Recently, the Hyderabad bench of the Income Tax Appellate Tribunal has observed that TDS under section 194H of the Income Tax Act, 1961 is liable to be paid on commission expenses. Earlier, the lower authorities including the assessing authority and the first appellate authority, vide their orders, disallowed the claim of the assessee on the amount paid as commission to various persons on ground that no TDS were paid on these amounts.
While impugning the above orders, the assessee submitted that they are following merchantile system of accounting as per which the provision of commission of Rs.26 lacs was made on estimate basis. According to the assessee, since the names of payees were not known, the TDS was not deducted as the assessee did not know in whose account the TDS was to be credited. They further relied up on the decisions in IDBI and, Mahindra & Mahindra and CBDT clarification dated 05.07.1996 and contended that the practice followed by the assessee has been accepted by the Department in past year; therefore, making a provision on the estimate basis on the sales effected by the assessee, the commission become an ascertained liability and was allowable as business expenditure.
On first appeal, the Commissioner of Income Tax (Appeals), confirmed the assessment order by suspecting the genuineness of the claim and there by held that the provisions are made according to the whims and fancies of the appellant without any proper basis and liability to pay.
While upholding the findings of the first appellate authority, the Single Member held that “The findings of the ld. CIT(A) are very elaborated and demonstrated that the provision of commission payment claim by the assessee is totally unascertainable, uncrystallized and fanciful. It does not assume the character of ascertained mercantile liability. Even in case of mercantile liability, Section 40a(ia) clearly mandates that the expenditure cannot be allowed in the absence of corresponding TDS payment in Government treasury. In view thereof, I find no infirmity in the order of the ld. CIT(A) which is upheld and the appeal of the assessee is thus dismissed.”
Read the full text of the order below.
