2016 (6) TMI 213 - AT - Income Tax

Disallowance u/s 40(a)(ia) - non deduction of TDS - Held that - assessee is a registered trust - Held that - The undisputed facts of the case are that in the assessment year 2008-09, the assessee was registered under section 10(23C)(iv) of the Act and claimed exemption under the said Act. Similarly, in assessment years 2009-10, 2010-11, since the assessee was registered under section 12AA of the Act, the income was claimed to be exempt under section 11 of the Act. It is also a fact on record that on the impugned payments, the assessee have not deducted tax, as required under the provisions of the Act. Since the income of the assessee is exempt in view of these sections, the income of the assessee is not taxable under the head income from business or profession , appearing in Chapter-IV of the Income Tax Act. Section 40(a)(ia) of the Act is a part of Chapter-IV for the purposes of computing the income under the head business income . We are in agreement with the submissions of the assessee and also the findings of the learned CIT (Appeals) that the provisions of section 40(a)(ia) of the Act can be invoked only for the purposes of computing the income under the head business income . Since the income is not computed under this head, the provisions of section 40(a)(ia) of the Act cannot be invoked. - Decided in favour of assessee

Summary

Issues:
- Appeal against disallowance of expenses under section 40(a)(ia) of the Income Tax Act.
- Interpretation of provisions of section 40(a)(ia) in relation to exemption under sections 10 or 11 of the Act.

Analysis:
1. The judgment pertains to four appeals filed by the Revenue against separate orders of the Commissioner of Income Tax (Appeals) for different assessment years. The appeals challenged the disallowance of expenses by the Assessing Officer under section 40(a)(ia) of the Income Tax Act.

2. The assessee contended that since the payments were not exigible to Income Tax Act, TDS deduction was not required, and thus, disallowance under section 40(a)(ia) was unjustified. The Commissioner of Income Tax (Appeals) allowed the appeal, citing exemption under section 10(23C)(iv) granted to the assessee for the relevant year, and suggested penalty proceedings by the Commissioner of Income Tax (TDS) for TDS default.

3. The Department appealed, arguing that the assessee admitted failure to deduct TDS as required under the Act, and sought restoration of the Assessing Officer's order. The Department emphasized the significance of the Act's scheme in taxing income before claiming exemptions under sections 10 or 11.

4. The Tribunal analyzed the provisions of section 40(a)(ia) and the scheme of taxation under the Act. It noted that the assessee, being exempt under sections 10 or 11, did not fall under the "income from business or profession" head. Therefore, section 40(a)(ia) could not be invoked for computing business income, as established by various Tribunal decisions and High Court precedents.

5. The Tribunal rejected the argument that exemption under sections 10 or 11 should follow income computation under a specific head, citing the Punjab & Haryana High Court judgment emphasizing the distinction between total income computation and income from property held under trust for exemptions under Chapter III.

6. Consequently, the Tribunal dismissed the Department's appeal, affirming that section 40(a)(ia) did not apply to the assessee due to exemption under sections 10 or 11. The judgment applied to similar appeals by the Revenue for other assessment years, leading to the dismissal of all appeals and cross objections.

7. The Tribunal further allowed the withdrawal of Cross Objections by the assessee, with no objections from the Department, resulting in the dismissal of all appeals and cross objections. The order was pronounced on May 9, 2016, by the Appellate Tribunal ITAT Chandigarh, with detailed reasoning provided by the judges involved in the decision-making process.