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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
Aforesaid appeal of the Department is directed against the order dated 11th September 2013, passed by the learned Commissioner (Appeals)–23, Mumbai, for the assessment year 2010–11.
The Department has filed this appeal being aggrieved by the order passed by the learned Commissioner (Appeals) in deleting the addition of ` ` 3,28,88,794, made by the Assessing Officer under section 40(a)(ia) of the Income Tax Act, 1961 (for short "the Act")
2 M/s. Rajeshwaree Shipping & Logistics alleging non–deduction of tax at source (TDS) on payments made to various parties.
Brief facts are, the assessee a partnership firm is engaged in the business of providing logistic service relating to export/import viz. transportation, warehousing, packaging, custom clearance, organizing of container with the shipping lines, arrangement of labour for upholding unloading cargo, etc. The major area of activity of the assessee is custom clearance which involved clearing of goods from docks/airports. As stated, major clearing work is conducted from the Jawaharlal Nehru Port Trust and Bombay Port Trust and payments were made to Port Authorities/Port Trust Authorities, Airport Authorities and Container Freight Station (CFS) on behalf of its principal. For the service rendered the assessee earns agency commission which is offered as income. For the assessment year under consideration, the assessee filed its return of income on 22nd September 2010, declaring total income of ` 18,74,970. In the course of assessment proceedings, the Assessing Officer after verifying the computation of income, Profit & Loss account, Balance Sheet forming part of tax audit report noticed that the assessee has earned gross income from agency commission of ` 83,47,952 during the year and after claiming expenditure and remuneration to partners, net profit
3 M/s. Rajeshwaree Shipping & Logistics amounted to ` 18,75,468. On verification of the financial statements of the assessee, the Assessing Officer noticed that during the relevant previous year, the assessee has paid an amount of ` 3,28,88,794, to CFS and inland container depots for/on behalf of importer/exporter. He found, these CFS/inland container depots are private parties operating under JNPT. As stated by the Assessing Officer, assessee was asked to furnish details of the CFS/Inland Container Depot (ICD) and payment made to them with TDS details. In response to the query raised, assessee furnished a chart showing head–wise and client–wise expenditures made which aggregated to ` 3,28,88,794. The Assessing Officer after verifying the details submitted by the assessee and copies of the quotations for clearance of cargo issued by the assessee to its clients noted that the assessee is acting on behalf of its client and charging commission for the service given. On verification of the bills raised, the Assessing Officer found that the assessee has raised separate bills for agency commission and expenses incurred towards clearing of goods. He also observed that the final invoice drawn by CFS/ICD contained the particulars of transactions such as importers’ name and address, liner code, vessel name, item code, description, etc., and corresponding receipt was raised by CFS in the name of the assessee. He also found from the bills that the major amount charged was for ground rent of loaded container, handling and transportation,
4 M/s. Rajeshwaree Shipping & Logistics CFS Cargo handling charges, etc. The Assessing Officer was of the view that as the assessee is dealing with the CFS for and on behalf of its client, it was the liability of the assessee to deduct tax while making payment to CFS and raised the bill to that effect. Since the assessee has failed to deduct tax at source while making payment, he called the assessee to explain why disallowance under section 40(a)(ia) should not be made for non–deduction of tax at source under section 194C. In response to the show cause notice issued by the Assessing Officer, it was submitted by the assessee, as the payment made is for/on behalf of its clients, which was subsequently reimbursed by the client to the assessee, it cannot be treated as the expenditure relating to assessee’s business or payment made by the assessee for its business so as to attract the provisions of section 194C. The Assessing Officer, however, was not convinced with the reply of the assessee. He was of the view that since the assessee has made payment to CFS, it was the obligation of the assessee to deduct tax at source while making such payment. He also rejected the contention of the assessee that CFS/ICD being Government and Semi Government bodies there is no requirement of deduction of tax at source. Thus, on the aforesaid reasoning, the Assessing Officer disallowed an amount of ` 3,28,88,794 by invoking the provisions of section 40(a)(ia). Being
5 M/s. Rajeshwaree Shipping & Logistics aggrieved of such disallowance, assessee preferred appeal before the learned Commissioner (Appeals).
Learned Commissioner (Appeals) after examining the submissions of the assessee in the context of facts and material on record, found that the payment made by the assessee to the CFS/ICD were on behalf of its clients as a custom house agent. He noticed, the Assessing Officer has himself noted that the assessee has made payments to the CFS and ICDs for/on behalf of his clients. He also noticed that the assessee has raised separate bills towards expenditure actually incurred on behalf of the client and a separate bill for agency commission on account of services rendered. The learned Commissioner (Appeals) was of the view, when there is no dispute that the assessee has made the payments on behalf of its customers/clients there is no necessity to deduct tax at source on such payments, hence, provisions of section 40(a)(ia) cannot be invoked. The learned Commissioner (Appeals) observed, the disallowance under section 40(a)(ia) can be made only in a situation where an expenditure claimed by the assessee is to be allowed while computing the income from business. He observed, since in assessee’s case the payments made to the CFS / ICD were never claimed as expenditure in the Profit & Loss account provisions of section 40(a)(ia) cannot be invoked to 6 M/s. Rajeshwaree Shipping & Logistics disallow the same. The learned Commissioner (Appeals) observed, as the assessee while acting as an agent of the importer/exporter is making payment to CFS/ICD on behalf of such importer/exporter the payment made is deemed to be the expenditure incurred by the importer/exporter and not an expenditure of the assessee. Thereafter, the learned Commissioner (Appeals) relying upon the decisions of the Tribunal, deleted the addition made by the Assessing Officer.
Learned Departmental Representative relying upon the observations of the Assessing Officer submitted, the assessee having made payments to private parties towards services rendered by them was liable to deduct tax under section 194C of the Act, as the assessee has failed to deduct tax at source disallowance made under section 40(a)(ia) was correct. The learned Departmental Representative submitted that the assessee under the provisions of 194C, was duty bound to deduct tax on payments made to a contractor/sub–contractor for services rendered. Failure to deduct tax will automatically attract the provisions of section 40(a)(ia). Learned Departmental Representative submitted, irrespective of the fact whether the assessee has debited the expenditure to the Profit & Loss account disallowance under section 40(a)(ia) has to be made on non–deduction of tax at source.
7 M/s. Rajeshwaree Shipping & Logistics
Learned Authorised Representative strongly supporting the order of the learned Commissioner (Appeals) submitted, in the course of assessment proceedings, assessee has submitted all necessary and relevant information to prove the fact that payments made by the assessee to CFS/ICD are on behalf of the importer of goods for whom the assessee was working as custom clearing agent. Learned Authorised Representative submitted, before the Assessing Officer not only the assessee has produced each and every bills and vouchers in support of the payments made but has also furnished all relevant details to co–relate each item of expenditure/payment made to CFS/ICD to the imports made by the clients. In this context, he drew our attention to the information submitted before the Assessing Officer in the course of assessment proceedings, indicating the name of importers, details of imports, duty payment, container name, details of storage in CSF/ICD, etc. He submitted, the Assessing Officer has not found anything adverse in the documents submitted by the assessee and in fact accepted that the assessee is acting as a clearing agent on behalf of the importer while making such payment to CFS/ICD, but at the same time he has concluded that the assessee was required to deduct tax at source on such payments. Learned Authorised Representative submitted, in fact, the assessee raises separate bills on its clients one for reimbursement of cost / expenditure actually
8 M/s. Rajeshwaree Shipping & Logistics incurred on behalf of the importers and second one is for agency commission. To demonstrate such fact, the assessee drew our attention to the copies of the bills raised. Learned Authorised Representative finally submitted the issue is otherwise covered by the decision of the Tribunal in a number of cases wherein it is held that the payment made by clearing and forwarding agent on behalf of its client do not attract TDS provisions. For such proposition, he relied upon the following decisions:–
DCIT v/s Rank Shipping Agency Pvt. Ltd., ITA no.5946/Mum./ 2008, dated 21.11.2012; 2. CIT v/s Cargo Linkers, [2008] 218 CTR 695 (Del.); 3. DCIT v/s Jay Kay Freighters P. Ltd., ITA no.3407/Del./2011, dated 8.8.2012; 4. Hah Logistics v/s DCIT, ITA no.1864/Del./211, dated 4.11.2011; 5. Mitra Logistics P. Ltd., v/s ITO, ITA no.852/Kol./2011, dated 25.9.2012; 6. CIT v/s Hardarshan Singh, DATED 9.1.2013 (Del.); 7. ITO v/s M/s. Universal Traffic Co., ITA no.1426 TO 1429/Mum./2013, dated 17.12.2014.
Learned Authorised Representative submitted, during the year assessee has earned net commission income as a clearing and forwarding agent at ` 83,47,952 and after expenditure has shown net profit of ` 18,75,468. Thus, it is highly illogical and irrational that to 9 M/s. Rajeshwaree Shipping & Logistics disallow expenditure of ` 3,28,88,794 when the gross commission income earned by the assessee is ` 83,47,952, which has not been disputed by the Assessing Officer. Thus, the disallowance made by the Assessing Officer is highly disproportionate to the income earned by the assessee. Learned Authorised Representative submitted, no service tax is payable on the payment made by custom house agent on behalf of its clients. In this context, he referred to the circular issued by the Commissionerate of Central Excise, Customs and Service Tax in Trade Notice no.5/97–ST dated 12th June 1997. He, therefore, submitted, when one arm of the Central Government is recognising that the payments made by the custom house agent on behalf of importer/exporter is merely on actual basis, another arm of the Government i.e., Income–tax Department cannot treat the same as payments made by the assessee. Thus, the learned Authorised Representative submitted, there is no reason to interfere with the order of the learned Commissioner (Appeals).
We have considered the submissions of the parties and perused the material available on record. On a perusal of the assessment order, it is very much clear that in the course of assessment proceedings, the assessee has furnished every necessary details in respect of payment of ` 3,28,88,794 made to CFS/ICD operating under 10 M/s. Rajeshwaree Shipping & Logistics JNPT/BPT. On a perusal of the relevant details / documentary evidences, it is found that before the Assessing Officer, the assessee has not only produced the bills raised by the CFS/ICD on the assessee but also the bills raised by the assessee on the importers towards expenditure incurred on behalf of them. It is also noticed, in the final invoice drawn by the CFS/ICD submitted before the Assessing Officer all particulars of transactions were noted such as importer’s address, liner code, vessels particulars of transaction, vessels’ name and item code, description, rate charged, etc. These facts prove that the payment made by the assessee to the CFS/ICD were for/on behalf of importer of goods to whom the assessee rendered services as custom house agent. In fact, on a perusal of the observations made in the assessment order would reveal that the Assessing Officer has also accepted the fact that the assessee has made the payments to CFS/ICDs on behalf of its clients/importers as a custom house agent. The only reason for which the Assessing Officer has treated the payments to be subject to deduction of tax is, the assessee has directly paid them to the CFS / ICDS and it has received payments from the importer who have also not deducted tax at source on such payments made to the assessee. In our view, non–deduction of tax by the importers on the payments made to the assessee would not fasten the liability on the assessee under section 194C. When the Assessing
11 M/s. Rajeshwaree Shipping & Logistics Officer admits the fact that the assessee has made payments to CFS/ICD on behalf of importer as a custom house agent and the documentary evidence produced by the assessee also proves such fact, the Assessing Officer cannot disallow the payments under section 40(a)(ia) alleging non–deduction of tax by the assessee. When the expenditure / payment does not relate to the assessee, merely because the assessee has made payments on behalf of its client would not attract the liability of deduction of tax on the assessee. More so, when the assessee has not claimed such payments as expenditure by debiting to its Profit & Loss account. When the payments were made by the assessee on behalf of the importer and subsequently the assessee has raised bills for such payments on actual basis apart from separate bills raised for agency commission and it is evident that importers have reimbursed such expenditure to the assessee on actual basis and has also separately paid agency commission as per the bills raised, the payment to CFS / ICD logically has to be treated as expenditure of importers and not the assessee. Therefore, as a natural corollary if there was any default in deduction of tax on such payments, made to the CFS/ICDs, the liability should be on the person claiming the payment as expenditure. The assessee having never claimed these payments as expenditure, provisions of section 40(a)(ia) are not attracted. Even otherwise also, if the entire issue is looked at 12 M/s. Rajeshwaree Shipping & Logistics rationally and dispassionately it is to be noticed that during the relevant previous year, assessee has earned gross commission income of ` 83,47,952, which has been shown in the Profit & Loss account and the Assessing Officer has also not disputed the income shown by the assessee. Therefore, for earning such income of ` 83,47,952, neither the assessee can be expected to have incurred expenditure of more than ` 3 crore nor the disallowance can be made of that amount. In fact, the Tribunal, Mumbai Bench, in DCIT v/s Rank Shipping Agency Pvt. Ltd., ITA no.5946/Mum./2008 dated 21st November 2012, while deciding identical issue of applicability of TDS provisions to payments made by a custom house agent on behalf of importers held as under:–
We have considered submissions of ld representatives of parties and orders of authorities below.
During the course of hearing, ld D.R. has not disputed the fact that assessee received the said payment aggregating to Rs.18,79,38,741 on account of reimbursement of expenses from its clients apart from agency commission and the agency commission has been considered as assessee’s income and the same is reflected in its profit and loss account. Assessee has adjusted reimbursement of the expenses received on behalf of its clients and, therefore, we agree that the same do not constitute part of assessee’s income. We observe that similar issue was considered by the Delhi Tribunal by its order dated 1.8.2012 in the case of Jay Kay Freighters Pvt Ltd (supra) and it was held that the amount mentioned in the bill raised by shipping companies on ultimate consumer were initially paid by the assessee and, thereafter assessee got reimbursed the said amount from its client including the charges of the assessee for service rendered. Therefore, assessee was not a person responsible for deduction of tax at source in terms of section 194C of the Act and, accordingly, provisions of section 40(a)(ia) cannot be invoked in respect of the payments made by the 13 M/s. Rajeshwaree Shipping & Logistics
assessee to shipping lines for and on behalf of assessee’s clients. Further, we also observe that department has not disputed the submissions made by the assessee before ld CIT(A) that assessee rendered 2351 jobs resulting in voluminous business transactions and the AO called for various details of the payments in less than 5 working days. We agree that it is not possible for computing the details in a short span of time and no adverse inference could be drawn for not able to furnish the same. Considering the facts of the case and the reasons as given by ld CIT(A), mentioned hereinabove, we hold that there is no reason to interfere with the order of ld CIT(A) in deleting the said addition of Rs.18,79,38,741 made by the AO. Accordingly, Ground Nos. 1 & 2 taken by department is rejected.
9. The Tribunal, Mumbai Bench, in Universal Traffic Co. (supra), also expressed similar view by holding as under:–
“2.5. If the observation made in the assessment order, conclusion drawn in the impugned order, material available on record and the assertion made by the ld. Respective counsel, if kept in juxtaposition and analyzed, we note that the ld. Commissioner of Income tax (Appeals) has placed reliance upon various judicial pronouncements from various Benches of the Tribunal like Hah Logistics vs DCIT (ITA No.1864/Del./2011) order dated 04th November 2011 from Delhi Tribunal, DCIT vs Jay Kay Freighters Pvt. Ltd. (ITA No.3407/Del/2011) order dated 08/08/2012, Hon’ble Delhi High Court in CIT vs Cargo Linkers (218 CTR 295), where in the Hon’ble Court held that the assessee being a C& F agent, is an intermediary, who booked cargo for and on behalf of importers and exporters and facilitated the contract for carrying goods, therefore not liable to withhold tax u/s 194C from payments made towards air freight on behalf of its customers, decided in favour of the assessee. We are in agreement with the conclusion drawn by the ld. Commissioner of Income tax (Appeals) because such person who acts as an agent has no liability to deduct tax at source because he is acting merely as an intermediary between the airlines/shipping lines as also custodians of goods on one hand and the importers/exporters on the other. The contract is between the parties and not with the agent. The invoices and other shipping documents are in the names of importer/exporter and the assessee merely receives funds and disburses to the airline/shipping lines till clearance by the customs. The statutory
14 M/s. Rajeshwaree Shipping & Logistics warehousing charges is also the sole liability of the clients and the assessee merely defrays the expenses on behalf of the clients, thus, the assessee/agents are not liable to deduct tax u/s 194C of the Act. Thus, it is unjustified on the part of the Assessing Officer to hold the assessee as “assessee in default”. The privity of contract is between the clients and not with the assessee. There was no contract between the assessee and the authorities rather the assessee is working as a facilitator/agent between the parties and the authorities. It is well understood that TDS is deductable u/s 194C on the payments made to the contractors/ sub-contractors thus the basic premise for deducting tax is on the contracting parties. In the absence of any contractual relationship between the assessee and airlines/shipping lines/Authorities the assessee agent is not liable to withhold tax/deduct tax u/s 194C of the Act. Our view is fortified by the decision of the Kolkata Bench in S.K. Asgar vs ITO (ITA No.2000/K/2009) order dated 31/08/2010 and ITO vs S.S. Impex (ITA No.997/K/2011) order dated 23/09/2011, the decision in Bhagwati Steels (326 ITR 108) and the ratio laid down in CIT vs United Rice Land Ltd. (322 ITR 294) (P & H). It is also noted that the ld. Commissioner of Income tax (Appeals) has dealt with the individual fee/payment/charges and the conclusion arrived at therein is identical. It is worth quoting that the Hon’ble Apex Court in Hindustan Coca Cola Beverages Pvt. Ltd. vs CIT (293 ITR 226) held that where the deductee concerns have already paid taxes on the payments made by the assessee payer then the Department could not deduct tax from the deductor on the same income by treating the latter to be an “assessee in default”. Similarly, in the present case, the payees have offered the corresponding income in their returns, therefore, the alleged TDS liabilities, raised upon the assessee was not enforceable. Ratio laid down in Ramkrishna Vedanta Math vs ITO (ITA No.477/Kol/2012) order dated 31/07/2012 by the Kolkata Bench of the Tribunal supports our view. We note that the freight charges, detention charges and de-stuffing charges, etc. were paid to foreign lines or to their agents or shipping lines for transportation of cargo thus the privity of contract is not between the assessee and foreign lines/shipping lines to whom such charges were paid, thus, the assessee cannot be held to be a person responsible to deduct tax on such payments while acting for his clients. The Hon’ble Delhi High Court in CIT vs Cargo Linkers held that since the contract was between the exporter and shipping lines and the assessee was merely working as intermediary/agent, therefore, he is not a person responsible to deduct tax in terms of section 194 C of the Act. In view of these facts, we find no infirmity in conclusion drawn by the ld. Commissioner of Income tax (Appeals).
15 M/s. Rajeshwaree Shipping & Logistics
2.6. So far as, survey fee is concerned, it is paid to the persons or agencies appointed by CCSP’s who conduct inspection of the goods. Inspection of cargo is integral step for custom clearance. Likewise seal wire charges are paid to local labour operating within the customs notified premises to seal/unseal the cargo/container, thus, such payments are paid on behalf of the client and the assessee is merely acting as intermediator for the smooth clearance on behalf of the clients. Identical is the situation for crane/fork lift charges. Reliance can be placed upon the decision in ACIT vs Accenture Services (P) Ltd. (Mumbai Bench of the Tribunal) and GIRDCO Ltd. vs ACIT (Cuttack Bench of the Tribunal). Respectfully following the decisions discussed hereinabove and also discussed in the impugned order, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income tax (Appeals). The impugned orders are upheld.”
10. The other decisions of the Tribunal also express similar view. Thus, applying the ratio laid down in the decision referred to above, we hold that the assessee having made the payments on behalf of its clients, there is no liability to deduct tax at source on the assessee. Consequently, no disallowance under section 40(a)(ia) can be made for alleged failure of the assessee to deduct tax at source on the payment made on behalf of the importers / clients. Therefore, finding no infirmity in the order of the learned Commissioner (Appeals), we uphold the same by dismissing the ground raised by the Department.
In the result, Department’s appeal is dismissed 11. Order pronounced in the open Court on 27.05.2016