TMI Blog2019 (4) TMI 1431X X X X Extracts X X X X X X X X Extracts X X X X ..... craft operations at the airport in accordance with international protocols and the Airport Authority was providing these facilities for landing and takeoff of aircrafts and in the whole process, use of land was incidental. On the contrary, where the protocol prescribe detailed methodology for fixing these charges, the charges were not for use of land perse and therefore, could not be treated as rent within meaning of section 194-I. Applying the ratio to the facts of present case, in view of the dictate of the Apex Court (supra), we hold that Wharfage charges paid by assessee are charges which facilitate the loading / unloading of goods at waterfront and for providing facilities, Wharfage charges are charged from the assessee and in such case, we hold that there is no use of land but even if it was held that there is any use of land, then the same was incidental but such payments could not be treated as rent and the assessee be liable to deduct tax at source under section 194-I. The Wharfage charges paid by assessee are to be allowed as deduction u/s 37(1) . The ground assessee is allowed. Allowability of foreign travel and salary expenses of employees of sister concern de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive orders passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. Both the appeals relating to same assessee were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. The assessee in ITA No.2148/PUN/2013, relating to assessment year 2009-10 has raised the following grounds of appeal:- 1. The order of the Commissioner (Appeals) is against law and facts and circumstances of the case. 2.1 The Commissioner (Appeals) erred in summarily dismissing the appeal by merely repeating what the Assessing Officer had said and ignoring all the grounds raised in the appeal before him and deciding the issue on erroneous assumptions. 2.2 The Commissioner (Appeals) having noted that there is no tenancy by the Maharashtra Maritime Board nor it is meant to lease out any asset to the appellant and it is only a payment in the nature of 'toll' or 'fee' for providing the infrastructure facility and the measure for levy is merely based on loading and unloading weight and is collected for functioning, maintaining and running the Board and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved by the Assessing Officer. 4.2 The Commissioner (Appeals) failed to take note of the fact that there were written correspondence between the deputing Company and the Appellant and therefore issue of Appointment orders etc. are not warranted by any rule or law and so the conclusions are misplaced and ignores factual service by these employees. 4.3 The observations and conclusions of the Commissioner (Appeals) are not warranted and does not exhibit judicious approach to the issue. 5.1 The Commissioner (Appeals) erred in confirming the disallowance under 40A(3) without appreciating facts. 5.2 The Commissioner (Appeals) did not find these purchases to be sham or bogus and they have been used in the business due to absence of power supply by Electricity Board and having regard to the location of the sellers and business needs the payment cannot be disallowed on technicalities. 5.3 The Commissioner (Appeals) ought to have noted that in so far as these purchases are concerned the employees are implied agents of the Appellant and therefore it falls under Sub rule (k) of Rule 6DD of the Income-tax Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t attracted as the fees were not in the nature of rent. Hence, no tax was required to be deducted from these payments. The contention of assessee was found to be not correct by the Assessing Officer. He was of the view that Wharfage charges paid to the Board were actually in the nature of rent. For the definition of land , reference was made to the Concise Law Dictionary by P. Ramanatha Aiyyar Justice Y.V. Chandrachud, wherein the land was defined to include bed of the sea or river below high water mark, and also things attached to the earth or permanently fastened to anything attached to the earth. This was the definition under Major Port Trust Act in section 2(k). Under section 2(17) of the Wildlife (Protection) Act (53 1972), land includes canals, creeks other water channels, reservoirs, rivers, streams, marshes wet lands also include boulders rocks. Further, definition of Wharf as per the Oxford Dictionary was referred to i.e. a landing place or pier where ships may tie up and load or unload; a shore or riverbank; a platform of timber, stone, concrete, etc. built parallel to the waterfront at a harbor or navigable river for the docking, loadi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erfront and hence, the contention of assessee that it was not using waterfront was not acceptable. The plea of assessee that it was under the Statutory obligation to pay Wharfage charges to the Board and the payment was made in regular course of business was not accepted. Hence, Wharfage charges paid were treated as rent paid by the assessee for utilizing water space adjacent to its port near Jaigad in Ratnagiri district. As the assessee had failed to deduct tax at source under the provisions of section 194-I of the Act, payments totaling ₹ 56,57,221/- were disallowed, in view of provisions of section 40(a)(ia) of the Act and added to the income of assessee. 7. The CIT(A) noted that the plea of assessee first was that payment was fees and not rent and second, it was that the said payment was in the nature of cess or tax. The CIT(A) noted that as per Wikipedia, fees was defined as price paid as remuneration for services. He further observed that where the assessee himself had accepted that the Board does not provide any services to the assessee, then it was not fees. Further, as per dictionary meaning land included water and since the assessee was charged for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 and the Kolkata Bench of Tribunal in M/s. MCC PTA India Corp. Pvt. Ltd. Vs. ACIT in ITA Nos.151 152/Kol/2016, relating to assessment years 2011-12 and 2012-13, order dated 18.07.2018 relying on the judgment of the Hon'ble Supreme Court in the case of Japan Airlines Co. Ltd. reported in 377 ITR 372 (SC), was in favour of assessee. He further referred to provisions of section 194-I of the Act and pointed out that obligation to deduct TDS was when the income was by way of rent; Explanation under the said section defines rent . Referring to the facts of the case, the learned Authorized Representative for the assessee stated that there was no lease, sub-lease, tenancy or any other agreement or arrangement between the assessee and the Board, for the use of land/water. He further pointed out that the Department s case was vis- -vis water under the land. In this regard, he referred to the decision of the Hon ble Bombay High Court in CIT Vs. Maharashtra State Electricity Distribution Co. Ltd. (2015) 375 ITR 23 (Bom), wherein the dispute was in the case of assessee distributing electricity to consumer. The Hon ble Bombay High Court while deciding the wheeling and tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of cess or levy and in no way, it can be attributed to rent. The Wharfage charges were being paid to MMB in accordance with Government Notification for the privilege of carrying on loading and unloading activities at the waterfront. The assessee was of the view that the same were in the nature of shipping fees levied by the Board. It was levy under the Statutory Notification, which the assessee was obliged to pay and the payment was made in the normal course of business, the same could not be held to be rent. The term Wharf as per the Oxford Dictionary means a landing place or pier where ships may tie up and load or unload; a shore or riverbank; a platform of timber, stone, concrete, etc. built parallel to the waterfront at a harbor or navigable river for the docking, loading and unloading of ships. There is no separate definition of land or Wharfage charges under the Income Tax Act. The Assessing Officer has relied on the definition of land in legal parlance. In this regard, he has relied on the definition in Concise Law Dictionary by P. Ramanatha Aiyyar Justice Y.V. Chandrachud, wherein the land was defined to include bed of the sea or river below high water ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, if any, as the Board may specify. Further, section 35(2) provides that if any such structure is made, erected or fixed, in contravention of sub-section (1), then the Board may ask the person to remove it, after notice. 14. Under Chapter VI of Maharashtra Maritime Board Act, Imposition and Recovery of Rates at Ports are prescribed. Under section 37 of the said Act, scales of rates for services performed by Board or other authorized persons in relation to port or port approaches is provided and clause (d) deals with wharfage, storage or demurrage of goods on any such place. There are other sections, under which the Board can prescribe scale of rates. However, as per section 41 of the said Act, prior sanction of State Government to prescribe rates and conditions is necessitated. The said section reads as under:- 41. Every scale of rates and every statement of conditions framed by the Board under the foregoing provisions of this Chapter shall be submitted to the Government for sanction and shall have effect when so sanctioned and published by the Board in the Official Gazette. 15. Under section 42 of the said Act, State Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State levy, which is compulsorily to be borne by the assessee and in such circumstances, it is at best cess levied by the State Government through Board. 18. The case of Revenue on the other hand, is, that it is rent as described in section 194-I of the Act. It may be pointed out at the outset that in order to establish its case of rent, the first and foremost step which needs to be covered is whether there is a contract between the parties for the payment of rent. In order to understanding the meaning of rent , we need to look at the Explanation (i) under section 194-I of the Act. The term rent is defined as payment under any lease, sub-lease, tenancy or any other agreement or arrangement, for the use of land or building, land appurtenant to building, etc. If we look at the said section and Explanation thereunder defining term rent under the said section, then it talks of a contract between two parties, under which the amount is payable to the account of payee. The understanding has to be first between the parties i.e. in the form of some kind of contract or agreement or arrangement in lieu of which charges are paid or credited to the account of payee and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meaning of rent must be understood in the context in which it is used and it was not possible to equate wheeling and transmission charges payable with rent. It was explained that expression transmission charges and / or wheeling charges entail the distribution of electricity in the area of Corporation and such charges could not be subjected to provisions of section 194-I of the Act. While deciding the issue, reference was made to the decision of the Hon ble Delhi High Court in United Airlines Vs. CIT (supra), which has been relied upon by the learned Departmental Representative for the Revenue before us. Then it went on to rely on the decision of the Hon'ble High Court of Madras in CIT Vs. Singapore Airlines Ltd. (supra) and differing from the view of the Hon ble Delhi High Court in United Airlines Vs. CIT (supra), accepted the view taken by the Hon'ble High Court of Madras in CIT Vs. Singapore Airlines Ltd. (supra). It was observed that right from the moment a flight is permitted to land at a particular airport, a process is set into motion, to guide the aircraft to the runaway, for successful landing and after the aircraft had come to a halt it is led to a parking s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational protocols and the Airport Authority was providing these facilities for landing and takeoff of aircrafts and in the whole process, use of land was incidental. On the contrary, where the protocol prescribe detailed methodology for fixing these charges, the charges were not for use of land perse and therefore, could not be treated as rent within meaning of section 194-I of the Act. 23. Applying the said ratio to the facts of present case, in view of the dictate of the Apex Court, we hold that Wharfage charges paid by assessee are charges which facilitate the loading / unloading of goods at waterfront and for providing facilities, Wharfage charges are charged from the assessee and in such case, we hold that there is no use of land but even if it was held that there is any use of land, then the same was incidental but such payments could not be treated as rent and the assessee be liable to deduct tax at source under section 194-I of the Act. The Wharfage charges paid by assessee are to be allowed as deduction under section 37(1) of the Act. The ground of appeal No.2.2 raised by assessee is thus, allowed. 24. The grounds of appeal No.1 and 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect the Assessing Officer to allow the said expenditure in the hands of assessee on account of reimbursement of salary of such employees, who were deputed to the assessee company during the year. Further, certain foreign travel expenses were incurred by the said employees to explore the new business opportunities and also to see port facilities made available for efficient operations. Necessary confirmation in this regard was filed before the authorities below, which has been brushed aside. We find no merit in the disallowance made by authorities below and direct the Assessing Officer to allow foreign travel expenses of Mr. M.P. Patwardhan and Mr. Atul Kulkarni. Thus, ground of appeal No.3.4 and grounds of appeal No.4.1 to 4.3 are thus, allowed. 28. Now, coming to the next issue i.e. vide ground of appeal No.5.1 against disallowance made under section 40A(3) of the Act; certain expenses were incurred in cash totaling ₹ 1,80,361/-. The Assessing Officer was of the view that the said expenditure is not to be allowed in the hands of assessee, in view of provisions of section 40A(3) of the Act. The plea of assessee that expenditure was incurred at r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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