2019 (10) TMI 1129 - HC - Income Tax

Revision u/s 263 - No deduction of tds on rendering courier services - HELD THAT - Commissioner of Income Tax, has not appreciated the modus operandi followed by the petitioner in proper perspective and has proceeded upon the erroneous understanding that the petitioner is rendering courier services in respect of which the income therefrom would be tax deductable. The petitioner is not, in fact, a courier agency itself, but an on-board courier, that transports/carries parcels for transport from one courier agency to its counterpart in other States. For these services it receives a commission, which undisputedly, has been offered to tax. The payment received by the petitioner as freight charges represents the direct cost incurred as charges for cargo or cost of ticket purchased. Such payment constitutes a direct cost and hence would not fall within the sweep of income upon the tax is liable to be deducted. - Decided in favour of assessee

Summary

Issues:
1. Whether the petitioner's payment of freight charges without deduction of tax at source is liable to be disallowed under Section 40(a)(ia) of the Income Tax Act, 1961 for the assessment year 2006-2007.
2. Whether the Commissioner of Income Tax's rejection of the petitioner's revision under Section 264 of the Act was justified based on the nature of the petitioner's business operations and the applicability of tax deduction at source.
3. Whether the decision of the Commissioner of Income Tax (Appeals) in the assessment year 2008-2009, allowing the petitioner's appeal regarding the disallowance of freight payments under Section 40(a)(ia), is applicable to the present case for the assessment year 2006-2007.

Analysis:
1. The petitioner, an on-board agency transporting parcels for courier companies, faced disallowance of freight payment under Section 40(a)(ia) for not deducting tax at source. The petitioner argued that as it was not a courier agency but an on-board courier, the freight charges constituted direct costs, not income subject to TDS. The High Court agreed, emphasizing the petitioner's role as a transporter and the direct nature of the freight charges, overturning the Commissioner's decision.
2. The Commissioner's rejection of the petitioner's revision under Section 264 was based on a misunderstanding of the petitioner's business model. The High Court clarified that the petitioner's activities did not fall under courier services but were direct costs incurred for transportation services. The Court highlighted the distinction between income subject to TDS and direct costs, leading to the setting aside of the impugned order.
3. The judgment in the assessment year 2008-2009, where the Commissioner of Income Tax (Appeals) allowed the petitioner's appeal regarding freight payments disallowance, was deemed applicable to the present case. The High Court emphasized the proper understanding of direct costs under Section 28 of the Act, following judicial precedents supporting the allowance of direct expenses under Section 28 itself. The Court upheld the previous decision, directing the deletion of the disallowed freight payments and partially allowing the appeal.