2016 (11) TMI 1593 - AT - Income Tax

Tribunal upholds CIT(A) decision on training fees royalty disallowance

The Tribunal upheld the CIT(A)'s decision to delete the disallowance of expenses on training fees royalty due to non-deduction of TDS under Section ... Disallowance under Section 40(a)(ia) for failure to deduct tax at source - liability to deduct tax at source determined by law as existing at the time of filing return - effect of retrospective amendment on past compliance - reimbursement payments and chargeability to tax - precedent in assessee's own caseDisallowance under Section 40(a)(ia) for failure to deduct tax at source - reimbursement payments and chargeability to tax - effect of retrospective amendment on past compliance - precedent in assessee's own case - Deletion of disallowance of training fees and royalty expenses under Section 40(a)(ia) for non-deduction of TDS for A.Y. 2010-11 - HELD THAT: - The Tribunal held that the CIT(A) was correct in deleting the addition made under Section 40(a)(ia) in respect of payments characterised as training fees, service fees and royalty. The earlier Tribunal decision in the assessee's own case for A.Y. 2008-09 was relied upon, which found that the payments were either reimbursements of actual expenditure and/or not chargeable to tax in India (no PE of the non-resident payees), and therefore no obligation to deduct tax at source arose under the law as it stood at the time of filing returns. The Tribunal applied the settled principle that an assessee cannot be penalised for not performing an impossible act - where no liability to deduct tax existed at the relevant time, a subsequent retrospective amendment or later decision cannot be invoked to fasten penal disallowance for earlier compliance. In view of the identical factual and legal position, the Tribunal followed the earlier order and confirmed the deletion made by the CIT(A). [Paras 3, 4]The disallowance under Section 40(a)(ia) was deleted and the CIT(A)'s order was confirmed.Final Conclusion: Revenue's appeal is dismissed and the order of the CIT(A) deleting the disallowance for non-deduction of TDS in respect of the contested payments for A.Y. 2010-11 is confirmed. Issues:Disallowance of expenses on payment of training fees royalty for non-deduction of TDS under Section 40(a)(ia) of the Income Tax Act.Analysis:The appeal by the Revenue challenged the order of CIT(A) deleting the disallowance of expenses on payment of training fees royalty due to non-deduction of TDS under Section 40(a)(ia) of the Act. The Revenue contended that the CIT(A) erred in deleting the addition made on account of non-deduction of TDS, citing a previous ITAT decision emphasizing chargeability over the source of payment. However, the assessee presented a Tribunal order in their own case for the A.Y. 2008-09, where a similar issue was addressed, and the disallowance was deleted. The Tribunal observed that the payments in question were reimbursement of actual expenditure, not covered by the provisions of Section 9, and no TDS was required to be deducted. The Tribunal further noted that the issue arose due to a retrospective amendment to the section, and the assessee cannot be held responsible for not deducting tax at the time of filing the return. The Tribunal confirmed the order of the CIT(A) based on these findings, deciding the issue in favor of the assessee.Therefore, the Tribunal, after considering the arguments and the previous Tribunal decision in the assessee's own case, upheld the order of the CIT(A) deleting the disallowance. The issue was decided in favor of the assessee, and the appeal of the Revenue was dismissed.