The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that disallowance shall not be made to a chargeable sum paid to a foreign company without deduction of tax.
Jaiprakash Associates Ltd, the assessee challenged the orders of the Commissioner of Income Tax (Appeals)-2, Noida dated 13.03.2020 for the assessment year 2012-13 and dated 16.03.2020 for assessment years 2013-14 and 2014-15 respectively.
It was alleged that the 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.
The appellant-assessee argued that they had a reasonable cause for non-deduction of tax from the race-promotion fee paid to the FOWC. 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.
It was contended that no disallowance could be 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 CIT(A) observed that no disallowance could be made in respect of RPC fees because the relevant income had been declared and assessed in the hands of the payee and tax thereon had been paid. Further held that disallowance should be restricted to the chargeable sum comprised in the Grossed RPC fess as assessed in the hands of FOWC and 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.
A Coram comprising of Shri N. K. Billaiya, Accountant Member and Shri Yogesh Kumar U S, Judicial Member observed that no part of the RPC fee paid by the assessee is liable to be disallowed under clause (i) of s. 40(a) because the second proviso clause (i) of Section 40(a) has been inserted w.e.f. 1.4.2020 which essentially provides that where the relevant income has been declared by the payee and tax thereon has been paid by him then no disallowance shall be made in the hands of the payer.
It was viewed that the proviso was inserted to remove an anomaly and was therefore curative and declaratory in nature. While allowing the appeal, the ITAT quashed the disallowance/addition made by the A.O. which was sustained by the CIT(A).
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