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2018 (12) TMI 1054 - AT - Income TaxTDS u/s 194C - non deduction of tds on the payment made to C&F agents - payment made to principal to principal - reimbursement of expenditure - Held that - Mode of business of the assessee is that the customers desirous of sending their items to foreign countries used to approach the assessee, he then collects cargo from the customers and raises invoice on the customer along with airway bill on the basis of gross weight of cargo. The assessee thereafter sends such cargo to Clearing & Forwarding Agents (C&F Agents) for sending the same to the concerned foreign company as directed by the customer. The C&F Agents also incurred certain expenses where upon the C&F Agents raise invoices on the assessee broadly specifying two items; one being the agency charges and the other is the reimbursement of direct expenses. The assessee makes payments to such agents and the transaction thereby is completed. Thus it is a settled principle of law that the reimbursement of expenses to C&F Agents does not constitute income in the hands of the concerned C&F Agents and therefore TDS is not required to be deducted at source Reimbursement expenditure to the tune of ₹ 18,50,249/- is not liable to be disallowed u/s.40(a)(ia) as TDS is not required to be deducted since separate bills are raised by the commission agents. We, therefore, delete the addition made by the authorities below. As a result, the appeal is allowed in favour of assessee.
Issues involved:
1. Disallowance under section 40(a)(ia) of the Act for Assessment Years 2009-10 & 2010-11. Detailed Analysis: 1. The appeals were filed against orders by the Commissioner of Income Tax(Appeals) for AYs 2009-10 & 2010-11. The issue was disallowance of ?14,41,159 under section 40(a)(ia) due to non-deduction of TDS on clearing and forwarding charges. The Assessing Officer disallowed the amount, and the CIT(A) confirmed part of it. The assessee argued that TDS was not required on reimbursement to C&F Agents, citing relevant case law. 2. The Tribunal analyzed the business model where the assessee collected cargo from customers and sent it to C&F Agents. The agents raised invoices with agency charges and reimbursement of direct expenses. The Tribunal noted that reimbursement to C&F Agents does not constitute income in their hands, and TDS is not required on such reimbursements. Citing various judgments, including M/s. Om Satya Exim Pvt. Ltd. vs. ITO, it held that separate bills for reimbursement exempt the assessee from TDS liability under section 40(a)(ia). 3. The Tribunal referred to the judgment of the Jurisdictional High Court in CIT-III vs. Gujarat Narmada Valley Fertilizers Co.Ltd. The High Court upheld the CIT(A)'s decision to allow deductions on reimbursement of expenses, stating that TDS was not required on such reimbursements. The Tribunal concurred, emphasizing that when expenses are incurred by the agent on behalf of the assessee, TDS liability does not apply. The Tribunal dismissed the Revenue's appeal, supporting the CIT(A)'s decision. 4. Consequently, the Tribunal allowed the assessee's appeal for AY 2009-10 and AY 2010-11, ruling that the reimbursement expenditure of ?18,50,249 was not liable for disallowance under section 40(a)(ia) as TDS was not required to be deducted due to separate bills raised by the commission agents. The Tribunal upheld that the provisions of TDS did not apply to such payments, leading to the deletion of the disallowance made by the authorities below. 5. Therefore, both appeals of the assessee were allowed based on the principle that TDS was not applicable to reimbursement expenses when separate bills were raised by the commission agents, in line with relevant case law and judgments. The Tribunal's decision emphasized the importance of separate billing in determining TDS liability on reimbursement payments to C&F Agents.
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