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TMI Blog2021 (11) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... Debit Note for reimbursement of all other Charges paid by the Appellant on behalf of their clients as an intermediary for the Clients and which are backed by specific Invoices raised on the Client by the Shipping Companies and CFS Agents. C. The Appellant acts only as an Custom House Agent for the Clients while making the payments and the charges being in the nature of reimbursements and therefore TDS liability cannot be pinned on the Appellant. D. The Appellant is of the view that TDS is not applicable on Reimbursable Expenses. It was applicable only on Income or Trading Receipts(r) The actual reimbursements do not come under the ambit of TDS. E. Notwithstanding the above, the appellant pleas that wherever they had obtained Form 26A, the appellant should not have been treated as 'assessee in default' as provided in Section 40(a)(ia) and on such amounts Section 40(a)(ia) should not have been applied. F. The appellant for the purpose of claiming non deduction of TDS relies on the decision of Supreme Court in the case of Transmission Corporation of AP Ltd. v CIT [1999] 239 ITR 587. G. The appellant for the purpose of not being treated as 'assessee in default' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has failed to deduct TDS, the AO has disallowed sum of Rs. 60,02,756/- u/s. 40(a)(ia) of the Act for failure to deduct TDS u/s. 194C of the Act. The AO has also rejected an alternative plea of the assessee that as per second proviso to section 40(a)(ia) inserted w.e.f. assessment year 2013-14 r.w.s. 201(1), assessee cannot be treated as an assessee in default when the recipient have offered the payments to tax in the return filed for relevant assessment years and further, wherever the assessee furnishes certificate in prescribed Form 26A along with Annexure to the effect that the deductee has included the same amount in his return of income, for the reason that the assessee could not furnish necessary Form 26A for verification. The AO had also made additions towards disallowance on premium paid for Key man Insurance Policy u/s. 36(1)(ib) of the Act. 5. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee has reiterated its arguments made before the AO to justify non-deduction of tax at source on payment made to shipping companies/CFS Agents on behalf of their clients on the ground that it is mere rei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng within the ambit of section 194C of the Act and consequently, no disallowance could be made u/s. 40(a)(ia) of the Act for non-deduction of tax at source. The Ld. AR further submitted that though the assessee has routed receipts from its customers and payments to shipping companies/CFS Agents as income and expenditure, but the nature of expenses is such that it is only reimbursement of expenses incurred by their clients and thus, is outside the scope of TDS provisions. The Ld. AR has also made an alternate argument to the effect that wherever assessee has obtained Form 26A, in such cases the assessee should not have been treated as assessee in default as provided in section 40(a)(ia) of the Act and consequently, no disallowance can be made for failure to deduct TDS u/s. 194C of the Act. 7. The Ld. DR, on the other hand strongly supporting the order of the CIT(A) submitted that there is no merit in arguments taken by the Ld. AR of the assessee that payments made to shipping companies/CFS Agents is in the nature of reimbursement of expenses incurred by the assessee on behalf of their clients, because the payment made by the assessee vis-à-vis the expenditure disallowed is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an intermediary for the clients and which are backed by specific invoices raised by service providers to their clients. The assessee has not deducted TDS on payments made to shipping companies/CFS Agents on behalf of their clients. The assessee contended that payments made to shipping companies/CFS Agents is in the nature of reimbursement of expenses without any element of profit and thus same cannot be brought within the TDS provisions and consequently, no disallowance can be made u/s. 40(a)(ia) of the Act. 10. We have gone through reasons given by the AO to disallow payments made to shipping companies/CFS Agents u/s. 40(a)(ia) of the Act, in light of the arguments advanced by the ld. AR for the assessee and we ourselves do not in agreement with arguments advanced by the Ld. AR of the assessee for the simple reason that payment made by the assessee to shipping companies/CFS Agents is not a reimbursement of expenses, but first hand payment between principal to principal on the bill raised by the shipping companies and CFS. No doubt, the assessee has made payment on behalf of their clients for bills raised by shipping companies/CFS Agents and further, the services rendered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or which TDS liability cannot be pinned on the assessee. In the present case, since, the assessee has made payments on behalf of their clients, it should have deducted TDS on such payments, while making payments. The assessee being payer fails to deduct tax on the pretext that the payment is only a reimbursement and the tax has to be deducted by the end user which is practically not possible, because the payment is directly made by the assessee. If you accept the arguments of the assessee, then the purpose of legislature is defeated and the intend to subject the contract payment to deduction of tax at the point of payment is defeated by arranging transaction in such a manner that the purpose is defeated. It is also important to note that it is the assessee who has booked the expenditure towards container storage charges on payment to shipping companies/CFS Agents and debited in their books of accounts. Similarly, the assessee has received charges from its clients including amount paid to shipping companies/CFS Agents and the same has been credited to its P&L a/c when it had received payments from its clients. Therefore, we are of the considered view that payments made by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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