2024 (5) TMI 954 - AT - Income Tax

TDS u/s 195 - Disallowance u/s 40(a)(i) - non-deduction of tax at source on shipment clearing and forwarding charges - advise v/s consultancy service - AO was of the view that the services so rendered to the assessee by the persons hired by it fell under the category of consulting services and payments made to the parties, are liable for deducting tax at source - CIT(A) deleted addition since the income could not be described as deemed to accrue or arising in India hence, taxability of such amount fails, Sole basis of the AO for rejecting the submissions of the assessee is that it was also advised by the overseas parties on change into tariff ratio etc - HELD THAT - AO tried to find support from one of terms of the Contract executed between the assessee and non-resident. We find merit into the contention of the assessee, such advise would not partake character of rendering consultancy service. Merely, providing information of such nature in our considered view would not be sufficient for treating the entire services as managerial or consultancy services. If the view of the AO is accepted then any information received by the assessee from non-residents during the coruse of business would be treated as rendition of consultancy services by the non-resident. Looking to the context of providing information, it cannot be deduced such information was provided for consultancy. No infirmity into the decision of Ld.CIT(A) holding Since the income cannot be described as deemed to accrue or arise in India and there is no doubt about such income having not been received as deemed to be received as accruing or arising in India, the taxability of such income fails. The Revenue has not rebutted this finding of Ld.CIT(A) by bringing any contrary material on record - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of disallowance u/s 40(a)(i) for non-deduction of tax at source on shipment clearing and forwarding charges for AY 2017-18 and AY 2018-19.

Summary:

Issue 1: Deletion of disallowance of Rs. 33,49,56,683/- u/s 40(a)(i) for AY 2017-18:
The Revenue appealed against the deletion of disallowance made by the Assessing Officer (AO) u/s 40(a)(i) for non-deduction of tax at source on shipment clearing and forwarding charges. The AO contended that the services rendered by the overseas entities fell under "consulting services" and were liable for tax deduction at source as per section 195 of the Act. The Ld.CIT(A) allowed the appeal of the assessee, holding that the payment received by the overseas parties neither falls u/s 9(1) nor u/s 9(1)(i) of the Act, and hence, the income could not be deemed to accrue or arise in India. Therefore, the action of the AO for invoking the provision of section 40(a)(i) was not justified.

The Tribunal upheld the decision of Ld.CIT(A), stating that the services rendered were administrative and did not involve professional skills or knowledge. The Tribunal referred to various judicial precedents and Circular No. 715 issued by CBDT, which clarified that payments made to clearing and forwarding agents are covered for TDS u/s 194C and not as Fee for Technical Services (FTS) u/s 194J. The Tribunal found no error in the decision of Ld.CIT(A) and dismissed the appeal of the Revenue.

Issue 2: Deletion of disallowance of Rs. 46,10,99,507/- u/s 40(a)(i) for AY 2018-19:
The facts and issues in this case were identical to those in ITA No. 911/Del/2023 for AY 2017-18, except for the figures. The Tribunal adopted the same reasoning and arguments as in the previous case and upheld the decision of Ld.CIT(A). The appeal of the Revenue was dismissed.

Final Result:
Both appeals of the Revenue in ITA No. 911 & 912/Del/2023 for the Assessment Years 2017-18 & 2018-19 were dismissed.