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TMI Blog2014 (7) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... of the total Reimbursement . Non deduction of TDS on rent paid on behalf of its clients - Godown charges paid and added back to income u/s 40(a)(ia) of the Act – whether the provisions of section 40(a)(ia) are magnetized on the amount of Godown rent paid by the assessee on behalf of its clients - Held that:- In order to qualify as income or expenditure, it is of paramount importance that the assessee must have earned the income or incurred the expenditure in his own right - The expenditure should be directed towards the earning of income and the income should ordinarily be the result of incurring of expenditure - If the expenditure is incurred or income is earned not in own capacity, but as representative of some third person, then it is the expenditure or income of such third person and not that of the assessee. Neither any expenditure was claimed towards payment of godown rent nor any income was offered on this account - The transaction of actually paying godown rent was for and on behalf of its customers - It was for these customers to claim deduction for the payment of godown rent etc. in their accounts - Relying upon Expeditors International (India) (P) Ltd. VS. CIT [2008 (8) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the total income. As regards the sixth item titled 'Other clearing expenses', amounting to ₹ 1.51 crore, the ld. CIT(A) upheld the finding of the Assessing Officer on the question of the income element at the rate of 8% on this amount. Such a view was canvassed as in the opinion of the ld. CIT(A), the assessee did not furnish any third party evidence of such expenses having been incurred. This resulted into sustaining disallowance at ₹ 12,12,484/-, against which the assessee is aggrieved in the present appeal. The Revenue is not in appeal against the relief allowed in the first appeal. 4. We have heard the rival submissions and perused the relevant material on record. It is observed that the assessee categorically claimed that the amount of ₹ 1.51 crore under the head 'Other clearing expenses' was incurred by it on behalf of its customers in the process of clearing the imported goods of its clients from customs. The assessee furnished summary of ₹ 11.57 crore, being the total amount of reimbursement of expenses from its client, which is available at pages 33 and 34 of the paper book. The amount of ₹ 1.51 crore with the caption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 20,000/- shall be paid by Jaguar and the same can be claimed in the respective bill'. Page 44 onwards of the paper book is a copy of Contract of customs clearance with M/s Jubilant Organosys. This Contract also refers to remuneration of the assessee at a fixed amount and a fixed percentage of some of the specified activities to be undertaken by the assessee. Clause (v) of this Contract provides that the assessee shall pay on behalf of M/s Jubilant Organosys various charges to shipping companies/Airport Authority and all other related agencies and will submit the bill, the payment for which shall be effected on the given dates. This indicates that the assessee has to raise bill not only for its remuneration but also for the reimbursements. Pages 47 and 48 of the paper book are copies of the invoices raised by the assessee on Aksh Optifibre Ltd. Page 47 is towards reimbursement of ₹ 1,51,821/- incurred by the assessee on various items, such as, Delivery order fee amounting to ₹ 46,872/-, Godown rent amounting to ₹ 15,489/-, Transport amounting to ₹ 84,000/- and Octroi/toll tax to the tune of ₹ 5,460/-. This sum of ₹ 1,51,821/- is part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of expenses' amounting to ₹ 11.57 crore contained any profit element, we are of the considered opinion that there is no logic in applying 8% or any other profit rate on 'Other clearing expenses' amounting to ₹ 1.51 crore, which is a part of this total 'Reimbursement'. We, therefore, order for the deletion of addition of ₹ 12,12,484/- sustained by the ld. CIT(A). 6. The next grievance of the assessee is against the making of enhancement of income for a sum of ₹ 4.53 crore representing Godown charges paid and added back to income u/s 40(a)(ia) of the Act. It can be observed that the AO charged 8% profit on this amount of 'Godown rent' as well along with other receipts which were in the nature of reimbursement. The ld. CIT(A) held that there was no income element in this payment of godown rent. He, however, held that the assessee was required to deduct tax at source u/s 194-I of the Act on such payment. Since no tax was deducted at source on it, he made enhancement of income with the equal amount by making disallowance u/s 40(a)(ia) of the Act. The assessee is agitating the above disallowance/enhancement in the present appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehend the view canvassed by the ld. CIT(A) on this score. In order to qualify as income or expenditure, it is of paramount importance that the assessee must have earned the income or incurred the expenditure in his own right. The expenditure should be directed towards the earning of income and the income should ordinarily be the result of incurring of expenditure. If the expenditure is incurred or income is earned not in own capacity, but as representative of some third person, then it is the expenditure or income of such third person and not that of the assessee. In such a later situation, neither the amount of expenditure incurred can be treated as the expenditure of the assessee nor the income so earned can be construed as that of the assessee. The assessee is such circumstances merely acts as representative of the third person on whose behalf he is acting. The real effect of incurring such expenditure or earning such income by the assessee is that the such incurring of expenditure is invariably coupled with the right to recover the same and earning of such income is always saddled with the liability to repay to the person on whose behalf it was earned. Such transactions cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omers. It was for these customers to claim deduction for the payment of godown rent etc. in their accounts. Once these items of expenses including godown rent are otherwise not eligible for deduction under any of the sections 30 to 38 of the Act in the hands of the assessee and further the assessee has neither claimed such deduction nor is it lawfully entitled to the same, the natural corollary which follows is that there can be no question of making disallowance u/s 40(a)(ia) of the Act in this regard. 11. The Delhi Bench of the tribunal in Expeditors International (India) (P) Ltd. VS. CIT (2008) 118 TTJ (Del) 652 has held that the amount paid by the assessee company to its parent company on account of reimbursement of expenditure incurred in respect of global accounts manager cannot be treated as payment of salary subject to deduction of tax at source so as to attract disallowance under s. 40(a)(iii). Albeit, the decision was rendered in the context of an assessee paying reimbursement and we are concerned with the case of an assessee receiving reimbursement, but its ratio would still apply inasmuch as it is not at all the expenditure of the assessee, thereby going out of the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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