2018 (9) TMI 1539 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Non-deduction of tax on royalty paid on the ground that the recipients of royalty have returned the royalty received as income in respective years - scope of amended provision - Held that - As in the case of CIT v. Calcutta Export Co. (2018 (5) TMI 356 - SUPREME COURT) held that amended provisions of section 40(a)(ia) of the I.T.Act should be interpreted liberally and equitably and should be applied retrospectively from the date when section 40(a)(ia) of the I.T.Act was inserted, so that the assessee could not suffer intended and deleterious consequences beyond what the object and purpose of provision mandates. However, in the present case the CIT(A) not at all verified whether the recipients of the royalty have declared the same in their respective returns of income and paid tax thereon before deleting the addition made by the Assessing Officer by invoking the provisions of section 40(a)(ia) of the I.T.Act. Therefore, we remit the disputed issue to the file of the CIT(A) to call for remand report from the A.O. to verify whether the recipients have declared the royalty in their respective returns and paid tax thereon, and decide the same accordingly. Assessee s appeal allowed for statistical purposes.

Summary

Issues:
1. Deletion of addition u/s 40(a)(ia) for non-deduction of tax on royalty payments.
2. Deletion of addition of hiring charges paid without TDS.
3. Deletion of addition made towards concealed income.

Analysis:

Issue 1: Deletion of addition u/s 40(a)(ia) for non-deduction of tax on royalty payments:
The Revenue challenged the deletion of additions made under section 40(a)(ia) of the Income Tax Act for the assessment years 2008-2009 to 2012-2013. The Assessing Officer had disallowed deductions for non-deduction of tax on royalty payments. The CIT(A) deleted the additions based on judgments citing that since the recipients declared the income and paid taxes on it, disallowance under section 40(a)(ia) was not warranted. The Revenue contended that failure to deduct tax at source should result in disallowance regardless of subsequent tax payments by recipients. The Tribunal noted that while the Supreme Court held that the provision should be applied retrospectively, the CIT(A) did not verify if recipients declared and paid taxes on the royalty. The issue was remitted to the CIT(A) for further examination.

Issue 2: Deletion of addition of hiring charges paid without TDS:
In ITA No.49/Coch/2018 for assessment year 2011-2012, the Revenue raised an issue regarding the deletion of addition of hiring charges paid without TDS. The Tribunal observed that the CIT(A) did not address this issue and remitted it for fresh consideration.

Issue 3: Deletion of addition made towards concealed income:
In ITA No.50/Coch/2018 for assessment year 2012-2013, the Revenue contested the deletion of additions made towards concealed income. The Tribunal found that the CIT(A) did not adjudicate on this issue and remitted it for reconsideration.

In conclusion, the appeals filed by the Revenue were partly allowed for statistical purposes, and the cross objections by the assessee were dismissed. The Tribunal remitted the issues related to non-deduction of tax on royalty payments, hiring charges paid without TDS, and additions made towards concealed income back to the CIT(A) for fresh consideration. The judgment emphasized the need for verification of whether recipients declared and paid taxes on income before disallowing deductions under section 40(a)(ia).