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Facts
The assessee, a logistics company, incurred expenses on CFS charges for clearing goods on behalf of clients. The AO disallowed 30% of these expenses for not deducting TDS under Section 194C, viewing the assessee as the payer. The CIT(A) sustained this disallowance.
Held
The Tribunal noted that the assessee acted as an intermediary for its clients. The applicability of Section 194C depends on whether the assessee acted as a principal or an intermediary, which is a question of fact. The matter was remanded to the AO for fresh examination.
Key Issues
Whether the assessee, acting as an intermediary for CFS charges, is liable to deduct TDS under Section 194C of the Income Tax Act.
Sections Cited
194C, 143(3), 40(a)(ia)
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee company against the order of the Learned Commissioner of Income Tax (Appeal)/NFAC, (hereinafter referred to as ‘Ld.CIT(A)‘), Delhi, dated 17.09.2024 for the Assessment Year (hereinafter referred to as ‘AY‘) 2016-17.
The only issue raised in this appeal action of the Ld.CIT(A)
1. confirming the disallowance to the extent of ₹43,51,065/- being the 30% of ₹1,45,03,553/- of the expenditure incurred in the nature of “CFS Charges” for want of Tax Deducted at Source (TDS) in terms of Section 194C of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘).
Brief facts are that the assessee is a 'company' engaged in the business of freight forwarding and logistic services in the Chennai Port.
The assessee holds a license for customs house entry called 'Customs House Agents' (CHA). Hence assessee had the license to act as an agent for the transaction of any business relating to the import or export of goods of its customer at a customs station. The return of income (RoI) for AY 2016-17 was filed by assessee on 17.10.2016, declaring loss of ₹9,14,052/-. The AO passed the assessment order u/s.143(3) of the Act on 22.12.2018, determining the total income at ₹58,31,436/- by inter-alia adding an amount of ₹4,32,315/- on the ground that the assessee had offered net income less by this amount. Further, the AO also disallowed an amount of ₹63,13,173/- u/s.40(a)(ia) of the Act on the ground that TDS had not been deducted by the assessee on expenses claimed to have been incurred on CFS charges to the tune ₹1,45,03,552/- and on Ocean Freight for ₹65,40,357/- (total ₹2,10,43,909/-). On appeal, the Ld.CIT(A) deleted ₹4,32,315/- and also directed deletion of disallowance on account of freight paid which was disallowed u/s.40(a)(ia) of the Act.
Thus the Ld.CIT(A) sustained the disallowance to the extent of ₹43,51,065/- being the 30% of ₹1,45,03,553/- of the expenditure claimed to have been incurred in the nature of “CFS Charges” for want of TDS in terms of Section 194C of the Act.
Aggrieved, the assessee is in appeal before this Tribunal.
We have heard both the parties and perused the material available on record. We find that the only issue disputed in the present appeal before us is on applicability of the TDS provision u/s.194C of the Act, in the facts and circumstances of the case, which resulted in the AO disallowing 30% of the expenditure claimed by the assessee. In this regard, it is noted that the assessee company is engaged in the business of freight forwarding and logistic services in the Chennai Port and holds a license for customs house entry called 'Customs House Agents' (CHA) and hence it is noted to be acting as an agent for the transaction of business relating to the import or export of goods at a customs station on behalf of its customers (Exporter or Importer). The AO during the limited scrutiny inter-alia asked the assessee ‘as to why’ the TDS hasn’t been deducted for the CFS charges/expenses claimed to have been incurred to the tune of ₹1,45,03,552/-; and pursuant to it, the assessee submitted that the CFS charges are expenses incurred by the assessee in the process of clearing the goods from the Port to customs authorities, liners, assessors, etc., on behalf of their clients as an agent, which are duly reimbursed by the customer; and therefore, asserted that while incurring such an expenditure, it was not legally bound to deduct tax at source on such reimbursement. In other words, the assessee explained that it being a CHA, the CFS charges are paid by the assessee for the goods to be imported/exported, but since the goods belongs to the importers/exports and the payments made by the assessee to the CFS was only as an ‘intermediary’ between the exporters and the steamers, it was not legally bound to deduct tax at source. The assessee in this regard explained the modus operandi that it books cargo for and on behalf of the exporters/importers and mainly facilitates the contract for carrying goods and that the principal contract is between the exporter and the steamer/airline. And for the services rendered to the owners of the goods imported/exported, the assessee receives a commission which is the ‘income’ component of assessee in the transaction which the assessee offered as its income. The assessee explained that since it is an intermediary, it is not the “person responsible” for making payment in terms of Sec.194C of the Act and cited the decision of the Hon’ble Delhi High Court in the case of CIT v. Cargo Linkers reported in [2008] 2018 CTR 695 (Delhi) wherein their Lordships had laid down the law in this regard that there is no liability to deduct TDS U/s 194C of the Act in the event of the assessee acting as an intermediary. However, the AO didn’t agree to such contention citing the decision of the Chennai Tribunal in the case of M/s.Prahari Agency Pvt. Ltd. v. ITO in vide order dated 20.10.2021. On appeal, the Ld.CIT(A) confirmed it.
Before us, the assessee is noted to have modified its stand before the AO/CIT(A) and fairly submitted that entire relevant material pertaining to decide this issue couldn’t be placed before the AO (since he didn’t call for such details) and therefore, in order to arrive at a right decision on this issue, filed before us the relevant documents viz., copies of shipping documents, invoices, statement of accounts, etc. The Ld.AR submitted the following written submission which is reproduced as under:
The present appeal is filed against the impugned order challenging the action of the first appellate authority in sustaining the disallowance to the extent of Rs.43,51,065/- being the 30% of Rs. 1,45,03,552/- [comprises of two components] of the expenditure incurred in the nature of "CFS Charges" for want of Tax Deducted at Source in terms of Section 194C of the Act. The Assessing officer disallowed the CFS charges for want of TDS on the ground that TDS would get attracted to reimbursements made by relying on the CBDT circular No.715 dated 08.08.1995. The First Appellate authority passed an order confirming that the Assessing order by relying on the decision of the ITAT Chennai Bench in the case of M/s.Prahari Agency Pvt. Ltd. v. ITO in ITANo.1701/Chny/2018 wherein it was confirmed that TDS ought to be deducted towards the payments made to CFS agents on the bill raised by the shipping companies and CFS. The breakup of the disputed component as captured at page 43 comprises of two components namely payments made to various parties exceeding Rs. 1,00,000/- each aggregating to Rs.1,33,26,784/- and the second component being payments made to various parties not exceeding Rs.1,00,000/- each aggregating to Rs.11,76,768/-. With respect to the payments made to the tune of Rs.1,33,26,784/- more fully captured at page 43 and 44 of Volume-I paper-book the appellant submits that there is no liability to deduct tax at source under section 194C of the Act in view of the proviso to section 194C of the act. With respect to the payments made to the tune of Rs.11,76,768/- more fully captured at page 43 and 44 of Volume-I paper-book the appellant submits that the disputed payments were made in the capacity of an agent/intermediary to various CFS agents more fully captured at page 43 of the volume I paper-book and ought to have appreciated that the disputed payments were made only on behalf of the clients of the appellant which was duly reported as reimbursement made. The Assessee submits that the decision relied upon by the assessing officer does not apply to the facts of the assessee’s case in as much as the said decision was also the subject matter of reference to the special bench in the case of Assistant Commissioner of Income Tax vs. M/s. J-Ark Logistics (P) Ltd. In .In the said case it was concluded that in the recitals in the agreement/ arrangement with the CFS agents had to be examined for determining whether the contract entered into was principal to principal or as an intermediary for determining the applicability of section 194C. The bench had remanded the matter to the file of the AO to examine the applicability of the section 194C of the Act with respect to the statutory payments made. In the present case the lower authorities had not examined the said factual aspect on the role of the assessee as an intermediary as well the nature of payments made and in fact the Delhi high court in the case of CIT vs. Cargo Linkers had laid down law that there is no liability to deduct TDS U/s 194C of the Act in the event of the assessee acting as an intermediary. In such circumstances the appellant pleads for the deletion of the addition made by reckoning the appellant as an intermediary and thus render justice. Alternatively the appellant pleads for remanding the disputed addition made to AO for fresh consideration and thus render justice.
Having gone through the aforesaid submissions, the main thrust of assessee’s contention is that the transaction in question has two (2) facets namely (i) the expenses incurred within the threshold limit and (ii) expenses incurred as an intermediary [which is covered by the decision of the Hon’ble Delhi High Court in the case of Cargo Linder (supra)].
According to the Ld.AR that assessee acted as an intermediary in respect of more than twenty parties and asserted that therefore, there is no liability to deduct tax u/s.194C of the Act. However, we note that such an assertion can’t be examined by us, since relevant documents to prove the assertion have not been placed before the AO and hence, in the fitness of the matter, let the AO examine afresh nature of transactions in question and examine the role of the assessee in such transactions for determining whether the assessee had acted in the capacity as a principal to principal or as an intermediary as asserted by assessee, which is a question of fact, which the AO has to decide on the basis of evidence furnished by the assessee.
In the light of the foregoing, we remand the issue back to the file of the JAO with a direction to ascertain the role of the assessee in the disputed transactions as to whether the assessee acted as a principal and not as an ‘intermediary’ after granting an opportunity to the assessee and wherever, it is proved that the appellant had acted only as an intermediary, no disallowance is warranted under Section 40(a)(ia) of the Act. And wherever it is found that assessee acted as a principal (to principal basis in the transactions in question) then the AO to pass orders in accordance to law after hearing the assessee. Further, the AO also to verify the transactions which are within the specified threshold limit terms of Section 194C of the Act and if it is found to be within the threshold limits, then, no disallowance is warranted in relation to such transactions.
The assessee is at liberty to raise contention which will be examined by the AO, and the assessee to participate and file relevant documents to (AY 2016-17) M/s.Right Way Logistics Pvt. Ltd. establish its role in the disputed transactions and if the assessee fails to provide the relevant documents to prove its assertion as noted supra, then the AO is at liberty to take decision in accordance to law after hearing the assessee.
In the result, appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on the 07th day of November, 2025, in Chennai.