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S. 40(a)(ia) can be invoked only when the two conditions, namely, that tax is deductible at source and such tax has not been deducted is satisfied. Where tax is deducted by the assessee under a wrong provision of TDS and there is a shortfall, s.40 (a) (ia) disallowance cannot be made.
Second proviso to section 40(a)(ia) provides that where the assessee is not deemed to be assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee
Since the income of CGS International and Marble Arts & Crafts can only be classified under Article 14 or Article 22 of the DTAA – both of which provide that the income shall be taxable in the State of residence (UAE)–the issue as to whether the services provided by the two UAE entities fall within the scope of professional services under Article 14 is irrelevant to the outcome of this case.
The Hon’ble Tribunal agreeing to the contentions of the assessee held that regarding GBR, payments made to them were only towards reimbursement of shipment charges and therefore, no tax was deducted at source. Assessee did not attract the provisions of section 40(a)(ia) of the Act as reimbursement of expenses do not consist the income of the recipient
The assessee is engaged in manufacturing of plywood where imported timber is being used. During the relevant previous year assessee has imported wood logs from outside India. Assessee has made payment of Rs.32,46,905/- to the exporter on its sale these woods to the assessee on F.O.R. basis.
Section 40 of the Income Tax Act, 1961 provides for non deduction of amount of expenditure specifically mentioned there in. One of the important provisions which merit our attention and faced by many assesses in day to day transactions is 40(a)(ia). Section 40(a)(ia) provides for disallowance of expenditure in relation to interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to resident, or amounts payable to a resident contractor or sub – contractor for carrying out any work including supply of labour for carrying out any work.
Contention of the Assessee- Provision of Sec. 40(a)(ia) shall apply only in respect of the amounts payable at the end of the year and shall not apply on the amounts actually paid by the appellant during the year.
The following disallowances were made by the AO by invoking provisions of section 40(a)(ia) of the Act: – 1 Disallowance on account of transportation charges paid to M/s. Lalji Mulji – Rs. 1 ,59,386/- 2 Disallowance on account of export freight charges paid – Rs. 6, 17,830/ – 3 Disallowance on account of export freight paid to Indian agents of foreign shipping companies – Rs. 3,70,062/-
In this case ITAT Mumbai distinguished the Allahabad High Court’s ruling in the case of CIT v. Vector Shipping Services (P) Ltd. (ITA No.122 of 2013) and held that the issue of ‘paid and payable’ was not subject of reference before the Allahabad High Court.
It is not the case of the Revenue that the assessee had not incurred the expenditure claimed or that the claim of expenditure was bogus or incorrect. The disallowance of expenditure was attracted due to non-deduction of TDS and it cannot be said to be a case of concealment of income or furnishing of inaccurate particulars of income.
