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Income Tax Appellate Tribunal, “B”BENCH KOLKATA
Before: Shri Sanjay Garg & Shri Girish Agrawal
order :September 23, 2022 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा/ Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the Department against the order dated 31.12.2018 of the Commissioner of Income Tax(Appeals)-1, Kolkata [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’). The Department in this appeal has taken the following grounds of appeal:
“i) On the facts and circumstances of the case and in law, Ld CIT(A)-1/Kol. has erred in deleting the addition of Rs.24,07,539/- made towards "CFS Charges" (Clearing & forwarding Service). ii) On the facts and circumstances of the case and in law, Ld CIT(A)-1/Kol. has erred in deleting the addition of Rs.68,31,267/- made towards "Plot Rent". iii) On the facts and circumstances of the case and in law, Ld CIT(A)-1/Kol. has erred in deleting the addition of Rs.42,58,982/- made towards "Dock Expenses". iv)On the facts and circumstances of the case and in law, Ld CIT(A)-1/Kol. has erred in deleting the addition of Rs.4,56,40,926/- made towards "Shipping Company Charges".
Assessment Year: 2012-13 M/s Ultimo Logistics Pvt. Ltd. v)The appellant craves the leave to make any addition, alteration, modification etc. of the grounds either before the appellate proceedings, or in the course of appellate proceedings.”
Ground Nos.1 to 3 – Vide Ground Nos.1 to 3, the Revenue has agitated the action of the CIT(A) in deleting the addition made by Assessing Officer ( in short ‘the AO’) on account of non-deduction of TDS on certain payments made towards clearing and forwarding charges (CFS charges), plot rent and Dock charges.
The brief facts relating to the issue are that the assessee company is engaged in the business of transporting, arranging clearance of goods and other services meant for export and import for and on behalf of various customers. During the assessment proceedings, the Assessing Officer noted that the assessee company during the year had paid CFS charges to Emee Logistics Pvt. Ltd. amounting to Rs.2407539/-. The Assessing Officer noted that since the job done by the said payee was contractual in nature, therefore, the assessee was supposed to deduct TDS (Tax deduction at source) u/s 194C on the payments made to said concern. On being asked in this respect, the assessee could not furnish satisfactory explanation, therefore, the Assessing Officer disallowed the aforesaid expenditure and added the same to the income of the assessee u/s 40(a)(ia) of the Act.
In the first appeal, the ld. CIT(A) deleted the aforesaid addition made by the AO observing that the assessee was service provider and was engaged in the business of transporting, arranging clearance of goods and other Services meant for export and import for and on behalf of various customers. M/s Electrosteel Steel Ltd. availed the services of the assessee for customs clearance, handling, storage and transportation of project cargo. That the assessee had charged for the said services rendered to the aforesaid company and also collected actual expenses incurred for statutory charges and shipping company expenses as per agreed terms between the assessee and Electosteel Ltd and that the assessee was reimbursed the sum of Rs.24,07,539/- on account of CFS charges paid by the assessee to M/s. Emee Logistics (P) Ltd., the relevant part of the order of the CIT(A) is reproduced as under: “I have considered the finding of the A.O, written submissions and perused the cited judicial decisions. The assessee Ultimo Logistics Pvt. Ltd. was engaged in the business of Assessment Year: 2012-13 M/s Ultimo Logistics Pvt. Ltd. transporting, arranging clearance of goods and other Services meant for export and import for and on behalf of various customers during the financial year ended 31st March, 2012-(AY 2012-2013). The main focus of the business of transportation clearance etc. of Equipments& Machineries, other goods meant for a project of the clients. This ground is against the disallowance of an amount of Rs.24,07,539/- out of CFS charges paid to M/s. Emee Logistics (P) Ltd. u/s.40(a)(ia) for non-deduction of TDS u/s. 194C. The appellant was service provider for Customs Clearance, Intra transportation, Handling, Storage and transportation of project cargoof M/s. Electrosteel Steels Limited vide letter of appointment of M/s. Electrosteel Steels Ltd. Dated 20.05.2011. According to the terms of the appointment the appellant had charged for the services rendered to the aforesaid company and also collected actual expenses incurred for statutory charges and shipping company expenses as per agreed terms between the appellant and Electosteel Ltd and it was averred that the appellant had reimbursed the sum of Rs.24,07,539/- on account of CFS charges paid to M/s. Emee Logistics (P) Ltd for the previous year ending 31.3.2012.”
We have heard the rival contentions of the Ld. Representatives of the parties. At the outset, the ld. DR has invited our attention to an order dated 31.12.2018 of the CIT(A) passed u/s 154 of the Act for the purpose of rectification of mistakes that have occurred in the impugned order of the CIT(A) dated 06.09.2018. The ld. DR has brought to our attention that there were as many as 10 factual mistakes in the impugned order of the CIT(A) that have been pointed out and rectified by the ld. CIT(A) vide order dated 31.12.2018. The ld. DR has further invited our attention to the impugned order of the CIT(A) to submit that the same has been passed in haphazard and hurried manner without proper application of mind and, therefore, so many mistakes have crept in the said order for which the rectification order dated 31.12.2018 has to be passed. On merits of the issue, the ld. CIT-DR has submitted that this is not a case of reimbursement of expenses and that the action of the CIT(A) in deleting the impugned additions is not justified.
The ld. AR, on the other hand, has relied upon certain case laws to submit that no TDS is liable to be deducted in case of an amount paid on account of reimbursement of expenses.
We have considered the rival submissions and gone through the records. Before proceeding further, it would be relevant to refer to the relevant provisions of section 194C at this stage:
Assessment Year: 2012-13 M/s Ultimo Logistics Pvt. Ltd. “Payments to contractors. 194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to— (i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein. (2) Where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source— (i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or (ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice. (4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed thirty thousand rupees : Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds one lakh rupees, the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section. (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with his Permanent Account Number, to the person paying or crediting such sum. (7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed. Explanation.—For the purposes of this section,— Assessment Year: 2012-13 M/s Ultimo Logistics Pvt. Ltd. (i) "specified person" shall mean,— (a) the Central Government or any State Government; or (b) any local authority; or (c) any corporation established by or under a Central, State or Provincial Act; or (d) any company; or (e) any co-operative society; or (f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or (g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or (h) any trust; or (i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or (j) any Government of a foreign State or a foreign enterprise or any association or body established outside India; or (k) any firm; or (l) any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,— (A) does not fall under any of the preceding sub-clauses; and (B) [has total sales, gross receipts or turnover from business or profession carried on by him exceeding one crore rupees in case of business or fifty lakh rupees in case of profession] during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor; (ii) "goods carriage" shall have the meaning assigned to it in the Explanation to sub- section (7) of section 44AE; (iii) "contract" shall include sub-contract; (iv) "work" shall include— (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) catering; (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, or its associate, being a person placed similarly in relation to Assessment Year: 2012-13 M/s Ultimo Logistics Pvt. Ltd. such customer as is the person placed in relation to the assessee under the provisions contained in clause (b) of sub-section (2) of section 40A but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.”
A perusal of the aforesaid provisions of section 194C would show that any person responsible for paying any sum to any resident/contractor for carrying out any work in pursuance of a contract between the contractor and a specified person shall be liable to deduct TDS at the time of credit of such sum to the account of the contractor. The assessee, being a company, falls within the definition and scope of specified person. In this case, the assessee had obtained the services of M/s Emee Logistics Pvt. Ltd. under a contract and paid the requisite charges of Rs.2407539/- to the said M/s Emee Logistics Pvt. Ltd. The case of the Ld. AR is that the assessee was reimbursed for the said expenditure incurred by the assessee by its client M/s Electrosteel Steels Ltd. who had engaged the assessee for the aforesaid services. The facts of the case suggest that there was a contract between M/s. Electrosteel Steels Ltd. and the assessee for carrying out aforesaid clearing and forwarding services for which the assessee further contracted/sub-contracted with M/s Emee Logistics Pvt. Ltd. The objective of the provisions of section 194C read with section 40(a)(ia) of the Act is that when a contractor is paid any amount, the payer is supposed to deduct TDS on such payment so as to ensure that payee should not go free without paying any taxes on its income. The main object and purpose of the aforesaid TDS provision is that the payee’s income should not escape taxation. In this case, amount was paid by the assessee to M/s Emee Logistics Pvt. Ltd. and the assessee being a person responsible was supposed to deduct TDS on such payment paid to payee M/s Emee Logistics Pvt. Ltd. so that the income of the M/s Emee Logistics Pvt. Ltd. may be brought to tax. Further, as per the provisions of section 194C, the contract includes sub-contract also. Now, in this case, whether the assessee has entered into an independent contract with M/s Emee Logistics Pvt. Ltd. for obtaining its services for assessee’s clients M/s. Electrosteel Steels Ltd. or whether the assessee has acted as agent on behalf of M/s. Electrosteel Steels Ltd., it Assessment Year: 2012-13 M/s Ultimo Logistics Pvt. Ltd. makes no difference so far as the applicability of the TDS provision on the payment received by payee M/s Emee Logistics Pvt. Ltd. was concerned. Mr. Khaitan, the ld. counsel for the assessee, was specifically asked by the Bench in this respect as to how the reimbursement theory will be applicable to the transaction in question so far as deduction of TDS on payment made to the third party M/s Emee Logistics Pvt. Ltd. was concerned. This query was raised by the Bench during the hearing on 29.08.22, however, Shri Khaitan, the ld. counsel for the assessee, sought time to enquire from his client as to whether any TDS was deducted on such payment by M/s. Electrosteel Steels Ltd. The case was, therefore, adjourned part heard to 30.08.22. However, on 30.08.2022, the ld. counsel for the assessee, Shri Khaitan, could not produce any evidence that any such TDS was deducted either by the assessee or by his client M/s. Electrosteel Steels Ltd. on the payment made to contractor M/s Emee Logistics Pvt. Ltd. In view of this, it is held that there was no reimbursement of expenses in respect of the payment received by the contractor M/s Emee Logistics Pvt. Ltd.. Since, the assessee was the person responsible for making such payment, therefore, the assessee was supposed to deduct TDS on the same. In view of this, the reimbursement theory applied by the ld. CIT(A), in this case, is not applicable.
Similarly, the ld. CIT(A) has deleted the disallowance made by the Assessing Officer in respect of expenditure incurred of Rs.68,31,267/- for non-deduction of TDS towards plot rent in violation of provisions of section 194I of the Act and further payment of dock expenses of Rs.4258982/- paid in violation of section 194C of the Act applying the same theory of reimbursement of expenses. However, in view of the above discussion and since the ld. counsel for the assessee could not bring before us as to how the reimbursement theory of expenses is applicable in respect of income assessable of respective payees, therefore, the order of the CIT(A) is not sustainable in respect of the above issues also. The impugned order of the CIT(A) on these issues is, therefore, set aside.
At this stage, the ld. counsel for the assessee, has brought to our attention to a plea taken before the CIT(A) that the assessee may not be treated as an assessee in default as per provisions to section 201 of the Act as the concerned payees i.e. M/s Emee Logistics Assessment Year: 2012-13 M/s Ultimo Logistics Pvt. Ltd. Pvt. Ltd. and also the concerned recipients of plot rent and dock charges had taken into account the payment received from the assessee for the purpose of computation of their income and the income tax return duly filed by the said payees and due taxes paid thereupon. The ld. counsel for the assessee, in this respect, has submitted that the issue may be restored to the file of the Assessing Officer so that the assessee may produce the relevant evidences in this respect. The matter in this respect, is accordingly restored to the file of the AO for limited purpose of examining the above contention of the Ld. Counsel for the assessee and if the assessee will be able to prove its above contention, then no disallowance be made in respect of such payments which have been taken into account by the respective payees and due taxes paid on their income.
The ld. counsel for the assessee has further submitted that some of the payments were made to Kolkata Port Trust and that since the Kolkata Port Trust is under the Ministry of Surface Transport wherein the Government of India has full beneficial interest, therefore, any payment made to Kolkata Port Trust will be covered u/s 196 of the Act and, therefore, the income of the Kolkata Port Trust was not chargeable to tax. That, therefore, the assessee cannot be deemed to be an assessee in default for non-deduction of TDS out of payments made to Kolkata Port Trust because there was no tax payable on the income of the said payee Kolkata Port Trust. The ld. counsel, in this respect, has relied upon the decision of the Coordinate Bench of the Tribunal in the case of M/s Gourishankar Bihani vs. DCIT in vide order dated 18.12.2014. The matter in respect of above contention is also restored to the file of the AO. The Ld. AO shall adjudicate upon the above contention by way of a speaking order.
Ground No.4 - So far as the issue raised by the Revenue vide Ground No.4 i.e. the payment made towards shipping company charges of Rs.4,56,40,926/- is concerned, the ld. counsel for the assessee, has invited our attention to the impugned order of the CIT(A) to submit that a list was given to the ld. CIT(A) by the assessee with the names of the recipient shipping companies and details of payment made. He has submitted that some of these companies were foreign shipping companies or their agents, therefore, the provisions of section 172 of the Act were applicable and that the TDS provisions of Assessment Year: 2012-13 M/s Ultimo Logistics Pvt. Ltd. section 194C and 195 of the Act were not applicable to the payments made to non- resident shipping companies and their agents. The ld. counsel, in this respect, has also relied upon CBDT Circular No.723 dated 29.09.1995 to submit that the provisions of section 194C and 195 of the Act will not apply to the foreign shipping companies and their agents.
We have perused the order of the CIT(A) in this respect, we find that the ld. CIT(A) has not given any detailed or factual finding as to which of the payees were foreign shipping companies or their agents. The ld. CIT(A) has simply relied upon the list given by the assessee without discussing as to which of the payees were resident companies and which of the payees were non-resident companies and no basis has been given for his such conclusion. In view of this, we agree with the contention of the ld. DR that this issue is also required to be examined at the end of the Assessing Officer to give a factual finding as to which of the payee companies will be covered under the provisions of section 172 and to re-compute the disallowance on the payments made to shipping companies covered under the provisions of section 194C and 195. In view of this, the impugned order of the CIT(A) is set aside and the matter is restored to the file of the Assessing Officer on the limited issue as noted above.
In the result, the appeal of the assessee is treated as partly allowed for statistical purposes.