2016 (5) TMI 1258 - AT - Income Tax

TDS u/s 194C - non deduction of TDS on payments made to a contractor/sub contractor for services rendered - Held that - The assessee having made the payments on behalf of its clients, there is no liability to deduct tax at source on the assessee. Consequently, no disallowance under section 40(a)(ia) can be made for alleged failure of the assessee to deduct tax at source on the payment made on behalf of the importers / clients. Therefore, finding no infirmity in the order of the learned Commissioner (Appeals), we uphold the same by dismissing the ground raised by the Department. - Decided in favour of assessee.

Summary

Issues Involved:
1. Non-deduction of tax at source (TDS) on payments made to various parties.
2. Applicability of Section 40(a)(ia) of the Income Tax Act, 1961.
3. Nature of payments made by the assessee on behalf of clients.
4. Liability of the assessee to deduct tax under Section 194C.

Detailed Analysis:

1. Non-deduction of tax at source (TDS) on payments made to various parties:
The Department filed an appeal against the order of the Commissioner (Appeals) which deleted the addition of ?3,28,88,794 made by the Assessing Officer (AO) under Section 40(a)(ia) of the Income Tax Act, 1961. The AO alleged non-deduction of TDS on payments made by the assessee, a partnership firm engaged in logistic services, to Container Freight Stations (CFS) and inland container depots on behalf of importers/exporters.

2. Applicability of Section 40(a)(ia) of the Income Tax Act, 1961:
The AO observed that the assessee paid ?3,28,88,794 to CFS/ICD without deducting TDS, invoking Section 40(a)(ia) for disallowance. The Commissioner (Appeals) found that these payments were made on behalf of clients and not claimed as expenditure in the Profit & Loss account by the assessee. Therefore, the provisions of Section 40(a)(ia) were not applicable.

3. Nature of payments made by the assessee on behalf of clients:
The payments made by the assessee to CFS/ICD were on behalf of importers/exporters as a custom house agent. The Commissioner (Appeals) noted that the assessee raised separate bills for reimbursement of expenses incurred on behalf of clients and for agency commission. The payments were not claimed as business expenditure by the assessee, thus not attracting Section 40(a)(ia).

4. Liability of the assessee to deduct tax under Section 194C:
The AO argued that the assessee was liable to deduct tax under Section 194C on payments made to private parties for services rendered. However, the Commissioner (Appeals) and the Tribunal found that the payments were made on behalf of clients and not by the assessee for its business. The Tribunal cited multiple decisions supporting that clearing and forwarding agents making payments on behalf of clients do not attract TDS provisions.

Conclusion:
The Tribunal upheld the order of the Commissioner (Appeals), concluding that the payments made by the assessee on behalf of clients were not subject to TDS under Section 194C. Consequently, no disallowance under Section 40(a)(ia) was warranted. The Department's appeal was dismissed.