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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S. Viswanethra Ravi
Per Shri P.M. Jagtap:- This appeal is preferred by the Revenue against the order of ld. Commissioner of Income Tax (Appeals)-XX, Kolkata dated 17.10.2012 for the assessment year 2009-10 on the following grounds:- (1) That ld. CIT(A) erred in giving relief to the assessee firm by allowing the disallowance u/s 40(a)(ia) of the Income Tax Act, 1961 for payment made on account of transportation charges of Rs.1,03,98,235/- though the liabilities of TDS were arisen on such payments.
(2) The ld. CIT(A) also erred in giving relief in favour of the assessee firm by relying on the judgment in the case of Merilyn Shipping & transports –vs.- Additional Commissioner of Income Tax, Range-1, Visakhapatnam, vide ITAT, Special Bench, Visakhapatnam’s order dated 29.03.2012 in ITA No. 477/Viz./2008 though the case of ./2013 Assessment year: 2009-2010 Page 2 of 6
Merilyn Shipping & Transports has been stayed from operation by the Hon’ble Andhra Pradesh High Court.
The assessee in the present case is a partnership firm, which is engaged in the business of providing services as Customs Clearing & Forwarding Agent. The return of income for the year under consideration was filed by it on 19.05.2010 declaring total income of Rs.13,95,146/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has paid a total sum of Rs.6,78,48,890/- on account of reimbursement of expenses. On perusal of the details filed by the assessee in this regard, the Assessing Officer noticed that no tax was deducted by the assessee on the payments made towards transportation charges to the extent of Rs.1,03,98,235/-. According to the Assessing Officer, the assessee was required to deduct tax at source from these payments made on account of transportation charges as per the provision of section 194C of the Act and since there was failure on the part of the assesese to comply with this requirement, transportation charges of Rs.1,03,98,235/- were disallowed by the Assessing Officer by invoking the provisions of section 40(a)(ia) of the Act.
The disallowance made by the Assessing Officer on account of transportation charges under section 40(a)(ia) was challenged by the assessee in appeal filed before the ld. CIT(Appeals). During the course of appellate proceedings, the following submissions were made on behalf of the assessee in support of its case that the disallowance made by the Assessing Officer on account of transportation charges under section 40(a)(ia) is not sustainable:- “The appellant's source' of income is acting as customs clearing and forwarding agent. The work includes clearing of goods from the ship to delivery of goods to its destination which essentially includes the transportation. The appellant has no vehicles of its own and hence have to procure the vehicle of its own and hence have to procure the vehicle from the transporters on hire basis. The appellant raises the bill, which include the nature of expenses ./2013 Assessment year: 2009-2010 Page 3 of 6
incurred on behalf of the party. The party pays the bill amount after deduction of Income Tax deductible at source.
In course of verification the Id. Income Tax Officer noticed the payment of Rs.11406775.00 towards the Transportation charges of which a sum of RS.910240.00 paid to M/s. Multimode Marine upon which appropriate TDS was deducted u/s.194C of the Income Tax Act, 1961 because there exists a contract between the deductor and deductee. That beside the above the appellant paid a sum of Rs.l0398235.00 to different transporter or lorry drivers/owners for that there is no contract between the deductor and deductee. The entire liabilities on account of transportation charges was discharged during the financial year and there remain no outstanding payable to the transporter or vehicle owner. A list of the said parties is enclosed for your honour's kind perusal.
Section 194C of the Income-tax Act, 1961 envisages that a person responsible for paying any sum to a resident referred to as a contractor or sub-contractor shall deduct the tax at source if the credit or payment is in pursuance of contract between the person responsible for making the payment to the contractor or sub-contractor.
194C Payments to the Contractors and sub-contractors: - Any person responsible for paying any sum to any resident (hereinafter in this section referred to as contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person.
194C(2) Explanation IV(c), the expression "work" shall include carriage of goods or passenger by any mode of transport other than Railways.
That in course of assessment proceeding, the ld. Income-tax Act, 1961 never confronted the assessee with the issue thereby enabling to explain the legal dictum and, hence, jeopardizing the principle of natural justice. It is humbly submitted that the ld. Income Tax Officer never sought any information, explanation or show cause in this instant case the assessment record is a testimony of this vital fact.
That the Id. Income Tax 'Officer has not inevitable brought on record any document whatsoever to suggest that these exists any contract between the appellant and the carriers.
On top of all, it is now judicially settled that in the absence of specific contract for the hiring of the trucks, as in the case of ./2013 Assessment year: 2009-2010 Page 4 of 6 hiring from isolated random parties, no liability to deduct at source arises. The liability to deduct tax at source could have arisen under section 194C(2) in the case only if all the truck- owners/drivers had entered into contracts with the assessee to carry out and execute the assessee's obligation en masse accepting their role as contractors for the work wholly or in any part of the contract job of the assessee. In the case there is no such contract as may attract section 194C(2). The ITAT benches in unison have held as the state of law that mere hiring tracks does not predicate application of the said sections. There has to be a contract formally binding the truck-owners drivers to the whole the obligations as bind the hirer under this connection with his contractee as a subcontractor under the main contract inter se the assessee and the assessee and his contractee. Reference is placed on the decision in Dy. CIT vs. Satish Agarwal & Co. (2010) 122 ITO 35 (TAsr.) Mytheri Transport Corpn. V. ACIT (2010) 124 ITO 40 (TV ishkha), Mrs. Kavita Chug vs. ITO (2010) 134 TT] 103 (TCAL). M/s. Seven Hills Cargo Carrier \I. Income Tax Officer, 2012 (7) TMI 37 ITAT Visakhapatnam.
This principle that underlies the decision found affirmation in CIT V. D. Rathinam (2011) 335 ITR 101 (Mad.). The Hon'ble Punjab & Haryana High Court in the case of CIT v United Rice Land Ltd. (2008) 217 CTR (P & H) 305: (2008) 174 Taxman 286 (P & H) has held that when the freight charges are paid directly by the assessee to the truck owners, there was no oral or written contract between the assessee and the transporters, no tax at source was to be deducted on the freight charges paid to the truck owners. The Special Bench at Visakhapatnam, ITAT In ITA No. 477/Viz./2008 vide its order in the case of Merilyn Shipping Transport V. Additional Commissioner of Income Tax, Range-I, Visakhapatnam has dealt the issue and held that the term payable in section 40(a)(ia) include paid and payable both.
In view of the above the appellant respectfully submits that the addition made by the Ld. Income Tax Officer is not at all sustainable and deserve to be decided in view of the explicit provision of section 194C(1) read with section 40(a)(ia) of the Income Tax Act, 1961 contrary to the view taken while making the addition, Therefore, it is prayed that the addition of Rs.10398235.00 may kindly be deleted and/or to pass such order which your honour deem fit and necessary”.
After considering the submissions made by the assessee, the ld. CIT(Appeals) deleted the disallowance made by the Assessing Officer on account of transportation charges under section 40(a)(ia) for the following reasons given in paragraph no. 4.2 of his impugned order:- “4.2. I have perused the assessment order and considered the submission of the appellant. In view of the facts that ./2013 Assessment year: 2009-2010 Page 5 of 6
the amounts of transportation expenses did not remain payable at the end of the year as the same was paid during the year itself. Therefore, following the judgment in the case of Merilyn Shipping & Transports –vs.- Additional Commissioner of income Tax, Range1, Visakhapatnam, ITAT, Special Bench, Visakhapatnam in ITA No. 477/Viz./2008 order dated 29.03.2012 which is being followed by the ITAT, Kolkata Also, the appeal on this ground is allowed”.
Aggrieved by the order of the ld. CIT(Appeals), the Revenue has preferred this appeal before the Tribunal.
At the time of hearing before us, nobody has appeared on behalf of the assessee. This appeal of the Revenue is, therefore, being disposed of ex parte qua the respondent-assessee after hearing the arguments of the ld. D.R. and perusing the relevant material available on record. As rightly submitted by the ld. D.R., the decision of Visakhapatnama Special Bench of ITAT in the case of Merilyn Shipping & Transports (supra) relied upon by the ld. CIT(Appeals) to give relief to the assessee has been subsequently overruled by the Hon’ble Calcutta High Court in the case of CIT –vs.-Crescent Export Syndicate reported in 262 CTR 525 holding that the provisions of section 40(a)(ia) are applicable not only to amount which is shown as payable on the date of balance-sheet, but also to such expenditure, which has become payable at any time during the relevant previous year and is actually paid within the previous year without making TDS. Respectfully following the said decision of the Hon’ble Jurisdictional High Court, we set aside the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer under section 40(a)(ia) by relying on the decision of Visakhapatnam Special Bench of ITAT in the case of Merilyn Shipping & Transports (supra). It is, however, observed that the assessee in its submissions made before the ld. CIT(Appeals) had raised various other issues/ contentions while challenging the disallowance made by the Assessing Officer on account of transportation charges under section 40(a)(ia), but the same has not been considered or examined by the ld. CIT(Appeals) in ./2013 Assessment year: 2009-2010 Page 6 of 6 view of the relief allowed by him to the assessee by relying on the decision of Visakhapatnam Special Bench of ITAT in the case of Merilyn Shipping & Transports (supra) and this position clearly evident from the impugned order of the ld. CIT(Appeals) has not been disputed even by the ld. D.R. We, therefore, consider it fair and proper and in the interest of justice to remit the matter back to the ld. CIT(Appeals) for considering and examining the other contentions/issues raised by the assessee and to decide the issue accordingly.