2005 (10) TMI 229 - AT - Income Tax

Liability for tax deduct u/s 194C - Ocean freight - inland haulage charges - Whether Payments of freight were made to non-resident shipping companies or their agents so as to be covered u/s. 172 - HELD THAT - The CBDT Circular No. 723 has made it further clear that where payments are made to shipping agents of non-resident ship owners or charter ship at a port in India, provisions of s. 172 will apply because the agent steps into the shoes of the principal. However, the problem arises only when restrictive interpretation is placed on the Board's circular referred to hereinabove when the AO has sought to draw distinction on the basis of the status of the agents. Thus, as per provisions of s. 172(8) the inland haulage charges are also covered under this provision of law and, hence, no deduction of tax is called under s. 194C of the Act. We are further of the opinion that such an interpretation is also fair because the dry ports or ICDs are treated at par with the regular ports. Hence, the contradictory stand taken by the AO, i.e., when he included certain charges in freight in respect of movement of goods by road at the destination contrary by the shipping line such charges are deemed to be covered u/s 172, but when the same shipping line or their agents take charges for transportation from ICD, where goods have been handed over to them by an exporter, then these amounts are not deemed to be covered u/s 172. Thus, in our opinion, the assessee cannot be treated as an assessee in default, so, the CIT(A) after properly considering the submissions of the assessee and properly analyzing the provisions of law, has rightly cancelled the impugned orders of the AO by passing a well-reasoned and well-discussed consolidated order. Accordingly, the impugned order of the CIT(A) is upheld and the grounds of appeal taken by the Revenue in the respective appeals under consideration before us are rejected. In the result, the four instant appeals filed by the Revenue, against the consolidated order of the CIT(A), are dismissed.

Summary

Issues:
Interpretation of tax deduction provisions under sections 194C and 172 of the IT Act for ocean freight and inland haulage charges.

Analysis:
The case involved four appeals by the Revenue challenging the CIT(A)'s order regarding the tax liability on ocean freight and inland haulage charges for different assessment years. The Revenue contended that the CIT(A) erred in not applying Tax Deducted at Source (TDS) under section 194C of the IT Act and in considering inland haulage charges under section 172. The AO had raised a demand against the assessee for not deducting TDS on inland haulage charges, totaling Rs. 15,47,278. The assessee argued that the provisions of section 172 exempted them from TDS liability and provided confirmations from sub-agents as agents of foreign shipping lines. They claimed that demurrage/handling charges and inland haulage charges were not for carriage of goods by ship but for local services. The CIT(A) reversed the AO's order, stating that the assessee was not in default.

The Tribunal analyzed the provisions of section 172, which govern the levy and recovery of tax for non-resident ships, treating demurrage and handling charges as equivalent to carriage payments. Referring to CBDT Circular No. 723, it clarified that such charges were outside the purview of section 194C when paid to shipping agents of non-resident ship owners. The Tribunal emphasized that even if the agent was a resident, acting on behalf of non-residents made them subject to section 172. It concluded that inland haulage charges fell under section 172(8), exempting them from TDS under section 194C. The Tribunal criticized the AO's inconsistent treatment of charges based on the location of goods transfer, supporting the CIT(A)'s decision.

Ultimately, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeals. It found that the CIT(A) had correctly interpreted the law and the assessee was not in default regarding TDS on inland haulage charges. The Tribunal's decision was based on a comprehensive analysis of the legal provisions, supporting documents, and the factual circumstances of the case.