ITAT makes observation about section 40(a) of Income Tax Act

Income Tax Appellate Tribunal bench comprising NK Billaiya as Accountant Member and Yogesh Kumas U.S. as Judicial Member recently made observation about Section 40(a) of Income Tax Act and noted that proviso clause (i) of section 40 (a) and second proviso (ia) were added to draw out an abnormality. Accordingly the bench held that they have to be treated as retrospective due to their curative character.

The bench was hearing appeals filed by assessee against the orders of c(CIT) in the case Jaiprakash Associates ltd v. DCIT I.T.A 

In the matter at hand Race Promotion Contract (RPC) fees was paid to the United Kingdom by Formula One World Championship ltd without deducting tax. The same was invalidated under Clause (i) of section 40 of Income Tax Act.

The assessee in the case has submitted that Formula One Jaiprakash Associates have already paid the tax that was required on the assessed income of Formula One World Championship ltd directly. The Formula One World Championship ltd observed that no such disallowance could be made in regards ti RPC fees as it had already been paid but also noted that the said disallowance should be only in regards to chargeable sum in the grossed RPC fees present with Formula One World Championship ltd and proceeded with disallowance direction.

The bench observed section 40 (a) of the act and noted that no disallowance can be directed as the provisos inserted say that when the income has been declared and the tax applicable has already been paid then no disallowance can be directed in the hands of the payer.

Remarks:

40A. Expenses or payments not deductible in certain circumstances

(1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head” Profits and gains of business or profession”.

(2) (a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause 

(b) of this sub- section, and the Assessing] Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction.