2006 (10) TMI 259 - AT - Income Tax

Deduction of tax at source u/s 194C Or 194J - Payment made to Clearing and Forwarding Agents ( C FA ) - managerial services - HELD THAT - We found that the C F Agents was required to store, dispose, deliver or redeliver goods as may be determined and notified to such C F Agents by the assessee. The C F Agents was required to store the goods by the assessee with all care, prudence and responsibility so that such goods are free from risks as theft, pilferage and damages. We also found that C F Agents was liable for all damages, pilferage and other losses incurred due to negligence, etc., and undertake to pay on demand in writing made by the assessee without protest the market value of the goods entrusted to such agents. The goods of the assessee was to be received and held by the C F Agents as bailee/trustee, for and on behalf of the assessee. Thus, it is crystal clear from the terms of the agreement that payment was made by the assessee to the C F Agents, was for consolidated set of services which have been broadly described. The main object of the agreement was to ensure correct handling and delivery of goods as per the terms of the assessee. We found that as per the nature of services rendered, the same are in pari materia to the services as contemplated u/s 194C, and the same was not for any professional or technical services as mentioned u/s 194J of the Act. Thus, any payment of any sum shall be liable for deduction of tax only under one section, therefore, payment is also liable for tax deduction only under one section, as warranted by the nature of services stipulated therein. Combined reading of provisions of sections 194C and 194J vis-a-vis C.B.D.T. Circular makes it abundantly clear that in the instant case payment made by the assessee to the C F Agents, was for the services which was pre-dominantly for carrying out work , inter alia, relating to storage despatch, transportation, loading and unloading of goods, etc. Thus, the assessee has rightly deducted tax at source u/s 194C of the Act. Hence, we are inclined to agree with the learned AR that assessee was not in default for deduction of tax as per provisions of section 194C at the rate of 2 per cent and that lower authorities were not justified for treating the services rendered to the assessee as falling u/s 194J of the Act and thereby liable for deduction of tax at 5%. In the result, the appeals of the assessee in all the years are allowed.

Summary

Issues:
- Whether the services provided by Clearing and Forwarding Agents (C&FA) to the assessee constitute "work" under section 194C or "managerial services" under section 194J of the Income-tax Act, 1961?
- Whether the assessee correctly deducted tax at source under section 194C for payments made to C&FA, or should tax have been deducted under section 194J?
- Whether interest under section 201(1A) of the Act is leviable when C&FA has considered the amount received from the assessee in computing its taxable income and paid tax thereon by way of TDS/advance-tax?

Analysis:
1. The appeals were filed against the CIT (Appeals) order for the assessment years 2000-01 to 2003-04 regarding the treatment of the assessee as an assessee in default under section 201(1) for alleged short deduction of tax at source from payments to C&FA.
2. The Assessing Officer held that the services provided by C&FA were managerial services, requiring tax deduction under section 194J instead of section 194C as done by the assessee, leading to default treatment under section 201(1).
3. The Tribunal analyzed the agreements between the assessee and C&FA, determining that the services primarily involved work related to handling and delivery of goods, falling under section 194C, not managerial services under section 194J.
4. The terms of the agreement highlighted the responsibilities of C&FA, emphasizing their role in storing, delivering, and maintaining goods on behalf of the assessee, aligning with the definition of work under section 194C.
5. The Tribunal concluded that the nature of services provided by C&FA did not qualify as professional or technical services under section 194J, and the payment for such services was rightly subject to tax deduction under section 194C.
6. Referring to CBDT Circular No. 720, the Tribunal emphasized that Chapter XVII provisions for tax deduction are mutually exclusive, supporting the view that the payment to C&FA should be taxed under one section only, based on the nature of services rendered.
7. Consequently, the Tribunal held that the assessee was not in default for tax deduction under section 194C at 2%, rejecting the application of section 194J by the lower authorities, and allowed the appeals of the assessee for all the years in question.