The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that race promotion fee paid to formula one world championship should not be disallowed under Section 40(i) of the Income Tax Act, 1961.
The assessee Jaiprakash Associates Ltd had filed the appeal against disallowance under Clause (i) of Section 40(a) of the Income Tax Act, in respect of Race Promotion Compensation (RPC) fees paid to Formula One World Championship Ltd. to UK without deducting the tax.
It was the specific case of the assessee 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 assessee further contended that the second proviso to Clause 40a(ia) of the Act was curative and declaratory, therefore, had retrospective effect.
Ashwani Kumar Garg, on behalf of the assessee contended that in any case the disallowance should be restricted to the chargeable sum comprised in the gross RPC paid. In support of the above contention, the assessee relied on the CBDT Circular No. 3/2015 dated 12/02/2105 followed by Circular dated 26/10/2016 wherein the CBDT had clarified that only chargeable sum paid was liable to be disallowed under Section 40a(ia) of the Income Tax Act.
Ganga Dhar Panda, on behalf of the revenue contented that no disallowance could be made in respect of RPC fees for the reason that the relevant income had been declared and assessed in the hands of the payee and tax thereon had been paid.
The two-member Bench of N. K. Billaiya, (Accountant Member) and Yogesh Kumar U.S., (Judicial Member) quashed the impugned order observing that, “In our considered opinion, 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. The said proviso 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.”
“This proviso is similar to the second proviso to clause (ia) of s. 40(a) which was inserted w.e.f. 1.4.2013. Both these provisos were inserted to remove an anomaly and were therefore curative and declaratory in nature. Hence, they had to be given retrospective effect” the Bench further observed.
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