cost. As rightly contended on behalf of the assessee before the CIT(A) as well as before the Tribunal, the activity of publication of journal having been financed from the sponsorship fees and the said journals having been issued to the members free of cost, the same cannot be treated as in the nature trade, commerce or business as envisaged in the proviso to section 2(15) and the income of the assessee from the said activity cannot be treated as its business income. Therefore, find merit in the contention of assessee that the A.O. was not justified in reclassifying the income of the assessee from the activity of publication of journals as business income and in making a disallowance u/s 40(a)(ia). CIT(A) is also not justified in holding that the fact of the assessee being the charitable organisation is of no relevance for the applicability of section 40(a)(ia). Hon ble Bombay High Court in the case of Bombay Stock Exchange vs DDIT 2014 (6) TMI 444 - BOMBAY HIGH COURT held that where the income of the assessee was exempt under section 11 and the assessee was not carried on the business, section 40(a)(ia) had no application. Moreover, the insertion of Explanation 3 to Section 11 by the Finance Act, 2018 making inter alia the provisions of Section 40(a)(ia) applicable in case of charitable or religious trust or institution with effect from 1st April, 2019 further shows that section 40(a)(ia) hitherto was not applicable in computing income of entities registration u/s 12A of the Act. Disallowance made by the A.O. under section 40(a)(ia) and confirmed by the Ld. CIT(A) is not sustainable and deleting the same - Decided in favour of assessee

Summary

Issues:
Disallowance of printing charges under section 40(a)(ia) for non-deduction of tax at source.

Analysis:
The appeal pertains to the disallowance of printing charges amounting to ?41,59,000 made by the Assessing Officer (A.O.) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)] under section 40(a)(ia) for failure to deduct tax at source. The assessee, an association of paediatric doctors, published a journal financed by sponsorship fees and distributed it to members without charge. The A.O. contended that the activity of publishing the journal constituted business income, subject to tax under the head "profits and gains of business or profession." The A.O. disallowed the printing charges as tax was not deducted at source under section 194C. The CIT(A) upheld this decision, disregarding the assessee's argument that the activity did not qualify as trade, commerce, or business. The Tribunal found that the surplus from the journal publication activity was correctly classified as income from other sources, not business income. The Tribunal held that the A.O.'s reclassification was unjustified, as the activity was funded by sponsorship fees and the journals were distributed for free.

The Tribunal further disagreed with the CIT(A)'s assertion that the charitable nature of the organization was irrelevant to the application of section 40(a)(ia). Citing a Bombay High Court decision and the insertion of Explanation 3 to Section 11 by the Finance Act, 2018, the Tribunal emphasized that section 40(a)(ia) did not apply to entities registered under section 12A of the Income Tax Act. The Tribunal concluded that the disallowance under section 40(a)(ia) was unsustainable, overturning the decisions of the A.O. and CIT(A). Consequently, the Tribunal allowed the appeal of the assessee, ruling in their favor and setting aside the disallowance of printing charges.

In summary, the Tribunal's judgment focused on the classification of income from the journal publication activity, emphasizing that it should be treated as income from other sources rather than business income. Additionally, the Tribunal highlighted the relevance of the organization's charitable status in the application of section 40(a)(ia), ultimately ruling in favor of the assessee and allowing the appeal.