2015 (12) TMI 284 - AT - Income Tax

Warehousing charges paid to C&F agents - whether were in the nature of commission liable for deduction of tax @ 10% u/s 194H or as rent liable for deduction of tax @ 20% u/s 194I? - disallowance u/s 40(a)(ia) - Held that - CIT(A) has appropriately considered the issue and held that the payments made to the C&F agents are in the nature of Commission , which fall for consideration under section 194H of the Act, though in the account books, the terminology used is Warehousing Charges . The case of the Assessing Officer is primarily based on the nomenclature of warehousing charges used by the assessee to describe the payments made to C&F agents. The CIT(A) has noted the terms and conditions of the agreement with C&F agents as also the mechanics of the business of assessee. Assessee had explained that for the purpose of marketing its products, it appoints C&F agents at different places for clearing and forwarding of assessee s goods. As per the assessee, the agreement with C&F agents, shows that there is a principal and agent relationship and it was not an agreement for taking the warehouse on rent. The factual findings arrived at by the CIT(A), which we have extracted above, clearly establishes that the services rendered by C&F agent are compensated by way of Commission which is related to the sales made and, therefore, the payments have been rightly held to be subject to deduction of tax at source u/s 194H of the Act at the rate of 10%. The Revenue has not lead any material/evidence before us to establish any error in the finding of the CIT(A), which we hereby affirm. - Decided against revenue.

Issues:
1. Disallowance of expenses under section 40(a)(ia) of the Income Tax Act.
2. Nature of payments made to C&F agents - Commission or Rent.
3. Applicability of tax deduction at source provisions - Section 194H vs. Section 194I.

Analysis:
1. The appeal by the Revenue challenged the order of the Commissioner of Income Tax (Appeals) concerning the disallowance of expenses amounting to Rs. 71,83,663 under section 40(a)(ia) of the Income Tax Act for the assessment year 2009-10.
2. The Revenue contended that the payments made by the assessee to C&F agents were in the nature of rent, thus invoking section 194I for tax deduction, while the assessee argued that the payments were commission subject to tax deduction at source under section 194H.
3. The Assessing Officer disallowed the expenses due to the shortfall in tax deduction at the rate of 20% under section 194I instead of the 10% deduction made by the assessee under section 194H.
4. The CIT(A) upheld the assessee's position, emphasizing that the payments to C&F agents were for commission, not rent, based on the agreement terms and the nature of services provided by the agents.
5. The CIT(A) highlighted that the relationship between the assessee and the agents was that of principal and agent, focusing on the services rendered for clearing and forwarding goods, leading to the conclusion that the payments were rightly subject to tax deduction at source under section 194H at a rate of 10%.
6. The Tribunal affirmed the CIT(A)'s decision, stating that the Revenue failed to provide any evidence to dispute the findings regarding the nature of payments to C&F agents, ultimately dismissing the Revenue's appeal.

This detailed analysis of the judgment thoroughly covers the issues involved and the reasoning behind the decision, preserving the legal terminology and key points from the original text.

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