TDS is Payable on Payment of Non-Competent Fee when Assessee treated the same as Business Expenditure: ITAT [Read Order]

The Income Tax Appellate Tribunal Hyderabad bench recently ruled that TDS is payable on payment of Non-Competent Fee when Assessee treated the same as Business Expenditure.

The Tribunal bench including Judicial Member P. Madhavi Devi and Accountant Member S.Rifaur Rahman were ruled so while allowing the grounds of appeal raised by assesse.

The assessee, in the instant case, approached the High Court challenging the order of the CIT (A) in confirming the penalty levied by the AO under section 271C of the Income Tax Act.

Coming to the facts of the case, assessee-Company entered into a non-compete agreement for a period of five years with Ramoji Rao (HUF). On verification of Form the AO noticed that no TDS was deducted on the non-compete fee of Rs.670 crores paid by the assessee to Ramoji Rao (HUF). The AO observed that the assessee company was liable for proceedings u/s 201 & 201(1A) of the Income Tax Act and issued a notice for the explanation to why the assessee should not be treated as “an assessee in default” and levied the interest u/s 201(1A) of the Act.

Accordingly, AO computed and charged the interest and aggrieved assessee preferred an appeal before the CIT (A) who confirmed the order of the AO.

It is the case of the assessee that the Revenue has always treated the payment of non-compete fee as a sham transaction and therefore, the AO could not have recorded a satisfaction that the assessee is liable to make TDS on such non-compete fee.

On contrary the counsel for the revenue submitted that the assessee has always contended that it has paid the non-compete fee and thus is business expenditure and in such circumstances, the assessee ought to have deducted tax at source and for failure to do so, the penalty u/s 271C is justified.

The bench noted that the contention of the assessee that the non-compete fee is the business expenditure of the assessee has been upheld by the tribunal. Finally the bench ordered that since the assessee treated the same as business expenditure it was required to deduct the tax at source u/s 194J of the Act and also added that for failure to deduct the tax inspite of being liable to do so, the penalty u/s 271C is clearly leviable.