ITAT: Under section 15 of the Income Tax Act, TDS not applicable to salary/commission paid to Partners

ITAT: Under section 15 of the Income Tax Act, TDS not applicable to salary/commission paid to Partners

The Income Tax Appellate Tribunal (in short ITAT), Gauhati Bench held that there is no requirement under the provisions of the Income Tax Act (hereinafter referred to as 'the Act') for deduction of tax at source by the partnership firm on salary, bonus, commission, or remuneration etc.

The division bench comprising Justice Sanjay Garg (Judicial Member) and Manish Borad (Accountant Member) noted that salary, bonus, remuneration, or commission are collectively referred to as 'remuneration,' and the remuneration paid during the year falls within the permissible limit set forth in Section 40(b)(v) of the Act.

The respondent/assessee- M/s. Dhar Construction Company is a partnership firm engaged in the construction business. In the e-return filed on 16 October, 2017, for the fiscal year 2017-2018, an income of Rs. 1,21,98,600 was declared. The case was selected for scrutiny through Computer Aided Scrutiny Selection (in short CASS) because of its high ratio of refund to Tax Deductible at Source (in short TDS), large refund claim value, and the large increase in capital in a year. The necessary notices were issued.

The issue raised in the present case was with respect to the non-deduction of TDS on commission paid to partners. The Adjudicating Officer (in short AO) alleged that the respondent/assessee failed to deduct tax at source on the commission paid to its partners.

The Appellate Tribunal held, "the finding of the learned Commissioner of Income Tax (Appeals) (in short CIT(A)) on fact and considering the judicial precedence remains uncontroverted by the Ld. Department Representative (in short ld. DR) placing any other binding precedent in its favor. Therefore, considering the provisions of Explanation 2 to Section 15 of the Act which includes salary, bonus, commission or remuneration received by partner under the head 'salary' and considering the provisions of section 192 of the Act which talks about the salary given u/s. 15 of the Act, thus, we are inclined to confirm the findings of the ld. CIT(A) that there is no requirement under the provisions of the Act for deduction of tax at source by the partnership firm on salary, bonus, commission or remuneration etc., or whatever name called given or credited to a partner of a firm. Thus, we fail to find any infirmity in the findings of the ld. "

The Tribunal noted that AO had made the disallowance since the respondent/assessee had failed to file necessary evidence during the hearing and at the same time full reliance cannot be placed without any documents i.e., bills/vouchers etc.

"However, the ld. CIT(A) deleted the said disallowance observing that a high-pitched assessment has been concluded by the ld. AO in the present 'non-adversarial tax regime.' Neither any deficiency has been pointed out nor any specific defect has been brought on record by the ld. AO in the audited books of the assessee." The Tribunal added.

Therefore, the Tribunal partly allowed the appeal of revenue as such disallowances was made on account of conjectures and surmises, which were not permissible.