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2019 (4) TMI 1431 - AT - Income TaxDisallowance u/s 40(a)(ia) - Wharfage charges paid to Maharashtra Maritime Board - TDS u/s 194I - whether Wharfage fees is akin to rent as described in section 194-I or is akin to duty or cess - deduction u/s 37(1) - as per revenue, land includes water and since Wharfage charges are paid for utilizing water space, the assessee was obliged to deduct TDS - HELD THAT - We hold that Wharfage charges paid by the assessee which are charged on the basis of weight of the ship and not in a mechanical manner, cannot be equated to be a charge for rent for use of water. The Hon'ble Supreme Court in the case of Japan Airlines Co. Ltd. Vs. CIT and CIT Vs. Singapore Airlines Ltd. 2015 (8) TMI 185 - SUPREME COURT had also referred to the definition of rent and whether the assessee airlines which was landing and paying parking charges to the Airport Authority of India for facility at an airport can be held to be to have paid the amount for simple use of land and hence, liable for deduction of tax at source. Payment was for services and facilities in connection with aircraft operations at the airport in accordance with international protocols and the Airport Authority was providing these facilities for landing and takeoff of aircrafts and in the whole process, use of land was incidental. On the contrary, where the protocol prescribe detailed methodology for fixing these charges, the charges were not for use of land perse and therefore, could not be treated as rent within meaning of section 194-I. Applying the ratio to the facts of present case, in view of the dictate of the Apex Court (supra), we hold that Wharfage charges paid by assessee are charges which facilitate the loading / unloading of goods at waterfront and for providing facilities, Wharfage charges are charged from the assessee and in such case, we hold that there is no use of land but even if it was held that there is any use of land, then the same was incidental but such payments could not be treated as rent and the assessee be liable to deduct tax at source under section 194-I. The Wharfage charges paid by assessee are to be allowed as deduction u/s 37(1) . The ground assessee is allowed. Allowability of foreign travel and salary expenses of employees of sister concern deputed to assessee - HELD THAT - The assessee claimed that it was not having full-fledged enhanced administration and marketing set up, for which staff of group companies were deputed as and when there was requirement. Since the staff so deputed actually works on the task relating to assessee s business, remuneration payable to such employees was reimbursed by the assessee and expenditure so incurred was booked and was for the purpose of carrying on the business of assessee company. In this regard, the assessee had also furnished Resolution passed by Chowgule group for deputation of two main persons, who were also taking care of the bank operations of assessee company. The expenditure thus, being incurred for legitimate and genuine business needs of assessee company and for smooth flow of carrying on the business is to be allowed as expenditure in the hands of assessee u/s 37(1) . Accordingly, we hold so and direct the Assessing Officer to allow the said expenditure. Further, certain foreign travel expenses were incurred by the said employees to explore the new business opportunities and also to see port facilities made available for efficient operations. Necessary confirmation in this regard was filed before the authorities below, which has been brushed aside. We find no merit in the disallowance made by authorities below and direct the Assessing Officer to allow foreign travel expenses of Mr. M.P. Patwardhan and Mr. Atul Kulkarni. Disallowance made u/s 40A(3) - HELD THAT - No merit in the orders of authorities below in this regard. In view of provisions of Rule 6DD(k) r.w.s. 40A(3) in case of expenditure being incurred at remote areas, the same merits to be allowed in the hands of assessee. We are deciding this issue in favour of assessee because of smallness of the quantum involved. The grounds of appeal raised by assessee are thus, partly allowed.
Issues Involved:
1. Non-allowance of Wharfage charges. 2. Non-allowance of foreign travel and salary expenses of employees of sister concern. 3. Disallowance under section 40A(3) of the Income-tax Act. Issue-wise Detailed Analysis: 1. Non-allowance of Wharfage charges: The primary issue was whether Wharfage charges paid to Maharashtra Maritime Board (MMB) should be treated as rent under section 194-I of the Income-tax Act, thus requiring tax deduction at source (TDS). The assessee argued that these charges were statutory levies and not rent, as they were paid for the privilege of carrying out loading/unloading activities at the waterfront. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, classifying these charges as rent, leading to disallowance under section 40(a)(ia) for non-deduction of TDS. The Tribunal analyzed the definitions and provisions under the Maharashtra Maritime Board Act and concluded that Wharfage charges are statutory levies and not rent. The Tribunal emphasized that there was no lease, sub-lease, tenancy, or any agreement between the assessee and MMB for the use of land or water. The charges were for the use of waterfront facilities, which are inherently a state subject and not owned by MMB. Consequently, the Tribunal held that Wharfage charges do not attract TDS under section 194-I, allowing the assessee's claim. 2. Non-allowance of foreign travel and salary expenses of employees of sister concern: The assessee claimed expenses for the salary and foreign travel of employees deputed from its sister concern, arguing that these were legitimate business expenses. The AO disallowed these expenses due to a lack of specific employment details and appointment orders. The CIT(A) upheld this disallowance. The Tribunal found that the employees were indeed deputed to the assessee to facilitate its business operations, and the expenses were reimbursed accordingly. The Tribunal noted that the assessee provided necessary confirmations and resolutions from the group company regarding the deputation. The Tribunal held that these expenses were for legitimate business purposes and directed the AO to allow the salary and travel expenses under section 37(1) of the Act. 3. Disallowance under section 40A(3) of the Income-tax Act: The AO disallowed certain expenses incurred in cash, invoking section 40A(3) which restricts cash payments exceeding a specified limit. The assessee contended that these payments were made due to business exigencies in remote areas. The Tribunal acknowledged the business exigencies and the remote location of the transactions. It referred to Rule 6DD(k) of the Income-tax Rules, which provides exceptions for cash payments in certain circumstances, including remote areas. Given the small quantum involved and the context of the transactions, the Tribunal found merit in the assessee's claim and directed the AO to allow the expenses under section 40A(3). Conclusion: The Tribunal allowed the assessee's appeals on the grounds of Wharfage charges and employee-related expenses, finding them to be legitimate business expenses not subject to TDS under section 194-I or disallowance under section 40(a)(ia). The Tribunal also allowed the cash expenses under section 40A(3), considering the business exigencies and remote location of the transactions. The appeals for both assessment years were partly allowed.
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