2021 (8) TMI 583 - AT - Income Tax

TDS u/s 194C - Addition u/s 40(a)(i) on account of payment made to International Freight Forwarding Agents - HELD THAT - As decided in own case 2019 (4) TMI 2000 - ITAT KOLKATA 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 - Decided against revenue.

Summary

Issues Involved:
1. Delay in filing the appeal by the Revenue.
2. Disallowance under section 40(a)(i) of the Income Tax Act, 1961 for payments made to International Freight Forwarding Agents without deduction of tax at source.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:
At the outset, the Tribunal noted a delay of 123 days in the filing of the appeal by the Revenue. The Revenue submitted an application seeking condonation of the delay, citing sufficient cause. The Tribunal, satisfied with the reasons provided, condoned the delay. The assessee's counsel did not object to the condonation. Consequently, the appeal was admitted and disposed of on its merits.

2. Disallowance under Section 40(a)(i):
The primary issue in this appeal was the deletion by the Commissioner of Income Tax (Appeals) [CIT(A)] of the addition of ?7,85,93,661/- made by the Assessing Officer (AO) under section 40(a)(i) of the Income Tax Act, 1961. The AO had disallowed this amount on the grounds that the assessee, a company engaged in logistic services, made payments to International Freight Forwarding Agents without deducting tax at source.

Assessee's Explanation:
The assessee contended that the payments to the International Freight Forwarding Agents were not liable for tax deduction at source because these agents operated outside India and had no business connection or operations in India. The assessee argued that under Section 9(1)(i) of the Act, income earned by non-residents from operations carried on outside India is not taxable in India. Additionally, the assessee cited Article 8 of the India-Japan Double Taxation Avoidance Agreement (DTAA) and similar provisions in other tax treaties, which exempted such income from taxation in India.

Assessing Officer's Findings:
The AO rejected the assessee's explanation, stating that there was no proof that the payments were made to agents of the principal shippers. The AO argued that Article 8 of the Indo-Japan DTAA applied only to the taxable profits of shippers or aircraft carriers, not their agents. The AO further noted that the assessee was part of the Nissin group, with substantial interest held by Nissin Corporation, Japan. The AO concluded that payments to related parties constituted a business connection in India, making the income taxable under Section 9(1) of the Act.

CIT(A)'s Decision:
The CIT(A) found that a similar disallowance for the assessment year (A.Y.) 2010-11 had been deleted by the Tribunal. The Tribunal had held that payments to International Freight Forwarding Agents were not covered under Section 9(1)(i) or Section 9(1)(vii) of the Act and, therefore, did not constitute income deemed to accrue or arise in India. The CIT(A) relied on the Tribunal's decision and the case of UPS SCS (Asia) Limited vs. ADIT, where it was held that such payments were not taxable in India. Consequently, the CIT(A) deleted the disallowance made by the AO.

Tribunal's Analysis:
The Tribunal, after hearing both sides and reviewing the material on record, agreed that the issue was covered by its earlier decision in the assessee's case for A.Y. 2010-11. The Tribunal reiterated that payments to International Freight Forwarding Agents were not taxable in India as they did not accrue or arise in India. The Tribunal also referenced the UPS SCS (Asia) Limited case, which supported the assessee's position that such payments were not "fees for technical services" under Section 9(1)(vii) and did not constitute a business connection under Section 9(1)(i).

Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming that the payments made by the assessee to International Freight Forwarding Agents were not chargeable to tax in India and, therefore, no tax was required to be deducted at source. The appeal filed by the Revenue was dismissed.

Order Pronouncement:
The order was pronounced in the open Court on August 10, 2021.