2016 (3) TMI 311 - AT - Income Tax

TDS u/s 194I - non deduction of TDS - Held that - For the purpose of deduction of tax at source under provision of section 194I of the Act the annual rent has paid or credited to one person has to ₹ 1,80,000/- whereas in the case before us the rent per person was only paid of ₹ 1,20,000/- which is below the limit specified in this section. In view of these facts , the provision of section 194I are not applicable in the present case and the disallowance made by the AO by applying the provision of section 40(a)(ia) of the Act cannot be sustained. We, therefore, delete the addition - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of expenses under section 40(a)(ia) for non-deduction of TDS.
2. Interpretation of provisions of section 194(I) of the Income Tax Act.
3. Applicability of TDS provisions in case of rent paid to multiple persons.

Issue 1: Disallowance of expenses under section 40(a)(ia) for non-deduction of TDS:
The appellant contested the disallowance of expenses by the CIT(A) due to non-deduction of TDS under section 40(a)(ia) for two separate expenses treated as a single expense under section 194(I). The appellant argued that the expenses were of different nature and tax was correctly deducted at source. The CIT(A) partially upheld the disallowance, directing a restriction to &8377; 2,40,000. The appellant further contended that the entire expenses should have been allowed as no provision for disallowance applied to short deduction of tax. The Tribunal found that the expenses for two offices were below the limit specified in section 194(I), making the provision inapplicable. Consequently, the disallowance under section 40(a)(ia) was deemed unsustainable, leading to the deletion of the addition of &8377; 2,40,000. The AO was instructed accordingly, and the appeal of the assessee was allowed.

Issue 2: Interpretation of provisions of section 194(I) of the Income Tax Act:
The case involved the interpretation of section 194(I) concerning the deduction of tax at source for rent payments. The Tribunal clarified that for tax deduction under this section, the annual rent paid or credited to one person should be &8377; 1,80,000, whereas in the present case, the rent per person was only &8377; 1,20,000. As the payments were below the specified limit, the provisions of section 194(I) were deemed inapplicable. This understanding led to the reversal of the CIT(A)'s finding and the deletion of the disallowance of &8377; 2,40,000 under section 40(a)(ia).

Issue 3: Applicability of TDS provisions in case of rent paid to multiple persons:
The Tribunal addressed the issue of rent payments made to two individuals for separate offices and the application of TDS provisions. It was established that the rent paid for each office was below the threshold specified in section 194(I), rendering the provision irrelevant. Consequently, the disallowance made by the AO based on section 40(a)(ia) was deemed unsustainable, leading to the allowance of the assessee's appeal. The Tribunal's decision highlighted the importance of correctly applying TDS provisions based on the specific circumstances of the transactions.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's decision on each aspect of the case.