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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR & SHRI PAVAN KUMAR GADALE
15/12/2020 सुनवाई क� तार�ख / Date of Hearing घोषणा क� तार�ख /Date of Pronouncement 11/03/2021 आदेश / O R D E R
PER PAVAN KUMAR GADALE - JM:
The revenue has filed the appeal against the order of Commissioner of Income Tax (Appeals)-16, Mumbai, passed u/s. 154 and 250 of the Income Tax Act, 1961. The revenue has raised the following grounds of appeal:
“1. Whether on the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing the M/s. Aramex India Pvt Ltd, Mumbai. - 2 - disallowance of Rs. 2,59,68,256/- u/s 40(a)(ia) on account of short deduction of TDS u/s 194C @ 1% instead of @ 2%. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the disallowance of Rs. 5,86,44,465/- u/s 40(a)(ia) of the Act.
The Brief facts of the case are that the assessee company is engaged in the business of transportation of cargo and time sensitive packages and documents in the domestic and international market. The Assessee has filed the Return of income for the A.Y 2011-12 on 28.11.2011 with total income of Rs Nil after claiming carry forward of current year loss of Rs.2,96,85,639/-.The Return of income was processed u/sec 143(1) of the Act. The case was selected for scrutiny and the Assessing officer has passed the assessment order under section 143(3) r.w.s144C (13) of the Act dated 26.10.2015 accepting the total income of Rs.Nil and allowed the carry forward of loss of Rs. 2,96,85,639/. Subsequently, Audit query was raised and the A.O. on perusal of the assessment record, found that the assessee has not deducted TDS u/s 194C of the Act on the payments made to Foreign Air lines, further the certificates issued by the Income
M/s. Aramex India Pvt Ltd, Mumbai. - 3 - Tax Department were not in the name of the assessee being the deductor and such certificates are not valid. Further the assessee has deducted tax under section 194C of the Act @ 1% instead of@ 2% rate applicable on contractual payments of goods carriers. The A.O. dealt on the provisions of TDS and of the view that the non deduction of tax or lower deduction of tax is permissible subject to conditions and the certificate shall be issued to the person, who is responsible for deducting the tax. The A.O is of the opinion that, such claim of expenditure has to be disallowed applying the provisions of Sec. 40(a)(ia) of the Act. Whereas, the assessee has deducted TDS in respect of six parties @ 1% u/s 194C of the Act, therefore, notice u/s 154 of the Act for rectifying the mistake apparent from record is issued to the assessee on 08.03.2017 and the assessee has filed the reply on 15.06.2017.The assessee submitted that the payments were made to various individual resident contractors who are goods carriage vendors and tax has to deducted@ 1% u/s 194C of the Act. And in cases, where Rs.nil certificates were obtained from the Income Tax Department, no TDS has been made. But M/s. Aramex India Pvt Ltd, Mumbai. - 4 - the A.O was not satisfied with the submissions and clarifications. Further, the A.O observed that the certificates were not issued in respect of payments made by the assessee company; therefore there is failure on the part of the assessee in not deducting the tax. The A.O considered the facts that, the assessee has made payments to six air lines agencies without deduction of tax u/s 194C of the Act though the Nil deduction certificates were obtained by these airlines aggregating to Rs.5,86,44,465/- and also short deduction of TDS @ 1% on contractors payments to the extent of Rs. 2,59,68,256/- are disallowed usec40(a)(ia) of the Act aggregating to Rs. 8,46,12,721/-.The A.O after set off of the carry forward losses has determined the total income of Rs. 15,21,980/- and passed the order u/s 154 of the Act dated31.03.2018. Aggrieved by the order, the assessee has filed the appeal with the CIT(A).
In the Appellate proceedings, the Ld.CIT(A) considered the grounds of appeal, findings of the A.O. and the written submissions. On the first disputed issue of disallowance u/s 40(a)(ia) of the Act to the M/s. Aramex India Pvt Ltd, Mumbai. - 5 - extent of Rs. 2,59,68,256/- where the A.O’s view is that, the resident individual contractors are subject to TDS @ 2% u/s 194C of the Act. But the assessee has deducted @1%, therefore there is a short deduction of 1%. On The second disputed issue of non deduction of tax by the assessee for payments made to six foreign air lines for transportation of goods in international traffic, the assessee relied on Rs Nil deduction certificate issued by the Income Tax Department. The Ld.CIT(A) considered the written submissions referred at page 10 para 5 of the order. The Ld.CIT(A) found the PAN numbers of the contractors are individual and HUF and the assessee has deducted the tax u/s 194C @ 1% considering the proprietors and individuals and the Ld.CIT(A) observed that only 1% TDS rate is applicable and allowed the ground of appeal of the assessee.
3.1 The second disputed issue with respect to disallowance u/s 40(a)(ia) of the Act for the payments made to the foreign air lines. The CIT(A) found that the assessee has not deducted Tax as Rs Nil deduction certificates were obtained by the service
M/s. Aramex India Pvt Ltd, Mumbai. - 6 - providers u/s 197 of the Act or as per the DTAA prevailing between the relevant countries. The A.O has disallowed the claim only on the sole objection that the Rs.NIL deduction certificates does not mention the name of the assessee. The Ld.CIT(A) further observed that the Income Tax Department has issued Rs. Nil or lower deduction certificates in respect of the foreign air lines after satisfying with the existing tax liability and estimated tax liability of the assessee. Further, Ld.CIT(A) observes that where there exists a DTAA with a country, the same shall override the income tax Act and the terms of DTAA shall overrule. While the payments are made without deduction of TDS in respect of air lines, where certificate u/s 197 with Rs Nil deduction was obtained. whereas in respect of other parties due to DTAA agreement with India Rs Nil TDS was made, as the income of such recipient parties are taxable in the respective countries. Therefore the assessee company is justified in non deduction of TDS and allowed the ground of appeal of the assessee and partly allowed the Assessee appeal. Aggrieved by the CIT(A) order,
M/s. Aramex India Pvt Ltd, Mumbai. - 7 - the Revenue has filed an appeal with the Hon’ble Tribunal.
4.At the time of hearing none appeared on behalf of the assessee, we considered the submissions of the Ld. DR and the material available on record. The first disputed issue the Ld. DR submitted that the A.O was correct in making the disallowance u/s 40(a)(ia) of the Act for short deduction of tax. We find that the CIT(A) considered the submissions of the assessee and the provisions of law and observed at page 18 para 6.2 to para 6.2.3 of the order as under:
“6.2 Grounds 3 to 6: The appellant is agitated against disallowance of Rs. 2,59,68,256/- u/s 40(a)(ia) of the Act made by the A.O. 6.2.1. I have carefully gone through the submission and document on record. It has been seen that appellant has made payment to Individual Transporters, on which TDS at the rate of 1% has been deducted, as per 194C of the Act. Such expenses amounting to Rs. 2,59,68,256/-. The Ld. AO has disallowed such expense as the AO contends that the TDS should be deducted at the rate of 2%. 6.2.2 I am of the view that, as per this ground raised by the assessee, Sec. 194C clearly states that TDS @ 1% is required to be deducted when credit is being given to an individual or Hindu undivided family.
M/s. Aramex India Pvt Ltd, Mumbai. - 8 - Sec 194C of the Act states as under:
(1) Any person responsible for paying any sum to any resident 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.
6.2.3 From the available documents it can be seen that, despite to the names of the services providers appearing to be as other than individual and HUF, they are proprietorships of individuals and hence are individuals, hence TDS @ 1% is required to be deducted and the same has been done accordingly, Hence ground 3 to 6 of the assessee are allowed.
4.1 On the second disputed issue, in respect of non deduction of TDS on payments made to Six foreign air lines on the carriage of goods in the international traffic. The Ld.CIT(A) dealt on the facts, pertaining to the air lines and the DTAA and is of the opinion
M/s. Aramex India Pvt Ltd, Mumbai. - 9 - that the DTAA provisions shall over rule the Income Tax Act. The CIT(A) has observed at page 19 para 6.3 to 6.3.5 of the order as under:
“6.3 Ground 7 to 9: the appellant is agitated against disallowance of Rs. 5,86,44,465/- u/s 40(a)(ia) of he Act made by the A.O.
6.3.1 Further is has also been observed that, the appellant has made payment to some service providers, on which no TDS has been deducted, as Nil TDS deduction certificates have been obtained by such services providers u/s 197 of the Act or as per DTAA prevailing between the relevant countries. Such expense amounting to Rs. 5,86,44,465/-. The Ld.AO has disallowed this expense on the ground that, such NIL TDS deduction certificates do not anywhere mention the name of the appellate.
6.3.2 I am of the view that, Income Tax department provides lowers / Nil TDS deduction certificates u/s 197 of the Act, which enables the person responsible for deducting Tax at a lower rate or Nil rate as the case may be. Further, such certificates are issued by ITD only after being satisfied that the existing tax liability and the estimated tax liability of the applicant justifies the deduction at lower rate or NIL rate hence the same are not questionable. Also such certificates are valid for such previous year as mentioned in the certificate, unless it is cancelled by AO before the time of expiry.
6.3.3 Further, where there exists a DTAA with a country, the same shall override the Income Tax Act. Ant the terms of DTAA shall prevail.
M/s. Aramex India Pvt Ltd, Mumbai. - 10 - 6.3.4 The payment made by the appellate are made to parties who have already obtained certificates from ITD u/s 197 of the Act for NIL deduction of TDS, while some payments are made to parties who have DTAA agreement with India for Nil deduction of Tax as income of such parties are Taxable in their respective countries.
6.3.5 Hence, Nil deduction of TDS by the assessee is justifiable and the Ground 7 to 9 also prevails hence appeal is allowed in the favour of the assessee.
4.2. We find that the disputed issue of payments made to Agents of Foreign Airlines was considered by the Hon’ble Tribunal of Kolkata in the case of M/s Taj Leather Works Vs. ACIT (32 CCH 363) as under:
It is an admitted position that so far as the airfreight is concerned, it is paid to the agents on the actual basis and that the bills and airfreight documents have been directly issued to the foreign airlines. PDP and DHL, while accepting payments for airfreight components, have acted merely as agents of the respective airlines and have not received the airfreight payments in their own right. In copies of airway bills, which have been filed before us in the paper book, the name of these agents is shown as "Issuing carrier's agent and the city" as also the agent's code is given as "Agent's IATA code". There is thus enough material to demonstrate that the persons having received money for the airfreight have received the same in their capacity as "issuing carrier's agent" i.e. agent of the airline concerned. The airfreight payment is thus made to the foreign airlines, namely SIA, Emirates,
M/s. Aramex India Pvt Ltd, Mumbai. - 11 - British Airway s and Lufthansa - though through the agent, i.e. PDP and DHL etc.
In view of the above discussions, in our considered view , the payments cannot be said to have been made to a resident company , and, accordingly, the provisions of Section 194 C , which apply only on the resident recipients, do not come into play.
As for the stand that the assessee should have moved the application under section 195(2) in case of payments to non residents and assessee's failure to do so is to be visited with consequences for non deduction at source, the law is now settled by Hon'ble Supreme Court in the case of GE India Technology Centre Pvt Ltd Vs CIT (327 ITR 456) wherein Their Lordships have categorically held that, " where a person responsible for deduction is fairly certain, then he can make his own determination as to whether the tax was deductible at source and, if so, what should be the amount thereof ". The plea of the revenue authorities to the effect that where the assessee does not move an application under section 195(2) and makes the remittance without deduction of tax at source, the assessee should be visited with consequences for non deduction of tax at source, which was accepted by Hon'ble Karnataka High Court in the case of CIT Vs Samsung Electronic Co Ltd ( 320 ITR 209), was categorically rejected by Their Lordships, and Their Lordships observed as follows: In our view, section 195(2) is based on the "principle of proportionality". The said sub -section gets attracted only in cases where the payment ma de is a composite payment in which a certain proportion of payment has an element of "income" chargeable to tax in India. It is in this context that the Supreme Court stated, "If no such application is filed, income -tax on such sum is to be M/s. Aramex India Pvt Ltd, Mumbai. - 12 - deducted and it is the statutory obligation of the person responsible for paying such 'sum' to deduct tax thereon before making payment. He has to discharge the obligation to TDS". If one reads the observation of the Supreme Court, the words "such sum" clearly indicate t hat the observation refers to a case of composite payment where the payer has a doubt regarding the inclusion of an amount in such payment which is eligible to tax in India. In our view, the above observations of this Court in Transmission Corpn. of A.P. Ltd case (supra) which is put in italics has been completely, with respect, misunderstood by the Karnataka High Court to mean that it is not open for the payer to contend that if the amount paid by him to the non-resident is not at all "chargeable to tax in India", then no TAS is required to be deducted from such payment. This interpretation of the High Court completely loses sight of the plain words of section 195(1) which in clear terms lays down that tax at source is deductible only from "sums chargeable" under the provisions of the Income -tax Act, i.e., chargeable under sections 4, 5 and 9 of the Income -tax Act.
We have also noted that it is not even the revenue's case that the amounts paid to foreign airlines, on account of airfreight payments, are taxable in India, and quite rightly so, because, as the provisions of all the respective tax treaties clearly provide , the profits from operations of ships and aircrafts in the international traffic are taxable only in the state in which the respective enterprise are fiscally domiciled and not in the source state. This rule, howsoever devoid of paradigm justification as it may appear to many of us, is one of the fundamental rules followed in almost all the tax treaties and our tax treaties with UK, UAE, Singapore and Germany are no exception to this general rule. It is only elementary that a tax deduction at source under section 195 is only a vicarious M/s. Aramex India Pvt Ltd, Mumbai. - 13 - liability inasmuch as when recipient s of income, i.e. the airlines concerned, have no primary liability to pay tax, there cannot be any vicarious liability to deduct tax from payments in which such income is embedded.
In view of the above discussions as also bearing in mind entirety of the case, we are of the considered view that the assessee did not ha ve any obligations to deduct tax at source - whether under section 194 C or under section 195 - from payments made to the foreign airlines for airfreight. In this view of the matter, the impugned disallowances under section 40(a)(ia) are devoid of any meri ts, nor can these disallowances be made under section 40(a)(i) either - as alternatively suggested by the authorities below. We, accordingly, direct the Assessing Officer to delete the impugned disallowances. The assessee gets the relief accordingly.
4.3 We found the facts of the present case on payments to foreign airlines are similar to the decision of the Hon’ble Tribunal. Whereas, the Hon’ble Tribunal after considering the provisions of law, facts and judicial decisions has granted the relief. Further in the present case, the Ld. DR could not controvert the observations or findings of the CIT(A) with any cogent evidence or new information but only relied on the order of the A.O. Accordingly, we are not inclined to interfere with the order of the Ld.CIT(A) who has considered the provisions of law,
M/s. Aramex India Pvt Ltd, Mumbai. - 14 - facts and DTAA and passed a reasoned and logical order and we uphold the same and dismiss the grounds of appeal of the revenue.
In the result, the appeal filed by the revenue is dismissed.