2019 (5) TMI 1502 - AT - Income Tax

TDS u/s 194C or 194J - short deduction of tds - Payments to various fields agent for conducting research surveys, data compilation and translation etc. - additions u/s 40(a)(ia) - HELD THAT - Respectfully following the aforesaid decision(s) of tribunal in assesses own case in preceding years viz. AY 2005-06 to 2011-12 2018 (7) TMI 1973 - ITAT MUMBAI , 2014 (2) TMI 1355 - ITAT MUMBAI , 2012 (7) TMI 614 - ITAT MUMBAI , 2016 (2) TMI 1147 - ITAT MUMBAI , 2016 (7) TMI 1394 - ITAT MUMBAI with a view to maintain judicial discipline and also to maintain consistency as outlined by Hon ble Supreme Court in the case of Radhasoami Satsang v. CIT 1991 (11) TMI 2 - SUPREME COURT we decide this issue in favour of the assessee by holding that keeping in view factual matrix of the case, no disallowance u/s 40(a)(ia) of the 1961 Act is warranted in the instant case after observing that the assessee has duly deducted income-tax at source u/s. 194C of the 1961 Act on payments made by the assessee to field agents for conducting research surveys, data compilation and translation etc.. Thus, Revenue fails in this appeal.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for payments made to field agents.
2. Applicability of Section 194J versus Section 194C for TDS deduction.
3. Impact of short deduction of tax on disallowance under Section 40(a)(ia).
4. Interpretation of Section 40(a)(ia) as a machinery provision.
5. Consistency with prior tribunal decisions in the assessee's own case.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for payments made to field agents:
The Revenue appealed against the deletion of disallowance under Section 40(a)(ia) by the CIT(A) concerning payments made to field agents for conducting market research surveys, data analysis, and tabulation. The AO had disallowed these payments, arguing that they should have been subjected to TDS under Section 194J instead of Section 194C. The CIT(A) deleted the disallowance, following the tribunal's decision in the assessee's own case for earlier years, which held that Section 40(a)(ia) does not apply to short deductions of TDS.

2. Applicability of Section 194J versus Section 194C for TDS deduction:
The core issue was whether the payments to field agents for research surveys, data compilation, and translation are technical services under Section 194J or contractual services under Section 194C. The AO contended that these services required specialized skills and thus fell under Section 194J, warranting a 10% TDS deduction. However, the assessee argued that these were contractual services, and TDS was correctly deducted under Section 194C. The tribunal consistently held in favor of the assessee in earlier years, stating that the nature of services did not change, and Section 194C was applicable.

3. Impact of short deduction of tax on disallowance under Section 40(a)(ia):
The Revenue argued that even short deduction of tax should lead to disallowance under Section 40(a)(ia), citing the Kerala High Court's decision in CIT v. PVS Memorial Hospital Ltd. However, the tribunal, following the Calcutta High Court's decision in CIT v. S.K. Tekriwal, held that Section 40(a)(ia) does not apply to cases of short deduction of TDS due to a difference in opinion on the nature of services. The tribunal emphasized that the assessee had deducted TDS under Section 194C, and there was no complete failure to deduct tax.

4. Interpretation of Section 40(a)(ia) as a machinery provision:
The tribunal discussed the interpretation of Section 40(a)(ia) as a machinery provision designed to ensure compliance with TDS provisions under Chapter XVII-B. The AO's stance was that any short deduction under the wrong section should lead to disallowance. However, the tribunal found that the intention behind Section 40(a)(ia) was to ensure the collection of tax at source and not to penalize genuine differences in opinion regarding the applicable TDS section.

5. Consistency with prior tribunal decisions in the assessee's own case:
The tribunal noted that in the assessee's own case for AYs 2005-06 to 2011-12, it had consistently ruled in favor of the assessee on similar issues. The tribunal followed the principle of judicial discipline and consistency, as outlined by the Supreme Court in Radhasoami Satsang v. CIT, and upheld the CIT(A)'s order deleting the disallowance under Section 40(a)(ia).

Conclusion:
The tribunal dismissed the Revenue's appeal, affirming that no disallowance under Section 40(a)(ia) was warranted since the assessee had correctly deducted TDS under Section 194C. The tribunal's decision was based on consistency with prior rulings in the assessee's own case and the interpretation that short deduction of TDS does not attract disallowance under Section 40(a)(ia). The appeal was dismissed, and the CIT(A)'s order was upheld.