2016 (12) TMI 1752 - AT - Income Tax

TDS u/s 194J - Demand u/s 201(1) - relationship between the assessee and shipping company - Held that - The nature of relationship between the assessee and shipping company, between the shipping company and seafarers and between the assessee and seafarers have to be determined first, which will in turn would help in determining the nature of liability under the Income tax Act. The nature of relationship could be determined by examining whole gamut of activities along with the agreements and other documents. A perusal of the orders passed by the tax authorities would show that they have not determined the nature of relationship/contract, as stated above. Hence the view of the tax authorities that the provisions of sec. 194J would apply to the facts and circumstances of the case, in our opinion, is not substantiated. We are of the view that this issue requires fresh examination. Accordingly we set aside the order passed by CIT(A) and restore the issue to the file of the AO for examining the same afresh. We also direct the AO to give the benefit of 3rd proviso to sec. 201(1)

Summary

Issues:
1. Challenge to order confirming demand raised by AO under section 201(1)/201(1A) of the Act for assessment year 2011-12.
2. Nature of relationship between the assessee, shipping companies, and employees for determining liability under the Income Tax Act.

Analysis:

Issue 1: The assessee appealed against the order passed by Ld CIT(A)-14, Mumbai, confirming the demand raised by the AO under section 201(1)/201(1A) of the Act for the assessment year 2011-12. The assessee contended that it acted as a manpower agency, providing employees to shipping companies based on agreements. The assessee's role was limited to facilitating the payment of salaries to employees after deducting charges. The assessee argued that it did not provide professional or technical services and should not be treated as an assessee in default. On the contrary, the Department argued that the appointment letters were issued in the name of the assessee, placing the responsibility to comply with Income Tax Act provisions on the assessee.

Issue 2: The Tribunal analyzed the nature of the relationship between the assessee, shipping companies, and employees to determine the liability under the Income Tax Act. It was observed that the appointment letters were issued by the shipping company to the assessee, while the articles of agreement for employment of seafarers were directly issued to the employees. The Tribunal emphasized the need to examine the entire scope of activities, agreements, and documents to ascertain the nature of relationships involved. The Tribunal found that the tax authorities had not adequately determined the nature of relationships and contracts, leading to an unsubstantiated application of section 194J by the tax authorities. Consequently, the Tribunal set aside the order of Ld CIT(A) and directed the AO to re-examine the issue, providing the benefit of the 3rd proviso to section 201(1) of the Act to the assessee.

In conclusion, the Tribunal allowed the appeal filed by the assessee for statistical purposes, emphasizing the need for a fresh examination of the nature of relationships involved in providing employees to shipping companies, and the consequent liability under the Income Tax Act.