INCOME TAX ACT, 1961

Section 40(a)(ia)

Business disallowance under section 40(a)(ia) - Non-deduction of tax at source - Disallowance of claim of depreciation on purchase of Intellectual Property Rights under section 40(a)(ia) -

AO made disallowance of claim of depreciation on purchase of intellectual property rights under section 40(a)(ia) on the ground that assessee failed to deduct tax from payments made in respect of purchase of intellectual property rights. Held: Deduction under section 32 is not in respect of amount paid or payable which is subjected to TDS; but is a statutory deduction on an asset which is otherwise eligible for deduction of depreciation. Section 40(a)(i) and (ia) provides for disallowance only in respect of expenditure, which is revenue in nature, therefore, the provision does not apply to claim for depreciation, which is not in the nature of expenditure but an allowance. In the instant case, payment was made by assessee for an outright purchase of intellectual property rights and not towards royalty and therefore, section 40(a)(ia) did not get attracted in respect of a claim for depreciation.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2009-10

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