Assessee not liable for TDS without actual payment: tribunal decision emphasizes accrual and payment criteria

The tribunal held that the assessee was not liable to deduct TDS under Section 192 on provisions for ESOP, leave encashment, bonus, and gratuity as no actual payment was made during the year. The appeal was allowed, emphasizing the need for both accrual and actual payment for TDS deduction, aligning with the Delhi High Court's interpretation.

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Issues Involved:
1. Treatment of the assessee company as a defaulter under Section 192 of the IT Act for non-deduction of TDS on provisions made in the books.
2. Determination of TDS liability on various expenditures like ESOP, leave encashment, gratuity, and bonus.

Detailed Analysis:

1. Treatment of the Assessee Company as a Defaulter under Section 192:

The primary issue revolves around whether the assessee company should be treated as a defaulter for not deducting TDS on certain provisions made in the books, specifically under Section 192 of the IT Act. The assessee argued that the obligation to deduct TDS arises only upon actual payment and not at the time of making provisions in the books. The assessee referenced the Hon’ble Delhi High Court's decision in CIT vs. Tej Quebecor Printing Ltd., which held that Section 192 requires tax deduction at the time of payment and not at the time of accrual or crediting provisions. The AO, however, held the assessee in default for non-deduction of TDS on provisions related to ESOP, leave encashment, gratuity, and bonus, stating that TDS should be deducted on credit or payment, whichever is earlier.

2. Determination of TDS Liability on Various Expenditures:

ESOP Expenses:

The AO noted that the assessee made a provision of Rs. 1,09,84,200/- for ESOP but did not deduct TDS. The assessee contended that the TDS obligation arises only when the employee exercises the option, not at the time of granting the option. The tribunal agreed with the assessee, referencing the Hon’ble Delhi High Court's decision, which emphasized that both accrual and actual payment must exist for TDS deduction under Section 192. Since the option was not exercised during the year, the tribunal held that the provisions of Section 192 were not applicable.

Leave Encashment, Bonus, and Gratuity Expenditures:

The tribunal observed that the provisions made for leave encashment, bonus, and gratuity were not actual payments but future liabilities. Following the Delhi High Court's ruling in CIT vs. Tej Quebecor Printing Ltd., the tribunal concluded that no TDS is required under Section 192 for these provisions since there was no actual payment. The tribunal also noted that the revenue's reliance on the Bangalore Bench's decision in IBM India Pvt. Ltd. vs. ITO TDS LTU was misplaced, as it did not pertain to Section 192 but to other sections requiring TDS on credit or payment.

Conclusion:

The tribunal set aside the orders of the lower authorities, holding that the assessee was not liable to deduct TDS under Section 192 on the provisions made for ESOP, leave encashment, bonus, and gratuity since no actual payment was made during the year. The appeal of the assessee was allowed. The judgment emphasized the distinction between accrual and actual payment for TDS obligations under Section 192, aligning with the Delhi High Court's interpretation.

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