Dy. CIT v. Ray Keshavan Design Associates P. Ltd. (2013) 22 ITR 259 (Bang.) (Trib.)

S.37(1): Business expenditure-Professional charges –Director-Deduction at source-Salary-Once commercial

expediency is accepted and tax deduction at source effected deduction to be allowed. (S.40(a) (ia), 192, 194J)

The assessee made a certain payment as professional charges to director of the assessee-company, after deduction of tax at source under section 194J of the Act,treating the payment as a payment for professional services rendered. According to the Assessing Officer, the payment should have been considered as salary paid to an employee and that the assesse company had misrepresented the salary as professional charges specifically to give an undue advantage to claim additional expenses in her return of income. He disallowed the sum. On appeal the Commissioner (Appeals) held that once the commercial expediency of a payment was not questioned, and the tax deduction at source was actually effected, the question of a perceived misapplication of the particular provision was academic and that the provisions of section 192 being outside the purview of section 40(a) (ia), the addition was unsustainable. On appeal by revenue the Tribunal held that once the commercial expediency of a payment was accepted and tax deduction at source had been effected, the deduction would have to be allowed. There was a consultancy agreement and the payment in question prima facie was a payment for professional services rendered. The payment could not be treated as a payment of salary. In any event, the disallowance of this legitimate business expenses in the hands of the assessee was without any basis and could not be sustained. (A. Y.:2008-2009)