2023 (3) TMI 609 - AT - Income Tax

TDS u/s 195 - business expenditure being the race-promotion fee RPF paid by the appellant-assessee to Formula One World Championship Ltd of UK - HELD THAT - No part of the RPC fee paid by the assessee is liable to be disallowed under clause (i) of s. 40(a) because the second proviso clause (i) of Section 40(a) has been inserted w.e.f. 1.4.2020. The said proviso essentially provides that where the relevant income has been declared by the payee and tax thereon has been paid by him then no disallowance shall be made in the hands of the payer. This proviso is similar to the second proviso to clause (ia) of s. 40(a) which was inserted w.e.f. 1.4.2013. Both these provisos were inserted to remove an anomaly and were therefore curative and declaratory in nature. Hence they had to be given retrospective effect. Grounds of the appeal of the assessee deserves to be allowed and the disallowance/addition made by the A.O. which was sustained by the CIT(A) is hereby quashed.

Summary

Issues Involved:
- Disallowance of chargeable sum paid to a foreign company without deduction of tax
- Disallowance of lease rent paid to a resident without deduction of tax

Disallowance of Chargeable Sum Paid to a Foreign Company Without Deduction of Tax:
The appeals were filed against orders of CIT (Appeals) regarding disallowance under Section 40(a) in relation to fees paid to a UK company without tax deduction. The assessee argued that no disallowance should be made as the UK company had been assessed and paid tax on the relevant income. The assessee contended that the second proviso to Section 40(a) is retrospective, but this argument was rejected. The CIT (Appeals) agreed that disallowance should be limited to the chargeable sum in the fees. The ITAT held that no part of the fee should be disallowed under Section 40(a) due to the retrospective nature of the proviso, which aims to prevent anomalies and is declaratory in nature. Consequently, the appeals were allowed, and the disallowance was quashed.

Disallowance of Lease Rent Paid to a Resident Without Deduction of Tax:
The issue involved the disallowance of lease rent paid to a local authority without tax deduction. The assessing officer previously held that the assessee was not in default regarding tax deduction on the rent. The assessee argued that they should be deemed to have deducted and paid tax on the rent. The ITAT's decision on this issue was not explicitly mentioned in the summary provided.

Separate Judgment by Judges:
- The order was pronounced by Shri Yogesh Kumar U.S., Judicial Member.