2020 (3) TMI 108 - AT - Income Tax

Deductibility of tax on the payments made to the shipping agents u/s 194C / 195 - AR argued that the Ld.CIT(A) ought to have admitted the additional evidence, since, Circular No.723 dated 19.09.1995 exempt the assessee from deduction of tax at source on payments made to shipping agents of nonresident ship owners and the assessments are to be made under section 172 - HELD THAT - As per para No.2 of the assessment order, the authorized representative of the assessee appeared before the AO and furnished the information called for. There was no indication from the assessment order that the assessee failed to furnish any of the information called for by the AO. AO made the addition for non deduction of tax at source without examining the applicability of TDS provisions in the case of Ocean Freight. As per Circular No.723 of CBDT, there is no requirement of deduction of tax at source in case of payments made to shipping agents for carriage of passengers, shipped at a port in India since, the shipping agents steps in to the shoes of nonresident ship owners. Therefore, we remit the matter back to the file of the AO with a direction to admit the additional evidence and examine the issue of deductibility of tax on the payments made to the shipping agents u/s 194C / 195 or otherwise in the light of Circular No.723 and decide the issue afresh after giving opportunity to the assessee. Accordingly, the appeal of the assessee is allowed for statistical purpose.

Summary

Issues:
Appeal against addition made under section 40(a)(ia) for non-deduction of TDS on freight charges paid by the assessee.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2009-10, related to the disallowance of freight charges under section 40(a)(ia) of the Act. The Assessing Officer disallowed the expenditure as the assessee did not deduct TDS on a sum incurred towards Ocean Freight.

2. The assessee contended that as per Circular 723 of CBDT, payments made to agents of nonresident ship owners for Ocean Freight are exempt from TDS under sections 194C and 195 of the Act. However, the evidence supporting this claim was not furnished before the AO during assessment proceedings, leading to its rejection by the CIT(A).

3. The assessee appealed before the Tribunal, arguing that the additional evidence should have been admitted by the CIT(A) as per Circular No.723. The Tribunal observed that the AO made the addition without examining the applicability of TDS provisions for Ocean Freight payments. Referring to Circular No.723, it was noted that no TDS is required for payments to shipping agents in certain cases.

4. The Tribunal directed the matter to be remitted back to the AO to admit the additional evidence and re-examine the issue of deductibility of tax on payments made to shipping agents under sections 194C / 195 in light of Circular No.723, providing an opportunity to the assessee. The appeal of the assessee was allowed for statistical purposes.

5. The Tribunal's decision highlighted the importance of examining the applicability of TDS provisions in specific cases, especially when Circulars provide exemptions. The case serves as a reminder for assessing officers to consider relevant circulars and give due diligence to the evidence presented by taxpayers during proceedings to ensure fair treatment and adherence to tax laws.