By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants
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Section 37 – Amount of TDS borne by the assessee, as part of its liability under an agreement entered into by the assessee, is allowable as a deduction.
Facts:
The assessee company, engaged in the business of credit card operations and financing payments, had in its return of income claimed under the head Operating Expenses a sum of Rs. 21,61,004 towards non-reimbursible TDS for Master Card and Visa Card. This amount represented TDS which was to be borne by the assessee under the agreements entered into by the assessee with Visa and Master International. The Assessing Officer (AO) disallowed these payments on the ground that they are not incurred wholly and exclusively for business purposes.
Aggrieved, the assessee filed an appeal to the CIT(A) who allowed the appeal by relying on the decision of the Madras High Court in the case of Standard Polygraph Machines P. Ltd. (243 ITR 788) wherein it has been held that amount paid by the assessee for discharging a liability undertaken in terms of an agreement entered into between the assessee and its collaborator, forms part of consideration for agreement relating to knowhow and hence is allowable.
Aggrieved, the Revenue preferred an appeal to the Tribunal.
Held:
The Tribunal held that the payment made as a result of a contractual liability is an allowable expenditure. It held that the CIT(A) was correct in placing reliance on the decision in the case of Standard Polygraph Machines P. Ltd. It also noted that the issue has been decided in favor of the assessee by `I’ Bench of ITAT vide order dated 20-06-2012 (AY 2003-04, 2004-05 and 2005-06); ITA Nos. 4882, 2475, 6527/Mum/2010). Following the decision of the co-ordinate bench, the Tribunal decided the grounds in favour of the assessee.
The appeal filed by the revenue was dismissed.
