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In CIT Vs. Hero Motor corp Ltd, the Delhi High Court held that the payment of export commission made by the Hero Motors to Honda Motor Co. Ltd (HMCL) was not in the nature of payment of royalty or fee for technical services attracting dis allowance under Section 40 (a) (i) of the Income Tax Act.
Now the issue before us arises so as to whether the labourers are the employees of assessee or they are working in contractual capacity attracting the provisions of TDS.
One of the classic controversies, lasting for more than a decade, is disallowance for non-deduction/payment of TDS on domestic payments u/s 40a(ia).
Section 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid. In this behalf, one has to keep in mind the purpose with which Section 40 was enacted and that has already been noted above.
Amendment to Section 40 (a)(ia) of the Act by Finance Act, 2010 is retrospective with effect from 1st April, 2005 as held by various High Courts.
In my earlier article I have made a discussion about the disallowance when the amount is payable to a non-resident /foreign company but TDS is not deducted by the payer . Section 40(a)(ia) deals with the situation when the amount is payable to a resident . Hereon also we will discuss the complete scenario in parts to have a better understanding .
It cannot be denied that expenditure incurred by the assessee for the purpose of developing housing project and not allowable by virtue of section 40(a)(ia) would ultimately go to increase assessee’s profit from such business and profit as computed after making the dis allowance would, therefore, qualify for deduction under section 10A.
ITAT held that that the payment made by the assessee to ICC amounting to Rs. 4.56 crore as `Rights fee’ is not in the nature of `Royalty’ or `Fees for technical services’ covered u/s 9(1)(vi) or 9(1(vii) of the Act and as such the assessee was not obliged to deduct tax at source on this payment. Ex consequenti, the provisions of section 40(a)(i) are not attracted.
Taking of machinery and equipment on hire would not amount to a contract for carrying out any work as contemplated in section 194C of Act.The said contract i.e. taking of machinery and equipment on hire also cannot be treated with a contract for supply of labour.
In the present appeal, the assessee is aggrieved by the action of the Commissioner of Income Tax (Appeals)-Jamnagar [CIT(A)- in short] in confirming the addition of Rs.3,25,528/- made by the Assessing Officer (AO) under s.40(a)(ia) of the Income Tax Act, 1961 (hereinafter referred to as the Act).
