No Disallowance Shall Be Made With Respect To Chargeable Sum Paid To A Foreign Company Without Deduction Of Tax: ITAT.

The division bench of N.K. Billaiya (Accountant Member) and Yogesh Kumar (Judicial Member) held that the second proviso to clause (i) of S. 40 of the Income Tax Act (IT) provides that in cases where applicable income has been declared by assessee and tax chargeable on it has been paid the no disallowance shall be made in the hands of the payer.

In this case, the Commissioner of Income Tax (Appeals) (CIT (A)) upheld the disallowance under clause (i) of S. 40(a) of the Act, which was made in regard to business expenditure towards race-promotion fee paid by the assessee to Formula One World Championship (FOWC) without the deduction of tax. The assessee claimed that the disallowance upheld by CIT was made against a total charge of Rs. 501,952,442, including broadcasting revenue of Rs. 196,129,776. The assessee has not paid such broadcasting revenue, and it comes under the expenditure of FOWC. The assessee also contended that CIT (A) has also made an error in upholding the disallowance of lease rent paid by the assessee to Yamuna Expressway Industrial Development Authority without deduction of tax.

The tribunal observed that no disallowance is to be made on race promotion fees since FOWC has already been assessed on relevant income and chargeable tax on it directly. CIT (A) has wrongly assumed that disallowance should be restricted to a chargeable amount, which includes total gross fees as assessed in the case of FOWC.

On account of these grounds, the tribunal held that no disallowance should be allowed to the applicable assessment years, and additions made by CIT (A) are liable to be quashed.

Case Title: Jaiprakash Associates Ltd. v. DCIT International Taxation Circle, Noida.

Citation: I.T.A. No. 1258/DEL/2020

Counsel for Petitioner: Ashwani Kumar Garg.

Counsel for the respondent: Ganga Dhar Panda.

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