2020 (1) TMI 115 - AT - Income Tax

Revision u/s 263 - TDS u/s 195 in respect of the demurrage charges - HELD THAT - The implicit view taken by the A.O while framing the assessment under Sec.143(3) r.w.s. 144C(3), dated 25.01.2017, that in the absence of any obligation cast upon the assessee to deduct tax at source under Sec. 195 in respect of the demurrage charges the said amount could not have been disallowed under Sec.40(a)(i) of the Act, is found to be in conformity with the judgment of the Full Bench of the Hon ble High Court of Bombay in the case of V.S. Dempo Co. Pvt. Ltd. 2016 (2) TMI 308 - BOMBAY HIGH COURT which was available at the time of framing of the aforesaid assessment. Accordingly, finding no infirmity in the view taken by the A.O, we set aside the order passed by the Pr. CIT under Sec. 263, dated 14.03.2018 and restore the order passed by the A.O under Sec. 143(3) r.w.s 144C(3), dated 25.01.2017. - Decided in favour of assessee.

Summary

Issues Involved:
1. Invocation of Section 195 for disallowing demurrage expenses due to non-deduction of TDS.
2. Invocation of Section 263 for the assessment year 2013-14.

Detailed Analysis:

Issue 1: Invocation of Section 195 for Disallowing Demurrage Expenses Due to Non-Deduction of TDS

The Principal Commissioner of Income Tax (Pr. CIT) invoked Section 263 and disallowed demurrage expenses of ?4,94,33,000/- for non-deduction of TDS under Section 195. The Pr. CIT argued that such payment is covered as business income under Section 44B and that Section 172 provides adequate measures for computation, assessment, and recovery of taxes, negating the need for Section 40(a)(i). The assessee contended that demurrage charges were paid on a reimbursement basis and formed part of the ocean freight. They argued that Section 172, which deals with non-resident shipping companies, should apply, thus negating the need for TDS under Section 195. The assessee cited the Full Bench ruling of the Bombay High Court in V.S. Dempo & Co. Pvt. Ltd. to support their claim.

The Pr. CIT was not persuaded by the assessee's arguments, holding that the Division Bench of the Bombay High Court in CIT Vs. Orient (Goa) Pvt. Ltd. had ruled that the status of the person making the expenditure must be non-resident for Section 172 to apply. However, the Full Bench of the Bombay High Court in V.S. Dempo & Co. Pvt. Ltd. reversed this view, stating that the income of a non-resident shipping company should be taxed under Section 44B and Section 172, thus no TDS obligation under Section 195 for the resident assessee.

The Tribunal found that the Assessing Officer's (A.O.) view that no obligation was cast upon the assessee to deduct tax at source on demurrage charges was in conformity with the Full Bench judgment of the Bombay High Court in V.S. Dempo & Co. Pvt. Ltd. The Tribunal held that the Pr. CIT should have followed this binding precedent, and thus, the A.O.'s order was not erroneous or prejudicial to the interest of the revenue.

Issue 2: Invocation of Section 263 for the Assessment Year 2013-14

The Pr. CIT invoked Section 263, arguing that the A.O.'s failure to disallow demurrage expenses for non-deduction of TDS rendered the assessment order erroneous and prejudicial to the interest of the revenue. The assessee argued that the assessment order was neither erroneous nor prejudicial to the revenue's interest, citing the Full Bench ruling in V.S. Dempo & Co. Pvt. Ltd.

The Tribunal agreed with the assessee, stating that the A.O.'s view was in line with the Full Bench ruling, which was binding and available at the time of the assessment. The Tribunal criticized the Pr. CIT for bypassing this precedent, noting that judicial discipline required adherence to the High Court's ruling. Consequently, the Tribunal set aside the Pr. CIT's order under Section 263 and restored the A.O.'s assessment order.

Conclusion:

The Tribunal allowed the assessee's appeal, setting aside the Pr. CIT's order under Section 263 and restoring the A.O.'s assessment order. The Tribunal held that no obligation was cast upon the assessee to deduct tax at source on demurrage charges, in line with the Full Bench judgment of the Bombay High Court in V.S. Dempo & Co. Pvt. Ltd., and thus, no disallowance under Section 40(a)(i) was warranted.