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Tds on capital exp.

Sunil Kumar Mundra (Accounts Audit & Taxation) (130 Points)

21 June 2012

Tds is applicable only on revenue payment or it is applicable for revenue or capital payment both. Because If tds is not deducted on Capital exp. and exp. is disallowed, however it is not impact on P&L A/c.

so that if TDS is not deducted on capital payment then what consequence will arrise????????

Plz. give full reference like case Law, Notification, circullar etc..........

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Arun Prasadh (Practicing CA) (49 Points)
Replied 21 June 2012

Disallowance can't be made u/s 40a(ia).

Many case laws are there to support this claim one such case law is given,

In the case of Sumilon Industries Ltd. (ITAT) Dated: 12^th Nov 2010

The first ground of appeal for this year relates to disallowance u/s 40(a)(ia) for sum of Rs.10,35,838/-. It was payment of commission to agents for purchase of plant and machinery. It was not debited to profit and loss account but was capitalized. The views of ld. AO and the ld. CIT(A) are that the provisions of section 40(a)(ia) would be applicable even in cases of capital expenditure. We, however, do not agree that if a sum is not debited in the profit and loss account then provisions of section 40(a)(ia) would be applicable. This provision is to disallow a claim of expenditure against the revenue receipt if tax is not deducted, if it is so required. Since tax is required to be deducted at source on commission payment, the AO and the ld. CIT(A) thought merely on this basis that provisions of section 40(a)(ia) can be invoked. However, the second condition is that a claim of such expenditure should have been made in profit and loss account. If no such claim is made, then whether TDS is made or not, no disallowance can be made.The question is if TDS would have been made whether AO could have allowed the expenditure from the profit and loss account even though assessee is not claiming the same. In our view not, and, therefore, the addition is misconceived and is, accordingly, deleted.

On plain reading of the section some people may interpret non deduction of TDS of capex payment will lead to disallowance.

As per Sec 28, profits & gains of any business or profession is taxable under this chapter. This profit has to be computed as per the normal method of accounting.

Sec 40 begins with "Notwithstanding any thing contained in Sec 30 to 38,...". It doesn't cover Sec 28.

Hence 40a(ia) will get attracted, where the expenses are allowed in Sec 30 to 38.

Under normal accounting the capex is not considered for arriving at P&L, hence it can't be disallowed for non deduction of TDS.