2015 (10) TMI 2844 - AT - Income Tax

TDS u/s 194J - Non deduction of TDS on Portfolio Management Fees - addition u/s 40(a)(ia) - HELD THAT - We find that the Co-ordinate Bench of Tribunal in the case of Hiren Valves Pvt. Ltd.. 2014 (9) TMI 1275 - ITAT AHMEDABAD on identical issue has held that only the services rendered by a person in the course of carrying out listed professions and other notified professions constitutes fee for professional services and only the payment in connection with those services attract the provision for Section 194J. Revenue has not pointed any distinguishing features in the present case and that of Hiren Valves (supra) nor has demonstrated as to why the aforesaid decision rendered by the Co-ordinate Bench could not be applied to the facts of the present case. We therefore, hold that no disallowance of expenses u/s. 40(a)(ia) in respect of payment of management fees was called for in the present case. We therefore direct its deletion. Thus the ground of Assessee is allowed.

Summary

Issues:
Disallowance of expenses under section 40(a)(ia) for non-deduction of tax on management fees, applicability of proviso to section 40(a)(ia) with retrospective effect, levy of interest under sections 234A, 234B/234C & 234D, initiation of penalty proceedings under section 271(l)(c).

Issue 1: Disallowance of expenses under section 40(a)(ia)
The appeal was filed against the order of CIT(A) confirming the addition made by the Assessing Officer (AO) of Rs. 3,51,935 for non-deduction of tax under section 194J on management fees. The AO disallowed the expenditure under section 40(a)(ia) as TDS was not deducted on the management fees. The CIT(A) upheld the AO's decision, stating that the payment to HDFC Portfolio Management for professional management services was liable for TDS deduction under section 194J. The appellant argued that the payment was not covered under section 194J as it was not for professional services. The Tribunal referred to a similar case and held that only payments related to listed professions and notified professions attract section 194J. Since the payment was not notified as a professional service, the disallowance was not justified, and the expenditure was allowed.

Issue 2: Applicability of proviso to section 40(a)(ia)
The appellant argued that the proviso to section 40(a)(ia), inserted by the Finance Act 2012 with retrospective effect, should apply, making the appellant not deemed as an assessee in default. However, the Tribunal did not delve into this issue as it found in favor of the appellant based on the non-applicability of section 194J to the payment in question.

Issue 3: Levy of interest under sections 234A, 234B/234C & 234D
The issue of interest under these sections was raised, but no detailed analysis or discussion was provided in the judgment. It appears that the Tribunal did not find sufficient grounds to sustain the levy of interest, as no further explanation or reasoning was given in this regard.

Issue 4: Initiation of penalty proceedings under section 271(l)(c)
Similarly, the issue of penalty proceedings under section 271(l)(c) was mentioned, but no detailed discussion or analysis was provided in the judgment. It seems that the Tribunal did not find the initiation of penalty proceedings justified, as no specific reasons or findings were mentioned in relation to this issue.

In conclusion, the Tribunal allowed the appeal of the Assessee, directing the deletion of the disallowance of expenses under section 40(a)(ia) for non-deduction of tax on management fees. The decision was based on the non-applicability of section 194J to the payment in question, following a precedent where only payments related to specific professions attract section 194J. The Tribunal did not delve into the applicability of the proviso to section 40(a)(ia) with retrospective effect, and no detailed analysis was provided regarding the levy of interest under sections 234A, 234B/234C & 234D or the initiation of penalty proceedings under section 271(l)(c).