2019 (7) TMI 1371 - HC - Income Tax

TDS u/s 194H - disallowance u/s 40a(ia) - Transaction between two persons on principal to principal basis - discount allowed by the assessee to the distributors in respect of starter packs and recharge coupons for its prepaid services - HELD THAT - We do not find any error in the view of the Tribunal. The Tribunal, as noted, besides holding that the Commissioner s order setting aside the order passed u/s 201 was not carried in appeal, had also independently examined the nature of the transaction and come to the conclusion that when the transaction was between two persons on principal to principal basis, deduction of tax at source as per section 194H, would not be made since the payment was not for commission or brokerage. Disallowance us 14A - HELD THAT - Assessee had not earned any exempt income and there is, therefore, no question of disallowance under section 14A that would arise. The Tribunal had relied on the decision of the Delhi High Court in the case of Cheminvest Ltd. vs. CIT, 2015 (9) TMI 238 - DELHI HIGH COURT . No error in the view of the Tribunal. The decision of the Delhi High Court in the case of Cheminvest (supra) has been followed by this Court on numerous occasions. In the result, no question of law arises. Income Tax Appeal is dismissed.

Summary

Issues:
1. Disallowance under section 40a(ia) of the Income Tax Act.
2. Disallowance under section 14A read with Rule 8D.
3. Disallowance under section 14A for computing book profit under section 115JB.

Analysis:

Issue 1: Disallowance under section 40a(ia) of the Income Tax Act
The appellant challenged the ITAT's decision to delete the disallowance made by the AO under section 40a(ia) of the Act. The primary contention was that the discount allowed by the assessee to distributors should be considered as payment of commission or brokerage under Section 194H of the Act. The Tribunal, however, held that the payment was made on a principal to principal basis and not as commission to an agent. The Tribunal's decision was based on the fact that the transaction was between two parties on a principal to principal basis, hence not attracting the provisions of Section 194H.

Issue 2: Disallowance under section 14A read with Rule 8D
The second and third questions raised in the appeal pertained to disallowance under section 14A of the Act. The Tribunal concluded that since the assessee had not earned any exempt income, there was no basis for disallowance under section 14A. This decision was supported by the Tribunal's reliance on the Delhi High Court's judgment in the case of Cheminvest Ltd. vs. CIT. The High Court found no error in the Tribunal's decision, as the absence of exempt income negated the need for disallowance under section 14A.

Conclusion:
After thorough consideration and examination of the arguments presented, the High Court upheld the Tribunal's decisions on both issues. The Court found no errors in the Tribunal's reasoning and concurred with the interpretations of the law applied. Consequently, the Income Tax Appeal was dismissed, as no questions of law were found to arise from the issues presented in the appeal.