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TMI Blog2016 (8) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... on 1.11.2007 declaring loss of Rs. 11,37,443/-. The return of income was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter called as 'the Act'). Subsequently, the case has been selected for scrutiny and accordingly, notice u/s 143(2) & 142(1) of the Act along with questionnaire were issued. In response to notices, the authorized representative of the assessee appeared from time to time and furnished the information called for. During the course of assessment proceedings, the A.O. noticed that the assessee has paid subscription charges to pay channels without deducting tax at source u/s 194C of the Act. The A.O. further observed that the expenditure incurred by the assessee is in the nature of broadcasting and telecasting charges as defined u/s 194C of the Act and accordingly, ought to have deducted TDS on such payment at the time of payment or credit, however, failed to deduct TDS u/s 194C of the Act, therefore the expenditure incurred under the head subscription charges cannot be allowed as deduction. With these observations, disallowed the expenditure under the provisions of section 40(a)(ia) of the Act. 3. Aggrieved by the assessment order, the assessee pref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the l.T. Act, but do not fall under the provisions of sections 30 to 38 of the Act. 4. The CIT(A) ignored the fact that the assessee itself deducted tax at source on some of the payments made to the channel companies. 5. The assessee itself admitted that it is a mediator between the channel companies and the delivery operators which makes its payment in the category of commission. 6. Any other ground that might be raised at the time of hearing. 4. The Ld. D.R. submitted that the Ld. CIT(A) erred in accepting the assessee's explanation that the expenditure incurred by the assessee is in the nature of direct expenditure to earn the income from the business which is coming under the provisions of section 28(1) of the Act and hence cannot be disallowed u/s 40(a)(ia) of the Act for non deduction of tax at source. The Ld. D.R. further submitted that a literal reading of the provisions contained in section 40(a)(ia) of the Act would imply that the disallowance under that section comes into play for non deduction of TDS only on the expenses referred to in section 30 to 38 of the Act. The CIT(A) ignoring the fact that the assessee itself has deducted tax at source on some of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roadcasting and telecasting charges as defined u/s 194C of the Act which attracts TDS provisions of sec. 194C. The A.O. further was of the opinion that the assessee itself has deducted TDS on part payment made to the pay channels, however failed to offer any reasons for non deduction of tax at source on remaining amount to the same pay channels. It is the contention of the assessee that the expenditure incurred under the head 'subscription charges' paid to pay channels is in the nature of direct expenditure which is incurred to earn the revenue from the business coming under the provisions of section 28(1) of the Act, consequently, disallowance provided u/s 40(a)(ia) of the Act for non deduction of TDS at source is not applicable. 7. The question before us is whether expenditure incurred by the assessee towards subscription charges paid to pay channels is in the nature of direct expenditure coming under the provisions of section 28(1) of the Act or an expenditure coming under the general deductions under the provisions of section 37 of the Act. It is the contention of the assessee that it has incurred the expenditure to earn the income. The expenditure incurred is in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t u/s 28 is discussed in the Sampath Iyengar's Law of Income Tax 11th Edition page 4525 as follows: "As may be seen from the above decisions, what is referred to in section 28 are the commercial profits as noted in the Supreme Court decision from which only the statutory profits assessable under the head "profits and gains of business" are to be computed in accordance with provisions of section 30 to 38, so as to be included in the total income for purposes of tax. In other words, the income referred to in section 28 are profits and gains which are the gross profits or the commercial profits arrived at in the trading and manufacturing account after allowing the necessary trading, construction and manufacturing costs, but before adjustment for allowance of expenses or deduction and also disallowances envisaged under sections 30 to 38. Such commercial profits or the gross profits are those which are arrived at after deducting the manufacturing or trading or construction cost. Such trading or manufacturing or construction costs are not those listed in section 30 to 38 referred to in the non obstante clause of section 40(a)(ia) seeking to disallow payments in respect of default of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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