Income Tax Appellate Tribunal (ITAT), Mumbai Bench recently held that payment by Oxford University press towards school support services for referring students constitute brokerage.
Assessee Oxford University Press was a non resident company and they have a branch in India they carried out the business of publishing and selling educational books. The assessee also providing a School Support Payment to a school for specified educational purposes.While return of income assessee claimed deduction for School Support Payments made to various schools as per the provisions of the Income Tax Act 1961.But the Assessing Officer (AO) found that it was in the nature of commission or brokerage hence it would be required to withhold tax at source as per section 194H of the Income Tax Act 1961.If he did not deducted at source, AO to disallow 30% of the said expenditure under section 40(a)(ia) of the Income Tax 1961.and the order of the AO was confirmed by the Dispute Resolution Panel(DRP).Against this order the assessee filed an appeal before the ITAT.
The counsel for the assessee Rishabh Malhotra contented that the schools are not subject to any control or supervision of the assessee and they operate independently without any instructions from the assessee. Accordingly, it was argued that the provisions of section 194H of the Income Tax Act 1961 itself would not come into operation in these facts.
Soumendu Kumar Dash counsel for the Revenue content that the schools had enabled the sale of textbooks through the booksellers and hence the payment of school support services made by the assessee to schools would also fall within the ambit of ‘brokerage’ as per provisions of section 194H of the Act read with its Explanation.
After considering the contentions of both sides the ITAT bench comprising M. Balaganesh (Accountant Member) and Kavitha Rajagopal (Judicial Member) and conclude that the assessee is bound to deduct tax at source, failure of which would be invited with disallowance under section 40(a) (ia) of the Income Tax 1961.
Section 194H of the Income Tax Act 1961 deals that Tax Deduction at Source should be levied on the earnings received as commission or brokerage.
Section 40(a) (ia) of the Income Tax 1961 expenditure mentioned under the heads of TDS, such amount paid and deducted profit and loss account of resident would not be allowed as deduction while computing the income under the heads of Profit and Loss account.
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