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2015 (2) TMI 980 - AT - Income TaxTDS on freight charges paid to agent of foreign shipping companies - CIT(A) deleted disallowance u/s. 40(a)(ia) - whether the provisions of section 172 are not overriding to provisions of section 194, and therefore, assessee was liable to deduct TDS? - Held that - As relying on CIT vs. M/s. Orient Goa Pvt. Ltd. 2009 (10) TMI 575 - Bombay High Court wherein held Section 172 comes under sub-title H-Profits of non-residents from occasional shipping business . Title of Section 172 is Shipping business of non-residents. For bringing a case under Chapter XV, H of the Act 1961, one has to establish a case of profits of non-residents from occasional shipping business. Nonresident is defined under section 2(30), as a person who is not a resident and for the purpose of Sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of Section 6. The respondent assessee is a company, incorporated under the provisions of Indian Companies Act, 1956, is fairly an admitted position. The assessee cannot be said to be non-resident. Thus the respondent assessee cannot lay fingers on section 172, since we are not dealing with profits of non-residents. we set aside the order of CIT(A) qua this issue and restore the order of the AO. The disallowance is confirmed. - Decided against assessee. TDS on transport charges - CIT(A) deleted disallowance u/s. 40(a)(ia) on the ground that the recipients have paid the tax on the transportation charges collected from the assessee and therefore, no TDS was required to be deducted on the same payment - Held that - There is no dispute that the resident transporters have paid the tax for transportation charges collected from the assessee. Therefore, we do not find any error in the order of CIT(A) in deleting the disallowance by following the judgment of Hon'ble Supreme Court in case of Hindustan Coca-cola Breweries (P) Ltd.(2007 (8) TMI 12 - SUPREME COURT OF INDIA ). It is pertinent to note that as per the 2nd proviso to section 40(a)(ia) no disallowance can be made in case where the payee has paid the tax on the said amount. Though, the said proviso is applicable w.e.f. 01/04/2013 however, in view of the judgment of Hon'ble Supreme Court we find that this amendment is remedial in nature and similar to the amendment under section 43B. The amended provision clearly support view that the expression said due date used in clause A of proviso to unamended section refers to time specified in Section 139(1) of the Act. The amended section 40(a)(ia) expands and further liberalises the statue when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance. - Decided in favour of assessee. TDS on Machinery maintenance charges - CIT(A) deleted disallowance u/s. 40(a)(ia) - Held that - Out of total expenditure of ₹ 92,700/- ₹ 51,000/- relates to the purchase of machinery parts, therefore, provisions of chapter XVII-B are not applicable so far as the expenditure relates to purchase of machinery parts. The remaining expenditure is comprising of several bills and the amount of one individual bills does not exceed ₹ 20,000/-. Accordingly we do not find any error or illegality in the impugned order of CIT(A). - Decided in favour of assessee. TDS on clearing and forwarding expenses - disallowance under section 40(a)(ia) - IT(A) deleted the disallowance made by the AO to the extent of reimbursement of expenses amounting to ₹ 4,19,505/- and confirmed the disallowance of the balance amount of ₹ 1,10,964/- Held that - Plea of having no contract between assessee and C&F agency has been raised by the assessee for the first time before us.the grievance of the assessee before CIT(A) is only in respect of the amount of ₹ 4,19,505/- claimed to be reimbursement of expenses. The CIT(A) has accepted the said contention of the assessee and allowed to the extent of said amount of ₹ 4,19,505/-. Accordingly, the balance amount of ₹ 1,10,964/- was confirmed by CIT(A). As it is manifest from the record, that no such grievance was raised before CIT(A), and further, the fresh plea raised before this Tribunal required the finding of fact, whether any contract between the parties did exist or not. Even otherwise the payment of service charges to C&F agent is based on agreed rate/charges which constitute an agreement between the parties. Accordingly in the facts and circumstances of the case we do not find any merit or substance in the cross objection of the assessee hence, the same is dismissed. - Decided against assessee.
Issues Involved:
1. Disallowance under section 40(a)(ia) in respect of freight charges paid to agents of foreign shipping companies. 2. Disallowance under section 40(a)(ia) being transport charges. 3. Disallowance under section 40(a)(ia) being machinery maintenance charges. 4. Disallowance of part of clearing and forwarding expenses under section 40(a)(ia). Issue-wise Detailed Analysis: 1. Disallowance under section 40(a)(ia) in respect of freight charges paid to agents of foreign shipping companies: - Facts and Circumstances: The AO disallowed freight charges of Rs. 6,58,588/- paid to agents of foreign shipping companies due to non-deduction of TDS. The CIT(A) deleted the addition, reasoning that section 172 applies to foreign shipping companies, making sections 28 to 43 inapplicable for calculating their business income in India, and the tax on the expenditure was already paid under section 172. - Arguments: The revenue argued that section 172 does not override section 40(a)(ia) and cited a High Court decision supporting this view. The assessee countered by citing a Tribunal decision and a Supreme Court judgment indicating that TDS is not required if the recipient has already paid the tax. - Tribunal's Findings: The Tribunal noted that CBDT Circulars are binding on tax authorities but not on courts. It emphasized that Supreme Court and High Court decisions prevail over circulars. The Tribunal held that the benefit of the payee having paid tax on such income is available only when the payee is a resident. Since the payee in this case was a non-resident, the Tribunal restored the AO's disallowance. 2. Disallowance under section 40(a)(ia) being transport charges: - Facts and Circumstances: The AO disallowed transportation charges totaling Rs. 2,94,192/- paid to M/s. Patil Transport Services and M/s. Shreenath Roadways for non-deduction of TDS. The CIT(A) deleted the disallowance, noting that the recipients had paid tax on the transportation charges. - Arguments: The revenue did not present any new arguments, while the assessee relied on the Supreme Court judgment in Hindustan Coca-cola Breweries (P) Ltd., which supports the deletion of disallowance when the payee has paid the tax. - Tribunal's Findings: The Tribunal upheld the CIT(A)'s decision, noting that the resident transporters had paid the tax on the received amounts. It also referenced the 2nd proviso to section 40(a)(ia), which supports no disallowance when the payee has paid the tax. 3. Disallowance under section 40(a)(ia) being machinery maintenance charges: - Facts and Circumstances: The AO disallowed machinery maintenance charges of Rs. 92,700/- for non-deduction of TDS. The CIT(A) deleted the disallowance, noting that Rs. 51,000/- related to the purchase of machinery parts and the remaining amount consisted of individual bills not exceeding Rs. 20,000/-. - Arguments: The revenue did not present any new arguments. - Tribunal's Findings: The Tribunal upheld the CIT(A)'s decision, agreeing that the provisions of chapter XVII-B are not applicable to the purchase of machinery parts and that the remaining expenses were below the threshold for TDS deduction. 4. Disallowance of part of clearing and forwarding expenses under section 40(a)(ia): - Facts and Circumstances: The AO disallowed Rs. 5,30,469/- on account of clearing and forwarding expenses for non-deduction of TDS. The CIT(A) deleted the disallowance of Rs. 4,19,505/- as reimbursement of expenses and confirmed the disallowance of Rs. 1,10,964/-. - Arguments: The assessee argued that the payments did not fall under section 40(a)(ia) due to no contract between the parties. The revenue countered that the services were under an agency contract, whether written or oral. - Tribunal's Findings: The Tribunal noted that the plea of no contract was raised for the first time before it and required factual determination. It upheld the CIT(A)'s decision, agreeing that the payments were based on an agreed rate/charges, constituting an agreement between the parties. Conclusion: The Tribunal partly allowed the revenue's appeal and dismissed the assessee's cross-objection. The disallowance of freight charges paid to foreign shipping companies was confirmed, while the disallowance of transport charges and machinery maintenance charges was deleted. The partial disallowance of clearing and forwarding expenses was upheld.
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