TMI Blog2012 (5) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... in admitting additional evidence in shape of Board Circular No. 723, dt. 19th Sept., 1995 [(1995) 128 CTR (St) 6]. This additional ground has already been admitted by the Tribunal vide order sheet dt. 19th April, 2010. 3. The brief facts of the case as observed by the AO are that in the P and L a/c the assessee has shown selling and distribution expenses amounting to Rs. 1,65,24,301. The AO asked the assessee to furnish the details. In response to which the assessee submitted the details of selling and distribution expenses amounting to Rs. 1,64,03,242 incurred on account of export clearing and forwarding expenses out of total selling and distribution expenses of Rs. 1,65,24,301. The AO also asked the assessee to furnish the proof of payment and deposition of TDS to credit of the Government within the due date, if TDS made. In response to which the assessee submitted that TDS has been deducted on payments of agency charges to C and F agents. In proof of the same copy of TDS certificates was furnished. The assessee further stated that the C and F agents raised bill in two parts, one for agency charges and other for reimbursement of actual expenditure. Accordingly the assessee de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from others to fulfil his own contract. TDS cannot be deducted from the amount which we only authorize him to incur on our behalf for our benefit and thus ourselves incurring liability to third party directly. Had C and F agent not paid the amount of freight or other services, we would have been liable for the said payment and not the C and F agent. 3.5 Even in the worst case scenario, according to the above circular, if a consolidated bill is raised including both the agency charges and the reimbursement of actual expenditure then TDS would be required to be deducted on the consolidated bill without excluding reimbursements (because in any case they are not separately indicated). However, in cases where separate bills and debit notes are raised/issued i.e. one for agency charges and the other for reimbursement of actual expenses, then TDS shall be deducted only on the bills for agency charges and not on reimbursements. Under the above facts and circumstances and in view of the legal position, application of provisions of s. 40(a)(ia) of the Act is not applicable in our case. 3.6 The AO considered the explanation furnished by the assessee and observed that it was clear tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exported by the assessee through the C and F agent it implies that a contract exists between the assessee and the C and F agent as per which the C and F agent supplies goods of the assessee to various destinations for which various expenses were incurred by the agent apart from the services being rendered by the agent to the assessee. This payment was made to the C and F agent in lieu of the contract which exists between the assessee and agent. It was the C and F agent who has been assigned the contract for providing various services by the assessee for transportation of its goods. Hence as per the provisions of s. 194C of the Act it became imperative that the tax has to be deducted on the gross payment being made to the agent. Therefore, on the basis of above there was no doubt that the assessee has not deducted TDS on payment made to C and F agent for carriage of goods and thus the expenses to the extent of such payment were disallowable in view of the provisions of s. 40(a)(ia) of the Act. As per the details of export clearing and forwarding expenses furnished by the assessee, out of total expenses incurred on payment made to C and F agent amounting to Rs. 1,64,03,242 tax has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He ignored the now well-established 'purposive approach' of interpretation of statutory laws enacted to take care of specific 'mischief. The background of enactment of provisions contained in s. 40(a)(ia) was that Government wanted to ensure that no payment containing element of taxable income escapes the tax net, and the payer of such income is compelled to deduct the tax in time for the fear of losing the deduction of such expense from him taxable income. This provision was not a substantive charge of tax on the payer of such income and was merely a device of seeking help from such payer of income in collection of right TDS. The intention was that Government's interest of due collection of TDS from the payment is protected, and the recipient of the income does not simply disappear after the receipt and does not pay the tax either. This section did not create any charge of tax in respect of the payer. In the instant case, the learned AO disregarded this well-established cannon of interpretation of statutory law and proceeded as if it was substantive charge of tax on the assessee detaching it fully from the purpose for which the provision was enacted. It is not the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to him. He was given money to pay it over to the concerned parties/providers of various services to the appellant, on behalf of the appellant. There may have been occasions that because of long standing relations, agent paid the service providers even before receiving the money from the appellant. The nature of transaction can also be understood by the following example : the appellant asks one of its employees to take some money from the cashier at Udaipur and go over to the sea port aid arrange the transporter etc. negotiate the proper rates and make the payment, get the bill of lading etc., in the name of the appellant and if there is any shortfall in payment, get himself reimbursed from the cashier in Udaipur on his return back to Udaipur. Similar results can be achieved by appointing an independent person as agent. Arrangement of services from third parties either by the employee of the appellant or a paid agent stands at par. In the case of the employee, he gets his salary for the arrangement of services. In the case of agent, he gets agency service charges. Without prejudice to the appellant's submissions, as to the demerits of the disallowance, it is submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and this activity means transportation of empty containers by Indian Railways from the port to Internal Container Depot (ICD), which in appellant's case is ICD, Sabarmati, Ahmedabad. As per appellant, no TDS was deductible, as explained hereinafter. 9,16,000 3. CCI charges are the actual railway freight for transportation of custom cleared, export bound stuffed container from dry port, which in appellant's case is ICD, Sabarmati, Ahmedabad. This railway freight is paid by the C and F agent of the appellant to the Container Corporation of India (CCI), which is a Government of India undertaking. As per appellant, no TDS was deductible, as explained hereinafter. 3,74,652 4. Terminal handling charges (THC) are incidental to the shipment of each container arid pertain to handling of container within the port area meant for export which are being reimbursed by appellant to the forwarding agent. As per appellant, no TDS was deductible as explained hereinafter. 8,79,731 5. Road transportation charges is the freight charges for transporting empty container from dry port i.e. ICD, Ahmedabad to appellant's factory at Sirohi road a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of India', which is a Government of India undertaking. (ii) In support of above, the appellant encloses herewith specimen copy of bill at page No. 63 of paper book, which clearly mentioned that this railway freight has been paid by the forwarding agent, M/s Chinu Bhai Kaliclas and Bros., Ahmedabad to CCI agent on behalf of the appellant. (iii) As per s. 196 of IT Act, 1961, any payment made to Government or a corporation established by or under a Central Act/Government of India undertaking, no TDS is deductible if any railway freight either to railways directly or to a Government of India undertaking is made by the appellant. (iv) In addition to above, Explanation of sub-s. (2) of s. 194C of the IT Act, 1961 also clearly stipulates that any freight paid for transportation of goods by the Indian Railways is not subject to deduction of TDS. (v) Since C and F agent of the appellant paid the CCI charges on behalf of the appellant, for transportation of containers from the ICD, Ahmedabad to the port by railways, no TDS was deductible from such payments. (vi) The appellant wishes to further put on record that the appellant receives the empty containers at factory si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency, Mumbai, being container handling service charges, copy of TDS certificate enclosed at page No. 123 of paper book. However, the learned AO, while completing the assessment under s. 143(3) did not allow the aforesaid expenses of Rs. 54,000. It was patently unjustified, unwarranted and bad in law and the same may kindly be considered and allowed. 8. Bill of lading/shipping bill and sundry charges Rs. 1,72,717:- (i) Again, this amount being incidental charges of shipment of export cargo, which is not liable for deduction of TDS and the same deserves to be considered and allowed. (ii) On perusal of the above, your Honour would find that, the aforesaid export clearing and forwarding expenses included reimbursement of expenses on account of ocean freight, CCI charges, THC charges, REPO charges, transportation charges and other charges etc., which were paid by the C and F agent on behalf of the appellant and in turn, issued debit notes on the appellant, claiming reimbursement. (iii) Further, the C and F agent issued bills for services rendered by him towards agency charges, and issued debit notes for expenses incurred by him on behalf of the appellant. (iv) Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corroborate the aforesaid facts, the undertaking/certificate received from C and F agent, M/s Chinubhai Kalidas and Bros., Ahmedabad, is enclosed herewith at page No. 120 of paper book, which clarifies the facts and leaves no scope for deduction of TDS on reimbursement of expenses incurred on behalf of the appellants. (e) Further, the C and F agent incurred expenses on REPO charges, CCI charges etc. merely on behalf of the appellant, on which no liability for deduction of tax at source was there. To corroborate this fact, the appellant submits that M/s Star Shipping and Transport Agency, Mumbai also confirms vide their letter dt. 28th Feb., 2008 that the amount received from the appellant for making various payments i.e. shipment, ocean freight etc., were directly made by them to foreign shipping companies. Copy of confirmation received is enclosed herewith at page Nos. 121 and 122 of paper book for your kind verification and perusal. (f) In any case, payments on account of sea freight (ocean freight) and THC charges were paid to non-resident shipping agents (which constitutes almost 80 per cent of such reimbursed expenses) and therefore ss. 194C and 195 of the IT Act, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that in the present appeal, since the C and F agent of the appellant made various payments like ocean freight etc., directly to the foreign , shipping companies on behalf of appellant, provisions of ss. 194C and 195 do not apply which please note. Apart from the above, your Honour would find that, in the present appeal, the nature of payments to C and F agents are of two types:- (1) agency charges; and (2) reimbursements of expenditure incurred by the agent on behalf of the appellant, as agent. In view of he above, the appellant were liable to deduct tax only on the bill of agency charges and not on reimbursement of expenses. The appellant draws your kind attention towards the following decisions wherein it was held that payment of ocean freight and inland haulage charges cannot be subjected to TDS by virtue of the provision of s. 172 of the IT Act, 1961. 1. ITO vs. Freight Systems (India) (P) Ltd. (2006) 103 TTJ (Del) 103, wherein it was held that TDS under s. 194C Payment of ocean freight and inland haulage charges Cannot be subjected to TDS by virtue of the provision of s. 172 This position is clarified by the CBDT Circular No. 723, dt. 19th Sept, 1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainer Depot through ICD; Sabarmati, Ahmedabad, Rs. 3,74,652 CCI charges to railways, which is a Government of India undertaking, Rs. 8,79,731 terminal handling charges reimbursed to C and F agents, Rs. 20,31,226 road transportation charges for freight charges for transporting empty container from dry port i.e. ICD, Ahmedabad to appellant's factory at Sirohi Road and back from factory to the dry port through the appellant's C and F agents M/s Chinu Bhai Kalidas, Ahmedabad and M/s Star Shipping and Transport Agencies, Mumbai and Rs. 54,000 as container handling service charges paid to M/s Star Shipping and Transport Agencies, Mumbai on which TDS has already been deducted and Rs. 3,61,550 as agency charges paid to M/s Chinu Bhai Kalidas, Ahmedabad and M/s Star Shipping and Transport Agencies, Mumbai and deducted TDS and service-tax of Rs. 30,946. The AO has mentioned in the assessment order that carriage of goods is covered as transportation contract within the definition of s. 194C and, therefore, the appellant was required to make TDS on the payments made. The AO has also referred the Board's Circular No. 715, dt. 8th Aug., 1995 question No. 6 and question No. 30 as under:- Q. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 1,64,03,742 The copy of bills of agents, copy of ledger account, copy of export bills have also been submitted. From the above break up it is seen that Rs. 1,60,31,877 were paid to M/s Chinu Bhai Kalidas, Ahmedabad and M/s Star Shipping and Transport Agencies, Mumbai, for direct transport/sea freight on behalf of the non-resident shipowner to export and shipping the goods upto the destination ports. The Authorised Representative has also quoted CBDT Circular No. 723, dt. 19th Sept., 1995 as under:- 'There would be cases where payments are made to shipping agents of non-resident shipowners/charterers of ship for carriage of passenger etc. shipped at port in India. Since the agent acts on behalf of the non-resident shipowners or charterer,, he steps into the shoes of the principal. Accordingly, provisions of s. 172 shall apply and those of ss. 194C and 195 will not apply.' In the last para it is written that there would be cases where payments are made to shipping agents of non-resident shipowners/charterers of ship for carriage of passenger etc., shipped at port in India. Since the agent acts on behalf of the non-resident shipowners or charterers, he steps in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agent acts on behalf of the non-resident shipowners or charterer, he steps into the shoes of the principal. Accordingly, provisions of s. 172 shall apply and those of ss. 194C and 195 will not apply.' Therefore, the addition of Rs. 1,60,41,692 is deleted. The appeal is allowed on this ground." 6. The learned Departmental Representative first placed reliance on the order of learned CIT(A). It was further submitted that Circular No. 715, dt. 8th Aug., 1995 considered by AO is directly on the issue. In this circular Board has clarified that even on reimbursement of expenses TDS has to be deducted. It was further submitted that Circular No. 723, dt. 19th Sept., 1995 has been wrongly considered by learned CIT(A). The learned CIT(A) should have allowed opportunity to the AO before considering this circular. It was further submitted that in case of Karnataka Urban Infrastructure Development Finance Corporation vs. CIT (2009) 221 CTR (Kar) 171 : (2008) 16 DTR (Kar) 153 : (2009) 308 ITR 297 (Kar), the Hon'ble Karnataka High Court has decided similar issue whereby it has been held that on reimbursement of expenses TDS is deductible. Copy of the order was also filed. Further, relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng reliance was placed on the order of learned CIT(A). 8. After considering the orders of the AO and learned CIT(A) and the arguments of both the parties, we find no infirmity in the finding of learned CIT(A). 8.1 The Department has raised additional ground that learned CIT(A) was not justified in admitting Board Circular No. 723, dt. 19th Sept., 1995 without affording opportunity to the AO. Board circular is issued by the CBDT and which cannot be termed as an additional evidence. Therefore, we reject this ground of the Department that AO was not allowed any opportunity. The learned Departmental Representative has stated that even Board Circular No. 723 is not in favour of the assessee and learned CIT(A) was not justified in considering the same in favour of the assessee. 8.2 We have gone through the Board Circular No. 723, copy of which is placed on record and contents of the same have been tabulated in the order of learned CIT(A) also and found that about certain payments it has been clarified by the Board that on these payments provisions of ss. 194C and 195 will not apply and provisions of s. 172 will be applicable. The learned CIT(A) has taken into consideration th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponent of income on the amount paid by assessee on account of reimbursement. Whatever the amount was paid by the agent, that was reimbursed by the assessee. Therefore, there was no income component in the hands of agent. It is further seen that provisions of s. 172 were very clear that such type of payments which are made by assessee had been held that they are not part of regular income and, therefore, provisions of ss. 194C and 195 are riot applicable and Board has clarified the same. Therefore, there is no question of making any TDS on the part of the assessee and learned CIT(A) was justified in deleting the disallowance. One more decision has been relied on by the learned Departmental Representative in case of Associated Cement Co. Ltd. (supra) and we find that facts in this case are also distinguishable. In this case also we find that facts are totally different from the facts involved in the case in hand. Moreover, the payments made by assessee are covered by s. 172 where provisions of ss. 194C and 195 are not applicable as clarified by the Board vide Circular No. 723, dt. 19th Sept., 1995. The AO has placed reliance on the Circular No. 715 which is of earlier date from the C ..... 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