Section 40(a)(i) – Where assessee does not claim the payment made to
nonresident as expenditure but capitalises the same and claims only
depreciation thereon, no disallowance can be made u/s. 40(a)(i).
FACTS
The
assessee, a non-banking financial company, was engaged in providing
gold loans and other allied investment activities. It made payment to
non-resident for providing engineering site services but did not deduct
tax at the time of payment.
The AO disallowed the entire payment made by the assessee u/s. 40(a)(ia) on account of nondeduction of tax at source
The
assessee submitted that it had not claimed said payment made to
non-resident as expenditure but capitalised same and claimed only
depreciation. He submitted that the disallowance could be considered
only in case the assessee claimed deduction while computing the income
chargeable to tax and it had not claimed any deduction.
On appeal, the CIT-(A) upheld the order of the AO.
On
second appeal before the Tribunal, a query was also raised by the bench
whether the disallowance was to be made u/s. 40(a)(ia) or 40(a)(i). In
response to which the representative of the assessee clarified that the
disallowance was made by the lower authority u/s. 40(a) (ia) and section
40(a)(i) was not taken into consideration.
Regarding the merits of the case
HELD THAT
The
payment made to non-resident for technical services provided to the
assessee is admittedly taxable in India, therefore, the assessee is
bound to deduct tax. The assessee can claim the same as expenditure only
if the assessee deducts the tax at the time of payment.
The
language of section 40 clearly says that the amount paid to
non-resident on which tax was not deducted shall not be deducted while
computing the income chargeable to tax. Therefore, if the assessee
has not claimed the amount on which no tax has been deducted, as
expenditure while computing the chargeable income, there is no necessity
for further disallowance. In other words, if the assessee has not
claimed the payment to non-resident as expenditure and not deducted
while computing the income chargeable to tax, there is no question of
further disallowance by the authorities.
Since no material is
available on record to verify whether the amount paid to the
non-resident was deducted or not, while computing the income chargeable
to tax, the issue is remitted back to the AO to decide the same in
accordance with law after giving reasonable opportunity to the assessee.
