The Karnataka High Court ruled that no deduction is required to be made in respect of the payments to lease financial companies on the lease financial amounts.
The Assessee, Texas Instruments India had taken on lease financing various motor vehicles, which are given to the employees of the Assessee. The Assessing Officer had disallowed the deduction sought for by the Assessee towards the payment made to the lease financing company on the ground that there had been no tax deduction at source by the Assessee under Section 194-C or under Section 194-I of the Act.
On a challenge being made by the Assessee, the CIT(A) accepted the contentions of the Assessee and held that Section 194-C was inapplicable to such a transaction and on an appeal the Revenue to the Tribunal, the Tribunal upheld the order of the CIT(A), and it is aggrieved by the said order, the present appeals have been filed.
The department contended that the Assessee ought to have deducted tax at source under Section 194-I of the Act, and not having done the same, no deduction for the payments could be claimed by the Assessee.
Percy Pardiwalla, the Senior Counsel for the respondent assessee, on the other hand, had contended that there is no carriage of goods or passengers in the present case, the Assessee has entered into an agreement of lease financing and obtained motor vehicles by making payment of lease rentals and provided the cars to its employees. This car is used by the concerned employees themselves, and such usage is not facilitated in any manner by the leasing company.
The Income Tax Department has raised the issue whether the Tribunal is right in law in setting aside the disallowance made under section 40(a)(i)/(ia) for sum of Rs.7,87,93,536/- claimed towards finance of cars by holding that assessing authority did not invoke the provisions of section 194-I of the Act without observing that for making disallowance under section 40(a)(i)/(ia) of the Act does not require assessing authority to invoke specific provisions relating to TDS and it is sufficient if there is violation of any provision of chapter XVIIB of the Act by way of Non Deduction of tax or Non Payment of tax.
Yet another issue raised was whether the Tribunal’s order can be said as perverse in nature as Tribunal failed to appreciate that mentioning of wrong provision of law does not invalidate disallowance if the order passed in sum and substance meets the legal requirements then it is said to be a valid order and appellate authorities has power to either enhance or reduce tax liability.
The Division Bench of Justices Satish Chandra Sharma and Suraj Govindaraj held that olding that there is no deduction required to be made either under Section 194-C or under Section 194-I of the Act in respect of the payments made to the lease financial company on the lease financial amounts paid to such company by the assessee. Therefore, there is no violation of the said provisions and Section 40(a)(i)/(ia) is not attracted to the present case.
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