2016 (3) TMI 445 - AT - Income Tax

TDS u/s 194C OR 194J - royalty and connection charges - disallowance u/s 40(a) - Sort deduction of tax under different or wrong provision of the section - AO S case that such payment is on account of royalty covered within the ambit of section 9(1)(vi) and therefore the TDS should have been deducted under section 194J - Held that - If there are two conflicting decisions of non-jurisdictional High Courts, then the decision in favour of the assessee should be taken. We agree with such a contention raised by the assessee that, if there are to conflicting decisions and in absence of any jurisdictional High Court, decision one favourable to the assessee should be preferred and this proposition has been long back settled by the Hon ble Supreme Court in the case of Vegetable Products Ltd (1973 (1) TMI 1 - SUPREME Court ). Thus, we hold that, no disallowance under section 40(a)(ia) should be made on short deduction of tax under different or wrong provision of the section. Moreover, in this case, Ld. Counsel has pointed out that the amount paid to Hathway Cable and Datacom Ltd. has been offered to tax in the return of income filed by the said concern, therefore, in view of the second proviso to section 40(a)(ia) no disallowance under section 40(a)(ia) should be made. This proposition now has been settled by the Hon ble Delhi High Court in the case of CIT vs Ansal Land Work 2015 (9) TMI 79 - DELHI HIGH COURT , wherein held that such an amendment is directory and curative in nature. Thus the assessee succeeds on this issue also. - Decided in favour of assessee.

Summary

Issues:
1. Incorrect rate of tax deduction under sections 194J and 194C.
2. Disallowance under section 40(a)(ia) for short deduction of tax.

Analysis:

Issue 1: Incorrect rate of tax deduction under sections 194J and 194C
The appellant contested the order of the CIT(A) regarding the rate of tax deduction under sections 194J and 194C. The appellant argued that the payment made towards royalty and connection charges did not fall under the definition of "royalty" as per section 9(1)(vi) and hence, TDS was correctly deducted at 2% under section 194C. The appellant relied on previous decisions and the rule of consistency. The Tribunal noted that the CIT(A) had decided in favor of the appellant for the AY 2009-10 and followed the same decision, ultimately allowing the issue in favor of the appellant.

Issue 2: Disallowance under section 40(a)(ia) for short deduction of tax
The appellant further argued that even if there was a short deduction of tax under the wrong provision, no disallowance should be made under section 40(a)(ia). The Tribunal referred to various High Court decisions supporting the appellant's argument, emphasizing that if there are conflicting decisions of non-jurisdictional High Courts, the one favoring the assessee should be followed. The Tribunal held that no disallowance under section 40(a)(ia) should be made for short deduction of tax under different or wrong provisions of the section. Additionally, the appellant pointed out that the payee had shown the income in their return, invoking the second proviso to section 40(a)(ia) to prevent disallowance.

In conclusion, the Tribunal dismissed the appeal of the revenue, upholding the decisions made in favor of the appellant regarding the rate of tax deduction and disallowance under section 40(a)(ia). The Tribunal's decision was based on the interpretation of relevant provisions, previous judicial precedents, and the principle of consistency in tax deduction matters.