2019 (4) TMI 2000 - AT - Income Tax

TDS u/s 172 - Disallowance u/s. 40(a)(ia) - payments made by the assessee were shipping agent of any non-resident ship owners or charters in respect to which provision of sec. 172 of the Act applies - HELD THAT - The details were filed on 08.10.2014 before the Ld. CIT(A) who in turn have called for the remand report from the AO. The expenses incurred on behalf of the assessee did not had any service fee in it to the payee, so, there is no component of income to the parties to whom payments were made by assessee. Since the assessee filed the complete details of the reimbursement and copies of the respective invoice raised by such parties along with the supporting invoices along with the submission dated 08.10.2014, the Ld. CIT(A) has accepted the submission of the assessee that the expenses/payments made by the assessee wherein the nature of reimbursement with no element of income which is chargeable to tax and also no part of such payment was made by the assessee towards carrying of any work/service by the said parties. The payments were in the nature of taxes etc. which was paid by the respective parties on behalf of the assessee where no withholding of taxes is necessary. CIT(A) had taken note in the case of Hightension Switchgears Private Limited Vs. CIT, 2016 (7) TMI 340 - CALCUTTA HIGH COURT wherein it was held by the Hon ble High Court that TDS is not required to be deducted on the amount reimbursed to the suppliers/vendor. Taking note of the sample invoice filed before us, we agree with the view taken by the Ld. CIT(A) that the expenses/payments were in the nature of reimbursement with no element of income chargeable to tax in India or no part of such payment was made towards carrying on any work by the parties /vendors and, therefore, taxes need not to be withheld by assessee on such payments so, we confirm the decision of the Ld. CIT(A). Therefore, this ground of appeal of revenue is dismissed.

Summary

Issues Involved:
1. Deletion of disallowance of ?1,68,44,535/- made by AO u/s. 40(a)(ia) of the Income-tax Act, 1961.
2. Deletion of disallowance of ?15,91,602/- made by AO u/s. 40(a)(ia) of the Income-tax Act, 1961.

Detailed Analysis:

1. Deletion of Disallowance of ?1,68,44,535/- Made by AO u/s. 40(a)(ia) of the Income-tax Act, 1961:

Facts and Arguments:
The AO noted that the assessee paid ?4,75,46,569/- on account of ocean freight but did not deduct TDS on ?3,07,54,392/-. The assessee argued that sec. 172 of the Act applies, and thus TDS was not required. The AO, not satisfied with the evidence provided, disallowed the amount u/s. 40(a)(ia). The Ld. CIT(A) allowed the appeal, leading the revenue to appeal to the Tribunal.

Tribunal's Observations:
The Tribunal noted that ?1,68,44,535/- was paid to foreign companies for export consignments/off-shore activities. The assessee, engaged in logistics services, explained that services rendered outside India by foreign companies did not attract TDS as per sec. 9 of the Act. The Tribunal emphasized that the foreign companies were independent legal entities with no business activity or PE in India, thus not liable for taxes in India.

Key Legal Precedents:
The Tribunal referred to the case of UPS SCS (Asia) Ltd. Vs. ADIT, where it was held that payments for freight and logistics services rendered outside India do not qualify as 'fees for technical services' under sec. 9(1)(vii) and thus are not taxable in India.

Conclusion:
The Tribunal agreed with the Ld. CIT(A) that the payments made to foreign companies did not attract TDS as they were for services rendered outside India and were at arm's length. The appeal by the revenue was dismissed.

2. Deletion of Disallowance of ?15,91,602/- Made by AO u/s. 40(a)(ia) of the Income-tax Act, 1961:

Facts and Arguments:
The AO included this amount in the disallowance basket of ?3,07,54,392/-. The assessee contended that these payments were reimbursements of expenses incurred on its behalf, with no service component, thus not liable for TDS. The Ld. CIT(A) accepted this argument and deleted the disallowance.

Tribunal's Observations:
The Tribunal noted that the assessee provided detailed documents to substantiate that the payments were reimbursements with no income component. The Ld. CIT(A) called for a remand report and concluded that the payments were purely reimbursements, thus not subject to TDS.

Key Legal Precedents:
The Tribunal referred to the decision of the Hon’ble Calcutta High Court in the case of Hightension Switchgears Private Limited Vs. CIT, which held that TDS is not required on reimbursed amounts.

Conclusion:
The Tribunal agreed with the Ld. CIT(A) that the payments were reimbursements with no element of income chargeable to tax, thus not requiring TDS. The appeal by the revenue was dismissed.

Final Judgment:
The appeal of the revenue was dismissed in entirety. The Tribunal found no infirmity in the order of the Ld. CIT(A) regarding both issues. The order was pronounced in the open court on 5th April, 2019.