2015 (12) TMI 496 - AT - Income Tax

Addition representing settlement amount paid by a third party, on behalf of the assessee, considering the same as covered u/s 40a(ia) - Held that - The payment in question was not in consequence of any work carried out by the contractor for the assessee, but it was agreed payment to get the title of the property cleared, by way of out of court settlement of the suit filed by the contractor. Thus, the assessee was correct in not making TDS on the amount paid by the purchaser, M/s Silverline Enterprises, directly to the contractor, M/s Sarovar Developer, on behalf of the assessee. As such, the provisions of section 40(a)(ia) of the Act do not get attracted. Therefore, the ld. CIT(A) has erred in applying the decisions of Torque Pharmaceuticals Pvt. Ltd. vs. Addl. CIT , (2011 (7) TMI 1147 - ITAT CHANDIGARH) and ACIT vs. Grandprix Fab (P) Ltd. , 2009 (10) TMI 659 - ITAT DELHI inasmuch as in the present case, the payment made was not qua any work contract but was made to get a clear title of the property. For the above discussion, the grievance of the assessee is found to be justified and is accepted as such. The addition made by the A.O., as confirmed by the ld. CIT(A), is cancelled. - Decided in favour of assessee.

Summary

Issues: Appeal against addition of settlement amount under section 40(a)(ia) of the Income Tax Act, 1961.

Analysis:
1. The appellant contested the addition of Rs. 75 lacs as settlement amount paid by a third party on their behalf, arguing it was not related to any contract but to clear the property title.
2. The Assessing Officer disallowed the claim under section 40(a)(ia) due to non-deduction of TDS on the amount paid, which the CIT(A) upheld.
3. The appellant clarified that the payment was part of an out-of-court settlement to resolve a dispute, not for any contractual work.
4. The Departmental Representative argued that the payment was part of the contractual obligation for construction work, and the alleged out-of-court settlement was to avoid tax liability.
5. The Tribunal found that the payment was made to clear the property title as per the settlement agreement, not for any work done by the contractor for the appellant.
6. It was established that the amount of Rs. 70 lacs was not payable by the appellant, and the out-of-court settlement of Rs. 75 lacs was made by the purchaser directly to the developer.
7. The Tribunal concluded that the payment was not subject to TDS as it was not related to any work contract but to resolve the property title issue, contrary to the decisions cited by the CIT(A).
8. Consequently, the Tribunal accepted the appellant's argument, canceling the addition of Rs. 75 lacs made by the Assessing Officer and upheld by the CIT(A).
9. As a result, the appeal filed by the appellant was allowed, and the addition was set aside.