ITAT: Formula One World Championship Assessed on Relevant Income and Taxed Directly; No Disallowance to be made on Race Promotion Fee
ITAT: Formula One World Championship Assessed on Relevant Income and Taxed Directly; No Disallowance to be made on Race Promotion Fee
The Income Tax Appellate Tribunal (ITAT), Delhi by its division member bench of N.K. Billaiya (Accountant Member) and Yogesh Kumar (Judicial Member) observed that the second proviso to clause (i) of Section 40 of the Income Tax Act (the Act) provides that in cases where applicable income has been declared by assessee and tax chargeable on it has been paid the no disallowance shall be made in the hands of the payer.
In the present case, three appeals were filed by the assessee/appellant- Jaiprakash Associates Ltd, against separate orders of the ld. Commissioner of Income Tax (Appeals), (hereinafter referred to CIT [Appeals]), dated 13 March, 2020 for assessment year 2012-13 and dated 16.03.2020 for assessment years 2013-14 and 2014-15 respectively.
The assessee contended that the learned CIT (A) had erred in upholding the disallowance, under clause (i) of Section 40(a) of the Act, of business expenditure being the race-promotion fee paid by the appellant-assessee to Formula One World Championship Ltd of UK (FOWC) without deduction of tax. The disallowance upheld was to the extent of the chargeable sum, comprised within the race-promotion fee, attributable to the PE of FOWC in India.
Additionally, the assessee stated that in upholding the above disallowance the learned CIT (Appeals) has not appreciated that, the FOWC had been assessed in respect of its PE in India and had paid the tax on its chargeable income comprised within the aforesaid race-promotion fee.
Further, the disallowance of Rs. 501,952,442 upheld by the learned CIT (Appeals) erroneously included the chargeable sum of Rs. 196,129,776 which relates to the broadcasting revenue assessed in the hands of FOWC. The appellant-assessee was not the payer of the said broadcasting revenue and had not claimed any such expenditure.
With respect to disallowance of lease rent paid to a resident without deduction of tax, the assessee argued that the learned. CIT (A) had erred in upholding the disallowance, under clause (ia) of Section 40(a) of the Act, of business expenditure of Rs. 43,612,876 being the lease rent paid by the appellant-assessee to Yamuna Expressway Industrial Development Authority without deduction of tax.
The assessee claimed that while upholding the above disallowance the learned CIT (Appeals) had ignored that the assessing officer in his order passed, under Section 201 of the Act (on a remand by the Hon'ble ITAT) had held that, in respect of the aforesaid lease rent, the appellant-assessee was not deemed to be an assessee in default in terms of the first proviso to Section 201(1) of the Act.
Therefore, the appellant-assessee claimed that it was entitled to be deemed as having deducted and paid the tax on the said lease rent in terms of the second proviso to clause (ia) of Section 40(a) of the Act.
The short question that arose for consideration in the appeals for the Assessment Year 2012-13, 2013-14 and 2014-15 was regarding disallowance under Clause (i) of Section 40 (a) in respect of RPC fees paid to Formula One World Championship Ltd. to UK without deducting the tax.
The bench opined that no part of the RPC fee paid by the assessee was liable to be disallowed under clause (i) of Section 40(a) because the second proviso clause (i) of Section 40(a) has been inserted with effect from 1 April, 2020.
The bench clarified, “the said proviso essentially provides that where the relevant income has been declared by the payee and tax thereon has been paid by him then no disallowance shall be made in the hands of the payer. This proviso is similar to the second proviso to clause (ia) of Section 40(a) which was inserted with effect from 1 April, 2013. Both these provisos were inserted to remove an anomaly and were therefore curative and declaratory in nature. Hence, they had to be given retrospective effect.”
Lastly, the ITAT observed that no disallowance shall be made to the assessee in regards to the chargeable sum paid by the assessee to a foreign company without deduction of tax and additions made by CIT (A) were liable to be quashed.
