2017 (12) TMI 1266 - AT - Income Tax

TDS u/s 194A - non deduction of tds on interest payment - Held that - As per the proviso, if the deductee admits the income and pays taxes on such income, the assessee is not deemed to be assessee in default and the disallowance u/s 40(a)(ia) does not attract. Though the amendment has come into effect w.e.f. 01.04.2013, the Hon ble Delhi High Court in the case of CIT Vs. Ansal Landmark (2015 (9) TMI 79 - DELHI HIGH COURT) held that the second proviso to section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 01.04.2005. The Ld.CIT(A) has allowed the assessee s appeal following the order of the Hon ble Delhi High Court. During the appeal hearing, the Ld.DR did not place any other decision to controvert the reliance placed by the Ld.CIT(A). Since the CIT(A) allowed the assessee s appeal following the decision of Hon ble Delhi High court, we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld. Appeal of the revenue is dismissed. Addition towards partners remuneration - enhanced remuneration paid to partner - Held that - As gone through the partnership deed and in the partnership deed with regard to payment of remuneration,there was a clause for increase/decrease of remuneration as per mutual consent before the end of the financial year. In the instant case, there were only two partners. The P&L account and the financial statement were examined by both the partners and agreed for payment of remuneration. The partnership deed also limits the remuneration as permissible u/s 40(b) of I.T.Act. Since there are only two partners in the partnership firm, and the remuneration paid is permissible as per partnership deed and the books of accounts are being verified and certified by both the partners as stated by the Ld.AR, we are in agreement with the submission made by the Ld.AR that the payment of remuneration is in accordance with the partnership deed. The Ld.AR further submitted that the managing partner has admitted the income in his hands and paid taxes. Therefore, we hold that the remuneration of ₹ 5,30,000/- is authorized by the partnership deed which required to be allowed. See CIT Vs. Asian Marketing 2012 (5) TMI 56 - RAJASTHAN HIGH COURT . Therefore, we set aside the order of the lower authorities and allow the remuneration paid to the partners

Summary

Issues:
1. Disallowance of partners' remuneration
2. Disallowance of finance charges under section 40(a)(ia)
3. Disallowance of payments under section 40A(2)(b)

Analysis:

Issue 1: Disallowance of partners' remuneration
The AO disallowed a portion of partners' remuneration claimed by the assessee, citing a limitation in the partnership deed. The CIT(A) upheld the disallowance due to the absence of a written agreement supporting the increase in remuneration. However, the Tribunal noted that the partnership deed allowed for mutual agreement on remuneration adjustments before the financial year-end. With only two partners involved, both verifying and certifying the accounts, the Tribunal held that the remuneration paid was within the permissible limits under section 40(b) of the Income Tax Act. Relying on the decision of the High Court of Rajasthan, the Tribunal allowed the partners' remuneration claimed by the assessee.

Issue 2: Disallowance of finance charges under section 40(a)(ia)
The AO disallowed finance charges paid to certain entities for non-deduction of tax at source under section 40(a)(ia). The CIT(A) confirmed a portion of the disallowance after verifying Form 26AS, where the entities had admitted the income. The Tribunal, considering the second proviso to section 40(a)(ia), held that if the payee admits the income and pays taxes on it, the payer is not deemed in default. Referring to a decision of the Delhi High Court, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal.

Issue 3: Disallowance of payments under section 40A(2)(b)
The AO disallowed certain payments under section 40A(2)(b), which the CIT(A) partially confirmed. The Tribunal noted that the CIT(A) found the entities had admitted a portion of the payments, leading to the deletion of the balance amount. As the assessee did not press this ground during the appeal, the Tribunal dismissed it.

In conclusion, the Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross objections, emphasizing adherence to partnership deed provisions and tax payment by the entities receiving income.