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TMI Blog2025 (4) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... e and result of the same would be applicable mutatis mutandis, to all the appeals under consideration. 3. ITA No.6419/M/2024: In this case, the Assessee has claimed to be engaged in the business of tyre manufacturing and selling and therefore in order to verify whether the Assessee company is properly applying with the provisions contained in chapter (xviib) of the Act, a survey action u/s 133(a)(2a) of the Act was conducted at the premises of the Assessee on dated 05.10.2018, wherein it was found that the Assessee company's sales of tyres are through consignees and forwarding agents (CFAs). As per clause 5 of CFA agreement, the CFA will be eligible for claiming the reimbursement of expenses on actual as fixed expenses for warehouse, rent, storage, furniture, fixtures etc. as incentive and commission on sales on a monthly basis at the specified rate per kilogram of sales made per month for local sales and upcountry sales, as case may be. On perusing the TDS ledgers for the payments made to the CFA, it was seen by the Assessing Officer (AO) that the Assessee was deducting TDS @ 2% u/s 194C of the Act, on the fixed expenses paid as incentive, as well as commission paid under nomencl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red were subjected to TDS u/s 194C- Payment to contractors. In this regard we would now like to distinguish the language as given in Section 194C as compared to other TDS provisions. As per Section 194C, any person making payment to any resident for carrying out work in pursuance of a contract is liable for deduction of tax at source. The relevant extract of section 1940 is reproduced for ease of reference 194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person 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 where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 ut 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 provision 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 agent for carriage of goods, the same shall be subjected to tax deduction at source under section 1940 of the Act." Further we would also like to draw your goodself attention to the decision of the Delhi ITAT in the case of Glaxo Smithkline Consumer Healthcare Ltd. V. Income-tax Officer, Ward 49(3), New Delhi (2007) 12 SOT 221 (Delhi) wherein the Hon'ble Delhi Tribunal has categorically held that payments made to agent for services relating to Storage, Dispatch, transportation, loading and unloading of goods is liable for deduction of tax at source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his income as commission but the controlling person of the CEAT Ltd had directed to raise bills mentioning TDS @ 2%. The format for raising the bill is also provided by CEAT. (ii) Monthly Variable Service charge bill (Commission bill) (iii) Fixed service charge bill, which are for rent, storage material charge etc. (a). M/s Hoosaini Company is recording the receipt from CEAT as Commission income in there book's of account. (b) It is also important to mention here, that upto F.Y 2013-14 M/s CEAT Itd was deducting TDS u/s 194H on the payments made to the CFA M/s Hoosani company. They had started to deduct TDS U/s 194C from F.Y 2014-15 in spite of the fact that the nature of transaction with CFA remains same. (6.5) The circular No 715 quoted by assessee is also not relevant with the facts of the case as the same is for TDS deduction on payments made to clearing and forwarding agents. (6.6) The decision of Delhi ITAT in the case of Glaxo Smithkline Consumer Healthcare Ltd. V. Income-tax Officer, Ward 49(3), New Delhi (2007) 12 SOT 221 (Delhi) on which assessee has relied was decided on the issue whether the services rendered by CFA falls under professional on technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med the decision of the AO in raising the demand of Rs.1,25,00,396/- by the AO u/s 201(1) & 201(1a) of the Act, by holding that variable payment being made by the Assessee to the CFAs as commission income, is liable to TDS @ 5% u/s 194H as against @ 2% u/s 194C as being done by the Assessee. For brevity and ready reference, the analyzations made and conclusion drawn by the Ld. Commissioner are reproduced as under: "7. Decision 7.1 The findings of the AO in the order, the detailed submission of the appellant and the various case laws relied upon by the appellant have been perused and are being considered. The main issue of dispute is whether the nature of variable payment done to the CFAs by the appellant is Commission or contractual payment. While the AO is of the opinion that the payment is nothing but commission and hence liable for tax deduction U/s 194H@%, the appellant is of the firm view that the payment is a contractual payment liable for TDS U/s 194C @ 2%. 7.2 Before deciding on the nature of the payment it is of utmost importance to note that in the instant case the payment made by the appellant are not net of taxes, i.e. the tax liability is ultimately on the CFAs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant dispute will have to be analysed with this very important fact in mind that the tax liability in the instant agreement was never on the appellant. 7.5 Coming to the instant agreement in terms of nature of roles and responsibilities of the CFAs, following clauses are worth mentioning: 2.1 The CFA shall act as the Company's consigning, forwarding and storing agent in the said territory for receiving, warehousing, safe storage and dispatch of goods to all categories of customers/dealers & company's depots in specified territory as per schedule A in line with the policies decided by the company from time to time. 2.2 The CFA shall act only as an agent of the company for the purposes of the above and shall deal only with the Goods of the company and shall not transgress his responsibilities beyond than what has been mentioned in this agreement and/or shall not act/deal either as agent or in any other capacity for any other party in respect of the said goods or derivatives thereof, which may in any manner affect the interest of the company adversely. The CFA also undertakes that it shall deal only with the goods of the company from the same godown and shall not act ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t relationship and hence the payment cannot be in the form of Agency commission. However, in the preceding paras, it has already been elaborated that there is no component of Principal- to-Principal agreement as is the case with a Contractor and in fact the nature of control exercised by the appellant over the CFAs point towards an agency relationship. (ii) The appellant has objected to the AO not providing the copy of the statement given by the CFA ie, M/s Hoosaini & Co in which the appellant has stated that they themselves were treating the payment received from the appellant as Commission in their books of accounts. The appellant has stated that the AO did not give any opportunity to cross examine the third party witness and hence there has been a violation of principles of natural justice. In this connection it may be pointed out that the CFAs treating the receipt as commission in their own books of accounts is a matter of record and the mere fact of cross examination by the appellant is not going to change the record. The appellant may be aggrieved to the extent of statement given by the CFA that they are raising bills indicating TDS @2% at the directions of the appellant. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein the recipient of the sum/income are a large number of entities of different credibility. In the instant case, there are multitude of CFAs, each of different credit worthiness and hence it was the duty of the appellant to ensure that tax as per rules is deducted at the source itself so that there is no leakage of tax. It is further surprising that the appellant was earlier deducting taxes on the same payment @ 5% for years prior to AY 2013-14 and thereafter changed its position to treat these payments as contractual payment liable for reduced rate of TDS. The appellant did not also approach the department at any point of time to assist it in categorising the nature of payment. (iii) The CFAs were accounting for the variable payment received from the appellant as Commission income in their books of accounts and this also indicates that the normal trade practice was to treat this receipt as Commission. For reasons as detailed above, I am therefore of the considered view that the AO has correctly categorised the variable payment being done by the appellant to the CFAS as Commission income liable to TDS @ 5% as against @2% as being done by the appellant. The demand of Rs. 1,25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l act only as an agent of the company for the purposes as above and shall deal only with the goods of the company and shall not transgress his responsibility beyond with, what has been mentioned in this agreement and/or shall not act/deal either as an agent or in any other capacity for in other party in respect of the said goods or derivative, so thereof which may in any manner effect the interest of the company adversely. Further, CFA is responsible to make required transportation arrangement expeditiously, entirely at its own cost. CFA will be eligible for claiming the reimbursement of expenses, on actual as scheduled in the schedule (a) on a monthly basis. CFA shall also be entitled for a commission on sales on a monthly basis. It is further specified in the agreement that although the goods shall be stored in the godown in the custody of the CFA, but the said goods shall always be and remain the property of the company and CFA will be a trustee thereof, until the same are sold and delivered to the parties/dealers concerned. CFA shall have no right whatsoever to sale, transfer, pledge, hypothecate or otherwise dispose of the same or create any other encumbrance thereon. 15. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany one of the CFAs, has admitted that up to A.Y. 2013-14 the Assessee was deducting TDS u/s 194 of the Act, however, thereafter from A.Y. 2014-15 onwards they started deducting the TDS u/s 194C of the Act, in spite of the fact that the nature of transaction with the CFA remains the same. The Assessee and CFA are principal and agent, as the agent is to do the work as per the wisdom of the principal and for the welfare of the principal and as per terms and conditions set out in the memorandum of association/contract and therefore the Assessee cannot skip the liability, as determined by the AO, as affirmed by the Ld. Commissioner". 21. We have heard the parties and perused the material available on record. The Assessee has claimed to be engaged in the business of manufacturing of automobile, tyres, tubes etc. and therefore in order to handle its supply chain had entered into contracts with various persons for providing last-mile storage/warehousing and dispatching/forwarding services. The Assessee consequently made the contractual agreements with the forwarding agents/ warehousing owners including the consigning and forwarding agreement (CFA) dated 08.05.2018 entered into between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions set out in the memorandum of association/contract and therefore the Assessee cannot skip the liability, as determined by the AO and as affirmed by the Ld. Commissioner. 23. We have given thoughtful considerations to the documents available on record and contentions raised by the parties. From the aforesaid contentions of the Assessee, it is clear that the CFA was appointed as an agent for storing/warehousing and dispatching/forwarding of the goods of the Assessee, may be with the limited directions/liability. As per agreement, the consideration was/is supposed to be payable in following two components: (i) fixed charges of the expenses of Rs. 5,45,455/- per month as incentive subject to performance. (ii) Commission (variable expenses) @ 1.70 per KG on local sales and Rs. 2.55 per KG of upcountry sale. 24. The Assessee in the earlier assessment years upto AY:2013- 14, was deducting the TDS on the payments made to the CFAs, u/s 194H of the Act @ 5%, however, subsequently the Assessee from A.Y. 2014-15 onwards started deducting the TDS on both of the said charges/expenses u/s 194C of the Act. The Revenue Department has accepted the fixed expenses subjected to TDS u/s 194C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission income in its books of account and it is also important to mention here that up to F.Y. 2013-14 M/s. CEAT Ltd. was deducting the TDS u/s 194H of the Act on the payments made to CFA M/s. Hoosaini Company. However, from F.Y. 2014-15 onwards, they have started to deduct TDS u/s 194C of the Act, in spite of the fact that nature of the transaction with CFA remains same. 27. Admittedly, the AO while relying on the statement of Shri Hussain Valjee, partner of M/s. Hoosaini Company, has not given any opportunity to the Assessee to contradict the statement and/or cross examine such person and therefore we have to examine the facts and circumstances of the case independently "as to whether the TDS on variable expenses is liable to be deducted u/s 194C of the Act or u/s 194H of the Act". Let us peruse the provisions of section 194C & section 194H of the Act, which read as under: "194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with his Permanent Account Number, to the person paying or crediting such sum. (7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed. Explanation.-For the purposes of this section,- (i) "specified person" shall mean,- (a) the Central Government or any State Government; or (b) any local authority; or (c) any corporation established by or under a Central, State or Provincial Act; or (d) any company; or (e) any co-operative society; or (f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or (g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or (h) any trust; or (i) any university established or incorporated by or under a Central, State or Provincia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent : Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed fifteen thousand rupees : Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section: Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees. Explanation.-For the purposes of this section,- (i) "commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessee in deducting the tax at source on the payments made to the C&F agent u/s 194C of the Act. Thereafter, the matter travelled to Hon'ble Delhi High Court. The Hon'ble High Court ultimately affirmed the decision of the then Ld. CIT(A) and the Tribunal by holding that TDS is deductable u/s 194C of the Act, in relation to warehousing charges paid to clearing & forwarding agents. 31. We further observe that Hon'ble Co-ordinate Bench of the Tribunal in the case of Glaxo Smithkline Consumer Healthcare Ltd. V. Income-tax Officer, Ward 49(3), New Delhi (2007) 12 SOT 221 (Delhi) (13.10.06) [ITA No.551 to 554 (Del.) of 2004 decided on 13.10.2006], also dealt with the identical issue wherein the Assessee had entered into clearing and forwarding agency agreement with various persons and made the payments to the clearing and forwarding agents and deducted the tax at source u/s 194C of the Act for a consolidated set of services including receipt and dispatching of goods, storing the goods, keeping accounts/records of the same, ensuring the supply of the goods, complying with the formalities for effecting receipt and dispatch of goods etc. On the contrary, the AO held the services r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax payable under Section 201(l) of the Act. Action of the assessing officer was confirmed by the Commissioner (Appeals). 4. We have carefully gone through the agreement entered into by the assessee with C&F Agents and perused the terms relating to services to be rendered by C&F Agents. We found that the C&F Agents was required to store, dispose, deliver or redeliver goods as may be determined and notified to such C&F Agents by the assessee. The C&F Agents was required to store the goods by the assessee with all care, prudence and responsibility so that such goods are free from risks as theft, pilferage and damages. He shall have full responsibility in respect of clearing consignment, loading/ unloading, carriage, cartage to and for the warehouse and godown of the agents, staking or storing. He shall put such mark or marks in the warehouse to distinguish the goods of the assessee from the goods that such agents may receive from any other person. He shall indemnify the assessee against any loss in respect of the goods in its custody. Furthermore, the C&F Agents undertake to deliver the goods or consignment to such persons or parties as nominated by the assessee, maintain and render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 9. Explanation 2 to Section 9(1)(vii) of the Act "fees for technical services"to mean any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provisions of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". 7. Thus it is crystal clear from the provisions of Section 194J that services of the agents are neither professional services nor technical services. Such services are also clearly not in the nature of technical, consultancy or managerial services, therefore, tax in respect of these services are not to be deductible under Section 194J of the Act. C.B.D.T. in its Circular No. 720 dated 30-8-1995 had also provided that various provisions of Chapter XVII relating to deduction of tax at sources are mutually exclusive and that Chapter XVII deals with a particular kind of payment to the exclusion of all other sections in this Chapter. Thus, any payment of any sum shall be liable for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Revenue in holding/deducting the tax at source u/s 194H of the Act and consequently deleted the addition u/s 40(a)(ia) of the Act, by observing and holding as under: "3. The brief facts of the case are that the assessee company is engaged in the business of manufacturing and trading of laundry soap and washing power, detergent cake etc. During the course of assessment proceedings, the A.O. noticed that the assessee company has paid certain amounts to the consignees to whom they have sold their goods. These amounts were claimed as reimbursement of expenses incurred by them. However, the A.O. noted that the case of the assessee was not reimbursement of actual expenses incurred by consignees but a fixed percentage was paid irrespective of the actual expenses incurred by them. Therefore, as per the A.O. the assessee was liable to deduct tax at source as per the provisions of section 194H of the Act. Since the assessee was liable to deduct tax at source and has failed to do so, the A.O. made an addition of Rs.28,14,174/- by invoking the provisions of section 40(a)(ia) of the Act. 4. The addition made by the A.O. has been confirmed by the CIT(A) as under:- (Paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guished from regular payments of wages or salary. iv) As per WEBSTER'S DICTIONARY The fee given an agent or sales person for his or her services. v) As per Dictionary of CULTUIRAL LITERACY ECNOMICS A fee paid to a broker or other financial agents for negotiating a sale. The fee is based on percentage of sale price. 5.1 In the light of above dictionary meaning, if we see the facts of the case under consideration, we notice that the assessee claimed Rs.28,14,174/- as revenue expenses on consignment sales in profit and loss account. It is relevant to note that the assessee paid commission on sale and were separately accounted for under the head commission on sale of Rs.48,55,646/-in profit loss account. The consignee agents make the sale on behalf of the assessee company to the distributor/dealer/retailer appointed by them for which they are paid commission at the fixed percentage as per the Agreement executed between them and TDS is deducted on the said commission. No dispute on this issue. Goods are sent to the consignee agents from Malanpur Unit for which the primary freight is paid on behalf of the assessee company. This freight paid is reimbursed by the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or and behalf of the assessee company. iv) Monthly Sale Patti is sent by consignee agents along with ledger account of expenses incurred. v) In Sale Patti consignee agent, from the sale amount deduct their commission and expenses which they have to receive from the assessee company on the basis of fixed cost rate as per agreement. vi) On receipt of Sale Patti credit note for the expenses is issued. vii) In the books of the assessee company amount of credit note is debited under the head "Expenses on consignment sale". 5.2 The commission is said to be payment of commission if it is evident that it is being paid for service of a person provided in respect of sale of product of the assessee. In the case under consideration, the ld. Authorised Representative has demonstrated by filing various evidences and material of which copies have been placed in paper book. Copies of agreement, paper book page nos. 1 to 4, copies of Sale Patti page nos. 5 to 9 of the paper book, copies of ledger account of expenses page nos. 32 to 50. On perusal of agreement, we notice that as per clause-3 in addition to 3% sale, the agent is entitled to reimbursement of expenses. The relevant abstract o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. These expenses have been adjusted and accounted for in the account of respective parties. After considering these arguments, we notice that the impugned payment is reimbursement of the expenses and are not the commission as the concerned party did not give any services in respect of the payment of expenditures made. Providing services is essentially requirement of the nature of transaction of a commission. Since this condition is not satisfied in the case under consideration therefore it is a case of reimbursement of the expenses incurred by the concerned party on behalf of the assessee. Under the circumstances, we find that the Revenue authority is not correct in taking such expenses as commission expenses. The finding of Revenue Authorities in this behalf is on presumption basis, without considering the relevant agreement/documents and books of account maintained by the assessee. We, therefore, set aside the orders of Revenue Authorities and the claim of the assessee is allowed. 5.4 Since this is not a commission payment, therefore, there is no question of deducting tax at source under Section 194H of the Act. Since the payment is not subject to tax deducted at source, there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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