2019 (1) TMI 547 - HC - Income Tax

TDS u/s 194C - disallowance u/s 40(a)(ia) - requirement of statutory audit in case of the assessee - Held that - The Tribunal noted that the statutory provisions contained sub-Section 1 and 2 of Section 194(c) prevailing at the relevant time excluded the individuals and Hindu Undivided Families from the requirement of deducting tax at source as long as their turnover did not exceed the limit for statutory audit. On facts, it has been held that assessee would have been qualified for exclusion clause and therefore the requirement of deducting tax at source could not be applied. No error in the view of the Tribunal. The finding of the Tribunal that the Assessee s turn over for the previous year did not exceed the statutory threshold is a finding of fact, not shown to be erroneous. The statutory provisions contained in Section 194 (c) of the Act applicable at the relevant time specifically excluded the requirement of deducting tax at source by the individual or HUF payees if during the previous year their turnover did not exceed the limit requiring them to be subjected to compulsory audit - decided against revenue.

Summary

Issues:
- Disallowance of expenses under Section 40(a)(ia) of the Income Tax Act, 1961.
- Application of Section 194C and Section 44AB in the case.

Analysis:

Issue 1: Disallowance of expenses under Section 40(a)(ia)
The appellant, the Revenue, challenged the judgment of the Income Tax Appellate Tribunal (ITAT) regarding the disallowance of expenses amounting to ?4,60,21,743 under Section 40(a)(ia) of the Income Tax Act, 1961. The Tribunal based its decision on the fact that the assessee, an individual, was not liable to deduct tax under Section 194C as the turnover did not exceed the limit for statutory audit under Section 44AB. The Assessing Officer had disallowed the expenses, but the Tribunal upheld the assessee's contentions. The High Court concurred with the Tribunal's decision, emphasizing that the statutory provisions exempted individuals from deducting tax at source if their turnover did not surpass the audit threshold. The Court found no error in the Tribunal's conclusion, stating that it was a factual finding supported by the evidence on record.

Issue 2: Application of Section 194C and Section 44AB
The crux of the matter revolved around the interpretation and application of Section 194C and Section 44AB of the Income Tax Act, 1961. The assessee contended that the payments in question were reimbursement of expenditure and hence did not necessitate tax deduction at the source. Additionally, the assessee argued that the turnover did not exceed the threshold for mandatory audit under Section 44AB. The Tribunal focused on the exclusion clause in Section 194C, which exempted individuals from tax deduction if their turnover did not surpass the audit limit. Based on this provision, the Tribunal ruled in favor of the assessee. The High Court concurred with the Tribunal's interpretation, emphasizing that the statutory provisions clearly outlined the conditions under which tax deduction was not mandatory for individual payees. Consequently, the Court dismissed the appeal, affirming the Tribunal's decision on the application of Section 194C and Section 44AB in the case.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the statutory provisions exempting individuals from tax deduction if their turnover did not exceed the prescribed audit limit. The judgment underscored the importance of factual findings and adherence to statutory provisions in tax matters, ultimately dismissing the Revenue's appeal.