Commission payments treated as salary attract TDS under section 192; disallowance under section 40(a)(ia) upheld

5-Second Takeaway

The Tribunal upheld disallowance under section 40(a)(ia) after finding that payments claimed as commission were in fact salary paid to five persons, making tax deduction at source mandatory under section 192. Since the salary exceeded the basic exemption limit, the confirmed disallowance of Rs. 10,41,840 was sustained.

The dispute concerned disallowance of commission expenses of Rs. 34,72,800. In appeal, the Commissioner (Appeals) examined the assessee’s own bank-book entries and found that payments to five persons were actually made as salary, despite the assessee’s claim that they were commission payments.

On that footing, the Commissioner (Appeals) held that the payments attracted section 192 and the obligation to deduct tax at source. As the salary paid to those persons exceeded the basic exemption threshold of Rs. 2.50 lakh, non-deduction of tax justified invocation of section 40(a)(ia).

The disallowance was accordingly restricted and sustained at Rs. 10,41,840, being 30 per cent of the payment. The Tribunal found no error in that conclusion and upheld the disallowance.