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TMI Blog2015 (2) TMI 1299X X X X Extracts X X X X X X X X Extracts X X X X ..... urt will be binding and not the Circular issued by the CBDT as held by the Larger Bench of Hon'ble Supreme Court in the case of Commissioner of Central Excise vs. Rattan Melting & Wire Industry (2008 (10) TMI 5 - SUPREME COURT OF INDIA). 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 proviso to section 40(a)(ia) as well as the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did exist or not. Even otherwise the payment of service charges to C&F agent is based on agreed rate/charges which constitute an agreement between the parties. Accordingly in the facts and circumstances of the case we do not find any merit or substance in the cross objection of the assessee hence, the same is dismissed. - I.T.A. No.2481/Mum/2012, C.O. No.86/Mum/2013 Arising out of I.T.A. No.2481/Mum/2012 - - - Dated:- 12-2-2015 - SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER 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 sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Appeal No. 7/2005 order dated October 16, 2009 and submitted that the Hon'ble High Court after considering the issue of applicability of section 172 as well as the CBDT Circular No.723of 1995 held that the disallowance under section 40(a)(ia) for non deduction of TDS by the AO is legal and proper. Thus, the ld. DR has submitted that the provisions of section 172 are not overriding 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 hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 40(a)(ia) by Finance Act, 2012 w.e.f 01/04/2013 whereby a 2nd proviso has been inserted as under :- Section 40(a)(ia) . 1st proviso . 26 Provided further that where an assessee fails to deduct the whole or any part to the tax in accordance with the provisions of chapter XVII-B on any such sum but is not deemed to be an assessee in default under the 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 res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany from Japan viz. Mitsui Co. Ltd., Japan, recipient of demurrage amount is not before us. In other words, we are not examining the tax liability of the foreign company i.e. Mitsui Co. Ltd., Japan. On our query to the learned Senior Advocate Shri Usgaonkar as to material on record for occasional shipping, part of para 3 from the Judgment of the learned Commissioner of Incometax 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aresh Kumar (362 ITR 256) while considering the amended proviso to section 40(a)(ia) has held in para 26 to 29 as under :- 26. Principle of matching which is disturbed by Section 40(a)(ia) of the Act, may not materially be of consequence to the Revenue when the tax rates are stable and uniform or in cases of big assessees having substantial turnover and equally huge expenses as 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retrospective and was to take effect from 1st April, 1984. Highlighting the object behind Section 43B, it was observed that the proviso makes the provision workable, gives it a reasonable interpretation. It was elucidated(page 686 of 224 ITR): In the case of Goodyear India Ltd. V. State of Haryana(1991) 188 ITR 402 (SC), this Court said that the rule of reasonable construction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the TDS before the due date, in such cases, notwithstanding Sections 30 to 38 of the Act, deduction is to be allowed as an expenditure in the year of payment unless a case is covered under the exceptions carved out. The amended proviso as inserted by Finance Act, 2010 states where an assessee has made payment of the TDS on or before the due date of filing of the return under Section 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 pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing expenditure is comprising of several bills and the amount of one individual bills does not exceed ₹ 20,000/-. Accordingly we do not find any error or illegality in the impugned order of CIT(A). This ground of the revenue is disallowed. 6. Revenue appeal is partly allowed. 7. Cross Objection No. 86/Mum/2013 7.1 The assessee has raised the following grounds :- 1.1 The learned 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee in addition to bills for agency charges payable and since the amount of bills so raised was towards the actual expenses incurred by them, there is no element of profit involved in the said bills. It is a clear case of reimbursement of actual expenses of the assessee and the same, therefore was not of the nature of payment covered by section 194C/J requiring the assessee to deduct tax 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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