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2021 (5) TMI 891 - AT - Income TaxDisallowance u/s 40(a)(ia) - shortfall in deduction of tax at source due to difference in opinion - HELD THAT - As to the taxability of any payment or nature of the payment made under the TDS provisions. It is also submitted that for this reason no disallowance could be made by invoking provisions of section 40(a)(ia). Hon ble Calcutta High Court in case of S.K.Tekriwal 2011 (10) TMI 10 - ITAT, KOLKATA on identical facts analysed identical argument. Their Lordships considered the very same issue of applicability of provisions of section 40(a)(ia) of the Act, in a case where there was short deduction of tax at source on payment made to sub-contractors. Hon ble Calcutta High Court held that if there is any short fall in deduction of tax due to difference in opinion on understanding of taxability of any item or nature of payment falling under various TDS provisions, no disallowance can be made by invoking provisions of section 40(a)(ia) of the Act. Admittedly, the present facts is not the case of no deduction of TDS and that assessee under a bona fide belief, deducted TDS at 2% under section 194C. It is also apparent from the agreement that it was a bundle of services that was rendered by VBHC to assessee against which a consolidated payment has been made. Respectfully following the above decision, we are of the view that no disallowance could be made by invoking provisions of section 40(a)(ia) of the Act, if there is any short fall in the action of tax at source due to difference of understanding our opinion as to the taxability of any item or nature of payment falling under various TDS provisions. Grounds raised by assessee stands allowed.
Issues:
1. Disallowance under section 40(a)(ia) for short deduction of TDS. 2. Nature of branding fee paid to M/s. VBHC Value Home Pvt Ltd. 3. Entitlement to benefit of second proviso to section 40(a)(ia). Issue 1: Disallowance under section 40(a)(ia) for short deduction of TDS: The appellant challenged the order of the Commissioner of Income Tax (Appeals) regarding the disallowance under section 40(a)(ia) of the Act. The appellant argued that the disallowance was erroneous due to a shortfall in the deduction of tax at source. The appellant relied on a decision by the ITAT Kolkata bench in a similar case and contended that no disallowance should be made if there is a difference of opinion regarding the taxability of the expenditure. The Tribunal referred to the Calcutta High Court decision, which held that no disallowance can be made under section 40(a)(ia) if there is a shortfall in tax deduction due to a difference in understanding of the taxability of the payment. The Tribunal concluded that in the present case, where the appellant had deducted TDS under a bona fide belief, no disallowance could be made under section 40(a)(ia). Issue 2: Nature of branding fee paid to M/s. VBHC Value Home Pvt Ltd: The dispute arose over the nature of the branding fee paid by the appellant to M/s. VBHC Value Home Pvt Ltd. The Assessing Officer treated the branding fee as royalty attracting provisions of section 194J of the Act and disallowed a portion of it under section 40(a)(ia). The appellant argued that the branding fee was for services provided by VBHC, such as granting the use of the VBHC logo and referring clients interested in buying flats. The appellant contended that the payment was for a bundle of services and not royalty. The Tribunal examined the agreement between the parties and concluded that the payment made by the appellant was not liable to be treated as royalty under section 194J. Therefore, the disallowance under section 40(a)(ia) was not justified. Issue 3: Entitlement to benefit of second proviso to section 40(a)(ia): The appellant also contended that they were entitled to the benefit of the second proviso to section 40(a)(ia). However, the Commissioner of Income Tax (Appeals) rejected this contention, stating that the appellant did not fulfill the conditions laid down in Rule 31ACB of the Income Tax Rules regarding the filing of Form 26A. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) on this matter, confirming the disallowance made under section 40(a)(ia) of the Act. In conclusion, the Tribunal allowed the appeal filed by the appellant, ruling in their favor on the issues of disallowance under section 40(a)(ia) and the nature of the branding fee paid to M/s. VBHC Value Home Pvt Ltd. However, the Tribunal upheld the decision regarding the entitlement to the benefit of the second proviso to section 40(a)(ia).
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