Disallowance for non-deduction of TDS of RPC fee unsustainable in terms of second proviso to section 40(a)(i)

Jaiprakash Associates Ltd Vs DCIT (ITAT Delhi)

ITAT Delhi held that no part of the RPC fee is liable to be disallowed in terms of clause (i) of s. 40(a) because the second proviso clause (i) of Section 40(a) being curative and declaratory in nature has to be given retrospective effect.

Facts- The short question arising for consideration in the appeals for A.Y. 2012-13, 2013-14 & 2014-15 is regarding disallowance under Clause (i) of Section 40 (a) in respect of RPC fees paid to Formula One World Championship Ltd. to UK without deducting the tax. It is the specific case of the assessee is that no disallowance could be me 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 is curative and declaratory, therefore, has retrospective effect. The said contention has been turned down during the appellate proceedings.

Apart from reiterating the stand of the assessee further contended that in any case the disallowance should be restricted to the chargeable sum comprised in the gross RPC paid (as assessed in the assessment of FOWC).

Conclusion- Held 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. 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.

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