2014 (3) TMI 1154 - AT - Income Tax

Disallowance u/s.40a(i) - non-deduction of tax at source on the payment of Royalty and Technical Fee - CIT-A held that liability of the appellant to deduct TDS on a royalties and fees for technical services would arise in the year in which such payment is actually made by the appellant - HELD THAT - We find that the order of the CIT(Appeals) is well reasoned and detailed. The assessee has been consistently following this method of deducting and depositing of tax at source for the past several years. Even after the AYs under consideration i.e. AYs. 2003-04 2004-05 2005-06 the assessee has been following the same method of deducting TDS at the time of effecting the payments and depositing the same within the time prescribed u/s.200(1) of the Act and the Revenue has accepted the same. We do not find any infirmity in the impugned orders. The appeals of the Revenue are dismissed being devoid of merit.

Summary

Issues:
Appeals filed by Revenue against CIT(Appeals) order on dis-allowance u/s.40a(i) for non-deduction of tax at source on Royalty and Technical Fee payments by assessee.

Analysis:
The appeals before the Appellate Tribunal ITAT Chennai involved three Assessment Years (AYs) 2003-04, 2004-05, and 2005-06, where the Revenue challenged the CIT(Appeals) order regarding dis-allowance u/s.40a(i) of the Income Tax Act, 1961 for non-deduction of tax at source on payments of 'Royalty' and 'Technical Fee' by the assessee. The assessee, engaged in manufacturing and trading of automobile parts, had a technical collaboration with a Korean Company, necessitating regular payment of Royalty and Technical Assistance Fee as per their agreement. The Assessing Officer disallowed the expenses claimed by the assessee due to delayed deposit of TDS, leading to the appeals by the assessee before the CIT(Appeals).

The CIT(Appeals) analyzed the case, considering that the assessee had deducted tax at source and paid it within the prescribed time, albeit in the next financial year. The CIT(Appeals) noted the consistent practice of the assessee in following this method over several years and concluded that the liability to deduct TDS arises in the year of actual payment. Relying on case laws and the conduct of the parties, the CIT(Appeals) deleted the addition made by the Assessing Officer u/s.40a(i), leading to the Revenue's appeals before the Tribunal.

During the Tribunal proceedings, the Revenue argued against the delayed payment of TDS and disputed the applicability of DTAA provisions claimed by the assessee. On the other hand, the assessee's representative supported the CIT(Appeals) order, emphasizing that TDS was paid within the prescribed time limit. The Tribunal examined the submissions, reviewed the lower authorities' orders, and noted the common issue of dis-allowance u/s.40a(i) in all three appeals. The Tribunal found the CIT(Appeals)'s reasoning sound, considering the consistent practice of the assessee in deducting and depositing TDS over the years. Consequently, the Tribunal dismissed the Revenue's appeals, finding no merit in them and upholding the CIT(Appeals) order.

In conclusion, the Tribunal affirmed the CIT(Appeals) decision, highlighting the consistent compliance of the assessee with TDS obligations and the absence of any irregularity in the impugned orders. The Tribunal's judgment was delivered on March 11, 2014, in Chennai.