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TMI Blog2015 (2) TMI 980X X X X Extracts X X X X X X X X Extracts X X X X ..... s the respondent assessee cannot lay fingers on section 172, since we are not dealing with profits of non-residents. we set aside the order of CIT(A) qua this issue and restore the order of the AO. The disallowance is confirmed. - Decided against assessee. TDS on transport charges - CIT(A) deleted disallowance u/s. 40(a)(ia) on the ground that the recipients have paid the tax on the transportation charges collected from the assessee and therefore, no TDS was required to be deducted on the same payment - Held that:- There is no dispute that the resident transporters have paid the tax for transportation charges collected from the assessee. Therefore, we do not find any error in the order of CIT(A) in deleting the disallowance by following the judgment of Hon'ble Supreme Court in case of Hindustan Coca-cola Breweries (P) Ltd.(2007 (8) TMI 12 - SUPREME COURT OF INDIA ). It is pertinent to note that as per the 2nd proviso to section 40(a)(ia) no disallowance can be made in case where the payee has paid the tax on the said amount. Though, the said proviso is applicable w.e.f. 01/04/2013 however, in view of the judgment of Hon'ble Supreme Court we find that this amendment is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . - Decided against assessee. - I.T.A. No.2481/Mum/2012 - - - Dated:- 12-2-2015 - Shri Sanjay Arora And Shri Vijay Pal Rao JJ. For the Appellant : Shri Love Kumar-DR For the Respondent : Shri Nishit Gandhi-AR ORDER Per Vijay Pal Rao, JM : This appeal by the revenue and the cross objection by the assessee are directed against the order dated 04/1/2012 for the assessment year 2008-09. The revenue has raised the following grounds :- (i). On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance u/s. 40(a)(ia) towards freight charges of ₹ 6,58,588/- paid to agent of foreign shipping companies, even though the assessee failed to deduct TDS on it. The provisions of section 172 are not overriding to provisions of section 194, and therefore, assessee was liable to deduct TDS and the nature of expense is TDS deductible.. (ii) On the fact and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the disallowance u/s 40(a)(ia) being transport charges of ₹ 2,94,192/- without appreciating the fact that in the case of M/s Patil Transport Services (Rs 2,12,775/-) the liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rriding provisions of section 194 and therefore, the AO is justified in disallowing this amount paid to foreign shipping companies under section 40(a)(ia) . 2.3 On the other hand the ld. AR of the assessee has submitted that identical issue has been considered by the co-ordinate Bench of this Tribunal in the case of Ramu s. Deora vs. DCIT vide ITA No.1704/Mum/12 order dated 17/04/2014 for the assessment year 2008-09 whereby it was held that as per Circular No.723 of 1995 dated 19/9/1995 the provisions of section 194C and 195 will not apply in the case where recipient is assessed under section 172 of the Income tax Act. He has further contended that even otherwise when the recipient has paid the tax for the said amount, therefore, a disallowance under section 40(a)(ia) is not justified. In support of his contention he has relied upon the judgment of the Hon'ble Supreme Court in the case of Hindustan Coca-cola Breweries (P) Ltd. vs. CIT (293 ITR 226) . 3. We have considered the rival submissions and relevant material available on record. As far as the binding nature of Circular issued by CBDT Cir. No.723 dated 19/9/1995 is concerned it is pertinent to note that the Circular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first proviso to sub-section (1)of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso. 3.1.2 As per the 2nd proviso if the assessee failed to deduct the tax in accordance with Chapter XVII-B on any payment but is not deemed to be an assessee in default as per the first proviso to section 201(1) then for the purpose on this subclause it shall be deemed that the assessee has deducted and paid tax on such sum on the date of furnishing of return of income by the resident assessee. The decision of Hon'ble Supreme Court in the case of Hindustan Coca-cola Breweries (P) Ltd. (supra), was in respect of the payment to the resident payee and only on the point of liability under section 201(1) when the payee already paid the tax on such amount. The 2nd proviso to section 40(a)(ia) has made it clear that the benefit of payee having paid tax on such income is available only when the payee is resident. In the case in hand the payee is a non-resident, being a foreign shipping company, therefore, the 2nd prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax has been pointed out to us. His observations are in very few lines. We may reproduce the said portion herein below. 3. We have heard the rival submissions in the light of material placed before us. Assessee claimed deduction of ₹ 1,08,53,980/- being the amount of demurrage payable to Mitsui Co. Ltd., Japan. The Assessing Officer opined that since the assessee did not deduct tax at source, as such the case of the assessee falls within the mischief of section 40(a)(i) of the Income Tax Act, 1961. Provisions of Section 172 are to apply notwithstanding anything contained in the other provisions of the Act. Therefore, in such cases, the provisions of Section 194C and 195 relating to tax deduction at source, are not applicable. The recovery of tax is to be regulated for voyage undertaken from any port in India by a ship, under the provisions of Section 172. In this view, these observat ions of the learned Vice President of Income Tax Appellate Tribunal have no concern with the factual aspect that it is a case of occasional shipping, pleaded or raised by assessee. There is no dispute about interpretation of Section 172 or Section 195. Crucial point is as to how Section 172 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s they have necessary cushion to absorb the effect. However, marginal and medium taxpayers, who work at low G.P. rate and when expenditure which becomes subject matter of an order under Section 40(a)(ia) is substantial, can suffer severe adverse consequences as is apparent from the case of Naresh Kumar. Transferring or shifting expenses to a subsequent year, in such cases, will not wipe off the adverse effect and the financial stress. Nevertheless the Section 40(a)(ia) has to be given full play keeping in mind the object and purpose behind the section. At the same time, the provision can be and should be interpreted liberally and equitable so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. Case of Naresh Kumar is not one of rare cases, but one of several cases as we find that Section 40(a)(ia) is invoked in large number of cases. 27. One important consideration in construing a machinery section is that it must be so construed so as to effectuate the liability imposed by the charging section and to make the machinery workable. However, when the machinery section results in unintended or harsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be applied while construing a statute. Literal construction should be avoided if it defeats the manifest object and purpose of the Act. Therefore, in the well-known words of Judge Learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. In the case of R.B. Jodhamal Kuthiala v. CIT (1971) 82 ITR 570 (SC), this Court said that one should apply the rule of reasonable interpretation. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. This view has been accepted by a number of High Courts. In the case of CIT v. Chandulal Venichand, (1994) 209 ITR 7 (Guj.), the Gujarat High Court has held that the first proviso to Section 43-B is retrospective and sales tax for the last quarter paid before the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 139(1), the sum shall be allowed as an expense in computing the income of the previous year. The two provisions are akin and the provisos to Sections 40(a)(ia) and 43B are to the same effect and for the same purpose. In Podar Cement Private Limited (1997) 226 ITR 625(SC), the Supreme Court considered whether term owner would include unregistered owners who had paid sale consideration and were covered by Section 53A of the Transfer of Property Act. The contention of the assessees was that the amendments made to the definition of term owner by Finance Bill, 1987 should be given retrospective effect. It was held that the amendments were retrospective in nature as they rationalise and clear the existing ambiguities and doubts. Reference was made to Crawford: Statutory Construction and the principle of Declaratory Statutes , Francis Bennion: Statutory Interpretation , Justice G.P. Singh s Principles of Statutory Interpretation , it was observed that sometimes amendments are made to supply an obvious omission or to clear up doubts as to the meaning of the previous provision. The issue was accordingly decided holding that in such cases the amendments were retrospective though i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Commissioner of income tax (Appeals) - 35. Mumhai [ the id. CIT (A)'] erred in confirming the action of the income Tax Officer - 25 (3) (3), Mumbal ['the A.O. ] in disallowing ₹ 1,10,964/- [part of total clearing and forwarding expenses of ₹ 5,40,469/-] u/s. 40(a) (ia) of the Income -tax Act. 1961 [the Act ]. 1.2 While doing so, the A.O. failed to appreciate that: (i) The case of the Appellant did not fall within the purview of section 40 (a) (ia) of the Act; and (ii) In any case, no such disallowance was called for. 7.2 The AO has disallowed a sum of ₹ 5,30,469/- on account of clearing and forwarding expenses under section 40(a)(ia) for want of deduction of tax. Before CIT(A) the assessee has submitted that the entire expenses does not consist of agency commission but it includes an amount of ₹ 4,19,505/- towards reimbursement of expenses. The assessee also pointed out that the bills for such expenses incurred by C F agents were separately raised by the assessee in addition to the bills for agency charges payable. The assessee therefore, relied upon the CBDT Circular No.715 dated 08/08/1995 in support of its claim that the reimbursement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there from. The above contention is been supported by C'BDT Circular no. 715 dated 8-8-1995, wherein if is stated that where the bills are raised for the gross amount inclusive of charges/fees as well as reimbursement of actual expenses, reimbursements cannot be deducted out of the bill amount for the purpose of TDS. Conversely put if there is no composite bill but separate bill has been raised for charges/fees and reimbursement of actual expenditure borne, the same cannot be subject to TDS as a part of gross bill as there being no income included in the amount of reimbursement which was on the basis of actual expenses incurred. Same position of law is also been clarified in Boards Circular No. 714 dated 3.8-1995. As such the A. 0. is not justified in treating assessee as Assessee in Default for non deduction of TDS on the reimbursed amount and also in charging interest u/s.234B. Hence the expenditure should be disallowed. 7.5 Thus it is clear that the grievance of the assessee before CIT(A) is only in respect of the amount of ₹ 4,19,505/- claimed to be reimbursement of expenses. The CIT(A) has accepted the said contention of the assessee and allowed to the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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