2019 (9) TMI 1332 - HC - Income Tax

TDS u/s 195 - disallowance u/s. 40(a)(ia) for non deduction of tax on commission payable to foreign agents - HELD THAT - Commissioner (Appeals) as well as the Tribunal have placed reliance upon the decision of the Supreme Court in the case of GE India Technology Centre P. Ltd. v. Commissioner of Income-Tax and Another 2010 (9) TMI 7 - SUPREME COURT wherein it has been held that a person paying interest or any other sum to a nonresident is not liable to deduct tax if such sums are not chargeable to tax under the Act. Section 195 contemplates not merely amounts, the whole of which are pure income payments; it also covers composite payments which has an element of income embedded or incorporated in that. The obligation to deduct tax at source is, however, limited to appropriate proportion of income chargeable under the Act forming part of gross sum of money payable to the non-residents. Tribunal has merely applied the decision of the Supreme Court to the facts of the present case. Under the circumstances, the proposed question does not give rise to any question of law. Disallowance u/s 14A - HELD THAT - As in the case of Commissioner of Income-Tax v. Corrtech Energy P. Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT wherein the court has held that notice under sub-section (1) of section 14A provides that for the purpose of computing the total income under Chapter IV of the Act, no deduction shall be allowed in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. The court recorded that in the facts of the said case, the Tribunal has recorded a finding of fact that the assessee did not make any claim for exemption of any income from payment of tax and it was on that basis that the Tribunal held that the disallowance under section 14A of the Act could not be made. The court agreed with the view adopted by the Tribunal and did not find any question of law. It is an admitted position that the assessee had not made any claim for exemption of any income from payment of tax. Tribunal has merely applied the decision rendered by the jurisdictional High Court to the facts of the present case which does not give rise to any question, much less, a substantial question of law, warranting interference. - Decided against revenue.

Summary

Issues:
1. Disallowance under section 40(a)(ia) of the Income-Tax Act for non-deduction of tax on commission payable to foreign agents.
2. Disallowance under section 14A of the Income-Tax Act.

Analysis:

Issue 1: Disallowance under section 40(a)(ia) of the Income-Tax Act for non-deduction of tax on commission payable to foreign agents:
The appellant, Revenue, challenged the order of the Income Tax Appellate Tribunal regarding the deletion of an addition of ?3,47,81,265 made on account of disallowance under section 40(a)(ia) of the Act. The Tribunal based its decision on the Supreme Court ruling in GE India Technology Centre P. Ltd. v. Commissioner of Income-Tax, stating that tax deduction is not required if the sums paid to non-residents are not chargeable to tax. The Tribunal applied this decision to the case at hand, concluding that the proposed question did not raise any legal issue. The Court upheld the Tribunal's decision, dismissing the appeal.

Issue 2: Disallowance under section 14A of the Income-Tax Act:
The second question raised in the appeal concerned the deletion of an addition of ?5,95,111 made under section 14A of the Act. The Commissioner (Appeals) and the Tribunal relied on the jurisdictional High Court's decision in Commissioner of Income-Tax v. Corrtech Energy P. Ltd., which emphasized that no deduction shall be allowed for expenditure related to income not forming part of the total income. The Tribunal, following the High Court's decision, found that since the assessee did not claim exemption for any income from tax payment, disallowance under section 14A was not applicable. The Court agreed with this reasoning, stating that the Tribunal correctly applied the High Court's decision to the case, leading to the dismissal of the appeal.

In conclusion, both issues were decided in favor of the assessee based on established legal principles and precedents, resulting in the dismissal of the appeal by the Gujarat High Court.