In Sonata Information Technology Ltd. V. Dy. CIT (LTU) (2012) 19ITR (Trib) 408 the assessee suffered disallowance u/s 40 (a) (ia) of Rs.200 crores for not having deducted TAS on transactions of purchase of software from persons who are residents in India. The AO regarded such transactions in the nature of royalty payments thus wanting deduction of tax u/s 194J.
The Mumbai bench did not decide the issue on merits and left it upon the AO the decision in accordance with latest judicial pronouncements of the higher courts (especially Karnataka High Court and Delhi High Court decisions) after consideration of nature of purchase transaction and rights involved therein.
However, the bench provided certain instant relief to the assessee as it held that in case the payments are considered as royalty under Explanation 2 to section 9(1)(vi), then the disallowance under section 40(a)(ia) can only be restricted to the amount outstanding as payable as on 31/03/2008 Out of the total amount of disallowance a sum of Rs. 1,57 crores was paid before 31-03-2008 with the outstanding amount remaining at Rs. 43 crores as at the close of the year. Thus the disallowance got reduced to Rs. 43 crores.
And further on where the recipients are found to have paid the tax on Rs. 43 crores then that might as well could benefit the assessee even if the disallowance stand survived after examination and verification by the AO. The bench following the principles laid down by the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt Ltd. v. CIT 293 ITR 226 (SC) held that the taxes can be recovered from assessee only in the event of non-payment of taxes by recipient companies
The Mumbai bench did not decide the issue on merits and left it upon the AO the decision in accordance with latest judicial pronouncements of the higher courts (especially Karnataka High Court and Delhi High Court decisions) after consideration of nature of purchase transaction and rights involved therein.
However, the bench provided certain instant relief to the assessee as it held that in case the payments are considered as royalty under Explanation 2 to section 9(1)(vi), then the disallowance under section 40(a)(ia) can only be restricted to the amount outstanding as payable as on 31/03/2008 Out of the total amount of disallowance a sum of Rs. 1,57 crores was paid before 31-03-2008 with the outstanding amount remaining at Rs. 43 crores as at the close of the year. Thus the disallowance got reduced to Rs. 43 crores.
And further on where the recipients are found to have paid the tax on Rs. 43 crores then that might as well could benefit the assessee even if the disallowance stand survived after examination and verification by the AO. The bench following the principles laid down by the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt Ltd. v. CIT 293 ITR 226 (SC) held that the taxes can be recovered from assessee only in the event of non-payment of taxes by recipient companies
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