2013 (6) TMI 127 - HC - Income Tax

Disallowance u/s 40(a)(ia) - Non deduction of TDS on amount paid to MGPL, a group company getting the advertisements done from J.J. Communications on behalf of the assessee company - Held that - These expenses cannot be disallowed to the assessee if MGEPL has deducted and paid TDS on behalf of the assessee without violating the condition of section 40(a)(ia). Since in this case the assessee has proved that amount of Rs.1,20,84,768/- was paid on behalf of the assessee by its agent no infirmity in the order of the CIT( A) in allowing Rs.1,12,84,318/- out of total disallowance of Rs.1,20,84,768/- made by AO. Tribunal has recorded that the assessee had proved that MGEPL was acting as an agent. The question raised by the AO as to why should MGEPL act without any profit motive is answered by section 185 of the Contract Act which provides that No consideration is necessary to create an agency - in favour of assessee.

Summary

Issues:
Violation of provisions of Chapter 17B of the I.T. Act in not deducting tax at source on payment to a company, disallowance under section 40(a)(ia) of the I.T. Act, reversal of Assessing Officer's order by CIT (Appeals), Tribunal's opinion on the matter, appeal by revenue, application for condonation of delay, consideration of agency relationship in the case.

Analysis:
The High Court of Calcutta addressed the issue of the Assessing Officer disallowing an amount under section 40(a)(ia) of the I.T. Act due to the assessee's failure to deduct tax at source on a payment made to a company. The Assessing Officer's reasoning was based on the assertion that the company receiving the payment was not a group concern of the assessee and should have had tax deducted at the source. The Appellate Authority, CIT (Appeals), however, reversed this decision, leading to the matter being brought before the Tribunal by the revenue.

The Tribunal, in its opinion, highlighted that if the company receiving the payment had deducted and paid TDS on behalf of the assessee without violating the conditions of the relevant section, the expenses could not be disallowed. The Tribunal found that the assessee had proven that the payment was made on its behalf by its agent, leading to the partial allowance of the disallowed amount under section 40(a)(ia). The Tribunal upheld the decision of the CIT (Appeals) in this regard.

The revenue then appealed the Tribunal's decision, leading to a consideration of an application for condonation of delay. The delay period was disputed, with the revenue claiming 56 days and the assessee asserting 141 days. The Senior Advocate for the revenue did not contest the delay condonation request, and the matter proceeded to a hearing.

The High Court, after reviewing the case and the arguments presented, found that the Assessing Officer's views were adequately refuted by both the Appellate Authority and the Tribunal. It was noted that there was sufficient evidence to establish that the company receiving the payment was acting as an agent for the assessee. The Court also referenced section 185 of the Contract Act, emphasizing that an agency can be established without the need for consideration. Consequently, the Court concluded that no substantial question of law was involved in the case, and the appeal was disposed of accordingly.