INCOME TAX ACT 1961

Section 40(a)(i)

Business disallowance under section 40(a)(i) - Payment to non-resident without deduction of TDS - Race-promotion fee -

AO noted that assessee incurred business expenditure being the race-promotion fee paid to 'FOWC' of UK without deduction of tax under section 195. Thus, he made disallowance under section 40(a)(i). The disallowance made was upheld to the extent of the chargeable sum, comprised within the race-promotion fee, attributable to the permanent establishment of 'FOWC' in India. Assessee contended that no disallowance could be me made on RPC fees since the 'FOWC' had already been assessed on relevant income and tax thereon had been paid by 'FOWC' directly. Further, it contended that the second proviso to Clause 40a (via) \ is curative and declaratory, therefore, has retrospective effect. Held: No part of the RPC fee paid by the assessee was liable to be disallowed under clause (i) of section 40(a) because the second proviso to clause (i) of section 40(a) has been inserted w.e.f. 1-4-2020. The said proviso essentially provides that where the relevant income has been declared by the payee and tax thereon has been paid by him, then no disallowance shall be made in the hands of the payer. This proviso is similar to the second proviso to clause (ia) of section 40(a) which was inserted w.e.f. 1-4-2013. Both these provisos were inserted to remove an anomaly and were, therefore, curative and declaratory in nature. Hence they had to be given retrospective effect. Thus, grounds of appeal of assessee deserve to be allowed and the disallowance/addition made by the AO, which was sustained by the CIT(A), was quashed.

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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