ASST CIT CIR 2, KALYAN vs. VICKY SABHAGCHAND MOTWANI, MUMBAI

Date of hearing : 09-01-2017 Date of order : 13 -01-2017 O R D E R

Per ASHWANI TANEJA, AM:

1. “Whether in law and facts of the case, the Ind. CIT(A) erred in holding that the assessee was not liable to deduct tax on reimbursement of shipping expenses paid to Dolphin Maritime Agency Pvt. Ltd., who is not shipping agent of non resident ship owner but an independent shipping agent.

2. Whether in law and facts of the case the Ind CIT (A) erred in holding that the reimbursements to Dolphin Maritime Agency Pvt. Ltd. are not liable for tax deduction at source without appreciating the fact that sections 194C and 194] refer to any sums paid and that Circular no. 715 of the C.B.D.T dated 08.08.1995 answers this question in the affirmative at question number 30.

3. Appellant prays that the order of the CIT(A) be reversed and that of the Assessing Officer be restored.

2. During the course of hearing none appeared on behalf of the assessee. Ld. DR relied upon the order of the AO. The solitary issue raised in this appeal by the revenue is that 3. whether the Ld.CIT(A) was justified in deleting the disallowance made by the AO on the ground that assessee failed in deducting tax on the payments made on account of reimbursement of shipping expenses to M/s Dolphin Maritime Agency Pvt Ltd.

4. The brief background of the issuer is that assessee was engaged in the business of exports of general items mainly to African countries, particularly to Congo. During the year under consideration, the assessee made payment to Dolphin Maritime Agency Pvt Ltd on account of reimbursement of shipping expenses which was disallowed by the AO on the ground that assessee failed in deducting tax at source. During the course of appeal before Ld. CIT(A), detailed submissions were made by the assessee, which were considered by Ld.CIT(A) and it was found that tax was not required to be deducted on these payments. Relevant part of the order of the Ld. CIT(A) is reproduced below:- “5.4. I have carefully considered the contents of the above bill and other similar bills and noticed that the C & F agent namely, Dolphin Maritime Agency Pvt. Ltd.. had raised separate bill for freight / shipping charges, in the name of CMA & CGM agency (India) Pvt. Ltd., Hamilton House, Ballard Estate, Mumbai - 400 038. The bill was raised in Dollars. The C & F agent also attached the bill raised by the above C& F agent. The same has been verified and found that the foreign shipping company had also raised bill on C & F agent, exactly of same amount. The Ld. AR also filed a copy of declaration dated 1.4.2010, issued by the above shipping company and the same has been considered. The relevant part of the same is reproduced, here as under: We CMA CGM AGENCIES (INDIA) PRIVATE LIMITED are the agent for CMA CGM, 4 Quai D'arenc, Marseilles (France) in India. We hereby confirm that as per the provision of the Income Tax Act, 1961 CMA CGM S.A. FRANCE is non-resident shipping company engaged in the business of operation of ships in International Traffic. The place of effective management is situated in FRANCE and the said shipping company is tax resident in France. We hereby confirm that we are covered under Section 172 of Income Tax Act,1961. We further confirm that the r entire amount payable to us towards freight & other ancillary charges in our capacity as the agents of CMA CGM S. A. FRANCE during the financial year 1st April, 2010 to 31st March, 2011 shall be include in the Return of Income to be filed by us under Section 172 on behalf of CMA CGM S. A. FRANCE and we shall be entirely responsible for the payment of any applicable tax on such freight & other ancillary charges. In view of CBDT Circular No. 723 dated 19.09.1995, the provision of Section 194 C and 195 of the Income Tax Act, 1961, which provides for deduction of tax at source on certain types of payments, are not applicable in the present case. We shall indemnify YOU against any liabilities that may devolve on you at a later date under Income Tax Act, 1961due to non-deduction/withholding of tax from payments made to us." 5.5. Likewise, another shipping company Maersk India Pvt. Ltd., has also issued a similar letter, the contents of the same are reproduced here as under: "We Maersk India Private Limited are shipping agents for A. P. Moller Maersk - A/s (hereby known as the "Principal"). We hereby confirm that as per the provisions of the Indian Income Tax Act, 1961,("The Act") our Principal's residential status is "Non-Resident" and they are engaged in operation of ships. Please noted that our Principal are the residents of Denmark Article 9 (Shipping) of the Agreement for Avoidance of Double Taxation between India and Denmark, the profits derived by our Principal from the operation of ships in international traffic are taxable only in Denmark. Further we are regularly filing returns of income based On the provisions of section 139/172 of the Act for the freight charges, terminal charges, terminal handling charges (THC) and any other amount of a similar nature collected by us on behalf .of our Principal in respect of goods shipped at a port in India. We Fiereby confirm that the entire amount payable by you to us towards freight and other charges mentioned above for the financial year 2010-11 has been or shall be included in the returns filed or to be filed by us under section 172 of the Act. In these returns after taking into account the provisions of the Agreement for Avoidance of Double Taxation between India & Denmark, tax applicable, if any, has been or will be paid. In view of the above and clarification given by 191h CBDT, vide its Circular No. 723 dated September, 1995 (copy attached) the provisions of sections 194C and 195 of Income-tax Act, 1961 for deduction to tax at source shall not apply in respect of freight charges, THC charges, IHC charges and any other amount of a similar nature payable to us by you. Accordingly, tax at source is not deductible from the above mentioned payments." 5.6. The Ld. AR also produced copy of letter dated 12.03.2010, issued by the Asstt. Director of Income-tax (International Taxation)-2(1), Mumbai. The contents of the same are reproduced, here as under: “M/s. Safmarine Container Lines N. V. Belgium (herein referred as principal) has applied for 100% DII Relief through its agent in India Maersk India Pct Ltd (herein referred as the applicant) on 26/02/2010. It has been contended by the applicant on behalf of the principal that the principal is a tax resident of Belgium and is entitled to the benefit of Article 8 of the DTAA between India and Belgium. The applicant has filed the copy of Tax Residency Certificate and other documents in support of its claim. The applications as well as the document, filed in this regard were perused. On prima facie examination of the documents and details filed, it appears that the principal Article 8 of the DTAA between India and Belgium. In view of this, the principal is entitled for 100% DIT Relief on account of income from operation of the vessels as per Annexure attached herewith operating in the international traffic which is either owned or chartered by the principal for transportation of passengers, mail livestock or goods carried on by the principal from the Indian ports. However, any income earned for the transportation of passengers, mail livestock or goods from one place to another place within India is not covered by this DIT Relief Certificate. The certificate is issued and will be relevant only to M/s. Safmarine Container Lines N.V. Belgium and not applicable to any other shipping Lines. This Certificate is valid for F.Y. 2010- 11 unless it is cancelled or modified before the expiry of the said financial year. The fact of the cancellation or modification will be intimated to you. 5.7. The Ld. AR further placed copy of Circular No. 715 dated 8.8.1995, issued by the CBDT, New Delhi, in regard to deduction of TDS against reimbursement of shipping charges to the foreign shipping companies and also placed reliance on the decision of Hon'ble ITAT, Jaipur Bench, in the case of Shri Manoj Kumar John Vs. DCIT in ITA No. 133/JP/2012, decision of the ITAT Chennai in the case of ACIT V. Velavan lmpex Pvt. Ltd. - MDS/2012 and ITAT, Bangalore Bench 'B' in the case of DCIT vs. Dhaanya Seeds (P) Ltd. in ITA No. 1523 (BANG) of 2012, wherein, the similar issues have been decided in favour of the appellant. The relevant part of the decision of the Hon'ble ITAT, Bangalore Bench, in the above referred case, is reproduced, which have direct bearing on the issue, , here as under: "4.6 As regards the amount of Rs. 4,78,499 towards reimbursement of actual expenses, the Assessing Officer relied on the Board's Circular No. 715 dated 8.8.1995. I have considered the said circular and also the various decisions relied on by the appellant in this regard. There is no dispute about the nature of expenditure claimed by the appellant. It is towards the reimbursement of expenses incurred by the C& F agents on behalf of the appellant. As explained by the appellant, these expenses were incurred by the C&F agents on behalf of the appellant and claims were made in their bills on actual basis and the amounts were shown separately supported by necessary evidence. Therefore, these payments were made on actual basis and they do not contain any element of income. Hence, such a payment is not liablefor deduction of tax under section 195 of the Act. Further the Board's circular is applicable only where there is no. indication about the reimbursable amounts in the bills separately. In that cae, the gross amount has to be considered for deduction of tax. In view of this factual and legal position, the amount of Rs. 4,78,499 is not liable for TDS. Hence, it cannot be disallowed under section 40(a)(ia)." 6.4.3 In the case on hand, as pointed out by the learned CIT (Appeals), the expenses have been incurred by the C&F Agents on behalf of the assessee; the claims were made on actual basis and the amounts were separately shown with proper evidence. The fact that the reimbursement of expenses have been separately billed, in the case on hand, is not disputed. The C&F Agents are appointed to provide the service of carrying out sales for which they are paid service charges on which TDS has been made and not for the purpose of incurring expenses on behalf of the assessee. In this view of the matter, the reimbursement of expenses by C&F Agents cannot be held to be contract / service on. which the provision of section 194C of the Act would come into play and apply. In view of the factual position as laid out above and following the decision of the Hon'ble Delhi High Court in the case of Van Oord ACZ India (P.) Ltd. (supra), we TDS on reimbursement of expenses to C&F Agents which are separately billed and accordingly uphold the order of the learned CIT (Appeals). Consequently, we dismiss ground No. 2 raised by revenue."

, is therefore, allowed' accordingly.”

5. It is noted by us that the Ld.CIT(A) has considered Board’s circular No.715 dated 08-08-1995 which is on the issue of deduction of tax at source on the payments made for reimbursement of shipping charges and also considered aforesaid judgments of Tribunal. It is noted that the Ld. CIT(A) has merely sent the issue back to the file of the AO to verify the facts with the direction that disallowance shall be deleted only if the amount paid by the assessee represents the amount of reimbursement.

6. During the course of hearing before us, nothing has been pointed Ld. DR in the directions and findings of Ld. CIT(A) which is incorrect on facts or on law. Under these circumstances, in absence of anything incorrect or wrong having been pointed out in the findings of Ld.CIT(A), we find that no interference is called for in the order of the Ld.CIT(A) and, therefore, the same is upheld.

Order was pronounced in the open court at the conclusion of the hearing.