NON DEDUCTION OF TDS FOR PAYMENT MADE BY SUBSIDIARY COMPANY TO HOLDING COMPANY

[S SHANMUGASUNDARAM]

An 100% Subsidiary compamy has paid the holding company as service charges during the financial year 2007-08. At the time of making payment TDS has not been deducted. The holding company accounted the service charges received from the subsidiary company and paid Tax as applicable. Now the A.O is proposed to disallow the expenditure u/S 40(a)(ia) in the subsidiary company as the subsidiary has not deducted the TDS at the time of making payment. Whether the CBDT Circular No.275/201/95-IT(B) dt.29.01.1997 will be applicable.

[Mukesh Kumar]

That may be relevant for proceedings under section 201 but is not relevant for disallowance under section 40(a)(ia)

AI Summary

TDS non-deduction can lead to disallowance of expenses despite administrative guidance applying only to recovery proceedings. Failure by a subsidiary to deduct tax at source on service charges paid to its holding company raises the question of expense disallowance. Administrative circulars relevant to recovery or default proceedings do not affect the separate rule permitting disallowance of expenditure for failure to deduct tax at source, so such guidance is not a defense against disallowance of the subsidiary's expense when withholding obligations were unmet.