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2016 (5) TMI 1258 - ITAT MUMBAI

2016 (5) TMI 1258 - ITAT MUMBAI - [2016] 49 ITR (Trib) 120 - TDS u/s 194C - non deduction of TDS on payments made to a contractor/sub–contractor for services rendered - Held that:- The assessee having made the payments on behalf of its clients, there is no liability to deduct tax at source on the assessee. Consequently, no disallowance under section 40(a)(ia) can be made for alleged failure of the assessee to deduct tax at source on the payment made on behalf of the importers / clients. Therefor .....

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passed by the learned Commissioner (Appeals)-23, Mumbai, for the assessment year 2010-11. 2. The Department has filed this appeal being aggrieved by the order passed by the learned Commissioner (Appeals) in deleting the addition of Rs. 3,28,88,794, made by the Assessing Officer under section 40(a)(ia) of the Income Tax Act, 1961 (for short "the Act") alleging non-deduction of tax at source (TDS) on payments made to various parties. 3. Brief facts are, the assessee a partnership firm is .....

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t Authorities/Port Trust Authorities, Airport Authorities and Container Freight Station (CFS) on behalf of its principal. For the service rendered the assessee earns agency commission which is offered as income. For the assessment year under consideration, the assessee filed its return of income on 22nd September 2010, declaring total income of ₹ 18,74,970. In the course of assessment proceedings, the Assessing Officer after verifying the computation of income, Profit & Loss account, B .....

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porter/exporter. He found, these CFS/inland container depots are private parties operating under JNPT. As stated by the Assessing Officer, assessee was asked to furnish details of the CFS/Inland Container Depot (ICD) and payment made to them with TDS details. In response to the query raised, assessee furnished a chart showing head-wise and client-wise expenditures made which aggregated to ₹ 3,28,88,794. The Assessing Officer after verifying the details submitted by the assessee and copies .....

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iner code, vessel name, item code, description, etc., and corresponding receipt was raised by CFS in the name of the assessee. He also found from the bills that the major amount charged was for ground rent of loaded container, handling and transportation, CFS Cargo handling charges, etc. The Assessing Officer was of the view that as the assessee is dealing with the CFS for and on behalf of its client, it was the liability of the assessee to deduct tax while making payment to CFS and raised the b .....

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diture relating to assessee s business or payment made by the assessee for its business so as to attract the provisions of section 194C. The Assessing Officer, however, was not convinced with the reply of the assessee. He was of the view that since the assessee has made payment to CFS, it was the obligation of the assessee to deduct tax at source while making such payment. He also rejected the contention of the assessee that CFS/ICD being Government and Semi Government bodies there is no require .....

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ts clients as a custom house agent. He noticed, the Assessing Officer has himself noted that the assessee has made payments to the CFS and ICDs for/on behalf of his clients. He also noticed that the assessee has raised separate bills towards expenditure actually incurred on behalf of the client and a separate bill for agency commission on account of services rendered. The learned Commissioner (Appeals) was of the view, when there is no dispute that the assessee has made the payments on behalf of .....

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ccount provisions of section 40(a)(ia) cannot be invoked to disallow the same. The learned Commissioner (Appeals) observed, as the assessee while acting as an agent of the importer/exporter is making payment to CFS/ICD on behalf of such importer/exporter the payment made is deemed to be the expenditure incurred by the importer/exporter and not an expenditure of the assessee. Thereafter, the learned Commissioner (Appeals) relying upon the decisions of the Tribunal, deleted the addition made by th .....

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x on payments made to a contractor/sub-contractor for services rendered. Failure to deduct tax will automatically attract the provisions of section 40(a)(ia). Learned Departmental Representative submitted, irrespective of the fact whether the assessee has debited the expenditure to the Profit & Loss account disallowance under section 40(a)(ia) has to be made on non-deduction of tax at source. 6. Learned Authorised Representative strongly supporting the order of the learned Commissioner (Appe .....

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to co-relate each item of expenditure/payment made to CFS/ICD to the imports made by the clients. In this context, he drew our attention to the information submitted before the Assessing Officer in the course of assessment proceedings, indicating the name of importers, details of imports, duty payment, container name, details of storage in CSF/ICD, etc. He submitted, the Assessing Officer has not found anything adverse in the documents submitted by the assessee and in fact accepted that the ass .....

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on to the copies of the bills raised. Learned Authorised Representative finally submitted the issue is otherwise covered by the decision of the Tribunal in a number of cases wherein it is held that the payment made by clearing and forwarding agent on behalf of its client do not attract TDS provisions. For such proposition, he relied upon the following decisions:- 1. DCIT v/s Rank Shipping Agency Pvt. Ltd., ITA no.5946/Mum./ 2008, dated 21.11.2012; 2. CIT v/s Cargo Linkers, [2008] 218 CTR 695 (De .....

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ng and forwarding agent at ₹ 83,47,952 and after expenditure has shown net profit of ₹ 18,75,468. Thus, it is highly illogical and irrational that to disallow expenditure of ₹ 3,28,88,794 when the gross commission income earned by the assessee is ₹ 83,47,952, which has not been disputed by the Assessing Officer. Thus, the disallowance made by the Assessing Officer is highly disproportionate to the income earned by the assessee. Learned Authorised Representative submitted, .....

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rtment cannot treat the same as payments made by the assessee. Thus, the learned Authorised Representative submitted, there is no reason to interfere with the order of the learned Commissioner (Appeals). 8. We have considered the submissions of the parties and perused the material available on record. On a perusal of the assessment order, it is very much clear that in the course of assessment proceedings, the assessee has furnished every necessary details in respect of payment of ₹ 3,28,88 .....

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porter s address, liner code, vessels particulars of transaction, vessels name and item code, description, rate charged, etc. These facts prove that the payment made by the assessee to the CFS/ICD were for/on behalf of importer of goods to whom the assessee rendered services as custom house agent. In fact, on a perusal of the observations made in the assessment order would reveal that the Assessing Officer has also accepted the fact that the assessee has made the payments to CFS/ICDs on behalf o .....

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the Assessing Officer admits the fact that the assessee has made payments to CFS/ICD on behalf of importer as a custom house agent and the documentary evidence produced by the assessee also proves such fact, the Assessing Officer cannot disallow the payments under section 40(a)(ia) alleging non-deduction of tax by the assessee. When the expenditure / payment does not relate to the assessee, merely because the assessee has made payments on behalf of its client would not attract the liability of .....

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on as per the bills raised, the payment to CFS / ICD logically has to be treated as expenditure of importers and not the assessee. Therefore, as a natural corollary if there was any default in deduction of tax on such payments, made to the CFS/ICDs, the liability should be on the person claiming the payment as expenditure. The assessee having never claimed these payments as expenditure, provisions of section 40(a)(ia) are not attracted. Even otherwise also, if the entire issue is looked at ratio .....

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e Tribunal, Mumbai Bench, in DCIT v/s Rank Shipping Agency Pvt. Ltd., ITA no.5946/Mum./2008 dated 21st November 2012, while deciding identical issue of applicability of TDS provisions to payments made by a custom house agent on behalf of importers held as under:- 9. We have considered submissions of ld representatives of parties and orders of authorities below. 10. During the course of hearing, ld D.R. has not disputed the fact that assessee received the said payment aggregating to ₹ 18,79 .....

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ay Kay Freighters Pvt Ltd (supra) and it was held that the amount mentioned in the bill raised by shipping companies on ultimate consumer were initially paid by the assessee and, thereafter assessee got reimbursed the said amount from its client including the charges of the assessee for service rendered. Therefore, assessee was not a person responsible for deduction of tax at source in terms of section 194C of the Act and, accordingly, provisions of section 40(a)(ia) cannot be invoked in respect .....

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t able to furnish the same. Considering the facts of the case and the reasons as given by ld CIT(A), mentioned hereinabove, we hold that there is no reason to interfere with the order of ld CIT(A) in deleting the said addition of ₹ 18,79,38,741 made by the AO. Accordingly, Ground Nos. 1 & 2 taken by department is rejected. 9. The Tribunal, Mumbai Bench, in Universal Traffic Co. (supra), also expressed similar view by holding as under:- 2.5. If the observation made in the assessment ord .....

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012, Hon ble Delhi High Court in CIT vs Cargo Linkers (218 CTR 295), where in the Hon ble Court held that the assessee being a C& F agent, is an intermediary, who booked cargo for and on behalf of importers and exporters and facilitated the contract for carrying goods, therefore not liable to withhold tax u/s 194C from payments made towards air freight on behalf of its customers, decided in favour of the assessee. We are in agreement with the conclusion drawn by the ld. Commissioner of Incom .....

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by the customs. The statutory warehousing charges is also the sole liability of the clients and the assessee merely defrays the expenses on behalf of the clients, thus, the assessee/agents are not liable to deduct tax u/s 194C of the Act. Thus, it is unjustified on the part of the Assessing Officer to hold the assessee as assessee in default . The privity of contract is between the clients and not with the assessee. There was no contract between the assessee and the authorities rather the asses .....

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ata Bench in S.K. Asgar vs ITO (ITA No.2000/K/2009) order dated 31/08/2010 and ITO vs S.S. Impex (ITA No.997/K/2011) order dated 23/09/2011, the decision in Bhagwati Steels (326 ITR 108) and the ratio laid down in CIT vs United Rice Land Ltd. (322 ITR 294) (P & H). It is also noted that the ld. Commissioner of Income tax (Appeals) has dealt with the individual fee/payment/charges and the conclusion arrived at therein is identical. It is worth quoting that the Hon ble Apex Court in Hindustan .....

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na Vedanta Math vs ITO (ITA No.477/Kol/2012) order dated 31/07/2012 by the Kolkata Bench of the Tribunal supports our view. We note that the freight charges, detention charges and de-stuffing charges, etc. were paid to foreign lines or to their agents or shipping lines for transportation of cargo thus the privity of contract is not between the assessee and foreign lines/shipping lines to whom such charges were paid, thus, the assessee cannot be held to be a person responsible to deduct tax on su .....

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