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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri S.S.Godara & Shri, M. Balaganesh
DCIT, Circle-2, TDS, V/s. M/s Manaksia Ltd., 10B, Middleton Row, 7th 8/1 Lal Bazar Street, Floor, Kolkata-71 Kolkata-001 .. अपीलाथ� /Appellant ��यथ�/Respondent Shri Ravi Tulsiyan, FCA आवेदक क� ओर से/By Assessee Shri S. Dasgupta, Addl. CIT-DR राज�व क� ओर से/By Respondent 24-07-2018 सुनवाई क� तार�ख/Date of Hearing 12-10-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- The assessee and Revenue have filed their instant cross-appeal for assessment year 2012-13 arise against the Commissioner of Income Tax (Appeals)-I, Kolkata’s order dated 24.09.2014, passed in case No.284/CIT(A)/I/W-58(3)/2014-15, in proceedings u/s 201(1)/201(1A) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case files perused.
We come to assessee’s appeal first of all. Its former substantive ground challenges correctness of both the lower authorities’ action raising u/s 201(1) TDS and 201(1A) interest demands of & 92/Kol//2015 A.Y.2012-13 DCIT Cir-2 TDS Kol Vs. M/s Manaksia Ltd. Page 2 ₹41,600 and ₹12,418; respectively on account of non-deduction of TDS @ 10% on pollution control expenses payments of ₹41,600/- made in the relevant accounting period. The CIT(A)’s elaborate discussion qua the instant former issue reads as under:- “5. Ground of Appeal
No.4 is against non-deduction of TDS @ 10%, i.e. Rs.41,600/- on Pollution Control Expenses of Rs.4,16,000/- and interest thereon of Rs.12,480/-. It has been mentioned in para-2 of the impugned order that the Appellant was asked to explain why TDS was not deducted on Pollution Control expenses of Rs.4,16,000/- u/s 194J. The AO however did not accept the explanation of the Appellant and held that the description of the job indicates that the Appellant had given contract for designing, engineering, supply and installation of Air Pollution control system as per its specifications and appellant’s contract was for supplying and installation of highly specialized items, payments of which was covered u/s.194J, i.e. for professional and technical services. The AO therefore treated the Appellant in default for non-deduction of TDS on this amount of Rs.4,16,000/-. 5.1 In appeal it has been submitted that the AO accepted that the contract was for supplying and installing the pollu9tion control equipment. However, he alleged that since the nature of transaction involves not only supplying but designing as well as installing the equipment it is in the nature of contract not in the nature of sale. The appellant while referring to the provisions of Section 194C as also The Memorandum explaining the provisions of the Finance Bill, 2009 to claim that thus, it is clearly established that Section 194C of the Act is not applicable to sale of customized products which are produced using material purchased form a person other than the buyer of goods. The appellant has also submitted copy of the order placed by the appellant for supply of the equipment in question. 5.2 The submissions of the appellant’s contention is that the transaction was not covered u/s. 194C, however the AO in his order has held that the transaction was in the nature of fees for technical services covered u/s. 194J. The pp has not contradicted the above observations and has claimed that the transactions was not a Works Contract. In fact it has only submitted a copy of the order dated 26.12.2011 placed by the Appellant with Eviro Systems and equipment but not the quotation/offer or Invoice of the supplier, therefore the terms and conditions of the Order are not evident. In view of the same, it is seen that the appellant has not been able to contradict the findings of the AO that the payment was towards fees for technical services, here the onus is on the Appellant to establish that it was not liable for TDS, which has not been satisfactorily discharged. Accordingly its submissions cannot be accepted and the demand raised by the AO for non-deduction of TDS is confirmed.”
3. We have given our thoughtful consideration to rival contentions. There can hardly be any dispute about the assessee having made the impugned payments in lieu of acquiring its air pollution control system from the payee party. The Revenue case before us is that same attracts u/s 194J of the Act ITA No. 2137/Kol/2014 & 92/Kol//2015 A.Y.2012-13 DCIT Cir-2 TDS Kol Vs. M/s Manaksia Ltd. Page 3 since in the nature of fee for technical service requiring TDS deduction. It pleads that the payee herein had designed, customized, supplied and installed the impugned equipments as per assessee’s specifications. The taxpayer’s case on the other hand is that mere acquisition of such asset with prescribed specifications followed by customizing does not partake the character of fee for technical services. We find merit in latter’s arguments. The Revenue fails to dispute that the payer and payee herein have been involved in an outright sale / purchase transaction of the relevant air pollution control equipment than any kind of services rendered by the equipments supplier. It is thus an instant of outright sale therefore Hon'ble Andhra Pradesh high court’s decision in CIT vs. Sundwiger & Co. [2003] 262 ITR 110 (AP) holds that the relevant customizing design, supply and installation in such a case forming part and parcel of the purchase order does not attract u/s 9(1)(vii) Explanation 2 of the Act requiring TDS deduction. Yet another case law CIT vs. Neyveli Lignite Corporation Ltd. 243 ITR 459 (Mad) echoes the very legal principle in concluding that limited purpose of such customize design, supply, and installation is to meet special requirements and not to enable the payer / deductor to manufacture the equipments itself with the aid of the design in question. This tribunal’s decision in Hindustan Aeronautics Ltd. vs. ITO 310 ITR (AT) 74 also holds that subject-matter of the contract in these circumstances is of equipment purchase only. We take into account all the above narrated facts in light of foregoing judicial precedent to conclude that assessee had made the impugned payment for purchased of its air pollution control equipments which has been wrongly taken as fee for technical service requiring TDS deduction u/s 194J r.w.s 9(1)(vii) Explanation-2 of the Act. We accordingly direct the Assessing Officer to delete the impugned demand. The assessee succeeds in its former substantive ground.
Next comes assessee’s latter and Revenue’s sole substantive ground in its cross-appeal questioning correctness of CIT(A)’s findings partly accepting former’s arguments holding shipping payments of ₹11,80,80,179.55 to be inviting TDS deduction u/s. 194C of the Act in the & 92/Kol//2015 A.Y.2012-13 DCIT Cir-2 TDS Kol Vs. M/s Manaksia Ltd. Page 4 nature of contractual payments. The Assessing Officer raised TDS and interest thereupon u/s. 201(1) and 201(1A) of the Act amounting to ₹23,61,604/-and ₹7,08,481/-; respectively. The CIT(A) has granted part relief to the assessee as follows:- “4.2 The submissions of the Appellant have been considered. It is seen that the survey u/s. 133A had been conducted on the premises of the appellant on 03.-3-2014, consequent to which the AO has held in his order u/s. 201(1)(201(1A) that the appellant was liable for non-deduction of tax on Ocean Freight payment of Rs.11,67,49,537/-. IT has been explained in appeal that the app is a manufacturer of various products Aluminium sheets, corrugated sheets galvanized sheets, etc. and in the course of business it incurs expenditure towards Ocean/Sea Freight and it has the modus operandi which has been explained as under:- i. ‘The appellant company requests the agents of Non Resident Shipping Companies (NRSCs) for their quotation of Sea Freight for various locations on monthly basis. ii. On receipt of quotations from agent of different NCCs, the Appellant negotiates with those agents and finalizes the freight rates over email. iii. Thereafter, the appellant informs the forwarders to place the container requisitions with the agents of NRSC. iv. On the basis of the container requisition the Forwarder collects the pick up letter from the agents of NRCS and forwards the same to the appellant. v. Using the letter, the appellant picks up the container and after putting the materials in it hands over the container to agents of NRSC after completion of customs and excise formalities. vi. The appellant sends shipping instructions to forwarder for onward submission to agents of NRSC. vii. Forwarder makes payment to the agent of NRSC as per the Invoice from NRSC (based on rates negotiated between the appellant and the NRSC agent) and gets the Bill of Lading (B/L) released from NRSC. The bill of lading has the name of the appellant as the shipper. viii. Forwarder present B/L to the appellant along with their Invoice of the exact amount as raised by agent of NRSC along with NRSC invoice for Sea Freight. ix. Thereafter, the appellant makes the payment to the Forwarder a few days after receipt of B/L. TDS is not affected since the entire payment is for the NRSC and the forwarder does not charge anything from the appellant. In the absence of any income of the forwarder, he steps into the shoes of the agent of the NRSC. Further the following table gives a summary of the transactions of the appellant:- Forwarder Amount Paid (Rs) Name of N.R. Amount of bill raised Shipping Co. (Rs) Cargomar 1,05,17,926 MEARSK 1.05 & 92/Kol//2015 A.Y.2012-13 DCIT Cir-2 TDS Kol Vs. M/s Manaksia Ltd. Page 5 Consolidated 1,57,770 17,926 shipping Damani Shipping Pvt. 4,54,409 MEARSK 4,54,409 Ltd. EMU Lines Pvt. Ltd 1,79,112 Authorised agent of 1,79,112 N.R Shipping Co. Global Shipping & 1,32,23,147 PIL & MOL 1,32,23,147 Co. Globelink W W India 1,55,42,334 MEARSK 1,55,42,334 LCL Logistics India 6,73,53,467 MEARSK 6,73,53,467 Meridiani Cargo Line 2,32,500 Authorised agent of 2,332,500 N.R. Shipping Co. Meridian Cargo Line 1,46,450 Authoried agent of 1,46,450 N.R. Shipping Co Nilja Shipping Pvt Ltd 45,10,236 MEARSK 45,10,236 Tierra Logistics Pvt. 44,32,186 MEARSK 44,32,186 Ltd Total 11,67,49,537 11,67,49,537 It has also been explained that the rates/terms of transactions are negotiated between the appellant and the agents of NRSC. Bill of Lading is issued by agents of NRSC directly the appellant and it is shown as shipper in the said Bill of Lading. Further the amount of invoice raised by Forwarder on the appellant is for the amount charged by agents of NRSC and there is no element of income in it. Forwarders get commission of 2% from agents of NRSC and nothing from the appellant. Whereas in case of other exporters, forwarder also retains the differential between freight rate finalized by forwarder with agents of NRSC and the freight charged by forwarder to the exporters. Normally other exporters get B/L (Bill of Lading) only after making payment of Sea Freight, whereas the appellant makes payment to forwarder a few days after getting B/L from Forwarder. It is also explained that the Forwarders are making payment to agents of NRSC prior to collecting B/L from the Appellant and that Forwarders collect B/L an make payment of Sea freight to NRSC, after which they raise invoices for reimbursements. Forwarders arrange containers from the agents of NRC as per requirement on the desired day and after collecting pick up letter, they send the same to the appellant for picking up the containers. Thus, Forwarders only act as facilitator or agents of NRSCs being authorized by them to do so. 4.2.1 The AO has not accepted the appellant’s explanation that the payments are exempt from TDS since the same are paid to Forwarders and not directly to the agents of the Non Resident shipping companies. Therefore the provision of Sec. 194C would apply in view of Circular No. 723 of the CBDT. In this regard, it is seen that the appellant has submitted From No.26A in the case of M/s Globelink WW India of Rs.1,55,42,334/-, and Tierra Logistics (P) Ltd of Rs. 44,32,186/- and in the case of LCL Logistics India. Therefore, in view of the decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cole Beverage (P) Ltd., supra, the Appellant cannot be considered as 'assessee in default' in respect of payments made to these parties. 4.3 However the main issue is whether the Concerns to which the Appellant has made the payments could be considered to be the Agents of the Non-Resident Shipping Companies for the purpose of Sec. 1-72 has envisaged in Circular No.72 of the CBDT. It is seen that the issue has been considered in the case of ITO , Freight System (India) (P) Ltd. in Para-1D of the order which is reproduced under- ‘10. The provisions of section 172 constitute a code in itself with regard to the mode of levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident. By virtue of sub-section (8) of section 172 'the & 92/Kol//2015 A.Y.2012-13 DCIT Cir-2 TDS Kol Vs. M/s Manaksia Ltd. Page 6 demurrage charge or handling charge or any other amount of similar nature' are treated at par with carriage paid or payable to such owner or charter. Thus, even as the amounts in the nature of demurrage etc. may not end up being paid to non-residents, these are treated as amounts falling within special provisions of section 172. This stands clarified in CBDT Circular No. 723, dated 19-9-1995 wherein these amounts have been taken outside the purview of section 194C. This Circular has made it further clear that where payments an made to shipping agents of non-resident ship owners or charter ship at a port in India provisions of section 172 will apply because the agent steps into the shoes of the principal. However, the problem arises only when restrictive interpretation is placed on the boards circular referred to hereinabove when the Assessing Officer has sought to draw distinction on the basis of the status of the agents. We would like to mention that even if the agent is to be treated as resident, by virtue, his acting on behalf of non- resident shippers or charters, he receives payments primarily on behalf of his principal i.e., non-resident ship owners or ships charters shipped at a port in India. In our opinion, even if these amounts are inclusive of small element of the amounts that ultimately may be going into his own pocket or any of resident account of demurrage or handling charge or any amount of similar nature, it will be covered by sub-section (8) of section 172 inasmuch the circular does not draw any distinction between a dry port and a sea port. Thus, as per provisions of section 172(8) the inland haulage charges are also covered under this provision of law and, hence, no deduction of tax is called under section 194C of the Act. We are further of the opinion that such an interpretation is also fair because the dry ports or ICD's are treated at par with the regular ports. Hence, the contradictory stand taken by the Assessing Officer i.e., when he included certain charges in freight in respect of movement of goods by road at the destination contrary by the shipping line such charges are deemed to be covered under section 172, but when the same shipping line or their agents take charges for transportation from ICD, where goods have been handed over to them by an exporter, then these amounts are not deemed to be covered under section 172. Similarly, in view of the decision in ACIT -vs- Minpro Industries, the disallowance made by the AO for non-deduction of TOS u/s.194C cannot be accepted. Further it is seen that EMU Shipping Lines and Meridian Cargo Line are authorized agents of NRSCs and not forwarders. In the case of the Appellant it has demonstrated with the help of sample bills and invoices of the Forwarders and Shipping Lines that there was no payment being made to such forwarders by the Appellant for their Services and the payments were being passed on to the NRSCs. In view of the above it is clear the above decisions cited by the Appellant and Circular No 723 of CBOT were applicable in the Appellant's case. Therefore, after carefully considering the above facts and circumstances, it is held that Tax for default deduction of TOS levied by the AO in respect of payments to Globelink WW India, LCL Logistics India and Tierra Logistics (P) Ltd is not leviable in view of Form No.26A submitted by the Appellant. Further even otherwise in the case of these payments, it is seen as discussed above that provisions of Sec.194C are not applicable. Hence, it is held that the demand raised by the AO for non-deduction of TDS was not justified and this Ground of Appeal
is allowed.” & 92/Kol//2015 A.Y.2012-13 DCIT Cir-2 TDS Kol Vs. M/s Manaksia Ltd. Page 7
5. This is what leaves both the assessee and Revenue aggrieved to the extent indicated in their respective pleadings. The Revenue seeks to revive the Assessing Officer’s action in enterity whereas the assessee’s grievance is that CIT(A) ought to have reversed the Assessing Officer’s action in full tha granting part relief. We notice at this stage that the assessee has filed its additional evidence petition under Rule 29 of the Income Tax Appellate Tribunal Rule, 1963 for placing on record Form 26AS in respect of its payments made to the payee parties M/s Globelink WW India, LCL Logistics India and Tierra Logistics (P) Ltd’s. respective declarations that they never received any commission income as per the Assessing Officer’s stand. It is further pleaded that these 26AS statements are very much relevant for appropriate adjudication of the issue before us. This clinching fact of relevancy has not been disputed at the Revenue’s behest. We therefore accept assessee’s above caption additional evidence petition to take on record. The said documents as part of case file.
6. We now advert to assessee’s grievance first of all. It has come on record as per the relevant material in the case file that its impugned payments are in the nature of mere reimbursements not involving income or profit element as per the payees’ declarations contained in their respective 26AS statements. Pages 51 to 73 in the paper book indicate that such reimbursements coupled with bills of expenses. We find similar invoices at pages 9 to 22 and 26 to 167 revealing the identical facts. We make it clear that the Assessing Officer had been granted sufficient opportunities to examine these reimbursements component during remand proceedings by the CIT(A). Various judicial precedent CIT vs. Opera Global (P) Ltd. 109 DTR 121 (Del) as well as tribunal’s in Income Tax Officer vs. Dr. Willmar Schwabe India (P) Ltd [2005] 95 TTJ 53 (Del); ACIT vs. Dakshin Haryana Bijli Vitran Nigam Ltd. 59 SOT 133 (Del); Nature Bio Foods Ltd. vs. ACIT 35 CCH 384 (Del); ACIT Vs. Galaxy Exports 36 CCH 326 (Jdh) Mamta Machinery Pvt. Ltd. vs. DCIT 37 CCH 376 (Ahd) and Madhu Mehta vs. DCIT 48 ITR (trib) 246 (Mum)