INCOME TAX ACT, 1961

Section 197 Section 194C

Tax deduction at source - Certificate issued in firms name - TDS deducted on charges paid to main partner of deductee -

Assessee in the present case was a partnership-firm and engaged in the business of processing/export of marine food. The assessee during the year had incurred processing charges without deducting the TDS under section 194C. The assessee paid the charges to Shri R whereas the bills for the processing charges were raised by M/s. Cham trading organization. The assessee in support of its contention for non-deduction of TDS filed two certificates issued under section 197 for nil deduction dated 5-9-2006 for Rs. 50 lakhs and 12-1-2007 for Rs. 1,50,00,000. The assessee also claimed that the payment was made to Shri R on the instruction/authority issued by the M/s. Cham trading organization. AO during the assessment proceedings to verify the genuineness of the expenses issued a notice under section 131 to M/s. Cham trading organization wherein it was admitted that M/s. Cham trading organization was not carrying out any processing activity for the assessee. The AO accordingly further observed that there was no relevance of the certificate issued in the name of M/s. Cham trading organization under section 197. Thus, the claim of the assessee was not allowable as per the AO. Besides the above, the AO also found that the assessee had defaulted in the deduction of TDS on account of processing charges paid to Shri R as there was no certificate under section 197 in the name of such person. The AO further found that the certificate had been issued under section 197 for Rs. 1.50 crores after substituting the earlier certificate issued for Rs. 50 lakhs only. Thus, the balance amount of Rs. 48,07,861 requires to be disallowed on account of non-deduction of TDS. CIT(A) deleted the addition.Held: There was no dispute to the fact that the premises of the processor namely M/s. Cham trading organization was registered with the Marine Products Export Development Authority and the name of the processor was appearing in the invoices raised by the assessee. Similar expenses were also claimed by the assessee in the earlier assessment years and there was no disallowance in the assessment framed under section 143(3). Merely, the payment made to third-party under the instruction of the main party cannot be ground to make the disallowance of the expenses. Furthermore, the R was representing the partnership firm in the capacity of the partner. Thus, payment to the partner cannot be a ground for making the disallowance. There was no documentary evidence brought on record suggesting that earlier TDS certificate issued by the AO for Rs. 50 lakhs was substituted by Rs. 1.50 crores. Thus, it was transpired that the TDS certificate, issued by the AO up to Rs. 2 crores whereas the payment was made less than Rs. 2 crores. The payment in the given case does not exceed the limit as specified in the TDS certificate.

REFERRED :

FAVOUR : In assesse's favour.

A.Y. : 2007-08

INCOME TAX ACT, 1961

Section 194C Section 40(a)(ia)

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