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TMI Blog2016 (4) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... irmed by the CIT(A) is ordered to be deleted. - Decided in favour of assessee. Addition of notional interest as income from other services - Held that:- Assessee which was outstanding to be receivable to the tune of ₹ 9,86,874.18 as on 31-3-2008 and ₹ 12,33,772.00 as on 31-3-2007 as per audited financial statements submitted by the assessee . The assessee’s total owned interest free funds being owned capital is ₹ 41,93,799.52 as at 31-03-2008 and ₹ 34,89,597.58 as at 31-03-2007 as per audited financial statements and there is a presumption that assessee has utilized its own interest free funds being owned capital for granting interest free loans to employee and his wife who are also relatives of the assessee. As could be observed that the assessee owned capital invested in the concern of ₹ 34.89 lacs as at 31-03-2007 is much higher than the interest free loan advanced of ₹ 12.34 lacs as at 31- 03-2007 , whereby it could be seen that interest free funds of ₹ 34.89 lacs owned by the assessee are much more than the amount of ₹ 12.34 lacs advanced by the assessee as interest free loans and the presumption as laid down by the judgments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and contrary to the Scheme of the Act. 05. Having regard to the facts of the case, provisions of law and judicial propositions, the impugned disallowances/additions are wrong and untenable in law. 06. The appellant may please be permitted to raise any additional or alternative ground on or before the hearing of appeal. 3. The brief facts of the case are that the assessee s sources of income during the year are from house property income, business and other sources. The A.O. observed from the details furnished by the assessee that she has made payment to the C F agent of ₹ 71,519/- but the assessee has not deducted tax at source on the payment made to C F agent which is covered by the provisions of section 194C of the Act. The assessee was specifically asked as to why the expenditure incurred on payment to C F agent should not be disallowed u/s 40(a)(ia) of the Act as the assessee has not deducted tax at source on the same. The assessee could not justify its claim of non-deduction of tax at source and agreed for the disallowance of ₹ 71,519/-. In view of non-deduction of tax at source in view of provisions of section 194C of the Act, the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity transmission company with whom the tax-payer, an electricity distribution company entered into a transmission service agreement and the main finding was that there is no liability to deduct tax at source on transmission/ wheeling/ SLDC charges u/s.194J and 194C of the Act and the observation of the ITAT on whether sec. 40(a)(ia) of the Act applies only when the amount is payable or where the expenditure is paid is a supplementary observation more in the nature of 'obiter dicta'. The CIT(A) held that the case law relied upon by the assessee is distinguishable and section 40(a)(ia) of the Act is applicable in assessee s case. Reliance in the case of Siemens Aktiongesellschaft (supra) is not relevant as it refers to the taxability of reimbursement of expenses of a German Company in the context of DTAA, thus, section 40(a)(ia) of the Act is applicable and accordingly A.O. s action was confirmed, vide orders dated 02-12-2011. 6. Aggrieved by the orders dated 02-12-2011 of the CIT(A), the assessee is in appeal before us. 7. The ld. Counsel for the assessee submitted that there was a total amount of ₹ 71,519/- paid by the assessee to C F agent , out of which re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of air freight , insurance and postage charges in connection with export consignment sent by the assessee from India to Lusaka(Zambia). The Hon ble Delhi High Court has dealt with nonapplicability of provisions with respect to tax deducted at source with respect to air freight on export consignment in CIT v. Opera Global Private Limited (supra) as under: 4. Section 194C was inserted by Finance Act, 1972 to mandate deduction of tax at source, on payments made to a contractor for carrying out any work including supply of labour. Tax was to be deducted by the stipulated payer at the rate of 1 or 2 per cent. 5. The expression 'carrying out any work' or the word 'work' was interpreted by the Delhi High Court, for the purpose of the said Section, in S.R.F. Finance Ltd. v. CBDT [1995] 211 ITR 861, to exclude professional services. It was observed, the said expression and word was wide enough to include any kind of work which could be undertaken by another, but was restricted to the work which was to be carried out. Therefore, it would not include brokerage paid to the broker who procured or secured fixed deposits from third parties as the said broker was not car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- (i) one per cent. in case of advertising, (ii) in any other case two per cent., of such sum as income-tax on income comprised therein : Provided that no individual or a Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (2) Any person (being a contractor and not being an individual or a Hindu undivided family), responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng whether tax at source was required to be deducted in the present case. The said questions and opinions/answers given by CBDT in the said circular read as under: Question 6: Whether payment under a contract for carriage of goods or passengers by any mode of transport would include payment made to a travel agent for purchase of a ticket or payment made to a clearing and forwarding agent for carriage of goods? Answer : The payments made to a travel agent or an airline for purchase of a ticket for travel would not be subjected to tax deduction at source as the privity of the contract is between the individual passenger and the airline/travel agent, notwithstanding the fact that the payment is made by an entity mentioned in section 194C(1). The provisions of section 194C shall, however, apply when a plane or a bus or any other mode of transport is chartered by one of the entities mentioned in section 194C of the Act. As regards payments made to clearing and forwarding agents for carriage of goods, the same shall be subjected to tax deduction at source under section 194C of the Act. Question 7 : Whether a travel agent/clearing and forwarding agent would be required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order dated 23rd September, 2013 passed in ITA 359/2012, it was inter alia directed :- Learned counsel for the appellant has filed two charts along with copies of sample invoices. Initially, she had submitted that MSS-I invoices submitted by the respondent were incorrect and no break up was given. However, we find that MSS-I invoices have been also filed by the appellant themselves. Learned counsel for the respondent has drawn our attention to the assessment order and referred to paragraph 8 and 9 thereof. In paragraph 9, the assessing officer has mentioned that the expenses amounting to ₹ 1240288/- were claimed under the head clearing and forwarding and list of 31 parties was furnished. Payments to 30 parties were below the amount on which TDS was required to be deducted. In respect of one party, the assessee had furnished a certificate issued by the Department that no TDS was required to be deducted. The assessing officer thereby did not make any disallowance on the said payments. The submission of the respondent is that addition ₹ 4861509/- made by the assessing officer was towards freight charges on export outwards as per the heading of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income Tax to file an affidavit in ITA 359/2012. In the affidavit of the Commissioner of Income tax, relating to Assessment Year 2006-07, it is stated that 41 parties had raised invoices on account of freight charges and 31 parties on account of clearing and forwarding charges 14 parties were common. Certain invoices were not available on record. 16. We are not inclined to accept prayer of counsel for the revenue of remand, on issue relating to matter of facts. Assessment years are 5 and 7 years old. Assessing Officer should have conducted the said exercise earlier. 17. On the second amount of ₹ 14,57,703/- relating to Assessment Year 2006-07, the finding of the Commissioner of Income Tax (Appeals) and Tribunal is that none of the said parties were paid in excess of the stipulated amount of ₹ 50,000/- and hence payments were not required to be subjected to TDS under section 194C(5) of the Act. The finding is factual and no details and particulars are filed to show that the finding is incorrect or perverse. 18. In view of the factual findings recorded by the Tribunal, affirming the decision of the Commissioner of Income Tax (Appeals), we ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely. The assessee was asked that since the assessee is paying interest on loan taken by him , why the interest is not charged for loans given to the persons and why interest at the rate of 12% should not be charged on loans given to these two parties and added under the head income from other sources . The assessee submitted that loans had been given to the relatives and therefore no interest is charged on the same. This contention of the assessee was not found acceptable and rejected by the A.O. The A.O. held that any prudent business man when he himself is paying interest on loans which are interest bearing should have charged interest from the persons to whom loans have been given. The A.O. accordingly worked out disallowance at ₹ 1,18,286/- as notional interest income and added the same to the total income of the assessee under the head income from other sources , vide assessment order dated 04-10-2010 passed by the AO u/s. 143(3) of the Act. 11. Aggrieved by the assessment order dated 04-10-2010 passed by the A.O. u/s 143(3) of the Act, the assessee preferred an appeal before the CIT(A). 12. Before the CIT(A), the assessee submitted that the loans were advanced f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Abhishek Industries Limited, (2006) 286 ITR 1 (P H Hc), wherein it has been held that there should be a nexus of use of borrowed funds for the purpose of business to claim deduction u/s 36(1)(iii) of the Act . The CIT(A) held that it is thus for the assessee to prove that funds borrowed for business were utilized for the purpose of business, it is not for the Revenue to establish nexus between the borrowed funds and interest free funds advanced, hence, A.O. was directed to make proportionate disallowance from the interest claimed u/s 36(1)(iii) of the Act at the same rate of interest as had been paid on the borrowings, vide orders dated 02-12- 2011. 13. Aggrieved by the orders dated 02-12-2011 of the CIT(A), the assessee is in appeal before the Tribunal. 14. The ld. Counsel for the assessee submitted that notional interest have been disallowed by the A.O. to the tune of ₹ 1,18,286/-. The ld counsel contended that the loans have been given to the employees and his wife for buying a piece of land and constructing building there-on . The employees are relatives of the assessee. He submitted that the capital of the assessee is around ₹ 41.94 lacks while the loan hav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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