The Income Tax Appellate Tribunal, in a recent ruling, held that TDS provisions are not applicable in case of promotional charges/ payments under the relevant provisions of the Income Tax Act, 1961.
In the instant case, the assessee-company is engaged in the business of cultivation of land, sowing, irrigation and production and sale of seeds. While filing returns for the relevant assessment years, the assessee claimed deduction in respect of promotional payments. However, the Assessing Officer disallowed the same under section 40(1)(a) of the Income Tax Act by holding that no TDS was paid by the assessee on such amount. The assessee challenged the order before the CIT(A)by contending that the payment made by it towards promotional expenses i.e. either towards purchase of promotional items or reimbursement of expenses incurred by the company’s employee towards promotional activities, are not liable to TDS.
Further, section 40(a)(ia) is not applicable in the case of purchase of seeds. The appeal was allowed and therefore, the Revenue approached the Appellate Tribunal impugning the order of the Commissioner of Income Tax (Appeals).
The appeal of the Revenue was dismissed by the Tribunal by relying upon the decision of the Co-ordinate bench of the Tribunal in Merlyn Shipping & Transports vs. Addl., in which it was held that the liability to deduct TDS out of promotional charges/payments does not arise.
Read the full text of the order below.
