Allowability of Compensation Paid, Income Tax

[Ethirajan Parthasarathy]

“A” supplies Raw material to “B”. It so happens that ouput of “B” by using “A”s supply turns out to bad / nonsaleable. To maintain good relationship and keeping commercial expediency in view, “A” agrees to pay compensation to “B” calculated at sale value of defective output. It is proven that “B” output has become non-saleable because of raw material supplied by “A”.

Questions :-

a) Whether “A” can claim deduction u/s 37 of IT Act of Compensation to B

b) Whether “A” is liable to deduct any TDS

Posts / Replies

[DR.MARIAPPAN GOVINDARAJAN]

In my view claim of deduction under section 37 of Income Tax Act is applicable.

I am also doubt whether TDS is applciable in this case.