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Income Tax Appellate Tribunal, ‘C’ BENCH : CHENNAI
Before: SHRI ABRAHAM P. GEORGE & SHRI G. PAVAN KUMAR
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:
In this appeal, Revenue is aggrieved on deletion of an addition of �5,79,80,842/- made by the ld. Assessing Officer relying on Section 40a (ia) of the Income Tax Act, 1961 (herein after referred to as ‘the Act’), for short deduction of tax at source.
ITA No.1577/Mds/2016. :- 2 -:
Facts apropos are that assessee a manufacturer of Indian 2. made foreign liquor had filed return of income for the impugned assessment year declaring income of �8,60,36,150/-. The assessment was completed after scrutiny on 31.12.2010 determining income of �9,64,49,299/-. On 22.03.2013, assessee was issued notice u/s.148 of the Act for reopening the assessment. During the course of re- assessment proceedings, ld. Assessing Officer noted that assessee had charged �5,79,80,842/- as brand user ship expenditure. As per ld. Assessing Officer, the said amount was paid as per the terms of an agreement between assessee and one M/s. United Spirits Ltd for using the trademarks of M/s. United Spirits Ltd. For such trademarks usage, assessee was to pay 2% net sale realization excluding duty. Ld. Assessing Officer was of the opinion that payments effected to M/s.
United Spirits Ltd was in the nature of royalty for using their brand name. As per ld. Assessing Officer assessee ought to have deducted tax at source at the rate of 10% on such payments in accordance with Sec. 194J of the Act. Since assessee had not made such deduction, ld. Assessing Officer applied Section 40(a)(ia) of the Act and made disallowance of �5,79,80,842/- and completed the re-assessment.
Aggrieved, assessee moved in appeal before ld. 3.
Commissioner of Income Tax (Appeals). Argument of the assessee was that it had deducted 2% on the payments effected to M/s. United
ITA No.1577/Mds/2016. :- 3 -:
Spirits Limited. As per assessee, major part of the sum of �5,79,80,842/- debited in its profit and loss account was ‘’Tie up Manufacture Agreement fees’’ and consideration in respect of trademark use was �1,47,37,740/-. The sum attributable to contract of tie up of manufacture as per the assessee came to � 4,32,43,103/-.
Further, as per assessee amount deductable u/s.194J of the Act was only 5% till 01.06.2007 and such rate was revised to 10% by Finance Act, 2007 only w.e.f. 01.06.2007. In any case, as per assessee it had deducted 2% on all the payments made to M/s. United Spirits Limited and therefore Sec. 40(a)(ia) of the Act would not be attracted.
Reliance was placed on the judgment of Hon’ble Calcutta High Court in the case of CIT vs. S K Telcriwal 361 ITR 432. Ld. Commissioner of Income Tax (Appeals) after considering the objections of the assessee held that Sec.40(a)(ia) of the Act was applicable only in the case of non deduction of tax and not for short deduction of tax. For taking this view, he relied on the judgment of Hon’ble Calcutta High Court in the case of S K Telcriwal (supra).
Now before us, the ld. Departmental Representative strongly 4. assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that question whether assessee had deduced 2% tax on all payments effected to M/s. United Spirits Ltd was not verified by the ld.
ITA No.1577/Mds/2016. :- 4 -: Commissioner of Income Tax (Appeals). According to him, Sec. 40a(ia) of the Act would apply even for short deduction of tax.
Per contra, ld. Authorised Representative relying on the 5.
judgment of Hon’ble Calcutta High Court in the case of S K Telcriwal (supra), submitted that Sec. 40(a)(ia) of the Act could not be applied in the case of short deduction of tax at source. Further, according to him, only a part of the total amount of �5,79,80,842/- was trademark usage fees. Hence, as per the ld. Authorised Representative Sec.
40a(ia) of the Act could not have been fastened on the whole of the amount.
We have considered the rival contentions and perused the orders of the authorities below. Ld. Commissioner of Income Tax (Appeals) had deleted the disallowance made u/s.40(a)(ia) of the Act based on a finding that assessee had deducted tax at the rate of 2% on all payments effected by it to M/s. United Spirits Limited. However, we find that there is nothing in this regard mentioned by the ld. Assessing Officer in the assessment order. Ld. Commissioner of Income Tax (Appeals) had not expressed any opinion on the claim of the assessee that out of the total debit �5,79,80,842/- for ‘’Tie up Manufacture Agreement Fees’’ a sum of �4,32,43,102/- was fees for manufacturing tie-up and the balance sum of �1,47,37,740/- alone
ITA No.1577/Mds/2016. :- 5 -: attributable to trade mark usage. It is also not clear whether assessee had tax deducted at source at the rate of 2% on the whole of the payments or only on the sum of �1,47,37,740/- treated by the assessee as a trademark usage fees. No doubt by virtue of judgment of Hon’ble Calcutta High Court in the case of S K Telcriwal (supra) a disallowance u/s.40(a)(ia) of the Act could not be made in the case of short deduction of tax at source. Relevant para of Calcutta High Court decision is reproduced hereunder:-
‘’Here, in the present case before us, the assessee has deducted tax under section 194C(2) of the Act and not under section 194- I of the Act and there is no allegation that this TDS is not deposited with the Government account. We are of the view that the provisions of section 40(a)(ia) of the Act has two limbs one is where, inter alia, the assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into the Government account. There is nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act but the fact is that this expression, 'on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section (1) of section 139'. This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to the Government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be ITA No.1577/Mds/2016. :- 6 -: an assessee in default under section 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act’’.
However, in our opinion, it remains to be verified whether any tax was deducted at source by the assessee on the sum of �4,32,43,102/- claimed to have been paid for contract of tie up of manufacture or only for �1,47,37,740/- representing trade mark usage fee. We, therefore set aside the orders of the lower authorities and remit the issue regarding disallowance u/s.40(a)(ia) of the Act back to the file of the ld. Assessing Officer for consideration afresh in accordance with law.
In the result, the appeal of the Revenue is allowed for statistical purpose.
Order pronounced on Wednesday, the 11th day of January, 2017, at Chennai.