The Bombay High Court has held that the department cannot make disallowance under section 40(a)(ia) of the Income Tax Act on the failure of the assessee to deduct TDS if employee’s commission is shown as a part of salary income.
Earlier, the Assessing Officer passed an order under Section 40(a)(ia) of the Income Tax Act by observing that the respondent/assessee had made a provision for commission for the Chairman and the Managing Director (CMD) of the Company at the year-end but not deducted TDS under Section 194H Income Tax Act.
The assessee claimed that the commission was paid to the CMD in the subsequent year, i.e., during the Assessment Year 2010-2011 after deducting TDS.
Before the Commissioner of Income Tax (Appeals), the assessee had contended that CMD was a full-time employee of the company and hence this payment was nothing but salary covered by TDS provision under Section 192 and under Section 194H of the Income Tax Act which deals with TDS on commission payments. As per Section 192 of the Income Tax Act, TDS is deductible from salary payment only at the time of payment and not at the time of making provision and therefore no disallowance is called for in the given circumstances. CIT (A) accepted the contentions of the respondent.
Counsel for the department has contended that the payment being commission in nature is covered by Section 194H of the Income Tax Act and hence TDS was deductible at the time of making provision at the year-end and as Respondent had failed to do so, the same called for disallowance under Section 40(A)(ia) of the Income Tax Act. Counsel for the respondent has pointed out that Form-16 of the CMD for the Assessment Year 2010-2011 showed that commission was part of overall compensation/salary of the CMD and hence TDS in respect thereof is covered under Section 192 of the Income Tax Act.
The division bench of Justice Amit B.Borkar and Justice K.R.Shriram has ruled that section 192 of the said Act, unlike other TDS provisions, requires deduction of tax at source under the head “Salary only at the time of payment and not otherwise.”
The court has said, “the tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analyzed and the correct test is applied to decide the issue at hand, then, we do not think that questions, as pressed, raise any substantial question of law.”
Pr. Commissioner of Income Tax-10 VS Indofil Industries Ltd
CITATION: 2022 TAXSCAN (HC) 139
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