2008 (3) TMI 619 - HC - Income Tax

Deduction of tax at source - Contractors/sub-contractors, payments to - Whether since contract was actually between exporter and airline and assessee was only an intermediary, it was not a person responsible for deduction of tax at source in terms of section 194C

Summary

Issues:
1. Whether the assessee partnership firm, acting as clearing and forwarding agents and booking cargo for airlines, was liable to deduct tax at source on payments made to airlines.
2. Whether the assessee had a reasonable cause for not deducting tax at source.

Analysis:
1. The High Court considered the issue of whether the assessee partnership firm, engaged in the business of clearing and forwarding agents and booking cargo for airlines, was liable to deduct tax at source on payments made to airlines. The Assessing Officer contended that the assessee should have deducted tax at source on these payments. However, the assessee argued that it was not the "person responsible" for making payments under section 194C of the Income-tax Act, as its role was that of an intermediary between exporters and airlines. The Commissioner of Income-tax (Appeals) ruled in favor of the assessee, holding that there was no obligation to deduct tax at source. The High Court upheld the Tribunal's decision, emphasizing that the assessee was merely an intermediary and not liable to deduct tax at source under section 194C of the Act.

2. The second issue addressed was whether the assessee had a reasonable cause for not deducting tax at source. The Tribunal noted that no other clearing and forwarding agent in the industry deducted tax at source. Additionally, the Air Cargo Agents Association of India had represented to the Central Board of Direct Taxes that C&F agents were not liable to deduct tax at source. The assessee had sought advice from its Chartered Accountant and Tax Solicitors, both of whom opined that there was no obligation to deduct tax at source. Relying on these factors, the Tribunal found a reasonable cause for not deducting tax at source and decided not to levy a penalty against the assessee. The High Court concurred with the Tribunal's decision, citing legal precedents emphasizing that the question of reasonable cause is a question of fact. As both the authorities below had found a reasonable cause for not deducting tax at source, the High Court concluded that no substantial question of law arose for consideration and dismissed the appeal.