2013 (5) TMI 220 - AT - Income Tax

Tax free payments - TDS liability born by the assessee - the TDS, as exigible on payments, is grossed up, and payment made accordingly - Held that - In terms of the agreement entered by with the International Credit Card Agencies, i.e., VISA and Master Card, the assessee is also to bear the tax on the payments made thereto. Accordingly, the TDS, as exigible on payments, is grossed up, and payment made accordingly, there is no merit in the argument that tax-free payments could not be allowed or, alternatively, the assessee would not be entitled to deduction in respect of the tax liability of the payee - FAA has allowed relief to the assessee following the decision of CIT vs. Standard Polygraph Machines Pvt. Ltd. 1998 (11) TMI 49 - MADRAS High Court . As this is a recurring feature in the assessee s case there is no merit in the Revenue s argument that the assessee had not supplied it with the copy of the relevant agreements. Against revenue. Claim for bad debt - Held that - No merit in the Revenue s case that the assessee, being a NBFC, is not in the business of money lending, so that the provision of section 36(2) is not satisfied. See T.R.F. Ltd. vs. CIT 2010 (2) TMI 211 - SUPREME COURT and CIT vs. Star Chemicals (Bombay) P. Ltd. 2008 (2) TMI 399 - BOMBAY HIGH COURT among others, so that the matter ought to be considered as settled. Against revenue.

Summary

Issues:
1. Disallowance of Rs. 13,86,848/- u/s.40(a)(ia) on account of non-deduction of TDS.
2. Disallowance of Rs. 47.27 lakhs u/s. 36(1)(vii) r.w.s. 36(2).

Issue 1: Disallowance of Rs. 13,86,848/- u/s.40(a)(ia) on account of non-deduction of TDS:
The appellant's counsel argued that this issue is in favor of the assessee based on previous tribunal orders for earlier years. The Tribunal relied on its previous orders for A.Ys. 2003-04 to 2005-06 and A.Y. 2007-08. The appellant's counsel highlighted that the disallowance was not justified as the tax was grossed up and payments were made accordingly. The Tribunal found merit in the appellant's case, citing decisions like CIT vs. Standard Polygraph Machines Pvt. Ltd. and S. Takenaka vs. CIT. The Revenue failed to rebut these contentions during the hearing, leading to the dismissal of the Revenue's appeal.

Issue 2: Disallowance of Rs. 47.27 lakhs u/s. 36(1)(vii) r.w.s. 36(2):
The second issue pertains to the disallowance under section 36(1)(vii) r.w.s. 36(2). The appellant found favor with the Tribunal based on the amended provision of section 36(1)(vii), which allows a claim for bad debt deduction without requiring demonstrative proof of the debt becoming bad. The Tribunal supported the appellant's case by referring to decisions like T.R.F. Ltd. vs. CIT and CIT vs. Star Chemicals (Bombay) P. Ltd. The Revenue's argument that the appellant, being a NBFC, is not in the money lending business was dismissed as the Tribunal considered the matter settled based on legal precedents. Consequently, the Revenue's appeal was dismissed.

This judgment highlights the Tribunal's decision in favor of the assessee on both issues, emphasizing the importance of legal precedents and interpretations of relevant sections of the Income Tax Act, 1961. The dismissal of the Revenue's appeal underscores the significance of consistent judicial rulings and the application of legal principles in tax matters.