S. 40(a)(ia) TDS: Even if Payee has paid tax, payer not eligible for deduction

ACIT vs. DICGC Ltd (ITAT Mumbai)

For AY 2007-08 & 08-09, the assessee paid VSAT & transaction charges without deduction of TDS. The AO held the payment to be “fees for technical services” & disallowed the payment u/s 40(a)(ia) for want of TDS u/s 194J though the CIT (A) allowed the claim by relying on Skycell Communications 251 ITR 53 (Mad). Before the Tribunal, the assessee argued that though the merits was covered against it by CIT vs. Kotak Securities Ltd 340 ITR 333 (Bom), the deduction had to be allowed because (i) s. 40(a)(ia) was not a ‘tax-levying’ provision but was merely to ensure that tax was paid by either the payer or the payee. As the payee had already paid the taxes, the bar in s. 40(a)(i) did not apply in line with Hindustan Coca Cola Beverage 293 ITR 226 (SC) and (ii) in accordance with Kotak Securities, as the department had not objected to the non-deduction of TDS on transaction charges in the past, there was no justification for invocation of s.40(a)(ia). HELD by the Tribunal: