TMI Blog2014 (7) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... come - none of the items culminating into 'Reimbursement of expenses' contained any profit element – thus, there is no logic in applying 8% or any other profit rate on 'Other clearing expenses' which is a part of the total 'Reimbursement'. Non deduction of TDS on rent paid on behalf of its clients - Godown charges paid and added back to income u/s 40(a)(ia) of the Act – whether the provisions of section 40(a)(ia) are magnetized on the amount of Godown rent paid by the assessee on behalf of its clients - Held that:- In order to qualify as income or expenditure, it is of paramount importance that the assessee must have earned the income or incurred the expenditure in his own right - The expenditure should be directed towards the earning of income and the income should ordinarily be the result of incurring of expenditure - If the expenditure is incurred or income is earned not in own capacity, but as representative of some third person, then it is the expenditure or income of such third person and not that of the assessee. Neither any expenditure was claimed towards payment of godown rent nor any income was offered on this account - The transaction of act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee claimed that this amount of ₹ 11.57 crore was not chargeable to tax despite its forming part of gross receipts as per TDS certificates issued by the clients. Unconvinced with the assessee's submissions, the AO treated this amount as containing profit element. By considering certain other material and relying on the net profit rate for the earlier years, the AO held that the assessee earned 8% net profit on these gross receipts of ₹ 11.57 crore. This resulted into an addition of ₹ 92,59,381/-. In the first appeal, the ld. CIT(A) came to hold that items at Sl. No.1, 3-5 of the above extracted Table did not include any profit element. He, therefore, ignored these items from the inclusion in the total income. As regards the sixth item titled 'Other clearing expenses', amounting to ₹ 1.51 crore, the ld. CIT(A) upheld the finding of the Assessing Officer on the question of the income element at the rate of 8% on this amount. Such a view was canvassed as in the opinion of the ld. CIT(A), the assessee did not furnish any third party evidence of such expenses having been incurred. This resulted into sustaining disallowance at ₹ 12,12,484 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties below, it is of paramount importance to first ascertain if it includes any mark-up or is a reimbursement simplicitor. In this endeavour, we have examined copies of contracts between the assessee and some of its client, which are available in the paper book. A copy of such contract for customs clearance with M/s Aksh Optifibre Ltd. is available at page 41 of the paper book. From this Contract, it can be seen that the assessee is entitled to a fixed percentage and also fixed amount in respect of certain specified services to be rendered by it in the process of the gets the imported goods cleared from customs. Page 3 of this Contract makes it clear that 'the Duty/AAI charges or any other reimbursable charges upto ₹ 20,000/- shall be paid by Jaguar and the same can be claimed in the respective bill'. Page 44 onwards of the paper book is a copy of Contract of customs clearance with M/s Jubilant Organosys. This Contract also refers to remuneration of the assessee at a fixed amount and a fixed percentage of some of the specified activities to be undertaken by the assessee. Clause (v) of this Contract provides that the assessee shall pay on behalf of M/s Jubilant Organos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reimbursement of expenses claimed by the assessee from Aksh Optifibre Ltd. Since there is no element of income in the reimbursement of expenses, this amount was neither claimed as deduction nor offered as income. As the total sum of ₹ 11.57 crore, inter alia, including 'Other clearing expenses' of ₹ 1.51 crore is in the nature of expenses incurred by the assessee in getting the goods cleared from customs in the first go, which were paid by the clients as such in terms of the agreements as discussed above, naturally there is no element of income requiring inclusion of this amount as such or in part thereof, in the total income. In view of the fact that none of the items culminating into 'Reimbursement of expenses' amounting to ₹ 11.57 crore contained any profit element, we are of the considered opinion that there is no logic in applying 8% or any other profit rate on 'Other clearing expenses' amounting to ₹ 1.51 crore, which is a part of this total 'Reimbursement'. We, therefore, order for the deletion of addition of ₹ 12,12,484/- sustained by the ld. CIT(A). 6. The next grievance of the assessee is against the making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s worthwhile to note that the AO treated inter alia the amount of Godown rent as having income element and that is how he brought to tax income at the rate of 8% of this amount. When the assessee assailed such finding in the first appeal by contending that there was no income element in it, the assessee's contention came to be upheld by the ld. first appellate authority. However, in order to buttress his view of the applicability of section 40(a)(ia) of the Act, the ld. CIT(A) held that the there is income as well as expenditure of the godown rent and since the assessee failed to deduct tax at source, the expenditure part was disallowable by keeping the taxability of the income part intact. We are unable to comprehend the view canvassed by the ld. CIT(A) on this score. In order to qualify as income or expenditure, it is of paramount importance that the assessee must have earned the income or incurred the expenditure in his own right. The expenditure should be directed towards the earning of income and the income should ordinarily be the result of incurring of expenditure. If the expenditure is incurred or income is earned not in own capacity, but as representative of some third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n capacity, are either includible in the total income or qualfy for deduction as per law. On the other hand, other expenses, including customs duty, freight paid and godown rent etc. incurred for the customers can by no stretch of imagination be construed as the expenses incurred by the assessee for his business so as to make them eligible for deduction. Here is a case in which the assessee did not claim any deduction for godown rent of ₹ 4.53 crore which was paid by it on behalf of its customers and got reimbursement as such. Neither any expenditure was claimed towards payment of godown rent nor any income was offered on this account. The transaction of actually paying godown rent was for and on behalf of its customers. It was for these customers to claim deduction for the payment of godown rent etc. in their accounts. Once these items of expenses including godown rent are otherwise not eligible for deduction under any of the sections 30 to 38 of the Act in the hands of the assessee and further the assessee has neither claimed such deduction nor is it lawfully entitled to the same, the natural corollary which follows is that there can be no question of making disallowance u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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