Expense before 1.4.2013shall be disallowed if TDS not deducted

Recently in Thomas George Muthoot vs. Assistant Commissioner of Income Tax, it was held that the assessee partner shall deduct TDS on the interest amount paid to the partnership firm, if such payment was before 1.4.2013.   images

Facts of the case:

The assessee was partner in a firm. The assessee borrowed loan from the partnership firm. Interest on the said loan was paid by the assessee. The assessee viewed that the partners and partnership firm are one and the same, therefore, any transection between the partners and the partnership firm cannot be subjected to TDS. Also the recipient has already paid tax. Therefore, there cannot be any deduction. In the assessment proceedings, the AO disallowed the interest for non deduction of TDS. On this, the assessee appealed to the Commissioner Appeals. The commissioner (Appeals) upheld the decision of the AO.

Aggrieved by the order, the appeal was made to the Tribunal.

It was held that:

It was viewed that the partners and partnership firm are distinct and separately assessable units. Though under the common law partners and partnership firms are one and the same, under the Income-tax Act, they are treated separately. Therefore, the assessee had to deduct tax. In the absence of any deduction of tax on payment of interest, the assessing officer has rightly disallowed interest paid by the assessee to the firm u/s 40(a)(ia) of the Act.

Also, the provision of section 40(a)(ia) was noted which states :

Any interest, commission or brokerage, rent, royalty, fees for professional services, fees for technical services, any amount payable to a resident contractor shall not be allowed as a deduction in the previous year in which the expenses are incurred, while computing the income chargeable under the head ̳Profit and gains of business or profession‘, if in respect of such expenses:-

a.Tax has not been deducted, or

b.After deduction has not been paid on or before the due date mentioned under Sec.139 (1).

The payer is liable to pay interest u/s 201(1A) on the amount of non/short deduction of tax. In order to provide clarity, section 201 was amended by Finance Act, 2012 to provide that the payer who fails to deduct whole or any part of the tax on the payment made to the resident payee shall not be deemed to be an assessee in default if recipient has paid the taxes on income, filed the return u/s 139 & shown Income received in that return. However Certificate to that effect has to be obtained from Chartered Accountant. [Inserted w.e.f. 01.07.2012].

Thus, in the view of above provision, the Tribunal held that the proviso which was introduced by Finance Act, 2012 is not applicable for the assessment years under consideration. Hence, the Commissioner (Appeals) has rightly confirmed the addition made by the Assessing Officer.