2018 (2) TMI 1941 - AT - Income Tax

TDS u/s 194J - Disallowance u/s 40(a)(ia) - payment of carriage fees - CIT(A) has deleted the disallowance holding that carriage fees does not come within the ambit of the definition of Royalty thus not required to deduct the tax at source u/s 194J - HELD THAT - CIT(A) has held that it is not the case of no TDS but the case of less TDS therefore, the disallowance made by the AO is bad in law. The Ld. CIT(A) has relied on the decision of the Hon ble Calcutta High Court rendered in CIT vs S. K. Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT and M/s Star Den Media Services pvt .Ltd 2015 (8) TMI 1444 - ITAT MUMBAI and Chandabhoy Jassobhoy vs DCIT 2011 (7) TMI 956 - ITAT MUMBAI . Hon,ble Gujarat High Court in CIT vs. Prayas Engineering Ltd. 2014 (11) TMI 1086 - GUJARAT HIGH COURT and CIT vs. Kishore Rao others (HUF) 2016 (4) TMI 430 - KARNATAKA HIGH COURT have held that in case of shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, no disallowance can be made by invoking provisions of 40(a)(ia) of the Act. The findings of the Ld CIT(A) are based on the evidence on record and in accordance with the principles of law laid down by the High courts including the jurisdictional High Court discussed above. - Decided against revenue

Summary

Issues:
1. Disallowance of expenses for less TDS under section 40(a)(ia) of the Income Tax Act, 1961.
2. Interpretation of 'Carriage Fees' as royalty under section 9(1)(vi) and applicability of section 194J.
3. Conflict in judicial decisions regarding TDS deduction on 'Carriage Fees' and disallowance under section 40(a)(ia).

Analysis:
1. The appeal was filed by the revenue against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2011-12, where the Ld. CIT (A) partly allowed the appeal filed by the assessee against the assessment order under section 143(3) of the Income Tax Act, 1961. The issue revolved around the disallowance of expenses for less TDS deducted by the assessee, specifically under section 40(a)(ia) of the Act.

2. The core dispute centered on whether 'Carriage Fees' should be considered as royalty under explanation 2 to section 9(1)(vi) and if the tax should have been deducted under section 194J instead of 194C. The revenue challenged the Ld. CIT (A)'s decision based on conflicting judicial interpretations, arguing that the payment made by the assessee falls under the definition of 'process' as per the Act, making it liable for TDS deduction under section 194J.

3. The conflicting judicial decisions cited by both parties added complexity to the case. The Ld. CIT (A) relied on previous judgments to support the deletion of the disallowance, emphasizing that 'Carriage Fees' did not qualify as royalty and hence, section 194J was not applicable. The Tribunal upheld the Ld. CIT (A)'s decision, citing various High Court judgments, including the Hon'ble Bombay High Court, to support the assessee's position that no disallowance should be made under section 40(a)(ia) due to differences in opinion regarding the taxability of the payment.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the Ld. CIT (A)'s decision to delete the disallowance of expenses for less TDS under section 40(a)(ia). The judgment was based on the interpretation of 'Carriage Fees' not being classified as royalty and the application of relevant TDS provisions in accordance with established legal principles and judicial precedents.