TaxTMI 
TaxTMI 
2021 (12) TMI 232
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut appreciating that the assessee has not been able to demonstrate the nature and scale of services rendered by Smith and Sons Ltd and that the payment of commission is allowable only on the assessee furnishing evidence in support of the services rendered?" 2.The respondent assessee filed return on 30.09.2021 declaring total income of Rs. 8,65,92,110/- crores. It was processed under section 143(1) of the Income Tax Act ("the Act" for short) and the same was selected for scrutiny. 3.Notice under section 142(1) of the Act along with questionnaire was issued on 27.08.2012. In response,the authorised representative of the company attended time to time. It was noticed that the respondent assessee had not deducted the tax under section 194(C) for the payments made to various transporters, this included the freight inward charges and clearing and forwarding charges. 4.The Assessing Officer rejected the contention of the respondent assessee that TDS was not deducted, as the same was not applicable as per the provisions of law. According to the assessee Company TDS was not to be deducted on payment made to the transporters as per Clause 6 of section 194(c). Again, the details of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on income comprised therein. Likewise, sub-section (2) of section 194C required a person responsible for paying any sum to resident-sub-contractor to deduct tax at source under given circumstances. It is not in dispute that ordinarily the assessee was required to make such deduction on the payments made to the sub-contractors, unless he was covered under the exclusion clause contained in sub-section (3) of section 194C of the Act. Such provision, as it stood at the relevant time, read as under:- "Section 194C(3):- No deduction shall be made under sub-section(1) or sub-section (2) from - (i)the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor or sub-contractor, if such sum does not exceed twenty thousand rupees: Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds fifty thousand rupees, the person responsible for paying such sums referred to in sub-section (1) or, as the case may be, subsection (2) shall be liable to deduct income-tax under this section: Provided further that no deduction shall be made under sub-s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n deducted or, after deduction, [has not been paid on or before the due date specified in sub-section (1) of section 139:]" 5) From the above statutory provisions, it can be seen that under section 40(a)(ia) of the Act, payments made towards interest, commission or brokerage etc. would be excluded for deduction in computing the income chargeable under the head 'profits and gains of business or profession', where though tax was required to be deducted at source, is not deducted or where after such deduction, the same has not been paid on or before the due date. Thus for application of section 40(a)(ia) of the Act, the foremost requirement would be of tax deduction at source. 6) Section 194C, as already noticed, makes provision where for certain payments, liability of the payee to deduct tax at source arises. Therefore, if there is any breach of such requirement, question of applicability of section 40(a)(ia) would arise. Despite such circumstances existing, sub-section (3) makes exclusion in cases where such liability would not arise. We are concerned with the further proviso to sub-section (3), which provides that no deduction under sub-section (2) shall b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....declaration of tax at source. Any such failure therefore cannot be visualized by adverse consequences provided under section 40(a)(ia) of the Act. 10) When on the basis of the record it is not disputed that the requirements of further proviso were fulfilled, the assessee was not required to make any deduction at source on the payments made to the subcontractors. If that be our conclusion, application of section 40(a)(ia) would not arise since, as already noticed, section 40(a)(ia) would apply when there is a requirement of deduction of tax at source and such requirement is either not fulfilled or having deducted tax at source is not deposited within prescribed time." 9.Yet another decision of the High Court of Madras is reported in the case of Commissioner of Income Tax, Madurai vs.Sri Parameshwari Spinning Mills(P.)Ltd.,[2019] 10 taxmann.com 386(Madras), where sub-section 6 of section 194, which grants benefit to the assessee, is discussed along with subsection(7) of section 194. The Court held that this benefit comes with the condition of compliance of sub-section (7) of section 194(c). This is a procedure required to be followed. The Court held that non-filing of the statemen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yer to deduct taxes at source would cease and consequently, disallowance of payment of sub-contractor under Section 40(a)(ia) could not be made on the ground that the assesee had not furnished form no.15J as required under Rule 29D. We find that the said decision is of no assistance to the case of the Revenue. 10. Mr.A.S.Sriraman, learned counsel for the assessee referred to the decision of the ITAT Jaipur in the case of ACIT Vs. Arihant Trading Co. reported in [176 ITD 397 (Jaipur-Tri)]. In the said decision it has been held that Section 194C(6) & (7) are independent of each other and cannot read together to attract disallowance under Section 40(a)(ia) read with Section 194C of the Act" 10. In the instant case also, as detailed above, the assessee company has not deducted the TDS of payment made to the transporters as per sub-section(6) of section 194(c). However, the details of the transporters have been filled-in in the TDS return, wherein their PAN cards also have been duly submitted to the Income-tax authorities, as this is a sufficient compliance of sub-section (7) of section194(c). The Tribunal was absolutely correct in upholding the version of the assessee. It a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fore the Tribunal, it held thus: "33.3 The provisions for allowing the deduction of the commission expenses are governed under the provisions of section 37 of the Act which requires the fulfillment of the following ingredients: i. Expenditure should not be covered under the specific sections, i.e., 30 to 36; ii. Expenditure should not be of capital nature; iii. Expenditure should have been incurred during the previous year; iv. Expenditure should not be of a personal nature; v. Expenditure should have been incurred wholly or exclusively for the purpose of the business or profession. 33.4 All of the five conditions mentioned above are to be satisfied before on can claim any expense as a deduction under this section. The last condition requires for allowing the claim of the expenses that the expenditure should have been incurred wholly or exclusively for the purpose of the business. This is a very vexed question, and a lot of litigation revolves around this issue. In fact, once the assessee has furnished the details for the deduction of commission expenses, the onus is shifted upon the O to reject the contention of the as....