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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: Shri Joginder Singh, & Shri Ramit Kochar
आदेश / O R D E R
Per Joginder Singh (Judicial Member)
The assessee is in appeal for the A.Y. 2009-10 (ITA No. 987/Mum/2013), whereas the Revenue is in appeal for A.Ys. 2005-06 to 2009-10, meaning thereby there is a cross appeal for A.Y. 2009-10.
First we shall take up the appeal of the assessee (A.Y.
2009-10 in wherein the order of the ld. First appellate authority has been challenged, disallowing export shipping freight of `56,98,125/-, u/s. 40 (a)(ia) r/w s.
194C of the Income Tax Act, 1961 (hereinafter the ‘Act’).
During hearing, the crux of argument advanced by Shri Bhupendra Shah, ld. Counsel for the assessee is that the payments were made to agents of foreign shipping company which are exempted under Circular No. 723 dated 19.09.2005.
Therefore, no TDS was to be deducted. It was fairly admitted by the ld. Counsel that payments were made by the assessee.
The ld. Counsel further explained that export was made to five, six parties, the details of which could not be furnished.
Therefore, the ld. A.O. may be directed to examine the factual matrix. Shri Rajesh Kumar Yadav, ld. DR defended the addition by contending that necessary details were never furnished by the assessee before the ld. A.O. Therefore, genuineness of the payments/parties, could not be examined by the A.O. Therefore, it has to be examined by the A.O. and the assessee may be directed to furnish necessary evidence of payments/claim.
We have considered the rival submissions. The facts in brief are that the assessee is in the business of export of spices, pulses and food grains, declared income of `55,36,369/- in his return filed on 28.09.2009. The case of the assessee was selected for scrutiny, therefore, notice u/s. 143(2) and subsequently u/s. 142(1) were issued and served upon the assessee, asking the assessee to submit the necessary details. The assessee furnished the details. It was found from the profit and loss account that the assessee had debited an amount of `1,32,27,198/-, on account of export shipping freight paid to 25 different shipping agencies/companies. It was further seen that the tax at source amounting to `54,070/- was only deducted in respect of 8 parties. The assessee was asked as to why the TDS was no deducted with respect to parties (17) as detailed at page 2 onwards of the assessment order. The assessee in its reply contended that the assessee has not deducted TDS on freight paid to various shipping agents of non residence ship owners because of Circular No. 723 dated 19.09.1995 as the said freight is covered u/s. 172 and the payments made to agents of non-residence ship owners are excluded from the provisions of section 194C and 195 of the Act. The ld. A.O. discussed the decision in CIT vs. Orient (Goa) Pvt. Ltd. in of 2005 dated 16.10.2009 (Bom) and thus disallowed the amount of `1,06,15,271/- (in aggregate) paid without deduction of tax u/s.40(a)(ia) of the Act. On appeal before the ld. Commissioner of Income Tax (Appeals), the assessee has contended that the principal of natural justice has been violated as sufficient opportunity of being heard for making the disallowance was not provided to the assessee. It was also claimed that the ld. A.O. could not appreciate that the provisions of section 194C, 194J and 195 of the Act are not applicable to the facts of the case of the assessee and, thus, no disallowance was required to be made u/s. 40(a)(ia) of the Act. The ld. Commissioner of Income Tax (Appeals) affirmed the stand of the ld. A.O. The assessee is in appeal before this Tribunal.
If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsels, if kept in juxtaposition and analyzed, there is no dispute to the fact that complete details of parties to whom payments were made were not provided to the ld. A.O. The assessee has also claimed that no TDS was required to be made on the payments made to non-resident foreign shipping companies toward freight on export shipments which are covered u/s. 172 for which the assessee has to bring on record the details of the shipping company to whom payments are made and they are covered u/s.172 as certified by the Income Tax Department. The assessee has also made payment for export commission which assessee has to prove that the said export commission is not chargeable to tax in India. Considering the totality of the facts, the assessee is directed to produce the necessary evidence like details of the party/agents to whom payments were made without deduction of tax at source and further to explain the legal position before the Assessing Officer for such claim. Most important expression in section 195(1) consist of the words ‘chargeable’ under the provisions of the Act, thus, the payer is bound to deduct tax at source only if the sum paid is assessable to tax in India. A person paying interest or any other sum to a non- resident is not liable to deduct tax if such sum is not chargeable to tax under the Income Tax Act. Section 195 also covers composite payments which have an element income embedded or incorporated in them. Thus, where an amount is payable to a non-resident, the payer is an under obligation to deduct tax is limited to the appropriate proportion of income which is chargeable under the Act. This obligation follows from the words used in section 195(1). Section 195(2) presupposes that the person responsible for making the payment to the non resident is in no doubt that tax is payable in respect of some part of the amount to be remitted but is not sure as to what should be the portion so taxable or the amount to be remitted.
But is not sure as to what should be the portion so taxable or the amount of tax to be deducted. In such a situation he is required to make an application to the ITO (TDS) for determining the amount. It is only when these conditions are satisfied that the question of making an order u/s. 195(2) arises. The assessee is expected to provide the complete list of the payees/agents and the details of the non-residents and non chargeability of TDS, if any. In such a situation, the genuineness of the payments along with the genuineness of the payees also has to be established by the assessee. Thus, the ld. Assessing Officer is directed to examine the case of the assessee and decide in accordance with law. The assessee be given opportunity of being heard with further liberty to produce necessary evidence in support of its claim. Thus, the appeal of the assessee is allowed for statistical purposes.
The Revenue has also filed cross appeal for A.Y. 2009-10 ( ), wherein allowing part relief on the disallowance of export shipping freight payment amounting to `49,16,848/-, without TDS, as per section 194C r.w.s. 40(a)(ia) of the Act has been challenged. The crux of argument is identical to the ground raised. It was also pleaded that the ld. Commissioner of Income Tax (Appeals) granted relief to the assessee by placing reliance upon the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Company which has been state by the Hon'ble Andhra Pradesh High Court vide order dated 08.10.2012. On the other hand, the ld. Counsel for the assessee defended the conclusion arrived at in the impugned order.
We have considered the rival submissions and perused the material available on record. Considering the totality of the material facts and since the cross appeal of the assessee has been remanded back to the file of the ld. Assessing Officer, therefore, without going in to much deliberation, this appeal of the Revenue deserves to be sent back to the file of the ld. Assessing Officer for fresh adjudication. The assessee is directed to furnish the necessary details of payment and the reason/explanation of non-deduction of tax at source, as we have discussed in the preceding paras. Thus, this appeal of the Revenue is allowed for statistical purposes.
So far as remaining appeals of the Revenue (A.Y. 2005-06 to 2008-09) are concerned, the ld. Commissioner of Income Tax (Appeals) deleted the disallowances of the respective amounts on non-deduction of tax on export shipping freight and export commission of the respective amount without appreciating the decision from Hon'ble High Court in the case of Orient (Goa) Pvt. Ltd. (supra). Considering the factual matrix and the decision arrived at in earlier paras of this order, the assessee is directed to furnish the necessary details of the payments made without deduction of tax at source, details of the parties and the reason of allowability, etc. before the ld. Assessing Officer. Thus, the appeals of the Revenue are also allowed for statistical purposes.
Finally, the appeal of the assessee as well as the appeals of the Revenue are allowed for statistical purposes.