2015 (1) TMI 919 - AT - Income Tax

TDS u/s 194C - Non deduction of tds on payment of demurrages to parties in India - additions made u/s 40(a)(ia) r.w.s sec. 194C deleted by CIT(A) - Held that - Assessee has issued cheque bearing no. 46101 dt. 16.5.2008 for total amount of ₹ 2,05,660/- which according to the Assessee includes the sum of ₹ 1,25,272/- relating to the air freight cartage. We noted that from the covering of the bill that the bill is issued by Jet Air Freighters and not by the C&F agent as contended by the ld. AR. The amount paid by the Assessee through the cheque is also ₹ 2,05,660/- and not ₹ 1,25,272/-. The invoice nowhere states that it represents reimbursement of the air freight but it is the invoice made by Jet Air Freighters. This document, in our opinion, does not prove that the Assessee has reimbursed the air freight paid by the C&F agent. The bills raised by Jet Air Freighters are directly in the name of the Assessee. In view of these facts, we do not agree with the contentions of the Assessee. The onus, in our opinion, lies on the Assessee to prove that the payment made by it to the C&F agent represents the reimbursement and not the amount paid for any services rendered by them. Board has clearly laid down in Circular no. 715 dt. 8.8.1995 that As regards payments made to clearing and forwarding agents for carriage of goods, the same shall be subjected to tax deduction at source u/s 194C of the Act.‟ The ld. AR could also not adduce any evidence that the C&F agent deducted tax at source while making payment to the carrier so as to prove that the amount which was paid by the Assessee to the C&F agent represents reimbursement of the freight paid by the C&F agent on behalf of the Assessee to the airlines. It is not the intention of the legislature that neither the C&F agent deducts the tax when it makes the payment to the carrier nor the Assessee deducts the tax at source when it makes payment to C&F agent. If the Assessee claims that the amount paid to the C&F agent by the Assessee represents reimbursement, the onus is on the Assessee to prove that it represents the reimbursement of the claim. In our opinion, provisions of Sec. 194C are clearly applicable in the case of the Assessee. - Decided in favour of revenue

Summary

Issues Involved:
1. Deletion of additions made under Section 40(a)(ia) read with Section 194C regarding payment of demurrages to parties in India without deducting TDS.

Detailed Analysis:

Issue 1: Deletion of Additions under Section 40(a)(ia) read with Section 194C
The central issue in these appeals is whether the CIT(A) was correct in law in deleting the disallowance made by the AO by applying the provisions of Section 40(a)(ia) for non-deduction of TDS on payments made to Clearing & Forwarding (C&F) agents.

Facts and Arguments:
- The AO noted that the Assessee did not deduct TDS on freight amounts paid to the C&F agents, which was considered as a violation under Section 194C.
- The Assessee contended that these payments were reimbursements for expenses incurred by the C&F agents on behalf of the Assessee and thus not subject to TDS.
- The AO relied on CBDT Circular No. 715 dated 8.8.1995, which mandates TDS on payments to C&F agents for carriage of goods.

CIT(A) Decision:
- CIT(A) deleted the disallowance, observing that the payments in question were reimbursements of actual air freight paid by the C&F agents to the airlines, without any service charges or profit element.
- CIT(A) agreed with the Assessee's reliance on judicial pronouncements that TDS provisions are not applicable on pure reimbursements.

Tribunal's Analysis:
- The Tribunal examined the evidence, including invoices and payment details, and concluded that the Assessee failed to prove that the payments were reimbursements.
- The Tribunal noted that the invoices were issued by Jet Air Freighters directly to the Assessee, not the C&F agent, and the payments did not indicate reimbursement.
- The Tribunal referred to CBDT Circular No. 715, which clarifies that payments to C&F agents for carriage of goods are subject to TDS under Section 194C.

Judicial Precedents:
- The Tribunal reviewed various judicial decisions, including:
- DCIT vs. Dhaanya Seeds (P.) Ltd.: Held that reimbursement of expenses by C&F agents is not subject to TDS under Section 194C, but the Assessee in this case failed to prove reimbursement.
- ACIT vs. M/s. P.P. Overseas: Held that Section 194C does not apply to service contracts not specifically included in Explanation III below Section 194C.
- ITO vs. M/s. ONS Creations Pvt. Ltd. and CIT vs. Opera Global Pvt. Ltd.: Both cases involved reimbursement of air freight charges, which were proven and accepted as reimbursements, unlike the present case.

Alternate Contention:
- The Assessee argued that if disallowance is sustained, it should only apply to amounts payable as of the last day of the financial year, not amounts paid during the year.
- The Tribunal disagreed, referencing the Special Bench decision in Merilyn Shipping & Transports vs. Addl. CIT and subsequent High Court decisions, which held that Section 40(a)(ia) applies to both paid and payable amounts.

Conclusion:
- The Tribunal concluded that the Assessee did not provide sufficient evidence to prove that the payments were reimbursements.
- The Tribunal set aside the CIT(A) orders and restored the AO's disallowance, holding that the provisions of Section 194C are applicable.

Final Order:
- The appeals filed by the Revenue were allowed, and the disallowance made by the AO under Section 40(a)(ia) was upheld.

Pronouncement:
- The order was pronounced in the open court on 16/01/2015.