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TMI Blog2012 (5) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 deducted TDS only on agency charges to C and F agent as prescribed in s: 194C of the Act. 3.1 From the above, the AO came to the conclusion that the assessee deducted tax only on agency charges paid to C and F agent and not on the gross amount. Therefore, the AO asked the assessee as to why the above expenses amounting to Rs. 1,64,03,242 paid to the C and F agent be not disallowed under s. 40(a)(ia) of the Act as per s. 194C of the Act as the assessee was supposed to deduct tax on the gross amount paid to C an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that the assessee has made the above payment to C and F agent for carriage of goods. The carriage of goods is covered as transportation contract within the definition of s. 194C. Accordingly, the assessee was required to deduct tax on payment made/credited to such C and F agents on the basis of "any sum payable". However, the assessee has deducted tax only on the amount pertaining to agency charges excluding the reimbursements. The assessee in its submissions has tried to explain that no tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 been deducted only on agency charges amounting to Rs. 3,61,550. Therefore, the amount of Rs. 1,60,41,692 was disallowed by invoking the provisions of s. 40(a)(ia) and added to the total income of the assessee. 4. Detailed written submissions filed before learned CIT(A) were tabulated at pp. 6 to 22. It will be useful to reproduce those written submissions here as under:- "During the course of appellate proceedings the learned Authorised Representative submitted as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse 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 the learned AO that the recipient of the payment is now not traceable, or he was not an income-tax assessee or has concealed the receipt from the appellant (in his return of income), when all the payments were through banking channels only and amenable to full verification. The grossness of approach of the AO and its impact on the appellant can be appreciated from the fact that even if the learned AO's stand is accepted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees 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 that the provisions of s. 40(a)(ia) which was made effective from 1st April, 2005 were not applicable to the appellant's case as previous year ended before the said date. This law was applicable with effect from the asst. yr. 2006-07, and this submission is duly supported by the decision of the Hon'ble Allahabad High Court in the case of Krishna Mohan Agrawal vs. CIT (2007) 295 ITR 190 (All) and also supported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 and back from appellant's factory to the dry port. TDS has already been deducted by appellant's C and F agent and deposited with the Government. 20,31,226 6. Agency charges paid to M/s Chinu Bhai Kalidas, Ahmedabad on which TDS is deducted by the appellant (agency charges Rs. 3,30,604, service-tax 30,946). 3,61,550 7. Container handling service charges paid to M/s Star Shipping and Transport Agencies, Mumbai, on which TDS has already been deducted by the appellant. 54,000 8. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reight 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 situated in Sirohi Road, stuff-it (fill up) these containers in the presence of customs authorities, who after checking, close the container and affix their seal (lead) and thereafter the containers are dispatched to the ICD, Ahmedabad. As such, these are customs cleared and are export-bound containers where the appellant has no control whatsoever, once the containers are sealed by the customs authorities at appellant's factory. 4. Terminal handling charges (THC) Rs. 8,79,731:- (i) As explained above, THC are re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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, C and F agent raised bills against agency charges and debit notes for expenses incurred by him on behalf of appellant i.e. ocean freight, REPO charges, CCI charges, THC charges, transportation charges, other charges etc. To corroborate these facts, specimen copies of bills and debit notes of C and F agents are enclosed herewith at page Nos. 36 to 11Q of paper book for your kind perusal, verification and record. (v) That while making payment to C a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 1961 do not apply. The Circular No. 723, dt. 19th Sept., 1995 which is reproduced below clarifies the issue:- TDS from payment made to foreign shipping companies:- 1. Representations have been received regarding the scope of ss. 194C and 195 of the IT Act, 1961, in connection with TDS from payments made to the foreign shipping companies or their agents. 2. Sec. 172 deals with shipping business of non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-Assessee, therefore cannot be in default for non-deduction of tax at sources from payments towards ocean freight and inland haulage charges'. (Copy enclosed at page Nos. 124 to 127 of paper book). 2. CIT vs. Continental Carriers (P) Ltd. (2007) 163 Taxman 479 (Del) wherein it was held by the Hon'ble High Court that s. 194C r/w s. 172 of the IT Act, 1961-Deduction of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. No. 6: Whether payment under a contract for carriage of goods or passengers by any mode of transport would include payment made to a travel agent for purchase of a ticket or payment made to a C and F agent for carriage of goods? Ans.: The payments made to a travel agent or an airline for purchase of a ticket for travel would not be subjected to TDS as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular 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 into the shoes of the principal. Accordingly, provisions of s. 172 shall apply and those of s. 194C will not apply. The certificate from the agent M/s Chinu Bhai Kalidas, Ahmedabad and M/s Star Shipping and Transport Agencies, Mumbai has also been submitted, which confirms that the payment is made as sea freight to foreign shipping lines of goods sent by the appellant for export for each case to case. 13. Further s. 194C deals with works contract includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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, reliance has also been placed in case of Associated Cement Co. Ltd. vs. CIT and Anr. (1993) 111 CTR (SC) 165 : (1993) 201 ITR 435 (SC) whereby it has been held that on reimbursement of expenses the TDS is deductible. Accordingly, it was submitted that though AO has considered this aspect of reimbursement of expenses but in view of the decision of Hon'ble Karnataka High Court and in view of the decision of Hon'ble Supreme Court, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 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 this circular and found that certain payments made by the assessee to the C and F agents who have already made the payment on behalf of the assessee were not covered either under s. 194C or under s. 195, as they are covered under the provisions of s. 172. Therefore, we hold that learned CIT(A) was justified in holding that on certain payments the provisions of ss. 194C and 195 were not applicable and, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, 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 Circular No. 723. The learned CIT(A) has observed that this circular was wrongly applied by AO as Circular No. 723 is applicable on the facts of the present case. Nature of payments has already been discussed by learned CIT(A) at p. 11 of his order. Therefore, we are not repeating those details again and in these details it has been clarified that the entire payments are covered by Circular No. 723, d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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