Tribunal allows appeal for legal charges, requires verification of timely TDS deduction

The tribunal ruled in favor of the assessee, allowing the appeal for statistical purposes. The disallowance of legal and consultancy charges paid to offshore entities under section 195 of the Act was deleted as the services provided were not subject to withholding tax. Similarly, the disallowance of internet and professional charges under section 194J was subject to verification of timely TDS deduction, with potential deletion of the disallowance under section 40(a)(ia) if evidence is provided.

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Issues:
1. Disallowance of legal and consultancy charges paid to offshore entities for non-deduction of tax at source u/s.195 of the Act.
2. Disallowance of internet charges and professional charges for non-deduction of tax at source u/s.194J of the Act.

Analysis:
1. The first issue pertains to the disallowance of legal and consultancy charges paid to offshore entities due to non-deduction of tax at source u/s.195 of the Act. The assessee argued that payments made to these entities were not taxable in India as services were rendered outside India, citing provisions of the Double Taxation Avoidance Agreement (DTAA) between India and Australia. The tribunal found that the services provided were independent professional services and not subject to withholding tax under section 195 of the Act. The payments were deemed not liable for tax deduction at source, thus directing the AO to delete the disallowances.

2. The second issue involves the disallowance of internet charges and professional charges for non-deduction of tax at source u/s.194J of the Act. The assessee contended that TDS was deducted in the subsequent year before the due date specified in the Act. The tribunal noted that if TDS is deducted before the due date of furnishing the return of income u/s.139(1) of the Act, the disallowance cannot be upheld. Therefore, the matter was remanded to the AO for verification of TDS deduction. If the assessee provides evidence of timely TDS deduction, the disallowance of expenses u/s.40(a)(ia) of the Act is directed to be deleted.

In conclusion, the appeal filed by the assessee was allowed for statistical purposes, with the tribunal ruling in favor of the assessee on both issues.

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