ITO (TDS) RG 2, MUMBAI vs. MANILAL PATEL CLEARING FORWARDING P.LTD, MUMBAI

Per Joginder Singh (Judicial Member) All these appeals are by the Revenue for Assessment Years 2008-09 to 2010-11, wherein, in the impugned orders, the ld. First Appellate Authority held that the assessee was not liable to deduct tax u/s 194I of the Act and deleting the dock fees and airport terminal charges determined u/s 201(1)/201(1A) of the Act and further deleting the interest levied u/s 201(1A) by holding that the payment of cargo handling charges does not fall within the ambit of section 194J of the Act.

3 M/s Manilal Patel Clearing Forwarding Pvt. Ltd. to 4858 &4950/Mum/2013 2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is custom house agents filed TDS returns. Survey u/s 133A of the Act was carried out on 24/02/2011. The assessee disclosed the material facts/documents during survey and also during subsequent submission dated 18/03/2011 and 23/03/2011 made before the Assessing Officer. The Assessing Officer passed order u/s 194C, 194 I and 194J of the Act, raising the demand u/s 201(1), amounting to Rs.24,18,860/- and interest thereupon u/s 201(1A) amounting to Rs.10,15,921/-, thus, the total demand was raised to the tune of Rs.34,34,881/-. The aggrieved assessee filed appeal before the ld. First Appellate Authority challenging the order passed u/s 201(1) and 201(1A) of the Act. The explanation of the assessee is that the assessee duly assessed to tax and had been filing return of income by including the impugned amounts in the return by claiming that tax has already been paid by the payees, which cannot be recovered again from the assessee, thereby no default has been committed, as has been alleged by the ld. Assessing Officer. We note that the ld. Commissioner of Income Tax (Appeals) duly considered the submissions of the assessee, various case laws as mentioned in various paras of the impugned orders and the charges separately. The submissions of the assessee has been reproduced in the impugned order as is evident from para 3.8 onwards. We have gone through the facts and the case laws such as Hah Logistics vs DCIT (ITA No.1864/Del./2011) order dated

4 M/s Manilal Patel Clearing Forwarding Pvt. Ltd. to 4858 &4950/Mum/2013 04/11/2011 and DCIT vs Jay Kay Freighters Pvt. Ltd. (ITA No.3407/Del./2011) order dated 08/08/2012, with respect to section 194C, wherein, the decision from Hon’ble Delhi High Court in the case of Cargo Linkers (218 CTR 295) (Del.) was relied upon. We note that the assessee was acting only as an intermediatery between the importers/exporters and the port authorities. The assessee merely collected payments from its customers and disbursed the same to them. The ground rent, terminal handling and demurrage were also the sole liability of the clients. Thus, in the absence of any privity of contract between the port authorities and the assessee, it can be said that the assessee is not a person responsible for deducting tax u/s 194 I of the Act, consequently, it can be concluded the assessee cannot be said to be assessee in default in respect of payments made to AAI/BPT and the demand raised u/s 201(1)/201(1A) of the Act. The regulations prescribe the responsibilities of the custodians, who are allowed to operate in the custom area to handle the goods. Such persons are called Custom Cargo Service Providers (CCSP) and their obligations and responsibilities have been elaborately set out in clause-6 of the said regulations. Clause-5 of the regulations sets out various conditions which an applicant is required to fulfill to get recognition from the authorities/custom authorities to function as CCSPs. The stand of the Revenue/Assessing Officer is that the term “rent” defined in explanation (1) to section 194 I is very wide in its ambit and includes every kind of payment by whatever name they called, which is paid pursuant to any agreement or arrangement.

5 M/s Manilal Patel Clearing Forwarding Pvt. Ltd. to 4858 &4950/Mum/2013 Admittedly, such CCSPs are providing various ranges of services, enabling the importer/exporter, to comply with custom regulations till clearance is obtained, thus, charges paid to CCSPs are not in the nature of rent simplicitor but they were in the nature of statutory charges or levies, paid for complying with the notified procedure. The assessee is merely working as intermediatery and their functions are governed/regulated by the custom house agents licensing regulations 2004. Regulation 13 exhaustively list out the obligations and responsibilities of custom house agents. As per the custom regulations, the obligation to make the payments of such charges is upon the importer/exporter, whose goods are handled by them. The assessee is merely providing services to the exporters/importers. Viewed from this angle, we find merit in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals) that the assessee is not a person responsible as defined u/s 194 I, therefore, regarded in default for non-deduction of tax. Therefore, imposition of section 201(1) and consequent interest 201(1A), as alleged by the Assessing Officer was not justified. Identical is the situation for Cargo handling charges. So far as, fee for technical services is concerned, it has been clarified in Merchan Shipping Services Pvt. Ltd. (2011) 9 taxman.com 17 (Mum.) and HCL Infotel Ld. vs ITO 99 TTJ 440 (Chandigarh) in which the decision from Hon’ble Madras High Court was relied upon. The stand of the Revenue is that these payments represents fee for technical services, requiring deduction of tax u/s 194J of the Act. The assessee further find support from 6 M/s Manilal Patel Clearing Forwarding Pvt. Ltd. to 4858 &4950/Mum/2013 the decision in Skycell Communications Ltd. vs DCIT and HCL Infotel Ltd. vs ITO (supra), thus, no default was committed by the assessee u/s 194J of the Act. We affirm the stand of the ld. Commissioner of Income Tax (Appeals).

3.1. We have considered the rival submissions and perused the material available on record. The stand of the Assessing Officer is that since the total reserves exceeds the investment in securities, income from which is exempt, therefore, it can be presumed that investment were out of borrowed funds. However, the investments were made by the assessee over the years and the total reserves in the respective years were more than the total investments during the year. Thus, in view of the decision in Reliance Utilities in 313 ITR 340 (Mum.), we find merit in the submissions of the assessee. It is also noted that the ld. Commissioner of Income Tax (Appeals) uphold the disallowance amounting to Rs.3304. We affirm the stand of the ld. Commissioner of Income Tax (Appeals).

7 M/s Manilal Patel Clearing Forwarding Pvt. Ltd. to 4858 &4950/Mum/2013 3.2. So far as, disallowance of payments made in violation of the provisions u/s 40(a)(ia) r.w.s 194 I and 194J is concerned, we note that in para 4.1 of the impugned order, the brake up of the disallowance made by the Assessing Officer has been discussed. Since, we have held that the assessee is not covered u/s 194I/194J and the assessee cannot be treated in default, therefore, we affirm the stand of the ld. Commissioner of Income Tax (Appeals). Resultantly, this appeal of the Revenue is also having no merit.

Finally, the appeals of the Revenue are dismissed.

This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 29/10/2015.