TDS under section 194H attracted so long as payment is in the nature of brokerage or commission; Section 194H does not require that relationship between the payer and the payee be necessarily of a principal and agent
Depreciation is not an outgoing expenditure but a statutory deduction. Therefore, the provisions of section 40(a)(i) are not attracted on such deduction
In the instant case, the moot questions raised before the Tribunal were as follows:
1) Whether Sec. 194H can be invoked in a situation where principal-agent relationship amongst parties is missing?
2) If payment to NR is capitalized in books of accounts and depreciation thereon is being claimed by assessee, whether the depreciation can be disallowed by invoking Sec. 40(a)(ia)?
On first Issue, the Tribunal held in favour of revenue as under:
1) Section 194H talks about the payment to a recipient which is the income by way of commission or brokerage.
2) It does not require that the relationship between the payer and the payee should be of a principal and agent.
3) The Explanation to section 194 elaborates on the terms 'commission or brokerage' by including any payment received or receivable directly or indirectly by a person acting on behalf of another person.
4) Thus, it is clear that the provisions of section 194H do not require any formal contract of agency.
On Second issue, the Tribunal held in favour of assessee as under:
1) The deduction under section 32 is not in respect of the amount paid or payable which is subjected to TDS;
2) Depreciation is a statutory deduction on an asset which is not an outgoing expenditure. Therefore, the provisions of section 40(a)(i) are not attracted on such deduction;
3) Therefore, where payment, which has been made without deduction of TDS, has been capitalized as part of cost of asset, depreciation in respect of such payment can't be disallowed by invoking section 40(a)(i) - SKOL Breweries Ltd. v. ACIT  29 taxmann.com 111 (Mumbai - Trib.)