ITO 28(1)(3), NAVI MUMBAI vs. CARGO CARRIERS, NAVI MUMBAI

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ITA 130/MUM/2015Status: DisposedITAT Mumbai22 July 2016AY 2011-127 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee acted as an agent for its clients, and the contract for services was between the clients and the service providers. Therefore, the assessee had no obligation to deduct TDS on these payments, and the disallowance was unjustified.

What were the facts?

The assessee, a clearing and forwarding agent, made payments for airline, container freight station, shipping, and transport charges on behalf of its clients. The Assessing Officer disallowed these expenses under Section 40(a)(ia) for failure to deduct TDS. The CIT(A) deleted the disallowance, following a precedent from a previous assessment year.

What were the issues?

Whether the assessee, acting as a clearing and forwarding agent, is obligated to deduct TDS on payments made on behalf of its clients, and if not, whether such disallowance under Section 40(a)(ia) is valid.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 194C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI

Before: SHRI G.S. PANNU & SHRI AMARJIT SINGH

For Appellant: Shri Prakash Pandit
For Respondent: Shri A.K. Kardam
Hearing: 18/07/2016Pronounced: 22/07/2016

Both the appeals by the Revenue relating to Assessment Years 2010-11 & 2011-12 involve a common issue and therefore they have been clubbed together and heard together and a consolidated order is being passed for the sake of convenience and brevity. pertaining to Assessment Year 2010-11 is taken as a lead case. This appeal of the Revenue is directed against the order of CIT(A)-33, Mumbai dated 01.10.2014, which in turn has arisen

2 M/s. Cargo Carriers & 130/Mum/2015 from order passed by the Assessing Officer dated 26.03.2013 under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).

3.

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

“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance made by the A.O u/s 40(a)(ia) of the Act of Rs.2,90,90,302/-.

2.

The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored.”

3. Briefly put, the relevant facts are that the respondent-assessee is a partnership firm which is engaged in the business of clearing and forwarding agents. For Assessment Year 2010-11 it filed a return of income declaring an income of Rs.17,38,720/- which was subject to scrutiny assessment whereby the total income was assessed at Rs.3,12,42,320/-. One of the disallowances made by the Assessing Officer was of Rs.2,90,90,302/- by invoking the provisions of Sec. 40(a)(ia) of the Act. As per the Assessing Officer, the following payments made to the various parties were liable for deduction of tax at source u/s 194C of the Act :-

Airline charges Rs. 78,976/- Container Freight Station charges Rs.1,31,26,921/- Shipping charges Rs. 13,55,360/- Transport charges Rs.1,45,29,075/- Total Rs.2,90,90,302/-

3 M/s. Cargo Carriers & 130/Mum/2015 Since the assessee-firm did not deduct the requisite tax u/s 194C of the Act, the Assessing Officer invoked Sec. 40(a)(ia) of the Act and the corresponding expenditure was disallowed.

4.

The assessee-firm carried the matter in appeal before the CIT(A), wherein various submissions were made on facts and in law. The assessee canvassed before the CIT(A) that the aforesaid payments were made to various CFS (Container Freight Station) agencies appointed under the Customs Act and they related to clearance of goods, and were incurred on behalf of assessee’s clients. The assessee also pointed out to the CIT(A) that for the immediately preceding Assessment Year of 2009-10, the then CIT(A) had decided a similar issue in favour of the assessee. We find that the CIT(A) noted that in Assessment Year 2009- 10, in assessee’s own case, the predecessor CIT(A) has decided the issue in favour of the assessee and following the precedent he has deleted the disallowance. Against such an action of the CIT(A), Revenue is in appeal before us.

5.

Before us, the learned representative for the assessee pointed out that the order of CIT(A) in Assessment Year 2009-10, relied upon by the CIT(A), in the instant year has since been affirmed by the Tribunal vide dated 16.1.2015. A copy of the said order has been placed on record. Apart therefrom, the learned representative for the assessee submitted that a similar controversy has been considered by different Benches of the Tribunal in the following cases :

4 M/s. Cargo Carriers & 130/Mum/2015 i) ITO v. Universal Traffic Co., to 1429/Mum/2013 & 1473 to 1475/Mum/2013 dated 17.12.2014 – ITAT, Mumbai ii) Jaguar Enterprises v. DCIT, dated 3.7.2014 – ITAT, Delhi iii) M/s. Dawn India v. ACIT, dated 8.1.2014 – ITAT, Mumbai iv) DCIT v. M/s. Rank Shipping Agency Pvt. Ltd., & 5805/Mum/2008 dated 21.11.2012 – ITAT, Mumbai v) Jay Kay Freighters Pvt. Ltd. v. ITO, – ITAT, Delhi It was also pointed out that a somewhat similar issue also came up before the Hon'ble Delhi High Court in the case of Cargo Linkers, 218 CTR (Del) 695, wherein it was held that the clearing and forwarding agent is not the ‘person responsible’ for deduction of tax at source in terms of Sec. 194C of the Act in relation to freight payments made to the airline or its general sales agent, as the contract of transportation was actually between exporter and airline, and assessee was only an agent.

6.

The ld. DR appearing for the Revenue has not controverted the factual matrix brought out by the learned representative for the assessee, but has relied upon order of the Assessing Officer in support of the case of the Revenue.

7.

We have carefully considered the rival submissions. The respondent-assessee is in the business of customs house clearing and 5 M/s. Cargo Carriers & 130/Mum/2015 forwarding agency and it has incurred various expenses, viz., airline charges, container freight station charges, shipping and transportation charges, etc. The aforesaid payments were made by the assessee on behalf of its clients to the tune of Rs.2,90,90,302/- during the year under consideration. The assessee did not deduct tax at source from these payments and hence the Assessing Officer invoked Sec. 40(a)(ia) of the Act and disallowed the corresponding expenditure. Similar dispute has been considered by the Tribunal in assessee’s own case for Assessment Year 2009-10 (supra) and the following discussion is relevant :-

“5. The next issue relates to the disallowance made u/s 40(a)(ia) of the Act. The assessee had paid Custom charges, warehousing charges freight charges, professional fee etc. to various parties on behalf of its clients to the tune of Rs.2,35,97,801/-. The assessee did not deduct tax at source from these payments and hence the AO added the above said amount by invoking the provisions of sec. 40(a)(ia) of the Act. The Ld CIT(A) examined this issue in details and noticed that the assessee has incurred these expenses on behalf of its clients on actual basis and has got the reimbursement from its clients. Thus, there was not profit element and hence the Ld CIT(A) held that there was no obligation to deduct tax at source from these payments. Accordingly he deleted the disallowance.

6. We notice that the assessee has incurred these expenses on behalf of its clients, meaning thereby the assessee has acted as agent of its clients. In this kind of situation, the contract does exist between the client of the assessee and the service provider. Hence, the Ld CIT(A) was justified in deleting the disallowance made u/s 40(a)(ia) of the Act, since there is no obligation on the part of the assessee to deduct tax at source. At the time of hearing before us, the Ld A.R placed reliance on the decision rendered by the co-ordinate bench of Tribunal in the case of ITO Vs. Universal Traffic Co. (2014)(42 CCH

6 M/s. Cargo Carriers & 130/Mum/2015

0055)(Mum),wherein the Tribunal had expressed the view identical to that of the Ld CIT(A) in the instant case. The Delhi bench of Tribunal has also expressed an identical view in the case of Jaguar Enterprises Vs. DCIT (151 ITD 376).

7. Since the view taken by Ld CIT(A) on this issue is identical with the view expressed by the co-ordinate benches of Tribunal, we do not find any infirmity in his order on this issue.”

8.

Following the aforesaid precedent, which has been rendered in an identical situation, we hereby affirm the stand of CIT(A) which is in line with the decision of the Tribunal. Thus, on this aspect, Revenue fails.

9.

Insofar appeal for Assessment Year 2011-12 is concerned, the issue as well as the facts and circumstances are pari materia to those considered by us in the Revenue’s appeal for Assessment Year 2010-11 in the earlier paragraphs; thus, our decision in the appeal for Assessment Year 2010-11 shall mutatis mutandis apply for Assessment Year 2011-12 also.

10.

Resultantly, captioned appeals of the Revenue are dismissed.

Order pronounced in the open court on 22nd July, 2016.

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