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TMI Blog2022 (4) TMI 576X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal had considered identical issue of payment made by custom house agent to CFS agents and held that provisions of Sec.194C of the Act, is applicable when the Custom House Agent makes payment to CFS Agents. We are of the considered view that payment made by the assessee to CFS Agents is covered u/s.194C of the Act and thus, for non-deduction of TDS on such payments, the AO has rightly disallowed expenses u/s.40(a)(ia) Scope of amendment made by the Finance Act, 2010 to the provisions of Sec.194C - assessee claimed that if at all, payment is required to be disallowed, then only 30% of expenses needs to be disallowed, but not the total amount paid by the assessee without deduction of TDS - We find that the provisions of Sec.40(a)(ia) of the Act, has been amended from time to time to give relaxation to the assessee for not complying with TDS provisions. The said amendments have been considered by various Courts, including the Hon ble Supreme Court in the case of CIT v. Calcutta Export Co. [ 2018 (5) TMI 356 - SUPREME COURT] and held that amendment made by the Finance Act, 2010 to provisions of Sec.40(a)(ia) of the Act, is curative in nature and should be given retrospective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be disallowed in terms of section 40 (a) (ia) for non-deduction of Tax at source. ( Paid / payable ). 4. The Commissioner of Income Tax (Appeals) erred in holding that Assessee had admitted that shortfall in TDS is paid in the next Financial Year ignoring submissions made to the contrary in the fresh assessment (under appeal) in giving effect to the order of Hon'ble ITAT. 5. The Commissioner of Income Tax (Appeals) ignored to properly deal with the objection raised by Assessee that provisions of section 40 (a) (ia) are not applicable to reimbursement of Transport charges and CFS charges paid before the end of relevant previous year. 6. The Commissioner of Income Tax (Appeals) ignored the detailed objections raised against invoking section 40 (a) (ia) for the disallowance but confirmed the disallowance merely on wrong impression set out in the order in appeal that Assessee had admitted that no TDS is effected in respect of Transport charges and CFS charges paid. 7. The Commissioner of Income Tax (Appeals) failed to deal with detailed evidence furnished in paper book form that the entire transport charges and GFS charges were paid before the end of relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) erred in not appreciating the fact that the assessee is not required to deduct TDS on payments made towards CFS charges, because said payments are in the nature of reimbursement of expenses, which is outside the scope of provisions of Sec.194C of the Act. The assessee had also made an alternative argument without prejudice to the above argument and submitted that, if at all, disallowance is required to be made u/s.40(a)(ia) of the Act, then only 30% of total expenditure incurred by the assessee without deduction of TDS, has to be made, because, the amendment made to provisions of Sec.40(a)(ia) of the Act by the Finance Act, 2010, is held to be retrospective in nature and apply to the assessment years w.e.f. AY 2005-06, when the provision was inserted to the statute. In this regard, relied upon the decision of the Hon ble Supreme Court in the case of CIT v. Calcutta Export Co., reported in [2018] 93 taxmann.com 51 (SC). 5. The Ld.DR, on the other hand, submitted that the first arguments of the assessee that payment made by the assessee is outside the scope of Sec.194C of the Act, is devoid of merits, because as per provisions of Sec.194C of the Act, which is the responsibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: 9. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The assessee is in the business of clearing agent, has rendered services to their clients and made direct payment to shipping companies/CFS Agents for services rendered to their clients. The assessee has raised bills to his clients in two parts, (i) a bill for service charges towards services rendered by them along with other payments (ii) a debit not for reimbursement of other charges paid by the assessee on behalf of their clients as an intermediary for the clients and which are backed by specific invoices raised by service providers to their clients. The assessee has not deducted TDS on payments made to shipping companies/CFS Agents on behalf of their clients. The assessee contended that payments made to shipping companies/CFS Agents is in the nature of reimbursement of expenses without any element of profit and thus same cannot be brought within the TDS provisions and consequently, no disallowance can be made u/s.40(a)(ia) of the Act. 10. We have gone through reasons given by the AO to disallow payments made to shipping companies/CFS Agents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and assessee reimburse such expenditure. In this case, it is not so. In fact, the assessee has made payments on behalf of their clients and thus it is reimbursement for their client. In our view, the assessee being a payer directly to the shipping companies/CFS Agents ought to have deducted TDS while making the payment although such payments was made on behalf of their clients. Therefore, we are of the considered view that there is no merit in the arguments of the assessee that payments made to shipping companies/CFS Agents is in the nature of reimbursement for which TDS liability cannot be pinned on the assessee. In the present case, since, the assessee has made payments on behalf of their clients, it should have deducted TDS on such payments, while making payments. The assessee being payer fails to deduct tax on the pretext that the payment is only a reimbursement and the tax has to be deducted by the end user which is practically not possible, because the payment is directly made by the assessee. If you accept the arguments of the assessee, then the purpose of legislature is defeated and the intend to subject the contract payment to deduction of tax at the point of pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the Finance Act, 2010 to provisions of Sec.40(a)(ia) of the Act, is curative in nature and should be given retrospective operation from the date of insertion of the provision i.e. w.e.f. AY 2005-06. Since, provisions of Sec.40(a)(ia) of the Act, has been amended so as to disallow 30% of any sum payable on which tax is deductible at source under Chapter-XVIIB and such tax has not been deducted or after deduction, has not been paid on or before the due date specified in sub-sec.(1) of sec.139 of the Act, and such amendment is held to be retrospective in nature and applicable from AY 2005-06. Therefore, we are of the considered view that only 30% of expenses incurred by the assessee without TDS should be disallowed u/s.40(a)(ia) of the Act. Hnce, we direct the AO to restrict the disallowance of payment made to CFS Agents without deduction of TDS @30% of such payments. 9. In the result, the appeal filed by the assessee in ITA No.1136/Chny/2017 for the AY 2009-10 is partly allowed. ITA No.1137/Chny/2017 for the AY 2010-11 10. The facts and issues involved in this appeal are identical to the facts and issues which we had considered in ITA No.1136/Chny/2017 for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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