2020 (12) TMI 770 - AT - Income Tax

TDS u/s 194J or 194C - disallowance u/s. 40(a)(ia) - Short deduction of TDS - Carriage Fees/Channel Placement fees - Whether payments made for use/ right to use of 'process' are 'royalty' as per Explanation 6 to section 9(1)(vi) hence such payments are covered u/s. 194J ? - HELD THAT - No infirmity in the order of the Ld.CIT(A) in deleting the disallowance as the Ld.CIT(A) followed the order of the Tribunal and deleted the disallowance made u/s.40(a)(ia) of the Act. Even otherwise, the provisions of section u/s.40(a)(ia) of the Act have no application where there is short deduction of TDS as the Assessee in this case deducted TDS @2% under the provisions of section 194C of the Act as held by the Coordinate Bench of this Tribunal in the case of M/s. Sapiens Technologies (1982) India Pvt. Ltd. 2020 (9) TMI 1151 - ITAT MUMBAI TDS u/s. 194C OR u/s. 194J - disallowance made u/s. 40(a)(ia) in respect of editing expenses - HELD THAT - Since in the case on hand also there is short deduction of TDS as the assessee had deducted TDS @2% as against 10%, it is a case of short deduction of TDS and not non-deduction of TDS. In the circumstances no disallowance is attracted u/s. 40(a)(ia) of the Act. Thus, we sustain the order of the Ld.CIT(A) and reject the grounds raised by the revenue on this issue. Disallowance made towards commission expenses - CIT-A deleted the addition - HELD THAT - Assessing Officer has disallowed the expenditure without any contrary evidences in possession. It is very evident from the assessment order itself that by letter dated 07.03.2014, the Assessee has submitted detailed break-up of the expenses. The Assessing Officer has not demonstrated as to why this commission expenditure is ingenuine and is not allowable. Since the Assessing Officer has not substantiated his reasoning and has not pointed out any defect in the claim of the Appellant, such disallowance of commission expenditure cannot be sustained. The Assessing Officer is therefore, directed to delete the disallowance of commission expenditure correctly - Decided against revenue.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) read with Section 194J for 'Carriage Fees/Channel Placement fees'.
2. Disallowance under Section 40(a)(ia) read with Section 194J for 'editing expenses'.
3. Disallowance of commission payments.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) read with Section 194J for 'Carriage Fees/Channel Placement fees':
The Assessing Officer (AO) disallowed 'Carriage Fees/Channel Placement fees' paid by the assessee by treating them as royalty under Explanation 6 to Section 9(1)(vi) of the Income-tax Act, 1961, and thus subject to TDS under Section 194J. The AO invoked Section 40(a)(ia) for non-deduction of TDS under Section 194J. However, the Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)] deleted the disallowance, following the Tribunal’s decision in the assessee’s own case, which held that such fees come under Section 194C and not Section 194H. The Tribunal upheld the Ld.CIT(A)’s decision, emphasizing that the provisions of Section 40(a)(ia) do not apply where there is a short deduction of TDS, as the assessee deducted TDS at 2% under Section 194C.

2. Disallowance under Section 40(a)(ia) read with Section 194J for 'editing expenses':
The AO disallowed editing expenses on the grounds that TDS was deducted at 2% under Section 194C instead of 10% under Section 194J. The Ld.CIT(A) deleted the disallowance, relying on the Calcutta High Court’s decision in S.K. Tekriwal and the Mumbai Tribunal’s decision in Chandanbhoy & Jassobhoy, which held that no disallowance under Section 40(a)(ia) is warranted for short deduction of TDS, only for non-deduction. The Tribunal confirmed this view, noting that the provisions of Section 40(a)(ia) do not apply to short deductions of TDS.

3. Disallowance of commission payments:
The AO disallowed commission payments of ?13,93,805 on the grounds that the assessee did not provide supporting details or substantiate the business purpose of the payments. The Ld.CIT(A) deleted the disallowance, noting that the assessee had submitted a detailed breakup of the expenses and that the AO had not demonstrated any contrary evidence or defects in the claim. The Tribunal upheld the Ld.CIT(A)’s decision, agreeing that the AO did not provide valid reasons for the disallowance and did not point out any defects in the books of accounts.

Conclusion:
The Tribunal dismissed the Revenue’s appeal, upholding the Ld.CIT(A)’s decisions on all grounds. The Tribunal emphasized that the provisions of Section 40(a)(ia) do not apply to cases of short deduction of TDS and confirmed the deletion of disallowances for 'Carriage Fees/Channel Placement fees', 'editing expenses', and commission payments.