Commission paid to employees partakes character of salary for TDS purpose

Commission paid to employees partakes character of salary and TDS is applicable only u/s 192 not under Section 194H – ITAT deleted addition u/s 40(a)(ia)

ABCAUS Case Law Citation:
ABCAUS 2812 (2019) (03) ITAT

In the appeal covered under the instant case,the assessee had challenged order of the CIT(A) in upholding the disallowance u/s 40(a)(ia) of the Income Tax Act, 1961 (the Act) made by the Assessing Officer (AO).

The appellant was a partnership firm. The assessment of its return of income for the relevant financial year was completed u/s 143(3) of Income Tax Act, 1961 (the Act).

Subsequently, the AO received information from audit party that a sum was debited to P&L A/c towards commission on which the assessee had not deducted TDS as required u/s 194H of the Act.

Therefore, a notice u/s 148 was issued to the appellant and against the said return of income assessment was completed after making disallowance u/s 40(a)(ia) of the Act.

Being aggrieved, an appeal filed by the appellant before the CIT(A) contending that the provisions of Sec.40(a)(ia) could not be invoked in the present case as the commission was paid to the employees and the amount of salary inclusive of commission was paid to each employee does not exceed the minimum, which is not chargeable to tax.

However, the CIT(A) has dismissed the appeal by rejecting the contention of the appellant.

The Tribunal observed that the term ‘salary’ had been defined u/s 17 to include any commission/bonus paid to employees.

The Tribunal opined that the commission paid to employees partakes the character of the salary and therefore, the applicable provision of TDS is only Section 192 not Section 194H and thereforethere was merit in the submissions of the appellant.

Accordingly, the appeal filed by the assessee was allowed.

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