TMI Blog2015 (6) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition of royalty given in Explanation 2 to clause (vi) of sub-section (1) of section 9 of the Act and we are of the view that these payments were made on account of facilities given to the assessee. Therefore, it is a royalty payment and the assessee is required to deduct TDS under section 194J of the Act. Decided against assesse. Applicability of provisions of section 40(a)(ia) - Held that:- During the course of hearing, though the assessee has contended that SRMS has taken into account the royalty receipts and has filed return of income under section 139(1) of the Act, but no evidence is placed on record in this regard. But, we are of the view that once these facts are established, disallowance under section 40(a)(ia) of the Act cannot be made. We accordingly set aside the order of the ld. CIT(A) and restore the matter to the file of the Assessing Officer for necessary verification. If it is established that SRMS has credited the aforesaid receipts of royalty to its income & expenditure account and filed return of income under section 139(1) of the Act, no disallowance under section 40(a)(ia) of the Act can be made in the hands of the assessee. Decided in favour of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised to challenge the findings of the ld. CIT(A), we are of the view that the reopening is valid and accordingly we reject this ground of appeal. 3. So far as grounds No.2 to 4 are concerned, we find that the assessee has made payment of ₹ 46,80,000/- to Shri. Ram Murti Smarak Trust (SRMS) as royalty for the use of medical shop/medical store in the hospital. The Assessing Officer has noted that on this payment of royalty, the assessee was required to deduct tax at source (TDS) as per provisions of section 194J of the Income-tax Act, 1961 (hereinafter called in short the Act ). Since he has not deducted tax on the said payment, the Assessing Officer has made disallowance having invoked the provisions of section 40(a)(ia) of the Act. 4. The assessee preferred an appeal before the ld. CIT(A) with the submission that the said payment was made for the locational advantage and not as royalty. Therefore, the assessee was not required to deduct tax at source under section 194J of the Act. It was further contended that the said payment was not royalty at all. The assessee is a trader in medicine and runs medical store in the premises of SRMS and mere use of word ROYALTY cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 139 of the Act and the assessment was completed under section 143(3) of the Act. Therefore, when the receipt of royalty was duly credited in the income expenditure accounts of SRMS and return was filed, disallowance under section 40(a)(ia) of the Act cannot be made in the light of proviso to section 40(a)(ia) of the Act. The applicability of this amendment has already been adjudicated by the Hon'ble Calcutta High court in the case of Virgin Creations in I.T.A. No. 302 of 2011, in which it was held that this amendment is retrospective. The ld. counsel for the assessee has also placed reliance upon the order of the Tribunal in the case of ACIT vs. Rajamahendri Shipping Oil Field Services Limited, in I.T.A. No. 352/Vizag/2008, in which it was held that provisions of section 40(a)(ia) of the Act is retrospective and if it is proved that the recipient has credited receipts in the profit and loss account and filed return under section 139(1) of the Act, no disallowance under section 40(a)(ia) of the Act can be made. The ld. counsel for the assessee has further contended that in the light of these provisions, no disallowance under section 40(a)(ia) of the Act can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of royalty given in Explanation 2 to clause (vi) of sub-section (1) of section 9 of the Act and we are of the view that these payments were made on account of facilities given to the assessee. Therefore, it is a royalty payment and the assessee is required to deduct TDS under section 194J of the Act. 9. So far as applicability of provisions of section 40(a)(ia) of the Act is concerned, we find that after introduction of the proviso to section 40(a)(ia) of the Act, the disallowance cannot be made if it is established that the recipient has already taken into account the payments and has paid taxes and filed return of income under section 139(1) of the Act. This issue was examined by us in the case of ACIT vs. Shri. Raja Chakravarty, Kanpur in I.T.A. No. 49/LKW/2013, in which we have categorically held that no disallowance under section 40(a)(ia) of the Act can be made if it is established that the deductee has paid tax on the amount received and filed return of income under section 139(1) of the Act. For the sake of reference, we extract the relevant portion of the order of the Tribunal as under:- 7. Having given a thoughtful consideration to the rival submissions and from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ld. CIT(A) and restore the matter to the file of the Assessing Officer for making necessary verification and if it is established that the deductees have made payment of tax on the commission received, no disallowance under section 40(a)(ia) of the Act shall be made. 10. During the course of hearing, though the assessee has contended that SRMS has taken into account the royalty receipts and has filed return of income under section 139(1) of the Act, but no evidence is placed on record in this regard. But, we are of the view that once these facts are established, disallowance under section 40(a)(ia) of the Act cannot be made. We accordingly set aside the order of the ld. CIT(A) and restore the matter to the file of the Assessing Officer for necessary verification. If it is established that SRMS has credited the aforesaid receipts of royalty to its income expenditure account and filed return of income under section 139(1) of the Act, no disallowance under section 40(a)(ia) of the Act can be made in the hands of the assessee. Accordingly, the appeal of the assessee is disposed of in terms indicated above. 11. In the result, appeal of the assessee is partly allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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