2019 (7) TMI 1665 - AT - Income Tax

TDS u/s 194I - Disallowance u/s 40(a)(ia) - short deduction of tds - default u/s 201 - HELD THAT - Assessee s case is squarely covered by the judgment of the Hon ble Calcutta High Court in the case of CIT vs. S.K. Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT had held that in case of any shortfall due to any difference of opinion as to the taxability of any item or nature of payments falling under the various TDS provisions the assessee can be declared to be the assessee in default u/s 201 of the Act but no disallowance can be made by invoking provisions of section 40a(ia). The Hon ble High Court of Calcutta observed that the provisions of section 40a(ia) have two limbs; one is where inter alia the assessee has to deduct tax and second where after deducting tax inter alia the assessee has to pay the same into government account. The Hon ble High Court of Calcutta went to observe that there was nothing in the said section to treat inter alia the assessee as defaulter where there is a shortfall in deduction and further section 40a(ia) refers only to the duty to deduct tax and pay to government account. Undisputedly in the present appeal also there is no allegation that the tax deducted was not paid into the government account and the only fault of the assessee is the failure on its part to deduct tax at the prescribed rate. This as per the judgment of the Hon ble High Court of Calcutta does not attract disallowance u/s 40a(ia) - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of license fees under section 40(a)(ia) for alleged short deduction of TDS.
2. Applicability of section 40(a)(ia) to amounts remaining "payable" as on the last day of the previous year.
3. Disallowance of expenditure due to alleged short deduction of TDS.
4. Charging of interest under various sections of the Act.

Issue 1: Disallowance of license fees under section 40(a)(ia) for alleged short deduction of TDS:
The appellant challenged the disallowance of ?19,20,000 under section 40(a)(ia) for alleged short deduction of TDS on license fees paid to a specific entity. The Assessing Officer observed that while TDS was deducted at 10% for most parties, it was deducted at 2% for SRK Travel and Tour, resulting in the disallowance. The CIT(A) upheld the disallowance, leading to the appeal. The Tribunal referred to a previous case where it was held that failure to deduct tax at the prescribed rate does not attract disallowance under section 40(a)(ia) if the tax deducted was paid into the government account. The Tribunal concluded that the appellant's case fell under this principle, and hence, allowed the appeal.

Issue 2: Applicability of section 40(a)(ia) to amounts remaining "payable" as on the last day of the previous year:
The appellant argued that section 40(a)(ia) applies only to amounts remaining "payable" as on the last day of the previous year. However, the Tribunal did not delve into this argument as the case was decided based on the failure to deduct tax at the prescribed rate, following the precedent set in a previous judgment.

Issue 3: Disallowance of expenditure due to alleged short deduction of TDS:
The appellant contended that the disallowance was unjust and unlawful, emphasizing that the tax liability had been discharged by the payee, making the appellant not liable to be treated as an "assessee in default." The Tribunal, however, focused on the aspect of short deduction of TDS and the subsequent payment into the government account, leading to the disallowance being overturned.

Issue 4: Charging of interest under various sections of the Act:
The appellant objected to the charging of interest under sections 234B, 234C, 234D, and 244A(3) of the Act, arguing that the additions made were unforeseeable. The Tribunal did not address this issue specifically in the judgment provided.

In conclusion, the Tribunal allowed the appeal of the assessee based on the precedent set in a previous case regarding the disallowance under section 40(a)(ia) due to the failure to deduct tax at the prescribed rate. The Tribunal emphasized that as long as the tax deducted was paid into the government account, disallowance under section 40(a)(ia) should not be invoked.