No TDS on Inspection fee paid to a Govt Organization if the Payee has included the same in its Receipt: ITAT Kolkata [Read Order]

CBDT - Guidelines - TDS - Taxscan

The ITAT, Kolkata bench has recently ruled that TDS provisions are not applicable to payments made to a Government organization if the payee has included the same in its receipt.

The Tribunal observed that if the assessee proves the same with receipts, then they should have given the benefit of 40(a)(ia which has been inserted vide Finance Act, 2012 with retrospective effect.

The assessee- Company is engaged in the manufacturing business of railway products.The assessee filed return for the relevant assessment yearby claiming deduction of expense in respect of Inspection fee. The assessing officer rejected the claim under section 40(a)(ia)for the reason that TDS was not paid on such amount. The Commissioner of Income Tax (appeals) confirmed the said order on first appeal. Therefore, the assessee approached the Appellate tribunal on second appeal.

The Tribunal noticed the fact that, the payee is a government organization and the AO should have confirmed the same before making the disallowance of the expense claimed by assessee for inspection charges. It was further found that certificate, which pertains to the financial year beginning from 2008-09 to 2011-12, has been obtained by assessee from MRL certifying that the payee has included in its income the inspection charges paid by assessee. While remanding the matter back to the assessing officer in order to ensure whether the payee has included in its receipt the payment made by the assessee in its total income,the Tribunal directed that “To this point, Ld. DR raised no objection if the matter restore back to the file of AO for fresh adjudication as per law. In this connection, we also find that there is amendment of proviso to Sec. 40(a)(ia) of the Act r.w.s 1st proviso to Sec. 201, wherein, if any payee has paid the taxes by offering / disclosing the said receipt in its return of income, then the payer (the assessee herein) should not be treated as assessee in default.Accordingly no disallowance u/s. 40(a)(ia) of the Act could operate in that scenario. The said proviso though inserted by the Finance Act 2012 w.e.f. 1-4-2013 has been held to be retrospective in operation by recent decision of the Hon’ble Delhi High Court in the case of CITv. Ansal Land Mark Township (P) Ltd.

Read the full text of the order below.