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Income Tax Appellate Tribunal, KOLKATA BENCH ‘D’, KOLKATA
Before: Shri Aby. T. Varkey, J.M. & Dr.A.L.Saini, A.M.)
Per Dr. A.L.Saini, A.M.:
The captioned appeal filed by the Assessee, pertaining to assessment year 2012-13, is directed against the order passed by the Commissioner of Income-tax (Appeals)- 2, Kolkata, in Appeal No. 1901/CIT(A)-2/14-15, dated 04-07-2016, which in turn arises out of an order passed by the Assessing Officer u/s. 143(3) of the Income-Tax Act, 1961 (in short, ‘the Act’), dated 06-01-2015.
The grievances raised by the assessee are as follows:- 1. For that the learned Commissioner of Income Tax (Appeals)-2 was not justified in confirming the order of the Assessing Officer in disallowing a sum of Rs.18,16,096/-, under section 40(a)(ia), being amount paid to transporters on account of handling and warehouse collection charges in addition to freight on the ground that tax was not deducted at source from such payments u/s 194C of the Act.
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For that the learned Commissioner of Income Tax (Appeals)-2 has also failed to appreciate the fact that the handling and warehouse collection charges paid to transporters having valid PAN formed part and parcel of the freight payable to them and no deduction of tax at source was required in terms of section 194C(6) of the Act. 3. Without prejudice to above, the learned Assessing Officer may kindly be directed to restrict the amount of disallowance only in respect of tax which remained unpaid by the concerned parties after due verification. 4. That the Appellant craves leave to alter, amend and/ or to take additional grounds before or at the time of hearing of this appeal.”
The facts of the case which can be stated quite shortly are as follows: During the assessment proceedings, the ld AO noted that assessee has not deducted tax at source (TDS) on warehousing & collection charges paid by him, the details of which are as follows: Rs. Century Global Logistics Pvt. Ltd. 43,348 DARCL Logistics Ltd. 81,125 Reach Cargo Movers Ltd. 5,63,793 Relogistics India Pvt. Ltd. 25,304 South Assam Roadways Ltd. 35,880 Shree Balaji Carriers 1,88,268 TCT Hi-ways Pvt. Ltd. 3,82,834 Transport Corpn. of India Ltd. 22,988 Varuna Integrated Logistics P. Ltd. 4,72,556 Rs. 18,16,096/-
During the assessment proceedings, the assessee was asked to explain why TDS was not made and such expenses should not be disallowed U/s 40(a)(ia) of the Act. The assessee submitted that the aforesaid amounts represent handling and warehousing collection charges incurred for warehousing and movement of tea. These amounts formed part and parcel of the transporters' bills, in addition to freight payable. The amount relating to freight has been debited under "primary freight expenses" and
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"secondary freight expenses", and the handling and collection expenses have been debited under "warehousing & collection charges". It is evident from the provisions of section 194C(6) that any sum paid to the contractor (transporter) for hiring vehicles for movement of goods is not eligible to TDS, subject to the condition that the transporter has furnished his PAN. Hence, there was no requirement for deduction of tax at source from such amounts credited and paid U/s 194C of the Act.
However, the assessing officer rejected the contention of the assessee and the amount of Rs.18,16,096/-, disallowed U/s. 40(a)(ia) of the Act for the reason that TDS was not deducted U/s 194C of the Act
Aggrieved by the stand of the Assessing Officer, assessee carried the matter in appeal before the CIT(A) but without any success. Aggrieved by the order of ld CIT(A), the assessee is in further appeal before this Tribunal.
Learned counsel for the assessee begins by pointing out that these are merely reimbursement of expenses, therefore, the TDS provisions do not apply. That is, if the agent paid TDS and the assessee just reimburses the same, in that situation there is no need to deduct TDS. In asssessee`s case, there is no contractual obligation. That is, there is no contract between the assessee and the person to whom the assessee is making payment. The assessee is merely reimbursing the expenses to the agent. The ld. Counsel for the assessee submitted before us a chart, wherein the TDS were deducted in case of contractual obligation and TDS was not deducted in case where there is no contractual obligation(vide pb 1). The assessee has not deducted TDS on reimbursement amount to the tune of Rs.18,16,096/- because the said amount was paid to the transporters as part of reimbursement of their expenses. The assessee also
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submitted, before us, the ledger account of warehouse collection charges, wherein the amount was reimbursed by the assessee on account of loading and unloading/ pick up charges and are being cross verified from the respective bills of the transporters. Moreover, while making payment, the assessee has received PAN of the transporter, therefore, no TDS is attracted in the assessee`s case.
On the other hand, the ld.DR for the Revenue has primarily reiterated the stand taken by the assessing officer, which we have already noted in our earlier para, and is not being repeated for the sake of brevity.
Having heard the rival submissions and perused the material available on record. We note that the assessee has reimbursed the collection charges and pick up charges to the various transporters, and this fact can be verified from the copies of freight bills and ledger account of warehousing collection charges (pb.23). The reimbursement of expenses for and on behalf of assessee is not covered under the provisions of section 194C of the Act. Therefore, these expenses are not liable to TDS as the term ‘contract’ is absent. These reimbursement of expenses were not made by the assessee towards any services rendered by the agent, but has been made to set off the expenses incurred by the agent on behalf of the assessee. We note that there is no element of ‘income’ in these transactions, it is just reimbursement of expenses incurred by the agent for and on behalf of assessee. Therefore, the assessee was not obliged to deduct tax at source. We note that it is not a direct payment for freight to the transporter. Therefore, we are of the view that there is no TDS obligation on the assessee on the alleged amount of Rs.18,16,096/-. For that we rely on the judgment of the Co-ordinate Bench of ITAT Kolkata in the case of Satyendra
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Jhunjhunwalla Vs. ITO, W-46(4), Kolkata, ITA No. 1988/Kol/2009, for the A.Y. 2005-06, wherein it was held as follows:- “4. At the outset, the Ld. Counsel for the assessee stated in respect of octroi charges that freight is less than Rs.12,622/- and it does not attract TDS in any case. For this he referred to assessee's paper book wherein details of octroi charges and other charges paid to M/s. Inland Transport Pvt. Ltd. are detailed out as under:
Date Freight Oct.Ch OS.Ch Del.Ch Misc.ch E.Cess Total Ch. incl unloading Chgs 23/7/2004 523.00 597.00 30.00 5.00 30.00 - 1,185.00 6/8/2004 573.00 1,265.00 67.00 5.00 1,537.00 - 3,447.00 19/8/2004 978.00 2,705.00 137.00 5.00 1,538.00 - 5,363.00 20/8/2004 388.00 806.00 41.00 5.00 2,030.00 - 3,270.00 20/8/2004 1,285.00 3,300.00 165.00 5.00 30.00 - 4,785.00 1/10/2004 812.00 2,640.00 133.00 5.00 2,823.00 - 6,413.00 10/11/2004 523.00 1,518.00 74.00 5.00 30.00 - 2,150.00 2/12/2004 1,078.00 2,200.00 112.00 5.00 30.00 - 3,425.00 25/12/2004 1,111.00 2,846.00 143.00 5.00 3,030.00 - 7,135.00 2/2/2005 843.00 2,200.00 112.00 5.00 30.00 25.00 3,215.00 15/2/2005 599.00 1,595.00 83.00 5.00 30.00 18.00 2,330.00 24/2/2005 1,111.00 2,035.00 102.00 5.00 30.00 31.80 3,314.80 31/03/2005 - - 1,254.00 60.00 2,315.00 123.00 3,752.00 31/03/2005 - - 641.00 29.00 2,168.00 62.00 2,900.50 28/3/2005 1,361.00 2,640.00 135.00 5.00 30.00 39.00 4,210.00 11/1/2005 1,437.00 3,685.00 191.00 5.00 30.00 42.40 5,390.40 12,622.00 30,032.00 3,420.00 159.00 15,711.00 341.70 62, 285.70
Similarly, Ld. Counsel for the assessee stated that service charges paid to J. S. Clearing Services includes custom duty, port charges, stamp duty charges, bondage charges, oct. charges apart from payment of rent and removal documentation fee and document processing fee. Ld. Counsel for the assessee stated that this can be verified from copies of bills of freight charges and copies of bills of clearing service charges. Ld. Counsel for the assessee stated that reimbursement expenses and custom duty payments by agent for and on behalf of the assessee cannot be covered under the TDS provisions. Hence, these expenses are not liable to TDS and the provisions of section 40(a)(ia) of the Act and not applicable. For this, he relied on the decision in the case of ACIT V. Grandprix Fab. (P) Ltd,. (2010) 128 TTJ 60 (Del.), wherein the Tribunal vide para 16 has held as under:
"16. In respect of the payment towards agency charges amounting to Rs.l,01,219,the assesee has deducted tax amounting to Rs.2,094 at source, and the said payment has not been disallowed by the A. O. The other two payments are towards payment of customs duty, and other expenses paid by the agent for/on behalf of the assessee. These reimbursement expenses were not made towards any services rendered by the agent, but have been made to set off of the expenses incurred by the agent while clearing the imported goods from the customs for /on behalf of the assessee. Since no element of income is embedded in reimbursement of expenses incurred by agency for/on behalf of the assessee, the assessee was not obliged to deduct tax at source, and, therefore, the CIT(A) has rightly deleted the addition."
We note that provisions of section 194C of the Act is applicable, where payments is made to a contractor/sub-contractor, where contract is either a work contract or a contract for supply of labour. In the case before us, we observe that the assessee has 5 ITA No. 1961/K/2016 Duncans Tea Ltd
reimbursed the expenses to its agent and it was not a direct payment for freight by the assessee to the transporter. Besides, the Hon'ble Delhi High Court in the case of CIT Vs. Industrial Engg. Projects P. Ltd. (202 ITR 1014), held that it is a settled proposition of law that when there is no element of income and the payment is only as a reimbursement of expenses incurred by the payee, then no disallowance can be made u/s. 40(a)(ia) of the Act. We find that the issue of reimbursement of charges which are incurred by agents on behalf of assessee cannot be subject matter of TDS in view of above cited case laws. Therefore, considering the factual position discussed above, we are of the view that the amount paid to transporters on account of handling warehousing collection charges is not liable to TDS, as the handling and warehouse collection charges paid to transporters were having valid PAN number and, in assessee’s case under consideration no income element is there and it is just reimbursement of expenses and moreover, there is no contract between the assessee and the payee, hence, TDS obligation is not applicable to the assessee. Therefore, the addition made by the AO and confirmed by the CIT-A needs to be deleted. Accordingly, we delete the addition. The grounds raised by the assessee are allowed.
In the result, the appeal of assessee is allowed.
Order Pronounced in the Open Court on 31-07-2018
Sd/- Sd/- (Aby. T. Varkey ) (Dr. A.L.Saini) Judicial Member Accountant Member Dated: 31 -07-2018
*PRADIP (Sr.PS) 6 ITA No. 1961/K/2016 Duncans Tea Ltd
Copy of the order forwarded to: 1. Assessee: M/s. Duncans Tea Ltd 31 Netaji Subhas Road, Kolkata-700 001. 2 Department: The Deputy Commissioner of Income Tax, Circle 4(1), Aaykar Bhawan, P-7 Chowringhee Square, Kolkata-700 069. 3. The CIT-I, 4. The CIT(A)-I, 5. DR, Kolkata Benches, Kolkata