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TMI Blog2015 (2) TMI 1299X X X X Extracts X X X X X X X X Extracts X X X X ..... in deleting the disallowance u/s 40(a)(ia) being transport charges of Rs. 2,94,192/- without appreciating the fact that in the case of M/s Patil Transport Services (Rs 2,12,775/-) the liability to deduct TDS is on the assessee and the act of declaring the receipts properly by the recipient is secondary which is independent of liability of deduction of TDS by the payer and also in case of M/s Shreenath Roadways (Rs 90,881/-) that there need not be an official contract. As per section 194C the nature of expense is TDS deductible as it is akin to contract and also gross payment has exceeded Rs. 50,000/-. (iii) On the fact and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance u/s 40 a(ia) being Machinery maintenance charges paid to M/s. Urna Engg. Co. for Rs. 92,700/-,without appreciating the fact that the aggregate payment has exceeded Rs. 50,000/-" 2. Ground No.1 regarding disallowance under section 40(a)(ia) in respect of freight charges paid to agent of foreign shipping companies. 2.1 During the course of assessment proceedings the AO noted that the assessee has made the various payments including freight charges of Rs. 6,58,588/- f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable on record. As far as the binding nature of Circular issued by CBDT Cir. No.723 dated 19/9/1995 is concerned it is pertinent to note that the Circular and Instructions issued by the Board are binding on the taxing authorities and not on the Courts. Further, if the Hon'ble Supreme Court or Hon'ble High Court declares the law on the question arising for consideration then, it would not be appropriate for the Court or this Tribunal to direct the taxing authority to give effect to the Circular and not the view accepted in the decisions of the Courts. Thus, if under a particular provision, a legal question arises, and has been answered and explained by the Hon'ble High Court or Hon'ble Supreme Court then, the said explanation in the decisions of Hon'ble Supreme Court or Hon'ble High Court will be binding and not the Circular issued by the CBDT as held by the Larger Bench of Hon'ble Supreme Court in the case of Commissioner of Central Excise vs. Rattan Melting & Wire Industry (2008)13 SSC-1. 3.1 As regards the alternative plea it is to be noted that the Hon'ble Supreme Court in case of Hindustan Coca-cola Breweries (P) Ltd. (supra), while consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is available only when the payee is resident. In the case in hand the payee is a non-resident, being a foreign shipping company, therefore, the 2nd proviso to section 40(a)(ia) as well as the first proviso to section 201(1) and 201(1A) are not applicable in such payments. Accordingly we do not agree with the alternative plea of the ld. AR. 3.2 The Hon'ble Jurisdictional High Court in the case of CIT vs. Orient Goa Pvt. Ltd. (supra), while considering an identical issue has held in para-8 as under :- "8. Section 172 of the Act 1961 is carefully considered by us. Chapter XV titles as "LIABILITY IN SPECIAL CASES". We have no concern with sections, starting from Section 159, till Section 171 from this Chapter XV. Section 172 comes under sub-title "H-Profits of non-residents from occasional shipping business". Title of Section 172 is "Shipping business of non-residents." For bringing a case under Chapter XV, H of the Act 1961, one has to establish a case of profits of non-residents from occasional shipping business. "Nonresident" is defined under section 2(30), as a person who is not a "resident" and for the purpose of Sections 92, 93 and 168, includes a person who is not ordinar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleaded or raised by assessee. There is no dispute about interpretation of Section 172 or Section 195. Crucial point is as to how Section 172 applies to the facts of the present case wherein the respondent assessee is an Indian company, incorporated under the provisions of Indian Companies Act. 1956. In our view, the learned Vice President of the ITAT has recorded a perverse observation/finding in para-3 regarding application of Section 44B and 172 of the Act, 1961." 3.2.1 Accordingly, following the decisions of Hon'ble Jurisdictional High Court we set aside the order of CIT(A) qua this issue and restore the order of the AO. The disallowance is confirmed. 4. Ground No.2 is regarding the disallowance of transportation charges under section 40(a)(ia). The AO has disallowed transportation charges paid to M/s. Patil Transport Services and M/s. Shreenath Roadways total amounting to Rs. 2,94,194/- under section 40(a)(ia) for want of TDS. On appeal, CIT(A) deleted the disallowance on the ground that the recipients have paid the tax on the transportation charges collected from the assessee and therefore, no TDS was required to be deducted on the same payment. The CIT(A) has followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posed by the charging section and to make the machinery workable. However, when the machinery section results in unintended or harsh consequences which were not intended, the remedial or correction action taken is not to be disregarded but given due regard. 28. It is, in this context, that we had in Rajinder Kumar's case (supra) observed as under(page 252 of 362 ITR): "Now, we refer to the amendments which have been made by the Finance Act, 2010 and the effect thereof. We have already quoted the decision of the Calcutta High Court in Virgin Creations (supra). The said decision refers to the earlier decision of the Supreme Court in the case of Allied Motors (P) Limited (supra) and Commissioner of Income Tax versus Alom Extrusions Limited, (2009) 319 ITR 306 (SC). In the case of Allied Motors (P) Limited (supra), the Supreme Court was examining the first proviso to Section 43B and whether it was retrospective. Section 43B was inserted in the Act with effect from 1st April 1984 for curbing claims of taxpayers who did not discharge or pay statutory liabilities but claimed deductions on the ground that the statutory liability had accrued. Section 43B states that the statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gujarat High Court has held that the first proviso to Section 43-B is retrospective and sales tax for the last quarter paid before the filing of the return for the assessment year is deductible. This decision deals with Assessment Year 1985-85. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corpn.(1991) 191 ITR 676 (Cal.) has taken a similar view holding that the statutory liability for sales tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under Section 43-B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India. (1991) 189 ITR 70 (Patna). The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to Section 43-B will be available only prospectively does not appear to be correct. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of the previous provision. The issue was accordingly decided holding that in such cases the amendments were retrospective though it was noticed that as per Transfer of Property Act, Registration Act, etc. a legal owner must have a registered document. In view of the aforesaid discussion in paras 18,19 and 20, it is apparent that the respondent assesse did not violate the unamended section 40(a)(ia) of the act. We have noted the ambiguity and referred their contention of Revenue and rejected the interpretation placed by them. The amended provisions are clear and free from any ambiguity and doubt. They will help curtail litigation. The amended provision clearly support view taken in paragraphs 17 - 20 that the expression "said due date" used in clause A of proviso to unamended section refers to time specified in Section 139(1) of the Act. The amended section 40(a)(ia) expands and further liberalises the statue when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance.' Accordingly, we do not find any error or illegality in the order of CIT(A) qua t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CBDT Circular No.715 dated 08/08/1995 in support of its claim that the reimbursement of actual expenditure having no element of profit involved cannot be subject to TDS. Accordingly the CIT(A) deleted the disallowance made by the AO to the extent of reimbursement of expenses amounting to Rs. 4,19,505/- and confirmed the disallowance of the balance amount of Rs. 1,10,964/-. The assessee has raised this issue in cross objection. 7.3 Before us, the ld. AR of the assessee has submitted that the payment made towards clearing and forwarding expenses does not fall under section 40(a)(ia) as there was no contract between the assessee and the agency. On the other hand the ld. DR has submitted that the service availed by the assessee from the C&F agency is under the agency contract and even if there is no written contract there exists oral contract between the two parties. 7.4 We have considered the rival submissions as well as relevant material available on record. We note that this plea of having no contract between assessee and C&F agency has been raised by the assessee for the first time before us. Before the CIT(A) the assessee made the submissions which has been reproduced from par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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