AI Drafter 
TaxTMI 
TaxTMI 
2026 (4) TMI 1792
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....J in respect of 'Channel placement Fees' 'UplinkingFees' & 'BandwidthCharges' and failing to appreciate that the payments made for use/right to use of 'process' are 'royalty' as per Explanation 6 to section 9(1) (vi) hence such payments are covered u/s. 194J of the Income-tax Act, 1961. ii) Whether on the facts, in the circumstances of the case and as per law, the Hon'ble Tribunal has erred in directing to delete the disallowance u/s. 40(a)(ia) rws 194J of 'Channel placement Fees' 'Uplinking Fees' & 'Bandwidth Charges', whereas the jurisdictional ITAT, Mumbai 'L' Bench, in its order dated 28.03.2014 in the case of ADIT-(IT)-2(2), Mumbai Vs Viacom 18 Media Pvt. Ltd., has confirmed that the payments made for use/right to use of 'process' are 'royalty' in terms of the Income-tax Act, 1961. iii) Whether on the facts, in the circumstances of the case and as per law, the Hon'ble ITAT has erred in directing to delete the disallowance u/s. 40(a)(ia) and thereby holding that the short deduction of tax will not result into disallowance u/s. 40(a)(ia) of the Act, without appreciating that the Hon'ble Kerala High Court in its judgment dated 20.07.2015 in the case of C....
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....allowance under Section 40(a)(ia) is warranted. The Tribunal accordingly dismissed the Revenue's appeal. 3. In the present Appeal, the Revenue has challenged the order of the Tribunal. Four questions of law have been proposed as reproduced above. We intend to deal with Question Nos. (iii) and (iv) first. 4. Mr. Suresh Kumar, the learned Counsel for the Appellant contends that Section 40(a)(ia) requires deduction of tax under the correct provision of Chapter XVII-B, and that deduction under Section 194C, where according to the Revenue Section 194J applied, is no deduction in the eyes of law for the purposes of Section 40(a)(ia). In this regard, reliance is placed on the judgment of the Kerala High Court in CIT v. PVS Memorial Hospital Ltd. [2015] 60 taxmann.com 69 (Kerala), where the Court held that if tax is deductible under Section 194J, but is deducted under Section 194C, such deduction would not satisfy the requirements of Section 40(a)(ia), and deduction under a wrong provision would not save the Assessee from disallowance. He, accordingly, contended that short deduction of tax at source should meet the same fate as non-deduction and the amount under consideration sho....
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.... has deducted tax u/s. 194C(2) of the Act being payments made to sub-contractors and it is not a case of non-deduction of tax or no deduction of tax as is the import of section 40a(ia) of the Act. But the revenue's contention is that the payments are in the nature of machinery hire charges falling under the head 'rent' and the previous provisions of section 194I of the Act are applicable. According to revenue, the assessee has deducted tax @ 1% 2 u/s. 194C(2) of the Act as against the actual deduction to be made at 10% u/s. 194I of the Act, thereby lesser deduction of tax. The revenue has made out a case of lesser deduction of tax and that also under different head and accordingly disallowed the payments proportionately by invoking the provisions of section 40(a)(ia) of the Act. The Ld. CIT, DR also argued that there is no word like failure used in section 40(a)(ia) of the Act and it referred to only non-deduction of tax and disallowance of such payments. According to him, it does not refer to genuineness of the payment or otherwise but addition u/s. 40(a)(ia) can be made even though payments are genuine but tax is not deducted as required u/s.40(a)(ia) of the Act. ....
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....e, the same cannot be a ground for disallowance under Section 40(a)(ia). The Court specifically observed that once deduction had already been made, the case could not be regarded as one of "no deduction". The relevant extract of the said judgment is as under: 6. In our view, as per the decision of the Calcutta High Court, the view taken by the Tribunal is that Section 40(a)(ia) of the Act may be invoked only in case of there being an absence of deduction. Further, in case of bona fide wrong impression, if the deduction is at a lesser rate, the same cannot be a ground for disallowance by invoking the provisions of Section 40(a)(ia). 7. Examining the matter, we find that there are two angles to the matter: The first is, whether it was a case of `no deduction' or not in the present case. The answer would be in the negative because, the deduction was already made at the rate of 1%. The second angle would be as to whether it was under a bona fide wrong impression that only 1% was deducted instead of 2%. The contention of the assessee was that, having realized that deduction was 2% instead of 1%, the amount of TDS has been paid with interest. It is also a matter of ....
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....gment is brought out hereunder: "8. In view of the law laid down by Hon'ble Supreme Court in the aforesaid case, this Court has no hesitation in upholding the finding returned by learned Income Tax Appellate Tribunal, wherein it has held that Section 40(a)(ia) of the Income Tax Act, 1961 cannot be made applicable to short deduction of tax at source and the disallowance made was directed to be deleted. This finding of learned Income Tax Appellate Tribunal is based on the judgment rendered by Hon'ble Calcutta High Court in the case of S.K. Tekriwal (supra). Learned Income Tax Appellate Tribunal have negated the submission of the revenue, which relied on the decision of Kerala High Court in the case of PVS Memorial Hospital Ltd.( supra), by relying on the judgment passed by the Hon'ble Apex Court in the case of Vegetable Products (supra), wherein it was held that when there are divergent views of various non-jurisdictional High Courts on an identical issue, the construction that is favorable to the assessee should be considered. 9. Learned counsel for the appellant further submitted that the judgment of Hon'ble Kerala High Court has been challenged be....
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....rom the fact that we are in agreement with the decision of the Calcutta High Court, we also find that with effect from 1st April 2013 a very important proviso [second proviso to 40(a)(ia)] was inserted by the legislature which stipulated that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum, but is not deemed to be an assessee in default under the first proviso to sub-Section (1) of Section 201, then, for the purpose of sub-clause 40(a)(ia), it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso. For the sake of convenience, the relevant proviso is produced hereunder:- ..." (emphasis supplied) 14. Thus, even so far as this Court is concerned, the matter stands concluded in favour of the Assessee. 15. We may also usefully refer to the decision of the Delhi High Court in the case of JDS Apparels (P.) Ltd. (supra). Though the controversy there arose in the context of Section 194H, the Court considered the nature of Section 40(a)(ia) and held that it is a deterrent....