Section 40(a)(ia) applicable only to Outstanding expenses “payable” at the end of year :ITAT CHENNAI

By | December 8, 2015

IN THE ITAT CHENNAI BENCH ‘D’

DCS BPO (P.) Ltd.

v.

Assistant Commissioner of Income-tax

CHANDRA POOJARI, ACCOUNTANT MEMBER
AND CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER

IT APPEAL NO. 3114 (MDS.) OF 2014
[ASSESSMENT YEAR 2008-09]

JUNE  19, 2015

Ms. K. Hemalatha, CA for the Appellant. N. Madhavan for the Respondent.

ORDER

Chandra Poojari, Accountant Member – This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-I, Chennai, dated October 27, 2014 for the assessment year 2008-09.

2. The learned authorised representative for the assessee raised the following grounds :

“1. The learned Commissioner of Income-tax (Appeals) erred in confirming the order of the Assessing Officer which is contrary to law, facts and circumstances of the case.

2. The learned Commissioner of Income-tax (Appeals) erred in confirming disallowance under section 40(a)(ia) of the Income-tax Act, 1961 (the Act) for non-deduction of TDS on internet lease line charges amounting to Rs. 10,75,479 on the rental advance adjusted against rent amounting to Rs. 2,15,000.

3. Without prejudice to ground No. 2 above, the learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance under section 40(a)(ia) of the Act without following the jurisdictional Income-tax Appellate Tribunal decision ‘Theekathir Press (I.T.A. No. 2076/Mds/2012)’ that the disallowance under section 40(a)(ia) of the Act applies to expenditure that are remaining ‘payable’ as on the balance-sheet date and does not apply to expenditure which is ‘paid’.”

3. The facts of the case are that the assessee was engaged in transcription business. The issue adjudicated relates to disallowance under section 40(a)(ia) for non-deduction of TDS on internet lease line charges to the tune of Rs. 10,75,479. The assessee incurred lease line expenditure towards the use of internet to Reliance Communication and Bharati Airtel Ltd. The Assessing Officer contended that the assessee should have deducted tax at source, as is required under section 194J, since it was a dedicated leased line provided to the assessee exclusively for the use of the assessee catering to its specific needs and it was not the same as a service provided to the public at large. Further, the Assessing Officer held that even if the payment made by the assessee may not qualify to be for a technical service, it has to be considered as royalty payments requiring TDS to be done in the light of the decision of the Income-tax Appellate Tribunal, Delhi, reported in 391 ITR 269 (sic). Aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals).

4. On appeal the Commissioner of Income-tax (Appeals) observed that the decision relied upon by the assessee is not applicable to the facts of the case and he decided the case against the assessee. Against this, the assessee is in appeal before us.

5. We have heard both parties and perused the material on record. A similar issue is considered by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports v. Addl. CIT [2012] 136 ITD 23  (Visakhapatnam) (SB) wherein it was held that the provisions of section 40(a)(ia) are applicable only to the expenses that are “payable” and outstanding at the end of the close of the year relevant to the assessment year and not to the amount already paid.

6. The same view was taken by the High Court of Allahabad in the case of CIT v. Vector Shipping Services (P.) Ltd. [2013] 357 ITR 642 by holding that section 40(a)(ia) is not applicable when there is no outstanding balance at the end of the close of the year relevant to the assessment year and special leave petition filed by the Revenue in the Supreme Court of India in C.C. No. 8068 of 2014 dated July 2, 2014 is also dismissed. Being so, in our opinion an amount outstanding at the end of the close of the assessment year is not to be allowed under section 40(a)(ia) of the Act. We direct the Assessing Officer to disallow only that amount which is outstanding at the end of the close of the assessment year. With these observations, we are remitting the issue back to the file of the Assessing Officer for fresh consideration.

7. In the result, the appeal of the assessee in I. T. A. No. 3114/Mds/2014 is partly allowed for statistical purposes.

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