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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) – 5, Chennai, dated 26.11.2015 and pertains to assessment year 2007-08.
The first issue arises for consideration is disallowance made by the Assessing Officer under Section 40(a)(ia) of the Income-tax Act, 1961 (in short 'the Act') in respect of payment of freight charges to Malaysian Airlines. This ground was raised by the assessee by way of additional ground.
Shri K. Balasubramanian, the Ld.counsel for the assessee, submitted that the assessee paid the freight charges to Malaysian Airlines. Referring to Double Taxation Avoidance Agreement between India and Malaysia, the Ld.counsel submitted that in respect of operation of aircraft in the international traffic, the profit would be taxable only in the State of origin. In this case, the Malaysian Airlines operates its aircraft from Malaysia. Malaysia being a contracting State, profit on operation of aircraft by Malaysian Airlines is taxable only in Malaysia, therefore, the assessee is not liable to deduct tax in India. The Ld.counsel further submitted that the profit arising to Malaysian Airlines is not taxable in India, therefore, there is no question of deduction of tax in India.
On the contrary, Shri Supriyo Pal, the Ld. Departmental Representative, submitted that if the assessee claims that the profit arising to Malaysian Airlines is not taxable in India, an application under Section 194 of the Income-tax Act, 1961 (in short 'the Act') ought to have been filed before the Assessing Officer. Since such an exercise was not done by the assessee, tax ought to have been deducted as provided in Section 194 of the Act. Therefore, according to the Ld. D.R., the Assessing Officer has rightly disallowed the claim of the assessee under Section 40(a)(ia) of the Act and the CIT(Appeals) has rightly confirmed the same.
We have considered the rival submissions on either side and perused the relevant material available on record. Article 8 of Double Taxation Avoidance Agreement between the Government of India and Government of Malaysia provides for payment of tax in Malaysia in respect of aircraft operated by enterprise from Malaysia.
In fact, the Double Taxation Avoidance Agreement between Government of India and Government of Malaysia was not brought to the notice of the Assessing Officer as well as the CIT(Appeals).
Therefore, both the authorities below had no occasion to consider the Double Taxation Avoidance Agreement between the two sovereign countries. Therefore, this Tribunal is not expressing any opinion on merit. It is open to the Assessing Officer to examine the claim of the assessee in the light of Double Taxation Avoidance Agreement between Government of India and Government of Malaysia. Accordingly, the orders of the authorities below are set aside and the disallowance made by the Assessing Officer under Section 40(a)(ia) of the Act in respect of payment of freight charges to Malaysian Airlines is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the issue in the light of Double Taxation Avoidance Agreement between Government of India and Government of Malaysia and thereafter decide the same in accordance with law after giving a reasonable opportunity to the assessee.
Now coming to the disallowance of labour charges, Shri K.
Balasubramanian, the Ld.counsel for the assessee, submitted that the Assessing Officer disallowed the labour charges of `6,74,360/-.
According to the Ld. counsel, for non-deduction of TDS, the Assessing Officer disallowed the claim of the assessee. However, the CIT(Appeals) found that in case the payee has received single invoice for charges as well as tax, the assessee has to deduct tax on the entire amount. The Ld.counsel submitted that that the matter may be remitted back to the file of the Assessing Officer for reconsideration.
We have heard Shri Supriyo Pal, the Ld. Departmental Representative also. Since the main issue with regard to disallowance of freight charges is remitted back to the file of the Assessing Officer, this Tribunal is of the considered opinion that the disallowance of labour charges also needs to be reconsidered in the light of the material that may be filed by the assessee. Accordingly, the orders of the authorities below are set aside and the issue of disallowance of labour charges to the extent of `6,74,360/- is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on 25th November, 2016 at Chennai.