JAIPRAKASH ASSOCIATES LTD.,NOIDA vs. DCIT(INTERNATIONAL TAXATION), NOIDA

PER YOGESH KUMAR U.S., JM

DISALLOWANCE OF CHARGEABLE SUM PAID TO A FOREIGN COMPANY WITHOUT DEDUCTION OF TAX

“1. That the learned CIT (A) has erred in upholding the disallowance, under clause (i) of s. 40(a) of the Act, of business expenditure being the race-promotion fee paid by the appellant-assessee to Formula One World Championship Ltd of UK ("FOWC") without deduction of tax. The disallowance upheld is to the extent of the chargeable sum, comprised within the race-promotion fee, attributable to the PE of FOWC in India.

2. That in upholding the above disallowance the learned CIT (Appeals) has not appreciated that:

a) The appellant-assessee had a reasonable cause for non deduction of tax from the race-promotion fee paid to the FOWC. b) The FOWC had been assessed in respect of its PE in India and had paid the tax on its chargeable income comprised within the aforesaid race-promotion fee.

4. Therefore, without prejudice to Ground No. 1 & 2 above, the disallowance in the hands of the appellant-assessee cannot exceed the chargeable sum paid to the FOWC which is Rs. 305,822,666 (501,952,442 -196,129,776) only.

DISALLOWANCE OF LEASE RENT PAID TO A RESIDENT WITHOUT DEDUCTION OF TAX

5. That the learned CIT (A) has erred in upholding the disallowance, under clause (ia) of s. 40(a) of the Act, of business expenditure of Rs. 43,612,876 being the lease rent paid by the appellant-assessee to Yamuna Expressway Industrial Development Authority without deduction of tax.

6. That in upholding the above disallowance the learned CIT (Appeals) has ignored that:

c) The assessing officer in his order passed, under s. 201 of the Act (on a remand by the Hon'ble ITAT) has held that, in respect of the aforesaid lease rent, the appellant-assessee was not deemed to be an assessee in default in terms of the first proviso to s. 201(1) of the Act. d) Therefore the appellant-assessee was entitled to be deemed as having deducted and paid the tax on the said lease rent in terms of the second proviso to clause (ia) of s. 40(a) of the Act.”

3. The short question arising for consideration in the above appeals for the Assessment Year 2012-13, 2013-14 & 2014-15 is regarding disallowance under Clause (i) of Section 40 (a) in respect of RPC fees paid to Formula One World Championship Ltd. to UK without deducting the tax. It is the specific case of the assessee is that no disallowance could be me made on RPC fees since the payee Formula One World Championship Ltd. had already been assessed on relevant income and tax thereon had been paid by Formula One World Championship Ltd. directly. The assessee further contended that the second proviso to Clause 40a(ia) of the Act is curative and declaratory, therefore, has retrospective effect. The said contention has been turned down during the appellate proceedings. Apart from reiterating the stand of the assessee further contended that in any case the disallowance should be restricted to the chargeable sum comprised in the gross RPC paid (as assessed in the assessment of FOWC). In support of the above contention, the assessee relied on the CBDT Circular No. 3/2015 dated 12/02/2105 followed by Circular dated 26/10/2016 wherein the CBDT has clarified that only chargeable sum paid is liable to be disallowed u/s 40a(ia) of the Act. The CIT(A) is of the opinion that no disallowance could be made in respect of RPC fees for the reason that the relevant income had been declared and assessed in the hands of the payee and tax thereon had been paid. However, the CIT(A) has accepted that disallowance should be restricted to the chargeable sum comprised in the Grossed RPC fess as assessed in the hands of FOWC. The CIT(A) while determining the chargeable sum in the RPC fees with the total income charged in the hands of the FOWC including the chargeable sum in broadcasting revenue as well which was not paid by the assessee. Thus, the CIT(A) directed the disallowance to be restricted to Rs. 501,952,5442/- instead of Rs. 305,822,666/- in Assessment Year 2012-13, Rs. 368,025,412/- instead of Rs. 228,973,487/- in Assessment Year 2013-14 and Rs. 506,415,998/- instead of Rs. 307,349,578/- in Assessment Year 2014-15.

Order pronounced in the open court on : 13/03/2023.