2017 (10) TMI 539 - AT - Income Tax

TDS u/s 194H - disallowance under section 40(a)(i) for non deduction of tax on payment of commission - whether the payment made by the assessee to the distributor is a commission or cash discount? - Held that - Referring to documents as a whole along with the terms and conditions of the agreement entered into between the assessee and the distributor in respect of talk time card is essential to determine the true nature of the transaction whether the transaction entered into between the assessee and the distributor relates to discount or commission. The TDS provisions are applicable under section 194H in case it is held that the nature of the transaction entered into between the assessee and the distributor is that of commission but in case if it is decided that the nature of transaction is not commission but discount given on sales it cannot be regarded to be commission which is hit by the provisions of Section 194H of the Income Tax Act. We, therefore, in the interest of justice and fair play to both the parties set aside this issue and restore it to the file of the AO with the direction that the AO shall redecide this issue afresh in accordance with law after going though the agreement which the assessee has entered into with the distributor as well as the sample subscription application form, whether the amount represents the expenditure incurred by the assessee towards commission or whether the said amount represents cash discount given by the assessee to the distributor for sale of talk time card - Appeals filed by the assessee are statistically allowed. Disallowance under section 14A r.w. Rule 8D - Held that - As noted that the assessee has not earned any exempt dividend income during the impugned assessment year. Since the assessee has not earned any exempt income no disallowance under section 14A of the Income Tax Act can be made in view of the decision in the case of Principal CIT vs. Ballarpur Industries Ltd. 2016 (10) TMI 1039 - BOMBAY HIGH COURT following the decision of the Hon ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT 2015 (9) TMI 238 - DELHI HIGH COURT took the view that provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of the case as no exempt income was received or receivable during the relevant previous year by the assessee - Decided in favour of assessee TDS u/s 194C OR 194J - expenses on customer support services, CAS, Middleware and SMS charges - Held that - As decided CIT vs. S.K. Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT where tax was deducted by the assessee, though under a bonafide wrong impression under wrong provisions, the provisions of Section 40(a)(ia) could not be invoked and if there was any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various tax deduction at source provisions, the assessee could be declared to be an assessee in default under section 201 but no disallowance could be made invoking the provisions of Section 40(a)(ia). No infirmity or illegality in the order of the CIT(A) in holding that provisions of Section 40(a)(ia) will not be applicable in the case of the assessee as there is nothing in the section to treat the assessee as defaulter where there is shortfall in deduction of TDS. We, therefore, affirm the CIT(A) and dismiss the grounds taken by the Revenue in both the appeals

Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of tax.
2. Deletion of disallowance under Section 14A read with Rule 8D.
3. Deletion of disallowance under Section 40(a)(ia) read with Section 194J for expenses on customer support services.
4. Deletion of disallowance under Section 40(a)(ia) read with Section 194J for CAS, Middleware, and SMS charges.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for non-deduction of tax:
The assessee contended that the amount of ?33,86,68,406/- (?50,52,75,132/- for A.Y. 2012-13) was a discount allowed to distributors and not commission, thus not liable for TDS under Section 194H. The CIT(A) upheld the disallowance, treating it as commission. The Tribunal admitted additional evidence, including agreements and sample subscription forms, to determine whether the payments were discounts or commissions. The Tribunal set aside the CIT(A)'s order and remanded the issue to the AO to reexamine the nature of the transaction, directing that the nomenclature in the agreement should not influence the decision.

2. Deletion of disallowance under Section 14A read with Rule 8D:
The Revenue's appeal contested the CIT(A)'s deletion of disallowance under Section 14A read with Rule 8D. The Tribunal noted that the assessee had not earned any exempt dividend income during the relevant assessment year. Citing the jurisdictional High Court's decision in Principal CIT vs. Ballarpur Industries Ltd., the Tribunal concluded that no disallowance under Section 14A could be made if no exempt income was received or receivable during the year. The Tribunal dismissed the Revenue's ground on this issue.

3. Deletion of disallowance under Section 40(a)(ia) read with Section 194J for expenses on customer support services:
The AO disallowed ?41,41,92,984/- for customer support services, arguing that TDS should have been deducted under Section 194J at 10% instead of Section 194C at 2%. The CIT(A) deleted the disallowance, stating it was a case of less deduction, not non-deduction. The Tribunal upheld the CIT(A)'s decision, referencing the Calcutta High Court's ruling in CIT vs. S.K. Tekriwal, which held that Section 40(a)(ia) could not be invoked for short deduction of TDS. The Tribunal preferred this view over the Kerala High Court's contrary decision in CIT vs. PVS Memorial Hospital Ltd., following the principle that in case of conflicting decisions, the one favorable to the assessee should be followed.

4. Deletion of disallowance under Section 40(a)(ia) read with Section 194J for CAS, Middleware, and SMS charges:
The AO disallowed ?36,61,17,648/- for CAS, Middleware, and SMS charges, asserting that TDS should have been deducted under Section 194J instead of Section 194C. The CIT(A) deleted the disallowance, treating it as less deduction of TDS. The Tribunal affirmed the CIT(A)'s decision, reiterating the principle from the Calcutta High Court's decision in S.K. Tekriwal that Section 40(a)(ia) does not apply to cases of short deduction of TDS. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's grounds on this issue.

Conclusion:
The Tribunal allowed the assessee's appeals for statistical purposes, remanding the issue of disallowance under Section 40(a)(ia) for non-deduction of tax to the AO for fresh examination. The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s deletions of disallowances under Sections 14A and 40(a)(ia) read with Section 194J.

← Previous Next →