06 October 2007
A Pharma company makes monthly payment to Docotrs in the name of Academic aid. The payment is Rs 10,000 to 20000 per month during full year. Is any TDS liability arises on this ? Is this type of expenditure allowable under income tax and if yes under which section. Is any case laws. The company has no supporting with regard to the expenditure actually incurred by the doctor on academic aid. If fact this type of payment in pharma industry is to give money to docotors.As an auditor under tax audit or in company audit what remark/observation to be given
06 October 2007
AMOUNTS EXPRESSLY DISALLOWED UNDER INCOME TAX ACT ARE SPECIFIED UNDER SEC 40(a) AND ALSO UNDER SEC 40(A) OF THE INCOME TAX ACT. SIMILARLY TYPES OF BUSINESS EXPENSES ALLOWED ARE STATED UNDER SEC. 30 TO SEC 36 OF THE I.T.ACT. ANY EXPENDITURE NOT SPECIFICALLY COVERED UNDER SEC 30 TO SEC 36 IS DEDUCTIBLE UNDER SEC 37 PROVIDED IT IS IN RESPECT OF THE BUSINESS CARRIED BY THE ASSESSEE,AND LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND INCURRED DURING THE PREVIOUS YEAR AND NOT OF NATURE OF CAPITAL EXP / PERSONAL EXP. NOR THE EXP. IS IN THE NATURE OF ANY OFFENCE OR PROHIBITED BY ANY LAW. SO THERE IS NO EXPRESS DISALLOWABILITY FOR THE EXPENDITURE INCURRED BY THE PHARMA COMPANY FOR ITS MONTHLY PAYMENT TO DOCTORS AS ACADEMIC AID. BUT IF AND WHEN the assessing officer PIERCES THE VEIL OF ACEDEMIC AID, HE IS SURE TO FIND THAT IN REALITY IT IS PAYMENT MADE TO PROFESSIONALS FOR RENDERING SERVICE TO COMPANY. HENCE TDS UNDER SEC. 194 J WILL BE MADE APPLICABLE BY HIM @10.30%. AS THERE IS NO EXPRESS DISALLOWABILITY AND NOT BEING ILLEGAL,NO NEED FOR AUDITOR TO QUALIFY OR REMARK ON THIS EXP.THE FACT THAT IT IS A PREVALENT INDUSTRY PRACTICE ADDS TO ITS CONVINCIBILITY. R.V.RAO
06 October 2007
It is clear from the question that the amount is not paid by the pharma company for receiving technical services but being a pharma comapny to improve it's business by giving some benefit in one form named as acadamic aid. It is definatley business promotion expense and allowable. TDS u/s 194J is not required as the amount paid is not for technical or professional service. As the nature of expenditure is quite common in the pharma line of business no special comment is rquired in audit report.
And I think Auditors should not mention this as a Comment or a Remark but it whould be put as a note that this Academic Aid is for the Business Promotion to give more clarification to the IT Authorities
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