2015 (2) TMI 1299 - AT - Income Tax

TDS u/s 192 OR 172 - disallowance u/s. 40(a)(ia) towards freight charges paid to agent of foreign shipping companies - as per assessee as per Circular No.723 of 1995 dated 19/9/1995 the provisions of section 194C and 195 will not apply in the case where recipient is assessed under section 172 - Held that - As far as the binding nature of Circular issued by CBDT Cir. No.723 dated 19/9/1995 is concerned it is pertinent to note that the Circular and Instructions issued by the Board are binding on the taxing authorities and not on the Courts. Further, if the Hon ble Supreme Court or Hon ble High Court declares the law on the question arising for consideration then, it would not be appropriate for the Court or this Tribunal to direct the taxing authority to give effect to the Circular and not the view accepted in the decisions of the Courts. Thus, if under a particular provision, a legal question arises, and has been answered and explained by the Hon ble High Court or Hon ble Supreme Court then, the said explanation in the decisions of Hon ble Supreme Court or Hon ble High Court will be binding and not the Circular issued by the CBDT as held by the Larger Bench of Hon ble Supreme Court in the case of Commissioner of Central Excise vs. Rattan Melting & Wire Industry (2008 (10) TMI 5 - SUPREME COURT OF INDIA). As per the 2nd proviso if the assessee failed to deduct the tax in accordance with Chapter XVII-B on any payment but is not deemed to be an assessee in default as per the first proviso to section 201(1) then for the purpose on this subclause it shall be deemed that the assessee has deducted and paid tax on such sum on the date of furnishing of return of income by the resident assessee. The decision of Hon ble Supreme Court in the case of Hindustan Coca-cola Breweries (P) Ltd. (supra), was in respect of the payment to the resident payee and only on the point of liability under section 201(1) when the payee already paid the tax on such amount. The 2nd proviso to section 40(a)(ia) has made it clear that the benefit of payee having paid tax on such income is available only when the payee is resident. In the case in hand the payee is a non-resident, being a foreign shipping company, therefore, the 2nd proviso to section 40(a)(ia) as well as the first proviso to section 201(1) and 201(1A) are not applicable in such payments. Accordingly we do not agree with the alternative plea of the ld. AR Disallowance of transportation charges under section 40(a)(ia) - CIT(A) deleted the disallowance 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 - Held that - It is apparent that the respondent assesse did not violate the unamended section 40(a)(ia). We have noted the ambiguity and referred their contention of Revenue and rejected the interpretation placed by them. The amended provisions are clear and free from any ambiguity and doubt. They will help curtail litigation. The amended provision clearly support view taken 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. Disallowance under section 40(a)(ia) in respect of maintenance charges - expenses on account of repair and maintenance not exceeding ₹ 20,000/- of individual bills - Held that - We note 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). This ground of the revenue is disallowed. TDS on clearing and forwarding expenses under section 40(a)(ia) - addition on want of deduction of tax - 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 and allowed part claim - Held that - 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.

Summary

Issues Involved:
1. Disallowance under section 40(a)(ia) in respect of freight charges paid to agents of foreign shipping companies.
2. Disallowance of transportation charges under section 40(a)(ia).
3. Disallowance under section 40(a)(ia) in respect of machinery maintenance charges.
4. Disallowance 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:

The revenue argued that the CIT(A) erred in deleting the disallowance of Rs. 6,58,588/- for freight charges paid to agents of foreign shipping companies without TDS deduction. The AO disallowed these expenses due to non-deduction of TDS. The CIT(A) deleted the addition, citing that payments to agents of foreign shipping companies fall under section 172, which overrides sections 28 to 43, making TDS unnecessary. The revenue countered, relying on the jurisdictional High Court's decision in CIT vs. M/s. Orient Goa Pvt. Ltd., asserting that section 172 does not override section 40(a)(ia). The Tribunal upheld the revenue's stance, noting that the Supreme Court's decision in Hindustan Coca-cola Breweries (P) Ltd. did not apply here as it pertained to resident payees. Consequently, the Tribunal restored the AO's order, confirming the disallowance.

2. Disallowance of transportation charges under section 40(a)(ia):

The AO disallowed transportation charges totaling Rs. 2,94,194/- paid to M/s. Patil Transport Services and M/s. Shreenath Roadways for non-deduction of TDS. The CIT(A) deleted the disallowance, referencing the Supreme Court's judgment in Hindustan Coca-cola Breweries (P) Ltd., which held that no TDS was required if the recipient had paid the tax. The Tribunal agreed with the CIT(A), emphasizing that the second proviso to section 40(a)(ia) (effective from 01/04/2013) supports this view, thus confirming the deletion of the disallowance.

3. Disallowance under section 40(a)(ia) in respect of machinery maintenance charges:

The AO disallowed machinery maintenance expenses of Rs. 92,700/- for non-deduction of TDS. The CIT(A) found that Rs. 51,000/- related to the purchase of machinery parts, and the remaining expenses were below Rs. 20,000/- per bill, thus not requiring TDS. The Tribunal upheld the CIT(A)'s decision, confirming the deletion of the disallowance.

4. Disallowance of clearing and forwarding expenses under section 40(a)(ia):

The AO disallowed Rs. 5,30,469/- for clearing and forwarding expenses due to non-deduction of TDS. The CIT(A) noted that Rs. 4,19,505/- were reimbursements, not subject to TDS, and deleted this portion of the disallowance, confirming the remaining Rs. 1,10,964/-. The assessee contended that no contract existed between them and the C&F agency, thus no TDS was required. The Tribunal rejected this new plea, emphasizing that the payment constituted an agreement and upheld the CIT(A)'s decision, dismissing the assessee's cross-objection.

Conclusion:

The Tribunal partly allowed the revenue's appeal, confirming disallowances related to freight charges and dismissing the assessee's cross-objection. The Tribunal upheld the CIT(A)'s deletions related to transportation and machinery maintenance charges, affirming the application of the Supreme Court's and High Court's judgments where relevant. The order was pronounced on 11/02/2015.