2016 (1) TMI 679 - AT - Income Tax

TDS U/S 194J and 194I - tds not deducted on dock fees and airport terminal charges and cargo handling charges - Held that - The stand of the Assessing Officer is that since the total reserves exceeds the investment in securities, income from which is exempt, therefore, it can be presumed that investment were out of borrowed funds. However, the investments were made by the assessee over the years and the total reserves in the respective years were more than the total investments during the year. Thus, in view of the decision in Reliance Utilities in (2009 (1) TMI 4 - BOMBAY HIGH COURT), we find merit in the submissions of the assessee. It is also noted that the ld. Commissioner of Income Tax (Appeals) uphold the disallowance amounting to ₹ 3304. We affirm the stand of the ld. Commissioner of Income Tax (Appeals). So far as, disallowance of payments made in violation of the provisions u/s 40(a)(ia) r.w.s 194 I and 194J is concerned, we note that in para 4.1 of the impugned order, the brake up of the disallowance made by the Assessing Officer has been discussed. Since, we have held that the assessee is not covered u/s 194I/194J and the assessee cannot be treated in default, therefore, we affirm the stand of the ld. Commissioner of Income Tax (Appeals). Resultantly, this appeal of the Revenue is also having no merit. - Decided in favour of assessee.

Summary

Issues:
- Liability to deduct tax under section 194I of the Act
- Deletion of dock fees and airport terminal charges under section 201(1)/201(1A) of the Act
- Disallowance under section 14A r.w.r. 8D(2)(ii)
- Disallowance made under section 40(a)(ia) for failure to deduct tax at source under sections 194-I and 194J

Liability to deduct tax under section 194I of the Act:
The Appellate Tribunal addressed the issue of liability to deduct tax under section 194I of the Act for Assessment Years 2008-09 to 2010-11. The ld. First Appellate Authority had previously held that the assessee was not liable to deduct tax under section 194I and had deleted the dock fees and airport terminal charges determined under section 201(1)/201(1A) of the Act. The Tribunal examined the arguments presented by both sides and analyzed the nature of the payments made by the assessee. It was concluded that the assessee, acting as an intermediary between importers/exporters and port authorities, was not responsible for deducting tax under section 194I as there was no privity of contract between the port authorities and the assessee. Therefore, the Tribunal upheld the decision of the ld. First Appellate Authority in this regard.

Disallowance under section 14A r.w.r. 8D(2)(ii):
In the appeal related to disallowance under section 14A of the Act, the Tribunal considered the Assessing Officer's contention that the assessee had not established a nexus between its own funds and investments made to earn tax-free income. However, the Tribunal found merit in the submissions of the assessee, noting that the total reserves exceeded the investments in securities, indicating that the investments were not made out of borrowed funds. Citing the decision in Reliance Utilities, the Tribunal affirmed the decision of the ld. Commissioner of Income Tax (Appeals) regarding the disallowance under section 14A.

Disallowance under section 40(a)(ia) for failure to deduct tax at source:
The Tribunal also addressed the disallowance made under section 40(a)(ia) for failure to deduct tax at source under sections 194-I and 194J. It was established that since the assessee was not covered under sections 194I/194J and could not be treated as in default, the disallowance made by the Assessing Officer was not justified. Therefore, the Tribunal affirmed the decision of the ld. Commissioner of Income Tax (Appeals) in this regard.

Final Decision:
The appeals by the Revenue were dismissed by the Tribunal, upholding the decisions made by the ld. Commissioner of Income Tax (Appeals) on the various issues discussed in the judgment. The Order was pronounced in the open court on 29/10/2015 in the presence of representatives from both sides.