2016 (8) TMI 419 - AT - Income Tax

TDS u/s 194C - whether expenditure incurred by the assessee towards subscription charges paid to pay channels is in the nature of direct expenditure coming under the provisions of section 28(1) of the Act or an expenditure coming under the general deductions under the provisions of section 37 of the Act - Held that - The expenditure incurred is in the nature of direct expenditure, therefore, not coming under any of the provisions of section 30 to 38 of the Act, therefore, no disallowance can be made for want of non deduction of tax at source. We find that the Ld. CIT(A) after considering the explanations furnished by the assessee categorically held that the expenditure incurred by the assessee is in the nature of direct expenses, adjustable against the revenue for determination of profit u/s 28(1) of the Act, but not an expenditure covered u/s 30 to 38 of the Act, therefore, disallowance provided u/s 40(a)(ia) of the Act is not attracted. The revenue has failed to brought on record any evidences to prove that the findings of the fact recorded by the Ld. CIT(A) is incorrect. Therefore, we are of the view that the CIT(A) has rightly deleted the additions made by the A.O. under the provisions of section 40(a)(ia) of the Act, by holding that the expenditure incurred by the assessee is not coming under the provisions of section 30 to 38 of the Act, hence no disallowance can be made u/s 40(a)(ia) for non deduction of TDS. We do not see any error or infirmity in the order passed by the CIT(A). Hence, we inclined to uphold the CIT(A) order and reject the ground raised by the revenue. - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 40(a)(ia) for non-deduction of TDS on subscription charges.
2. Classification of subscription charges as direct expenditure under Section 28(1) or as general expenditure under Section 37.
3. Validity of CIT(A)'s interpretation and application of the law.

Detailed Analysis:

1. Applicability of Section 40(a)(ia) for Non-Deduction of TDS on Subscription Charges:
The core issue revolves around whether the subscription charges paid by the assessee to pay channels, without deducting tax at source (TDS), should be disallowed under Section 40(a)(ia) of the Income Tax Act, 1961. The Assessing Officer (A.O.) contended that these payments fall under broadcasting and telecasting charges as defined in Section 194C, thus requiring TDS deduction. The A.O. disallowed the expenditure under Section 40(a)(ia) for non-deduction of TDS.

2. Classification of Subscription Charges as Direct Expenditure Under Section 28(1) or as General Expenditure Under Section 37:
The assessee argued that the subscription charges are direct expenditures incurred to earn income, falling under Section 28(1) and not under Sections 30 to 38. Therefore, the disallowance under Section 40(a)(ia) should not apply. The CIT(A) supported this view, stating that these charges are direct costs for earning subscription revenue and are not covered under Sections 30 to 38, thus not attracting disallowance under Section 40(a)(ia).

3. Validity of CIT(A)'s Interpretation and Application of the Law:
The CIT(A) interpreted Section 40(a)(ia) as applicable only to expenses covered under Sections 30 to 38. The CIT(A) concluded that since the subscription charges are direct expenses necessary for earning revenue, they fall under Section 28(1) and are not subject to disallowance under Section 40(a)(ia). The Tribunal upheld this interpretation, noting that the revenue did not provide evidence to counter the CIT(A)'s findings. The Tribunal agreed with the CIT(A) that the subscription charges are direct expenses and thus not subject to disallowance for non-deduction of TDS.

Conclusion:
The Tribunal dismissed the appeals filed by the revenue and the cross objections filed by the assessee. It upheld the CIT(A)'s order, confirming that the subscription charges paid by the assessee are direct expenses under Section 28(1) and not subject to disallowance under Section 40(a)(ia) for non-deduction of TDS. The Tribunal found no error or infirmity in the CIT(A)'s order and rejected the grounds raised by the revenue.