Deputy Commissioner of Incometax v. Hasmukh J. Patel

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers2012 TaxPub(DT) 1082 (Ahd-Trib) : (2012) 046 (II) ITCL 0027 : (2012) 049 SOT 0197 INCOME TAX ACT, 1961 --TDS--Disallowance under section 40(a)(ia)Applicability of section 194C--Assessee claimed clearing and forwarding expenses of Rs. 3,14,475 and carriage expenses of Rs. 11,18,871. Assessee was asked to furnish the details of TDS, which was furnished by assessee. On verification of the same it was seen that assessee has made payment to G L Shipping & Logistics, Mumbai of Rs. 8,72,188 on which TDS was not deducted. Assessing officer disallowed Rs. 8,72,188 of expenses invoking the provisions of section 40(a)(ia). It was contended before Commissioner (Appeals) that assessee was manufacturing chemicals and it was also exporting material through shipping agents, who acted on behalf of non-resident shipping companies. It was submitted that in terms of Circular No. 723, dt. 19-9-1995, section 194C is not applicable in the case of shipping agents who act on behalf of non-resident shipping companies and that the assessee was not liable to deduct TDS on the freight reimbursed to the shipping agent M/s. GL Shipping & Logistics, Mumbai. Commissioner (Appeals) while considering the explanation of assessee noted that assessee had offered to furnish confirmation from the shipping company that taxes have been paid in the return of income filed under section 172. Commissioner (Appeals) also noted that Circular No.723 clearly states that provisions of section 172 override the provisions of section 194C. It was further noted that if any taxes are not paid by the shipping company, the same are to be borne by the shipping agent who steps into the shoes of non-resident shipping companies. Commissioner (Appeals) accordingly directed to provide proof of the taxes paid by the shipping company and assessing officer was asked to verify the same. The appeal of assessee was allowed subject to verification. Held: What assessee had paid was nothing but 'reimbursement' of freight charges for which necessary memos were issued by the shipping agent M/s. GL Shipping & Logistic, Mumbai. The Board Circular No.723 clarifies both the provisions of section 172 and section 194C and it is provided that in such case the provisions of section 172 would apply and no deduction of tax is required as per section 194C. It is also clarified that that since the agent acts on behalf of the non-resident ship owners or charterer, he steps into the shoes of the principal and accordingly, provisions of section 194C would not apply in the case of assessee. Assessing officer had also not made out any case that assessee has paid any amount to the residents. Therefore, provisions of section 194C have been wrongly applied in the case of assessee. Commissioner (Appeals) was, therefore, not justified in remanding the matter to the file of assessing officer for verification of the details of expenses and deposit of the tax. On consideration of the rival submissions, the authorities below have not appreciated the facts and the provisions of law while deciding the above issue and their orders are not sustainable under the law. The assessee specifically explained that he is proprietor of chemical manufacturing concern and also exports the material for sale. In the course of the export, the assessee has to pay shipping freight charges to the shipping agent who acts on behalf of the non-resident shipping companies. What the assessee had paid was nothing but 'reimbursement' of freight charges for which necessary memos were issued by the shipping agent M/s. GL Shipping & Logistic, Mumbai. The copies of reimbursement claim memos were submitted to the assessing officer for his perusal. It was also explained that these payments are actually reimbursement to shipping agents and, therefore, section 194C is not applicable in this case. The assessee also relied upon CBDT Circular No.723. The above facts were specifically pleaded before the authorities below but the same have not been properly understood. The Circular No.723, dt. 19-9-1995 copy of which is filed by the assessee in the paper book. The assessing officer invoked the provisions of section 40(a)(ia) for non-deduction of TDS as required under section 194C. However, the above provision is application for the amounts payable to the residents or the amounts payable to contractors or sub-contractors being resident. Similarly, the provisions of section 194C apply to the area of operation of TDS which is confined to payments made to any residents. The assessee in his reply specifically pleaded that the amount in question is nothing but reimbursement of freight charges which was paid to the shipping agents for carrying materials for sale. Thus, the assessee made the payment to the shipping business of non-residents through shipping agent. A special procedure is provided under section 172 for payment of taxes in case of any ship belonging to or chartered by a non-resident which carries passenger, livestock, material or goods shipped at a port in India. It has nothing to do with the activity carried out by the assessee. [Para 9] The Board Circular No.723 clarifies both the provisions of section 172 and section 194C and it is provided that in such case the provisions of section 172 would apply and no deduction of tax is required as per section 194C. It is also clarified that since the agent acts on behalf of the non-resident ship owners or charterer, he steps into the shoes of the principal and accordingly, provisions of section 194C would not apply in the case of the assessee. The assessing officer has also not made out any case that the assessee has paid any amount to the residents. Therefore, provisions of section 194C have been wrongly applied in the case of the assessee. The Commissioner (Appeals) was, therefore, not justified in remanding the matter to the file of the assessing officer for verification of the details of expenses and deposit of the tax. The direction given by the Commissioner (Appeals) is contrary to the above provisions of law. In view of the above discussions, the findings of the authorities below are not approved . The orders of the authorities below are accordingly set aside and quashed. Resultantly, the addition is deleted. [Para 9] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 1082 (Ahd-Trib) : (2012) 046 (II) ITCL 0027 : (2012) 049 SOT 0197

INCOME TAX ACT, 1961

--TDS--Disallowance under section 40(a)(ia)Applicability of section 194C--Assessee claimed clearing and forwarding expenses of Rs. 3,14,475 and carriage expenses of Rs. 11,18,871. Assessee was asked to furnish the details of TDS, which was furnished by assessee. On verification of the same it was seen that assessee has made payment to G L Shipping & Logistics, Mumbai of Rs. 8,72,188 on which TDS was not deducted. Assessing officer disallowed Rs. 8,72,188 of expenses invoking the provisions of section 40(a)(ia). It was contended before Commissioner (Appeals) that assessee was manufacturing chemicals and it was also exporting material through shipping agents, who acted on behalf of non-resident shipping companies. It was submitted that in terms of Circular No. 723, dt. 19-9-1995, section 194C is not applicable in the case of shipping agents who act on behalf of non-resident shipping companies and that the assessee was not liable to deduct TDS on the freight reimbursed to the shipping agent M/s. GL Shipping & Logistics, Mumbai. Commissioner (Appeals) while considering the explanation of assessee noted that assessee had offered to furnish confirmation from the shipping company that taxes have been paid in the return of income filed under section 172. Commissioner (Appeals) also noted that Circular No.723 clearly states that provisions of section 172 override the provisions of section 194C. It was further noted that if any taxes are not paid by the shipping company, the same are to be borne by the shipping agent who steps into the shoes of non-resident shipping companies. Commissioner (Appeals) accordingly directed to provide proof of the taxes paid by the shipping company and assessing officer was asked to verify the same. The appeal of assessee was allowed subject to verification. Held: What assessee had paid was nothing but 'reimbursement' of freight charges for which necessary memos were issued by the shipping agent M/s. GL Shipping & Logistic, Mumbai. The Board Circular No.723 clarifies both the provisions of section 172 and section 194C and it is provided that in such case the provisions of section 172 would apply and no deduction of tax is required as per section 194C. It is also clarified that that since the agent acts on behalf of the non-resident ship owners or charterer, he steps into the shoes of the principal and accordingly, provisions of section 194C would not apply in the case of assessee. Assessing officer had also not made out any case that assessee has paid any amount to the residents. Therefore, provisions of section 194C have been wrongly applied in the case of assessee. Commissioner (Appeals) was, therefore, not justified in remanding the matter to the file of assessing officer for verification of the details of expenses and deposit of the tax.

On consideration of the rival submissions, the authorities below have not appreciated the facts and the provisions of law while deciding the above issue and their orders are not sustainable under the law. The assessee specifically explained that he is proprietor of chemical manufacturing concern and also exports the material for sale. In the course of the export, the assessee has to pay shipping freight charges to the shipping agent who acts on behalf of the non-resident shipping companies. What the assessee had paid was nothing but 'reimbursement' of freight charges for which necessary memos were issued by the shipping agent M/s. GL Shipping & Logistic, Mumbai. The copies of reimbursement claim memos were submitted to the assessing officer for his perusal. It was also explained that these payments are actually reimbursement to shipping agents and, therefore, section 194C is not applicable in this case. The assessee also relied upon CBDT Circular No.723. The above facts were specifically pleaded before the authorities below but the same have not been properly understood. The Circular No.723, dt. 19-9-1995 copy of which is filed by the assessee in the paper book. The assessing officer invoked the provisions of section 40(a)(ia) for non-deduction of TDS as required under section 194C. However, the above provision is application for the amounts payable to the residents or the amounts payable to contractors or sub-contractors being resident. Similarly, the provisions of section 194C apply to the area of operation of TDS which is confined to payments made to any residents. The assessee in his reply specifically pleaded that the amount in question is nothing but reimbursement of freight charges which was paid to the shipping agents for carrying materials for sale. Thus, the assessee made the payment to the shipping business of non-residents through shipping agent. A special procedure is provided under section 172 for payment of taxes in case of any ship belonging to or chartered by a non-resident which carries passenger, livestock, material or goods shipped at a port in India. It has nothing to do with the activity carried out by the assessee. [Para 9] The Board Circular No.723 clarifies both the provisions of section 172 and section 194C and it is provided that in such case the provisions of section 172 would apply and no deduction of tax is required as per section 194C. It is also clarified that since the agent acts on behalf of the non-resident ship owners or charterer, he steps into the shoes of the principal and accordingly, provisions of section 194C would not apply in the case of the assessee. The assessing officer has also not made out any case that the assessee has paid any amount to the residents. Therefore, provisions of section 194C have been wrongly applied in the case of the assessee. The Commissioner (Appeals) was, therefore, not justified in remanding the matter to the file of the assessing officer for verification of the details of expenses and deposit of the tax. The direction given by the Commissioner (Appeals) is contrary to the above provisions of law. In view of the above discussions, the findings of the authorities below are not approved . The orders of the authorities below are accordingly set aside and quashed. Resultantly, the addition is deleted. [Para 9]