2015 (1) TMI 56 - AT - Income Tax

Two payments made by assessee disallowed u/s 40(a)(ia) Non deduction of TDS on clearing and forwarding charges - Held that - CIT(A) was rightly of the view that the amount of ₹ 18,16,637/- is nothing but reimbursement of expenses incurred by the payee on behalf of the assessee - these amounts did not constitute income of the clearing agent and no TDS was required to made - therefore, the provision of Section 194C will not be applicable in respect of reimbursement of expenses - Circular No.715 dated 08.08.1995 issued by CBDT on Clarifications on various provisions relating to tax deduction at source regarding changes introduced through Fiannce Act, 1995 will not have application on the present facts as the bills are raised separately for reimbursement of expenses the same has been decided in INCOME TAX OFFICER. Versus DR. WILLMAR SCHWABE INDIA PVT. LTD. 2005 (3) TMI 398 - ITAT DELHI-D thus, CIT(A) is justified in deleting the disallowance Decided against revenue. Commission payments made on sales Held that - CIT(A) rightly deleted the disallowance for the reason that the assessee has deposited the tax deducted within time stipulated as per the provision of Section 40(a)(ia) - the tax has been paid well before the due date furnishing of the return u/s 139(1) - proviso 1 to Section 40(a)(ia) is applicable - the proviso though it is applicable w.e.f. 01.04.2010, it has been held the proviso to be retrospective the order of the CIT(A) in deleting the disallowance of ₹ 9,00,300/- is upheld Decided against revenue.

Summary

Issues involved:
1. Disallowance of two payments under Section 40(a)(ia) of the Income Tax Act.

Detailed Analysis:
1. The appellant, engaged in the business of Import & Trading in Electrical goods, faced disallowance of two payments totaling Rs. 27,16,937 under Section 40(a)(ia) of the IT Act for non-deduction of TDS on clearing and forwarding charges and commission payments. The CIT(A) allowed the appeal, stating that tax deduction was not required on charges reimbursed to clearing agencies, as per Circular No. 715, and the same applied to commission payments as well.

2. Regarding the disallowance of Rs. 18,16,637 for clearing and forwarding charges, the CIT(A) held that the appellant's case fell under Section 172, where TDS is to be deducted only from the income of the payee, not from reimbursed charges. The disallowance was deemed unjustified as expenses were reimbursement-based, not income, and Circular No.715 clarified that reimbursements cannot be deducted for TDS purposes. Judicial precedents supported this view, emphasizing separate billing for expenses not subject to TDS.

3. Concerning the disallowance of Rs. 9,00,300 for commission payments, the appellant had deducted and deposited tax within the prescribed time. The CIT(A) deleted the disallowance, citing the timely tax payment before the due date for filing returns. Despite the proviso to Section 40(a)(ia) being effective from 01.04.2010, retrospective application was upheld by judicial decisions, justifying the deletion of the disallowance.

4. The Tribunal concurred with the CIT(A)'s decision, emphasizing that the expenses were reimbursement-based and not subject to TDS. The disallowance was deemed unwarranted, leading to the dismissal of the Revenue's appeal. The judgment was pronounced on 13th November 2014.