2015 (7) TMI 901 - AT - Income Tax

Disallowance made under sec.40(a)(ia) - amounts payable and not already paid at the end of year - payments made to Central Warehousing Corporation, Concor and Continental Warehousing Corporation - Freight charges - Non deduction of TDS - held that - definition of rent makes it unambiguously clear that rent is a payment for the use of land or/and building under any lease, tenancy or other arrangement/agreement. In the instant case, undisputedly, the assessee is using the building premises of CFS against payment. In our considered view, the said payment is nothing but a rent for the use of premises. As soon as goods are moved into the CFS premises for inspection, the assessee is liable for payment for use of premises. - So far as the contention of the assessee that the assessee makes the payments to the agencies and gets reimbursement of same from exporters, we are of the view that it is an inter-se arrangement between the assessee and the exporter. It does not in any way change the character of payment made for the use of CFS premises. The assessee has to comply with the provisions of the Act, as applicable at that point of time. Thus, the amount paid by assessee for use of premises to Central Warehousing Corporation, Concor and Continental Warehousing Corporation is in the nature of rent. The assessee ought to have complied with the provisions of Section 194-I of the Act. Allahabad High Court in the case of CIT v. M/s. Vector Sipping Services (P) Ltd., in 2013 (7) TMI 622 - ALLAHABAD HIGH COURT has upheld the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM ). The Hon ble Calcutta High Court in the case of CIT v. Crescent Export Syndicates (2013 (5) TMI 510 - CALCUTTA HIGH COURT) and the Hon ble Gujarat High Court in the case of CIT v. Sikandarkhan N. Tunvar (2013 (5) TMI 457 - GUJARAT HIGH COURT) on the other hand, have struck down the decision of the Special Bench. - Supreme Court of India in the case of CIT v. Vegetable Products Ltd. reported as 1973 (1) TMI 1 - SUPREME Court , has held that where two views are possible, the view in favour of the assessee has to be preferred. Respectfully following the same, we follow the judgment of Hon ble Allahabad High Court in the case of Vector Shipping Services (P) Ltd. (supra) and hold that the disallowance under sec.40(a)(ia) applies only to the amounts payable and not already paid. - Decided partly in favour of assessee.

Summary

Issues:
Disallowance under sec.40(a)(ia) of the Income-tax Act, 1961 on payments made to Central Warehousing Corporation, Concor, and Continental Warehousing Corporation.

Analysis:
The appeal was filed by the assessee challenging the order of the Commissioner of Income-tax(Appeals) for the assessment year 2009-10, specifically contesting the disallowance made under sec.40(a)(ia) of the Act on payments to certain entities. The assessee, a private limited company engaged in freight forwarding, had not deducted tax at source on payments made to government agencies for freight charges, resulting in a disallowance by the Assessing Officer. The Commissioner of Income-tax(Appeals) upheld this decision, leading to the appeal before the Tribunal.

Representing the assessee, it was argued that the payments were made for services related to facilitating customs inspections and not for storage, hence not falling under the purview of rent as defined in sec.194-I. The contention was supported by an alternate argument that even if sec.194-I was violated, disallowance under sec.40(a)(ia) should apply only to amounts payable, not already paid. The Department, however, maintained that the payments constituted rent and were subject to TDS under sec.194-I.

The Tribunal analyzed the definition of 'rent' under sec.194-I, emphasizing that the payment for the use of premises, regardless of storage, constituted rent. It was held that the inter-se arrangement between the assessee and exporters did not alter the nature of the payment. Regarding the applicability of sec.40(a)(ia), conflicting decisions were cited, with the Tribunal ultimately following the rule of judicial precedent favoring the assessee. Accordingly, it was ruled that the disallowance under sec.40(a)(ia) applied only to amounts payable, not already paid.

In conclusion, the Tribunal partially allowed the appeal, accepting the alternate plea of the assessee. The judgment was pronounced on January 16, 2015, in Chennai.