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2021 (2) TMI 475 - AT - Income TaxNon-deduction of TDS on commission paid for sale of property - Invoking provisions of section 40(a)(ia) while computing income under the head Capital Gain - whether the provisions of Section 40(a)(ia) is applicable for computing the income chargeable under the head Profits and gains of business or profession or computation of income under any other heads of income also? - assessee is a partnership firm - HELD THAT - Section 40 clearly stipulates that Notwithstanding anything to the contrary in Sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession . Hence it is evident that the provisions of Section 40(a)(ia) is applicable while computing income chargeable under the head Profits and gains of business or profession and it is not applicable to any other heads of income. In the case of Mahatma Gandhi Seva Mandir 2012 (5) TMI 396 - ITAT MUMBAI the Hon ble ITAT Mumbai has held that the exception in Section 40 is carved out, only for the purpose of Section 28 and not for computing the exemption of income of a charitable trust under Section 11. The disallowance made under Section 40(a) will only go to enhance the business profit of an assessee whose income is assessable under Section 28 and not otherwise. Hence, provisions of Section 40(a) are not applicable in case of charitable trust or institution where income and expenditure is computed in terms of Section 11. In view of the clear language of the relevant statutory provisions it is of the view that the disallowance u/s.40(a)(ia) of the Act made by the revenue authorities cannot be sustained and I direct the said addition to be deleted and allow the appeal of the Assessee.
Issues:
Whether provisions of section 40(a)(ia) of the Income Tax Act, 1961 are applicable while computing income under the head "Capital Gain"? Analysis: The appeal before the Appellate Tribunal ITAT Bangalore concerned the disallowance of a sum of ?15,12,056 under section 40(a)(ia) of the Income Tax Act, 1961, by the Revenue authorities while computing income under the head "Capital Gain" for the assessment year 2014-15. The assessee, a partnership firm, had deducted tax at source on a commission amount of ?61,86,988 out of the total commission of ?76,99,056 paid in connection with the sale of a property. The Revenue authorities disallowed the remaining amount of ?15,12,056 for which no TDS had been done, invoking section 40(a)(ia) of the Act. During the proceedings, the assessee contended that section 40(a)(ia) is not applicable while computing income under the head "Capital Gain." However, the CIT(A) upheld the disallowance, treating the assessee as in default under section 201 of the Act. The Tribunal analyzed the provisions of section 40(a)(ia) which state that certain amounts shall not be deducted in computing income chargeable under the head "Profits and gains of business or profession." The Tribunal referred to precedents where it was held that the provisions of section 40(a)(ia) are not applicable in cases where income is not assessable under section 28, such as in the case of charitable trusts. Based on the statutory provisions and the precedents cited, the Tribunal concluded that the disallowance under section 40(a)(ia) made by the Revenue authorities cannot be sustained while computing income under the head "Capital Gain." Therefore, the Tribunal allowed the appeal of the assessee and directed the deletion of the addition of ?15,12,056. The judgment highlighted the importance of correctly interpreting the applicability of tax provisions based on the nature of income and the specific sections of the Income Tax Act. In conclusion, the Tribunal's decision clarified the scope of section 40(a)(ia) in relation to the computation of income under different heads, emphasizing that the provision is limited to income chargeable under the head "Profits and gains of business or profession." The judgment provided a detailed analysis of relevant legal precedents and statutory provisions to support its decision in favor of the assessee.
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