2014 (2) TMI 603 - AT - Income Tax

TDS u/s 194C - Ocean freights and Inland Haulage Charges - ship belongs to Foreign Shipping Companies and payment is made to agents - Deletion made on account of violation of section 40(a)(ia) of the Act Held that - The CIT(A) has rightly upheld that the Circular talks about the payments made or to be made to non-resident shipping companies or their resident agents covered u/s 172 of the Act - the assessee has neither made any payment to any non-resident shipping company or their resident agents acting on behalf of non/resident shipping companies - Nothing has been brought on the records by the assessee by adducing any evidence that the parties to whom the payments of freight is being made are non- residents or acting as agents of non-resident shipping companies - the provision of section 172 of the Act does not come into picture and assessee - Bill of Lading clearly mentioned the name of the Carrier and the name of the port in India Decided against Revenue. Confirmation of addition paid to legal agents Held that - The portion of the amount paid to various Cargo Consultants towards consultancy charges recovered from the assessee - Some portion of the amount is towards reimbursement of expenses but the details are not available readily thus, the CIT(A) has correctly confirmed the addition of this amount Decided against Revenue.

Summary

Issues involved:
1. Interpretation of section 40(a)(ia) of the Income Tax Act, 1961 regarding TDS deduction on freight and cartage charges.
2. Applicability of Circular No. 723 dated 19.09.1995 in the context of payments made to Foreign Shipping Companies or their agents.
3. Disallowance of addition under section 40(a)(ia) for payments made to legal agents.

Issue 1 - Interpretation of section 40(a)(ia) regarding TDS deduction:
The appeal was filed by the revenue against the order passed by the CIT(A)- II, Ludhiana, where the revenue contested the deletion of an addition made on account of violation of section 40(a)(ia) of the Income Tax Act, 1961. The Assessing Officer observed that the assessee failed to deduct TDS from payments towards freight and cartage charges to parties other than Jai Bhawani. The assessee argued that the provisions of section 194C were not applicable due to Circular No. 723 as the payments were made to agents of Foreign Shipping Companies. The CIT(A) partly allowed the appeal, deleting a portion of the addition. The Tribunal upheld the CIT(A)'s decision, emphasizing the importance of the Bill of Lading in establishing the nature of the carrier as a Non Resident Company, thus supporting the non-applicability of section 194C.

Issue 2 - Applicability of Circular No. 723 in payments to Foreign Shipping Companies or their agents:
The Circular No. 723 dated 19.09.1995 clarified the scope of sections 172 and 194C of the Income-tax Act, 1961 concerning TDS from payments to foreign shipping companies or their agents. Section 172 specifically deals with the shipping business of non-residents and provides a self-contained code for the levy and recovery of tax in cases of ships belonging to or chartered by non-residents. The Tribunal examined the circular, bills of lading, and submissions to conclude that the provisions of section 194C were not applicable when goods were dispatched through Non Resident Shipping Companies or their Resident Agents. The Tribunal dismissed the revenue's appeal based on the correct interpretation of Circular No. 723 and the relevant legal provisions.

Issue 3 - Disallowance of addition under section 40(a)(ia) for payments to legal agents:
In the cross-objections, the issue raised was the confirmation of addition in respect of payments made to legal agents. The Tribunal found that this amount was not related to payments to Non Resident Companies but was towards various charges by Cargo Consultants. The Tribunal upheld the addition of this amount as it was for consultancy charges recovered from the assessee. Additionally, an argument was made regarding payments made during a specific financial year, citing a Special Bench Decision, but the Tribunal dismissed this ground based on subsequent judgments overruling the earlier decision. The Tribunal rejected the cross-objections and upheld the addition in this regard.

In conclusion, the Tribunal dismissed the revenue's appeal and the cross-objections of the assessee, confirming the orders passed by the CIT(A) and providing detailed analysis on the interpretation of legal provisions, circulars, and relevant case law to support its decisions.