2025 (1) TMI 864 - AT - Income Tax

TDS u/s 194C - disallowance u/s 40(a)(ia) - Non deduction of TDS on expenses claimed by way of freight charges and CFS charges - CIT(A) allowed the appeal of the assessee by holding that no TDS was required to be made in respect of statutory payments, as they are not in the nature of contractual payments - Whether the assessee was acting as an intermediary or a principal in the transactions in question? HELD THAT - AR explained his inability to produce all invoices, payment receipts, etc. as required for fair adjudication of the issue in terms of the findings of the Special Bench. He fairly conceded that this evidences were not asked by the AO in view of the contention raised, the assessee being all along as an intermediary. He further submits that the invoices, receipts, etc. showing the payments to Container Freight Station (CFS) in statutory nature runs into voluminous and prayed to remand the matter to the file of the Assessing Officer for fresh adjudication in terms of the findings of the Special Bench treating the assessee as principal. He further reiterated that the assessee is ready to produce all evidences showing the payments made towards CFS are statutory in nature attracting no TDS. Therefore, taking into account the assessee s inability to produce all the required evidences and also AY being identified as old, we deem it proper to remand the matter to the file of the AO with a direction to adjudicate the issue by treating the assessee as principal taking into account all relevant evidences on record that may be produced by the assessee and pass order in accordance with law. Thus, the ground raised by the assessee is allowed for statistical purposes.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions in this judgment are:

Whether the payments made by the assessee, acting as a principal, are subject to tax deduction at source (TDS) under Section 194C of the Income Tax Act, 1961.
Whether the non-deduction of TDS on such payments would result in disallowance under Section 40(a)(ia) of the Act.
Whether the assessee was acting as an intermediary or a principal in the transactions in question.
Whether the case requires remand for fresh adjudication based on the new findings that the assessee acted as a principal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Section 194C to Payments Made by Assessee as Principal

Relevant legal framework and precedents: Section 194C of the Income Tax Act mandates TDS on payments to contractors. Precedents include ITAT Mumbai decisions and the Delhi High Court ruling in CIT Vs. Cargo Linkers.
Court's interpretation and reasoning: The Special Bench clarified that the assessee conceded to acting as a principal, not an intermediary, thus altering the applicability of Section 194C.
Key evidence and findings: The assessee's agreement with Samsung and sample invoices indicated transactions on a principal-to-principal basis.
Application of law to facts: As the assessee acted as a principal, the payments were subject to Section 194C, requiring TDS deduction.
Treatment of competing arguments: The Special Bench dismissed the intermediary argument, noting the assessee's concession.
Conclusions: The payments were subject to TDS under Section 194C, and non-deduction could invoke Section 40(a)(ia) disallowance.

Issue 2: Remand for Fresh Adjudication

Relevant legal framework and precedents: The remand is guided by procedural fairness and the need for complete evidence review.
Court's interpretation and reasoning: The court acknowledged the assessee's inability to produce all necessary documents due to the initial intermediary contention.
Key evidence and findings: The absence of comprehensive evidence necessitated a remand to the Assessing Officer.
Application of law to facts: The remand allows for a thorough examination of evidence under the principal-agent framework.
Treatment of competing arguments: The court balanced procedural fairness with the need for accurate adjudication, favoring a remand.
Conclusions: The matter was remanded to the Assessing Officer for fresh adjudication, treating the assessee as a principal.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The foundational premise on which this Special Bench was constituted is now non-existent." This highlights the shift in the case's context due to the assessee's concession.
Core principles established: The distinction between acting as a principal versus an intermediary is crucial in determining TDS obligations under Section 194C.
Final determinations on each issue: The court determined that the payments were subject to TDS under Section 194C, and remanded the case for fresh adjudication to ensure all evidence is considered.

In conclusion, the judgment underscores the importance of correctly identifying the nature of business relationships in tax obligations. The remand allows for a comprehensive review, ensuring that the legal principles are applied accurately based on the complete set of facts and evidence. The decision also highlights the procedural necessity of remand when initial contentions are abandoned or altered significantly during proceedings.

← Previous Next →