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2015 (6) TMI 356 - ITAT LUCKNOW

2015 (6) TMI 356 - ITAT LUCKNOW - TMI - Reopening of assessment - disallowance u/s 40(a)(ia) - Held that:- Carefully examining the orders of the lower authorities and we find that the ld. CIT(A) has examined this issue in the light of assessee’s contentions and was of the view that the royalty was not examined by the Assessing Officer during the course of original assessment proceedings. Therefore, the re-assessment proceedings were rightly initiated and the assumption of jurisdiction by the Ass .....

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ent of royalty per month to SRMS. It is also an undisputed fact that the assessee is well connected with SRMS, a Trust to whom payments are made. We have also carefully examined the definition 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. Decid .....

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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 assesse. - ITA No.784/LKW/2013 - Dated:- 11-3-2015 - Shri Sunil Kumar Yadav And shri. A. K. Garodia JJ. For the Ap .....

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ainst law. 2. The 'Royalty" paid by the assessee do not fall within "Fees for Professional or Technical Services" as defined in section 194J. Hence, the assessee was not liable for TDS. Thus, there can be no disallowance u/s 40(a)(ia). 3. Even if it is held that 194] was applicable, the case of the assessee is also covered by second proviso to section 40(a)(ia), that being machinery provision applies to the cases pending as on the date of enactment of Finance Act 2012. Hence, .....

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e, issue of notice u/s 271(1)(c) of the Income Tax Act, 1961 is against law. 2. Through ground No.1, the assessee has challenged the reopening of assessment on account of change of opinion, but during the course of hearing of the appeal, no argument was advanced on this aspect. We, however, have carefully examined the orders of the lower authorities and we find that the ld. CIT(A) has examined this issue in the light of assessee s contentions and was of the view that the royalty was not examined .....

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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 t .....

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ction 194J of the Act. In fact, the said payment was made on account of locational advantage. He has also placed reliance upon the order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports vs. ACIT, 136 ITD 23. The ld. CIT(A) re-examined the claim of the assessee in the light of assessee s contentions and was of the view that the assessee has made payment on account of royalty which is verifiable from the audited financial statements. 5. With regard to the locat .....

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to be seen in the light of Explanation 2 to clause (vi) of sub-section (1) of section 9 of the Act, with the submission that no payment other than whatever mentioned in the said Explanation can be said to be payment covered by section 194J of the Act. The assessee has incurred the expenditure and debited the same in the profit and loss account under the head royalty and the assessee could be liable for TDS on the said royalty if it was the royalty within the meaning of provisions of section 194 .....

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or Shipping Services (P) Ltd. in I.T.A. No. 122 of 2013. He has further contended that since the payee has discharged the tax liability by way of advance tax or self assessment tax, the payer cannot be held to be liable for the same tax. The ld. counsel for the assessee has further contended that the recipient i.e. SRMS has filed its return of income 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 cred .....

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ibunal 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 provision .....

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. Vector Shipping Services (P) Ltd. (supra), the jurisdictional High Court has simply made a passing reference as the issue of payable and paid was not before the jurisdictional High Court. Therefore, the impugned issue is not covered by these judgments. 8. Having carefully examined the orders of the lower authorities, documents filed before us and the judgment referred to by the parties in the light of the rival submissions, we find from the royalty agreement that the assessee was given a licen .....

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Therefore, the royalty payment cannot be a part of rent, as it was paid in addition to the rent. The intention of the parties was very clear at the time of execution of this agreement that the payment of ₹ 3.90 lakhs per month was a royalty payment and it was in addition to the monthly rent of ₹ 10,000/- per month. It is also clear from this agreement that the drug license was to be obtained by SRMS and the assessee was allowed to run the medical shop in the Hospital campus and no ot .....

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e (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 h .....

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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 careful perusal of the record and the judgments referred to by the parties, we find that there is no dispute with regard to the non-deduction of TDS at the time of payment of commission when it becomes payable. Moreover, it was paid before the end of the financial year. Though it was claimed that since commission was paid before the end of the fin .....

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also be invoked when due amount becomes payable. During the curse of hearing, our attention was invited to the second to the proviso to section 40(a)(ia) of the Act introduced w.e.f.1.4.2003 by the Finance Act, 2012, according to which if the deductee has paid tax, then the assessee shall be deemed to have deducted and paid tax on such sum on the date of furnishing the return of income. Though this proviso was introduced w.e.f. 1.4.2013 but being clarificatory and beneficial provision, it has r .....

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