2023 (10) TMI 782 - HC - Income Tax

TDS u/s 194H - amount retained by the agencies engaged in providing advertorials in the nature of commission or not - Addition u/s 40(a)(ia) - HELD THAT - As relationship between the respondent/assessee and the agencies was found by the statutory authorities below to be on a principal-to-principal basis, the amount retained by the agencies it could only be construed as trade discount and not commission. Therefore, as rightly concluded by the Tribunal, there was no obligation on the part of the respondent/assessee to deduct TAS under Section 194H of the Act. Tribunal in this regard has noted the contents of the CBDT s Circular No. 05/2016 dated 29.02.201 held relationship between the media company and the advertising agency is that of a principal to principal and therefore, not liable for TDS under section 194H. Decided in favour of assessee. Disallowance u/s 14A under Rule 8D(2)(iii) - HELD THAT - AO, in our view, has wrongly taken into account the investments other than the investments made to earn exempt income. See Cargo Motors (P.) Ltd. vs. Deputy Commissioner of Income-tax 2022 (10) TMI 571 - DELHI HIGH COURT .

Summary

Issues Involved:
The appeal concerns Assessment Year 2009-10. The primary issues involved are the disallowance under Section 40(a)(ia) of the Income Tax Act for failure to deduct Tax at Source (TAS) and the addition under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962.

Issue 1: Disallowance under Section 40(a)(ia) of the Act:
The Assessing Officer (AO) disallowed Rs. 11,20,43,563/- for failure to deduct TAS under Section 194H of the Act, relating to payments made by advertising agencies to the respondent/assessee. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this disallowance under Section 40(a)(ia) after finding that the relationship between the parties was on a principal-to-principal basis, and the amount retained by the agencies was a trade discount, not commission. The High Court concurred with the CIT(A) and cited relevant case law and CBDT Circular No. 05/2016 to support the conclusion that no Tax Deducted at Source (TDS) obligation existed.

Issue 2: Addition under Section 14A of the Act:
The AO made an addition of Rs. 23,26,926/- under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962, relating to expenses connected with earning exempt income. The CIT(A) restricted this disallowance to Rs. 13,45,785/- by considering the investments made to earn exempt income. The High Court upheld the CIT(A)'s decision, stating that the AO incorrectly considered investments other than those made to earn exempt income, citing relevant case law to support the conclusion.

In conclusion, the High Court found no substantial questions of law arising from either issue and upheld the decisions of the lower authorities. The appeal was closed accordingly.