Taj Leather Works v. Asstt. CIT

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The Tax Publishers2012 TaxPub(DT) 2585 (Kol-Trib) : (2012) 052 SOT 0228 INCOME TAX ACT, 1961 --Tax deduction at source--Under section 194C or 195Payments made to Indian agents of foreign airlines for air freight--Assessee, a manufacturer and exporter of leather products had made air/freight payments to Indian agents of some foreign airlines for exporting its products abroad. During the course of assessment proceedings, assessing officer noticed that the agents were resident companies, they might utilize services of any airlines for transportation but they were providing services to assessee and, therefore, assessee was obliged to deduct TDS under section 194C. Assessee submitted that these payments were made to non-resident airlines, and, therefore, following the rationale of Circular No. 723 which laid down that no taxes are required to be deducted at source under section 194C from payments to agents of foreign shipping companies, no taxes under section 194C were required to be deducted from the same. Assessing officer rejected the submission of assessee on the grounds that : (i) Circular No. 723 is specifically applicable only to foreign shipping companies and the benefit of same could not, therefore, extend to foreign airlines, and (iii) even if it be assumed that payments were made to the agents of foreign companies, assessee was under an obligation to move an application under section 195(2) requiring AO to determine whether tax was deductible under section 195 from such foreign remittance. He, therefore, concluded that assessee was obliged to deduct tax at source from these payments but he failed to do so, these payments were not allowable as per provisions of section 40(a)(ia). Held: In copies of airway bills, the name of agents were shown as 'Issuing carrier's agent and the city' as also the agent's code was given as 'Agent's IATA code'. There was thus enough material to demonstrate that the persons having received money for the airfreight had received the same in their capacity as agent of the airline concerned. The airfreight payment was thus made to the foreign airlines, though through the agent. In view of the above the payments could not be said to have been made to a resident company, and, accordingly, the provisions of section 194C, which apply only on the resident recipients, did not come into play. As regards tax deduction at source under section 195, it was held that tax deduction at source under section 195 is only a vicarious liability inasmuch as when recipients of income, i.e. the airlines concerned, had no primary liability to pay tax, there could not be any vicarious liability of assessee to deduct tax from payments in which such income was embedded. For the foregoing reasons, assessee did not have any obligation to deduct tax at source, neither under section 194C nor under section 195 and, therefore, disallowance under section 40(a)(ia) could not be made. Income Tax Act, 1961, Section 194C Income Tax Act, 1961, Sections 195 & 40(a)(ia) IN THE ITAT KOLKATA BENCH 'B' SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 2585 (Kol-Trib) : (2012) 052 SOT 0228

INCOME TAX ACT, 1961

--Tax deduction at source--Under section 194C or 195Payments made to Indian agents of foreign airlines for air freight--Assessee, a manufacturer and exporter of leather products had made air/freight payments to Indian agents of some foreign airlines for exporting its products abroad. During the course of assessment proceedings, assessing officer noticed that the agents were resident companies, they might utilize services of any airlines for transportation but they were providing services to assessee and, therefore, assessee was obliged to deduct TDS under section 194C. Assessee submitted that these payments were made to non-resident airlines, and, therefore, following the rationale of Circular No. 723 which laid down that no taxes are required to be deducted at source under section 194C from payments to agents of foreign shipping companies, no taxes under section 194C were required to be deducted from the same. Assessing officer rejected the submission of assessee on the grounds that : (i) Circular No. 723 is specifically applicable only to foreign shipping companies and the benefit of same could not, therefore, extend to foreign airlines, and (iii) even if it be assumed that payments were made to the agents of foreign companies, assessee was under an obligation to move an application under section 195(2) requiring AO to determine whether tax was deductible under section 195 from such foreign remittance. He, therefore, concluded that assessee was obliged to deduct tax at source from these payments but he failed to do so, these payments were not allowable as per provisions of section 40(a)(ia). Held: In copies of airway bills, the name of agents were shown as 'Issuing carrier's agent and the city' as also the agent's code was given as 'Agent's IATA code'. There was thus enough material to demonstrate that the persons having received money for the airfreight had received the same in their capacity as agent of the airline concerned. The airfreight payment was thus made to the foreign airlines, though through the agent. In view of the above the payments could not be said to have been made to a resident company, and, accordingly, the provisions of section 194C, which apply only on the resident recipients, did not come into play. As regards tax deduction at source under section 195, it was held that tax deduction at source under section 195 is only a vicarious liability inasmuch as when recipients of income, i.e. the airlines concerned, had no primary liability to pay tax, there could not be any vicarious liability of assessee to deduct tax from payments in which such income was embedded. For the foregoing reasons, assessee did not have any obligation to deduct tax at source, neither under section 194C nor under section 195 and, therefore, disallowance under section 40(a)(ia) could not be made.

Income Tax Act, 1961, Section 194C

Income Tax Act, 1961, Sections 195 & 40(a)(ia)

IN THE ITAT KOLKATA BENCH 'B'