2020 (7) TMI 335 - AT - Income Tax

Disallowance u/s.40(a)(ia) - Scope of second proviso of Section 40(a)(ia) r.w.s. 201(1) as amended - exhibition expenses paid to Idea House Pvt. Ltd. without deduction of tax at source - HELD THAT - The said amendment has been held to be retrospective in operation in the case of CIT vs. Ansal Landmark Housing Development Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT . We find that the decision in the case of Thomas George Muthoot vs. CIT 2015 (7) TMI 810 - KERALA HIGH COURT is against the assessee on the very same issue wherein the second proviso to Section 40(a)(ia) r.w.s. 201(1) of the Act had been held to be prospective in operation. We could find that there are divergent views taken by different non-jurisdictional High Courts. In such a scenario, the Hon ble Supreme Court in the case of Vegetable Products 1973 (1) TMI 1 - SUPREME COURT had held that the construction that is favourable to the assessee should have to be considered. Accordingly, we would like to place reliance on the decision of the Hon ble Delhi High Court referred to supra and hold that assessee herein being a payer cannot be treated as an assessee in default and consequently, no disallowance u/s.40(a)(ia) of the Act could be made in the hands of the assessee herein. - Decided in favour of assessee. TDS u/s 194C - Disallowance u/s.40(a)(ia) - advertisement expenses incurred without deduction of tax at source - HELD THAT - There is absolutely no dispute that the said payment was made towards advertisement charges to Harsha Agencies which is a franchisee of The Hindu . On bare reading of provisions of Section 194C of the Act, we find that any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract shall deduct tax at source thereon. Explanation to Section 194C of the Act defines the term work to include advertising . Hence, the very fact that assessee had given the advertisement material to M/s. Harsha Agencies, constitutes a contract entered into by assessee and Harsha Agencies - all the ingredients of Section 194C of the Act get squarely attracted in the instant case - assessee is indeed liable for deduction of tax at source on the said payment -AO is justified in making disallowance u/s.40(a)(ia) - Decided against assessee. Disallowance of transport expenses u/s.40(a)(ia) on non-deduction of tax at source - HELD THAT - Assessee submitted that since PAN was obtained from the respective transporters to whom payments were made, pursuant to the amendment brought in the provisions of Section 194C of the Act w.e.f. 01/10/2009, there was no requirement for the assessee payer to deduct tax at source once PAN is obtained. AO however, ignored the contentions of the assessee and observed that the said payment would attract provisions of Section 194C and proceeded to make disallowance u/s.40(a)(ia) in the assessment - before the ld. CIT(A), the assessee had indeed made a submission that the respective transporters had included these sums in their returns and hence, the assessee should not be invited with disallowance u/s.40(a)(ia) of the Act in terms of second proviso to Section 40(a)(ia) r.w.s. 201(1) . CIT(A) had not discussed on this particular submission of the assessee at all and had not given any finding in its appellate order regarding the same. We find that this is a statutory benefit provided to the assessee which should not be taken away. Even before us, we find that the ld.AR except making oral statement that the payees have included the said receipts in their income tax returns, had not produced any documentary evidence before us. However, in order to avoid double taxation, we deem it fit and appropriate, in the interest of justice and fair play, to remand this issue to the file of the ld. AO for the limited purpose of verification of the income tax returns for the Asst Year 2010-11 of the respective payees in the light of the second proviso of Section 40(a) (ia) r.w.s. 201(1) - as already held that second proviso has already been held to be retrospective in operation - if the payees have included the subject mentioned transaction in their income tax returns, then the assessee payer should not be treated as assessee in default and disallowance u/s.40(a)(ia) of the Act should be deleted in its hands - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance under section 40(a)(ia) for exhibition expenses paid without tax deduction.
2. Disallowance under section 40(a)(ia) for advertisement expenses paid without tax deduction.
3. Disallowance under section 40(a)(ia) for transport expenses paid without tax deduction.

Issue 1: Disallowance of Exhibition Expenses:
The appeal concerned the disallowance made under section 40(a)(ia) for exhibition expenses paid without tax deduction. The Assessing Officer (AO) disallowed ?19,05,112 for non-deduction of tax at source. The appellant argued that previous similar payments were accepted by the Revenue without TDS. However, the Tribunal held that such arguments would render the provisions of section 40(a)(ia) redundant. The appellant also relied on a High Court decision, but the Tribunal clarified that the decision was specific to certain circumstances and could not be applied universally. The appellant's alternative argument, supported by the payee's inclusion of the transaction in their tax returns, was found valid under the second proviso to section 40(a)(ia). The Tribunal allowed the appeal on this ground.

Issue 2: Disallowance of Advertisement Expenses:
The second issue involved the disallowance under section 40(a)(ia) for advertisement expenses paid without tax deduction. The payment was made to a franchisee of 'The Hindu' newspaper. The AO and Commissioner upheld the disallowance, stating that tax should have been deducted under section 194C. The Tribunal agreed, as the payment was for advertising services covered under section 194C. The disallowance of ?56,997 was upheld.

Issue 3: Disallowance of Transport Expenses:
The final issue concerned the disallowance under section 40(a)(ia) for transport expenses paid without tax deduction. The appellant argued that since PAN details were obtained from the transporters, no TDS was required post an amendment in the Act. The AO disagreed and made a disallowance of ?2,06,255. The appellant claimed the payees included the sums in their tax returns, citing a Supreme Court decision. The Tribunal found merit in this argument but noted the lack of documentary evidence. To ensure fairness, the issue was remanded to the AO for verification. If the payees included the transaction in their tax returns, the disallowance would be deleted; otherwise, it would stand. The Tribunal allowed the appeal on this ground for statistical purposes.

In conclusion, the appeal was allowed for statistical purposes, with the Tribunal providing detailed analysis and rulings on each issue raised in the judgment.