Indofil Industries Limited Vs CIT (ITAT Mumbai)
ITAT Mumbai held that assessee is liable to deduct tax at source in respect of commission expenses payable to the whole time directors under section 192 of the Income Tax Act only, as the same shall form part of their salary payment only.
Facts- The assessee company is engaged in the business of manufacture and sale of chemical items. During the course of assessment proceedings, AO noticed that the assessee has booked commission expenses payable to its whole-time directors.
AO noticed that the assessee has not deducted tax at source from the said commission expenses under section 194H of the Income Tax Act 1961. He further noticed that the assessee had paid similar commission payments to the above said directors and the said payments have been disallowed under section 40(a)(ia) of the Income Tax Act 1961 for non-deduction of tax at source under section 194H of the Income Tax Act 1961. In absence of any explanation by the assessee before AO, it disallowed the said commission expense.
Before CIT(A), assessee contended that the commission expense is in the nature of salary paid to directors and hence TDS provisions of section 194H will no apply to these payments. Assessee has deducted TDS under section 192 of the Act treating the said payments as part of ‘salary’. However, CIT(A) upheld the disallowance made u/s 40(a)(ia) of the Act on the ground that the assessee has failed to deduct tax u/s 194J of the Act at the time of booking of commission expenses, even though the case of the AO was that the TDS is liable to be deducted on commission expenses u/s 194H of the Act.
Conclusion- Held that the assessee is liable to deduct tax at source in respect of commission expenses payable to the whole time directors u/s 192 only, as the same shall form part of their salary payment only. Further, the Ld CIT(A) has given a finding that the assessee has deducted tax at source on the commission expenses at the time of making payment in the succeeding year. The Tribunal in the earlier years has specifically held that the TDS is liable to be deducted u/s 192 of the Act only at the time of making payment and this view has since been upheld by the High Court. Accordingly, the disallowance made u/s 40(a)(ia) of the Act in all the three years in respect of commission expenses is liable to be deleted. We order accordingly.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
All the three appeals filed by the assessee are directed against the orders by Ld CIT(A)-26 and they relate to the assessment years 2014-15 to 2016-17. Since identical issues are urged in these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience.
2. At the time of hearing, the Ld A.R did not press ground no.I relating to jurisdiction of Ld CIT(A) to pass impugned orders. The ground no. II is an off shoot to ground no.I. Accordingly, both the grounds are dismissed as not pressed. The remaining grounds relate to the disallowance made by the AO u/s 40(a)(i) of the Act.
3. The assessee company is engaged in the business of manufacture and sale of chemical items. During the course of assessment proceedings of these three years, the AO noticed that the assessee has booked commission expenses payable to its whole time directors as detailed below:-
