In M/s. Dish TV India Ltd v. ACIT, a division bench of the Mumbai ITAT ruled that section 40(a)(ia) of the Income Tax Act, 1961 cannot be invoked in cases where Assessee deducted TDS under wrong provision under a bonafide belief.
In the instant case, the assessee has deducted TDS at two per cent in respect of expenditure on customer support services under section 194C of the Income Tax Act. The Assessing Officer found that these expenses were incurred mainly for the purpose of solving customer grievances and technical issues raised by such customers. He was of the view that since these services are incurred for availing BPO services, they are in the nature of service availed by the assessee is technical and therefore, TDS would have been deducted in accordance with section 194J instead of section 194C of the Act. Similarly, the AO has noted that the assessee has paid a sum of `36,61,17,648/- towards CAS, Middleware and SMS charges to Integrated Subscriber Management Services Ltd. and on which the assessee has deducted TDS under section 194C. The Officer was of the view that all these expenses comes under the ambit of section 194J of the Act.
On appeal, the first appellate authority reversed the assessment order and granted relief to the assessee.
Before the Tribunal, the Revenue relied on the decision of the Kerala High Court in the case of CIT vs. PVS Memorial Hospital, wherein it was contended that deduction under a wrong provisions of the law will not save an assessee from section 40(a)(ia), i.e. where the tax was deductible under section 194J but was actually deducted under section 194C, such a deduction would not meet the requirements of section 40(a)(ia).
The bench placed reliance on the Calcutta High Court decision in which the Court ruled that where tax was deducted by the assessee, though under a bona fide wrong impression under wrong provisions, the provisions of Section 40(a)(ia) could not be invoked and if there was any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various tax deduction at source provisions, the assessee could be declared to be an assessee in default under section 201 but no disallowance could be made invoking the provisions of Section 40(a)(ia).
In view of the above Calcutta High Court decision, the bench upheld the order of the CIT(A) and held that the provisions of Section 40(a)(ia) will not be applicable in the case of the assessee as there is nothing in the section to treat the assessee as defaulter where there is shortfall in deduction of TDS.
Read the full text of the Order below.
