COMMISSIONER OF INCOME TAX vs. CARGO LINKERS

IN THE HIGH COURT OF DELHI AT NEW DELHI . ITA 218/2008 . COMMISSIONER OF INCOME TAX ..... Appellant Through:Ms.P.L.Bansal, Adv. . versus . CARGO LINKERS ..... Respondent Through:Mr.V.P.Gupta with Mr.Basant Kumar, Advs. . CORAM: HON'BLE MR. JUSTICE MADAN B. LOKUR HON'BLE MR. JUSTICE V.B. GUPTA . O R D E R 25.03.2008 The Revenue is aggrieved by an order dated 9th March, 2007 passed by the Income Tax Appellate Tribunal Delhi Bench ?H? in ITA Nos. 2793, 2794, 2795 and 2796/Del/2006 relevant for the financial years 2000-01 to 2003-04. The Assessee is a partnership firm carrying on the business of clearing and forwarding agents (CandF agents) and booking cargo for transportation abroad for various airlines operating in India. The Assessee collects freight charges from the exporters who intend to send the goods through a particular airline and pays the ITA 218/2008 Page 1 of 5 amount to the airline or its General Sales Agents and for the services rendered, the Assessee charges commission from the airlines. According to the Assessing Officer, the Assessee was liable to deduct tax at source on the payments made to the airlines. The Assessee disputed this and after an assessment order was passed, it preferred an appeal before the Commissioner of Income Tax (Appeals) wherein it was submitted that its job is mainly to transport goods belonging to exporters and it receives a commission from the airlines on the cargo its books on behalf . . of the exporters. It was submitted that it is not the ?person responsible? for making payment in terms of Section 194C of the Income Tax Act, 1961 (the Act). On the basis of the submissions made by the Assessee, the CIT(A) decided the issue in its favour and it was held that the Assessee was not liable to deduct tax at source and in any case, there is a reasonable cause for not deducting the tax at source. Against the order passed by the CIT(A), the Revenue preferred an appeal before the Tribunal which was dismissed by the order under challenge. The Tribunal has noted and found as a matter of fact that the ITA 218/2008 Page 2 of 5 Assessee is nothing but an intermediary between the exporters and the airlines. It books cargo for and on behalf of the exporters and mainly facilitates the contract for carrying goods. The principal contract is between the exporter and the airline. On the question of reasonable cause for not deducting tax at source, the Tribunal has noted that no other CandF agent in the industry deducts tax at source. Moreover, a representation was made by the Air Cargo Agents Association of India before the Central Board of Direct Taxes (CBDT) on 19th January, 2004 in which it was contended that a CandF Agent is not liable to deduct tax at source and is not a ?person responsible? for making the payment in terms of 194C of the Act. It is not clear whether the representation is still pending or it has been disposed of by the CBDT one way or the other. The Assessee also submitted that it had also taken the opinion from its Chartered Accountant and was advised that there was no obligation to deduct tax at source. The Air Cargo Association of India had approached a firm of Tax Solicitors who had advised them that it not necessary to deduct tax at source on the transaction of the kind . ITA 218/2008 Page 3 of 5 carried out by the Assessee. On this basis, the Tribunal held that there was reasonable cause for not deducting tax at source and, therefore, no penalty ought to be levied against the Assessee. We are in agreement with the order passed by the Tribunal which has mainly decided an issue of fact, namely, the nature of the contract between the parties concerned. It has also been found as a matter of fact that the contract is actually between the exporter and the airline and the Assessee is only an intermediary. Therefore, it is not a ?person responsible? for deduction of tax at source in terms of Section 194C of the Act. On the issue of reasonable cause, it has been held by this Court in Woodward Governor India P. Ltd. vs. Commissioner of Income Tax (2002 ) 253 ITR 745 as follows:- ? ?Reasonable cause? as applied to human action, is that which would constrain a person of average intelligence and ordinary prudence. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead an ordinary, prudent and cautious man, placed in the position of the person concerned to come to the conclusion that the same was the right thing to do. The cause shown has to be considered and only if it is found to be frivolous, without substance or . ITA 218/2008 Page 4 of 5 . foundation, would the prescribed consequences follow.? . Even subsequently in Commissioner of Income Tax vs. Alcatel India Ltd. (2007) 207 CTR (Del) 574, it has been held by this Court:- . . ?Relying upon Commissioner of Income Tax vs. SENCMA SA, France (2006) 203 CTR (Del) 96 and CIT vs. Itochu Corporation (2004) 190 CTR (Del) 31: (2004) 268 ITR 172 (Del), the question whether there was reasonable cause or not for the Assessee not to deduct tax at source is a question of fact.? . In view of the concurrent findings of both the authorities below that there was reasonable cause not to deduct tax at source, we find that no substantial question of law arises for consideration. Accordingly, the appeal is dismissed. . . MADAN B. LOKUR, J . . V.B. GUPTA, J MARCH 25, 2008 Bisht . . . ITA 218/2008 Page 5 of 5 . .