ITO TDS 1(2), MUMBAI vs. CHINUBHAI KALIDAS & BROS, MUMBAI

The captioned appeal by the Revenue is directed against the order of CIT(A)-14, Mumbai dated 23.11.2012, pertaining to the Assessment Year 2008-09, which in turn has arisen from the order passed by the Assessing Officer, Mumbai dated 30.3.2011 under section 201(1) and 201(1A) of the Income Tax Act, 1961 (in short ‘the Act’).

In this appeal, Revenue has raised the following Grounds of appeal :-

The learned CIT(A) has erred on the facts and circumstances & in law in deleting the interest u/s 201(1A) of the IT Act, 1961 on the short deduction of tax determined by the AO as the tax determined has already been deleted by him and interest deletion is consequential to the quantum deletion for which 4 M/s. Chinubhai Kalidas & Bros. to 1515 & 5459/Mum/2013 further appeal has been recommended vide ground No.1 to 8.”

Before we proceed to adjudicate the individual Grounds of appeal, the brief background can be summarized as follows. The respondent-assessee is a Partnership firm which is, inter-alia, engaged in the business of Customs House Agent (CHA) in accordance with the licensing conditions prescribed by the Customs Act, 1961. A survey action u/s 133A of the Act was carried out in the premises of assessee on 24.2.2011 in consequence of which orders u/s 201(1) and 201(1A) of the Act were passed by the Assessing Officer for the captioned Assessment Years. For Assessment Year 2008-09, Assessing Officer found the assessee as an ‘assessee in default’ for not having deducted tax at source under various sections prescribed in Chapter XVII-B of the Act. As a consequence, a demand of Rs.94,24,617/- was determined u/s 201(1) r.w.s. 201(1A) of the Act. The assessee firm carried the matter in appeal before CIT(A) who has disagreed with the Assessing Officer and allowed the pleas of assessee on various issues against which Revenue is in appeal before us.

The first issue before us is manifested by Ground of appeal nos. 1 and 2, wherein as per the Assessing Officer, assessee ought to have deducted tax at source u/s 194I of the Act on payments made to Central Warehousing Corporation (CWC), Container Freight Station (CFS), Bombay Port Trust (BPT) and Airport Authority of India (AAI) for services rendered by such entities which included use of space for storage of imported/exported materials. As per Assessing Officer such payments were to be construed as payment of ‘rent’ within the meaning of Sec.

Against the aforesaid, the only plea brought out by the ld. DR is that the meaning of expression ‘rent’ used in Sec. 194I of the Act is very wide and would include within its sweep payment by whatever name called, made in pursuance of any arrangement or agreement and, therefore, under the present circumstances the payment made by the assessee constituted ‘rent’ which was liable for deduction of tax at source u/s 194I of the Act.

On the other hand, the learned representative for the assessee pointed out that the Department had taken similar action in a multiple set of cases involving Customs House Agents and that in a few of such cases, Tribunal has already adjudicated the issue and upheld the stand of assessee that such payments are not liable for deduction of tax at source u/s 194I of the Act. In this context, our attention was drawn to the following decisions, wherein the stand of assessee has been upheld: i) CIT v. Cargo Linkers, (2008) 218 CTR (Del) 695 ii) Hah Logistics v. DCIT iii) DCIT v. Jay Kay Freighters Pvt. Ltd., ITA No. 3407/Del/2011 iv) ITO v. M/s. Universal Traffic Co. & ITO v. M/s. Express Transport Pvt. Ltd., ITA Nos. 1426 to 1429/Mum/2013 and 1473 to 1475/Mum/2013 Apart therefrom, reliance has been also placed on an another decision of the Tribunal in the case of M Dharamdas and Company, ITA Nos.

On the other hand, ld. DR has not referred to any contrary decision. In this view of the matter and considering the findings of CIT(A) noted above, which have not been controverted by the Department before us, we approve the conclusion of CIT(A) that the payments made to CWC, CFS, BPT and AAI cannot be construed as ‘rent’ for the purposes of Sec. 194I of the Act. Thus, insofar as Ground of appeal nos. 1 and 2 are concerned, same are dismissed.

On this aspect of the controversy also, we find no error on the part of CIT(A) because the payments have been made by the assessee in the capacity of an intermediary between its client exporter/importer and the recipients who have conducted the inspection of goods so as to facilitate customs clearance. The reasoning adverted by the CIT(A) is similar to that considered by us while dealing with the payments made to CWC, CFS, BPT and AAI and, therefore, the conclusion drawn by CIT(A) to the effect that assessee cannot be construed as an ‘assessee in default’ within the meaning of Sec. 201(1) and 201(1A) of the Act is hereby upheld. Thus, in Ground of appeal no. 3 also Revenue fails.

The issue raised by the Revenue in Ground of appeal no. 4 relates to internet charges paid by the assessee on which no tax was deducted at source. The fact-position is that such payments have been made by the assessee-firm to concerns providing broadband facilities. As per the Assessing Officer, payments have been made for obtaining a technical service and, therefore, tax was liable to be deducted at source u/s 194J of the Act. Notably, Sec. 194J of the Act prescribes for deduction of tax at source on payments made for obtaining any managerial, technical or consultancy services, as also for services of technical or other personnel, which could be regarded as fees paid for technical services. The stand of assessee was that the broadband company did not provide any technical knowledge to the assessee and that the broadband

After considering the rival stands on this issue, in our view, the parity of reasoning laid down by the Hon'ble Madras High Court in the case of Skycell Communications Ltd. (supra) clearly covers the controversy against the Revenue. In the case before the Hon'ble Madras High Court, it has been held that the mobile telephone facilities provided by the cell phone companies to their subscribers for making/receiving calls etc. cannot be construed as ‘technical services’ and thus, it cannot be brought into the ambit of Sec. 194J of the Act. In the present case, when the assessee is availing internet services from the broadband service provider, it does not entail that such broadband service provider is making available a ‘technical service’ so as to require the assessee to deduct tax at source u/s 194J of the Act. Therefore, we hereby affirm the order of CIT(A) on this aspect also. Accordingly, Revenue fails in Ground of appeal no. 4 also.

The issue raised by the Revenue in Ground of appeal no. 5 relates to payment made towards hiring of Forklift/Cranes on which assessee had deducted tax at source in terms of Sec. 194C of the Act, whereas as per the Assessing Officer, tax was liable to be deducted u/s 194I of the Act treating the payments to be in the nature of ‘rent’. Accordingly, assessee was held to be an ‘assessee in default’ for short deduction of tax at source u/s 201(1) and 201(1A) of the Act. In this context, the plea of the assessee was that the payments were made to the contractors for services of handling and transportation of cargo after the customs clearance. Assessee explained that it hired services of contractors for handling of the goods and in the course of providing such service, the contractors engaged the services of Cranes and Forklift operators. The assessee explained that it considered the services being provided by the contractors as a ‘composite service’ for handling of goods on which the requisite tax was deducted at source in terms of Sec. 194C of the Act. It was pointed out that there was no contract entered by the assessee for hiring of Forklifts and Cranes specifically so as to hold that assessee had made any payments towards rental of Forklifts and Cranes. The CIT(A) has accepted the plea of assessee by noticing that the payments in question were made by the assessee towards a ‘composite contract’ for handling of the goods and that it is the contractors who had in-turn hired the Cranes/Forklifts for their use. Thus, CIT(A) upheld the stand of assessee that such payments are subject to deduction of tax at source u/s 194C and not u/s 194I of the Act, as contended by the Assessing Officer.

Before us, the ld. DR has merely pointed out that the payments made by the assessee included charges for hire/rental of machineries which attract deduction of tax at source u/s 194I of the Act.

On the other hand, the learned representative for respondent- assessee pointed out that Mumbai Bench of the Tribunal in the case of ACIT vs. Accenture Services (P.) Ltd., 44 SOT 290 (Mum.) has held that Sec. 194I of the Act is not attracted where payments are made for availing of transport services inspite of the fact that it involved use of transport vehicles.

We have carefully considered the rival submissions. The charge being made by the Assessing Officer is that payment to contractors involved charges for renting of Cranes/Forklifts, and therefore, such payments would fall within the meaning of ‘rent’ for the purposes of Sec. 194I of the Act. In our considered opinion, having regard to the factual matrix brought out by the CIT(A), Assessing Officer has clearly failed to appreciate the nature of expenses in its true perspective. Factually speaking, the payments have been made to the contractors for providing services of handling and transportation of cargo after the customs clearances were obtained. Such charges, inter-alia, entailed loading and unloading of cargo for which the contractors utilized Forklifts/Cranes being maintained by them. Quite clearly, assessee has not entered into any contract for hiring of Forklifts or Cranes, but it is a case where the contractor has utilized the same in discharge of his services to the assessee-firm. Therefore, in such a situation, it is not possible to conclude that assessee contracted for renting of 12 M/s. Chinubhai Kalidas & Bros. to 1515 & 5459/Mum/2013 Forklifts/Cranes so as to treat the payments as ‘rent’ for the purposes of Sec. 194I of the Act. CIT(A), in our view, correctly came to conclude that the payments have been made by the contractors against work executed on behalf of the assessee which clearly attracts deduction of tax at source u/s 194C of the Act and not u/s 194I of the Act, as contended by the Assessing Officer. Thus, on this aspect also Revenue fails.

The next issue raised by the Revenue by way of Ground of appeal no. 6 relates to payments made towards fumigation charges. In this context, Assessing Officer noticed that assessee had paid fumigation (pest control) charges on which tax was deducted u/s 194C of the Act whereas according to Assessing Officer, tax ought to have been deducted in terms of Sec. 194J of the Act considering such payments as fees for technical or professional services. CIT(A) upheld the stand of assessee by concluding that such services do not involve rendering of any professional or technical services and that deduction of tax at source u/s 194C of the Act was correctly done by the assessee. Against such a decision, Revenue is in appeal before us.

Grounds of appeal no. 7 and 9 relate to interest levied u/s 201(1A) of the Act, which has been deleted by CIT(A). Since the assessee has not been found to be in default within the meaning of Sec. 201(1) of the Act, deletion of interest u/s 201(1A) of the Act is consequential and has been rightly deleted by the CIT(A). Thus, the said grounds are dismissed.

The only ground remaining is Ground of appeal no. 8 which is only a repetition of issues which have already been dealt with by us in the earlier paras. Thus, the said ground is dismissed as misconceived.

In the result, appeal of the Revenue is dismissed.

Insofar appeals for Assessment Year 2009-10 to 2011-12 are concerned, the issues as well as the facts and circumstances are pari materia to those considered by us in the Revenue’s appeal for Assessment Year 2008-09 in the earlier paragraphs; and, thus our decision in the appeal for Assessment Year 2008-09 shall mutatis mutandis apply for Assessment Years 2009-10 to 2011-12 also.

Resultantly, all the appeals of Revenue are dismissed.