ACIT, New Delhi V. Sh Indiar Carriers Pvt. Ltd, New Delhi

ITA 1605/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3933 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 09-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 09-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: RAJAN MALIK
• Keywords: Depreciation
• Section: 194C; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH C DELHI ] BEFORE SHRI I. P. BANSAL, JM AND SHRI K. D. RA NJAN, AM I. T. A. NO. 1605 (DEL) OF 2010. ASSESSMENT YEAR : 2006-07. ASSTT. COMMISSIONER OF INCOME-TAX, M/S. IND IAR CARRIERS PVT. LTD., C E N T R A L C I R C L E : 7, VS. LG 13, SOMDUTT CHAMBER II, N E W D E L H I. BHIKAJI CAMA PLACE, N E W D E L H I. P A N / G I R NO. AAA CI 1669 L. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI RAJAN MALIK, ADV.; DEPARTMENT BY : MS. MONA MOHANTY, SR. D. R. O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 200 6-07 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)I, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE AR E REPRODUCED AS UNDER:- 1. THE ORDER OF THE LD. CIT (APPEALS) IS NOT CORR ECT IN LAW AND FACTS; 2. WHETHER ON THE FACTS AND IN THE CIRCUMS TANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN LAW AND IN FACTS BY HOLDING THAT THE ASSESSEE COMPANY HAS 2 I. T. A. NO. 1605 (DEL) OF 2010. NOT PROVIDED ANY MANAGERIAL SERVICES TO THE FOREIGN COMPANY AS PER THE PROVISIONS OF SECTION 9(1)(VII) OF THE INCOME-TAX A CT, 1961; 3. WHETHER ON THE FACTS AND IN THE CIRCUMS TANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN LAW AND IN FACTS BY HOLDING THAT THE ASSESSEE COMPANY BEING AN INDEPENDENT ENTITY DIFFERENT FROM ITS DIRE CTORS / EMPLOYEES EXPENSES MADE FOR THE PERSONAL BENEFIT OF THE DIRECTORS / EM PLOYEES CANNOT BE DISALLOWED IN THE CASE OF THE COMPANY; 4. WHETHER ON THE FACTS AND IN THE CIRCUMS TANCES OF THE CASE, THE DECISION OF THE LD. CIT (APPEALS) IS BAD IN LAW ENUNCIATED IN S ECTION 37 OF THE ACT ALLOWING ONLY THOSE EXPENSES WHICH ARE INCURRED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION ON ACCOUNT OF MANAGERIAL SERVICES. THE FACTS OF THE CASE STATED IN BRIEF AR E THAT THE ASSESSEE COMPANY DURING THE RELEVANT PERIOD WAS ENGAGED IN THE BUSINESS OF HANDLING OF C ARGO I.E. BOOKING OF CARGO RECEIVED BY IT, MAINLY FROM EXPORTERS IN INDIA AND AIR TRANSPORTATI ON OF THE SAME TO VARIOUS COUNTRIES OF THE WORLD AS PER THEIR REQUIREMENT. DURING THE YEAR UN DER CONSIDERATION THE ASSESSEE MADE PAYMENT OF RS.3,22,042/- ON ACCOUNT OF FREIGHT FORWARDING F UNCTIONS DONE BY UTI NETWORK INC. OUTSIDE INDIA IN RESPECT OF CARGO EXPORTS FROM INDIA TO FOR EIGN DESTINATIONS. THE ASSESSING OFFICER DISALLOWED THE AMOUNT THAT THE FUNCTIONS UNDERTAKEN BY UTI NETWORK INC. WERE IN THE NATURE OF MANAGERIAL SERVICES AND WERE COVERED UNDER THE DEFI NITION OF FEE FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE ACT. THEREFORE, THE ASSES SEE SHOULD HAVE DEDUCTED TAX AT SOURCE UNDER SECTION 195 OF THE ACT. SINCE NO TAX WAS DEDUCTED A T SOURCE, PROVISIONS OF SECTION 40(A)(I) OF THE ACT WERE APPLICABLE. THE ASSESSING OFFICER, THEREF ORE, DISALLOWED THE AMOUNT OF RS.3,22,042/-. 4. ON APPEAL IT WAS SUBMITTED THAT THE AMOUNT IN QU ESTION WAS PURELY TOWARDS COMMERCIAL SERVICES RECEIVED BY THE ASSESSEE FROM RENDERER OF THE SERVICES, NAMELY, UTI NETWORK INC., UK AND THE SERVICES WERE RENDERED IN THE FIELD OF FREI GHT FORWARDING FUNCTIONS, I.E. THOSE FUNCTIONS WHICH ARE GENERALLY DONE BY FREIGHT FORWARDING AGEN T. THE SERVICES OF A FREIGHT FORWARDING AGENT WERE NOT MANAGERIAL SERVICES AS THEY WERE PURELY BU SINESS SERVICES. IT WAS ALSO SUBMITTED THAT MANAGERIAL SERVICES WOULD MEAN THE SERVICES IN THE FIELD OF MANAGING THE AFFAIRS OR LAYING DOWN POLICIES, PROCEDURES, EVALUATION OF THE EXISTING SY STEM OR EVALUATION OF SOME NEW POLICIES OR 3 I. T. A. NO. 1605 (DEL) OF 2010. STRATEGIES IN PLACE OF PRESENT SYSTEM. HE PLACED R ELIANCE ON THE BOARD CIRCULAR NO. 715 DATED 8/08/1995 WHEREIN CENTRAL BOARD OF DIRECT TAXES CLA RIFIED THAT PAYMENT TO CLEARING AND FORWARDING AGENTS FOR CARRIAGE OF GOODS IS SUBJECT TO DEDUCTION OF TAX AT SOURCE UNDER SECTION 194C OF THE ACT. IT WAS ALSO SUBMITTED THAT PROVIS IONS OF SECTION 194C DEAL WITH THE PAYMENTS FOR CARRYING OUT ANY WORK INCLUDING CERTAIN SERVICE S. SECTION 194J ON THE OTHER HAND, STIPULATES DEDUCTION OF TAX AT SOURCE IN RESPECT OF PROFESSION AL AND TECHNICAL SERVICES. IN SECTION 194J THE EXPRESSION FEE FOR TECHNICAL SERVICES HAS BEEN GI VEN THE SAME MEANING AS LAID DOWN UNDER EXPLANATION 2 TO SECTION 9(1)(VII). IN VIEW OF THE ABOVE IT WAS PLEADED THAT THE SERVICES OF A FREIGHT FORWARDING AGENT COULD NOT BE CONSIDERED TE CHNICAL SERVICES INCLUDING THE MANAGERIAL SERVICES AS DEFINED IN EXPLANATION 2 TO SECTION 9(1 )(VII) OF THE ACT. THE LD. CIT (APPEALS) ON CONSIDERATION OF THE ARGUMENTS ADVANCED BY THE ASSE SSEE OBSERVED THAT THE SERVICES HAVE BEEN RENDERED BY UTI NET WORK INC. AND THE SAME WERE NOT MANAGERIAL SERVICES IN NATURE. THE SERVICES OF THE FREIGHT AGENT ARE RECOGNIZED AS GEN ERAL OR COMMERCIAL SERVICES AND NOT AS TECHNICAL SERVICES AS EXPRESSED IN SECTION 194J. H E FURTHER NOTED THAT THE SERVICES RENDERED HAVE BEEN CARRIED OUT OUTSIDE COUNTRY AND, THEREFORE, TH E SAME WERE NOT TAXABLE IN INDIA UNDER SECTION 195 OF THE ACT READ WITH SECTION 9(1)(VII). THEREF ORE, PROVISIONS OF SECTION 40 (A) (I) WERE NOT APPLICABLE. THE LD. CIT (APPEALS) ACCORDINGLY DELE TED THE ADDITION. 5.1 WE HAVE HEARD BOTH THE PARTIES. THERE IS NO DI SPUTE ABOUT THE FACT THAT THE ASSESSEE HAD MADE PAYMENT TO UTI NETWORK, INC. OUTSIDE INDIA AGAINST FREIGHT FORWARDING FUNCTIONS. THE INCOME BY WAY OF FREIGHT FORWARDING CHARGES IS NOT TAXABLE IN INDIA. UNDER SECTION 40 (A) (I) OF THE ACT, ANY PAYMENT BY WAY OF INTERE ST, ROYALTY, FEE FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT WHICH IS PAYABLE OUTS IDE INDIA OR IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY ON WHICH TA X IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAD NOT BEEN DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID DURING THE PREVIOUS YEAR OR IN THE SUBSEQUENT YEAR BEFORE EXPI RY OF TIME PRESCRIBED UNDER SUB SECTION (1) OF SECTION 200 SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS OR GAINS OF BUSINESS OR PROFESSION. THE PAYMENT MADE TO FREIGHT FORWARDING AGENT AS HELD BY THE LD. CIT (APPEALS) IS COVERED BY CIRCULAR NO. 715 DA TED 8/08/1995 AND, THEREFORE, THE PAYMENT CANNOT BE TREATED IN RESPECT OF MANAGERIAL SERVICES . THE EXPENDITURE IS IN THE NATURE OF BUSINESS 4 I. T. A. NO. 1605 (DEL) OF 2010. EXPENSES. MOREOVER, THE SAID PAYMENT IS NOT CHARGE ABLE TO TAX UNDER SECTION 195. WHEN THE AMOUNT IS NOT CHARGEABLE TO TAX IN INDIA, PROVISION S OF SECTION 40(A)(I) OF THE ACT ARE NOT APPLICABLE. 5.2 HONBLE DELHI HIGH COURT IN THE CASE OF VAN OOR D ACZ INDIA P. LTD. (323 ITR 130) HAS HELD THAT LIABILITY TO DEDUCT TAX AT SOURCE ARISES ONLY WHEN THE SUM PAID TO THE NON-RESIDENT WAS CHARGEABLE TO TAX IN INDIA. ONCE THAT WAS CHARGEAB LE TO TAX, IT WAS NOT FOR THE ASSESSEE TO FIND OUT HOW MUCH AMOUNT OF RECEIPT WAS CHARGEABLE TO TAX, B UT IT WAS THE OBLIGATION OF THE ASSESSEE TO DEDUCT THE TAX AT SOURCE ON THE ENTIRE SUM PAID BY HIM TO THE RECIPIENT. UNDER SECTION 195 OF THE ACT, THE OBLIGATION TO DEDUCT TAX AT SOURCE WAS ATT RACTED ONLY WHEN THE PAYMENT WAS CHARGEABLE TO TAX IN INDIA. HONBLE SUPREME COURT IN THE CASE OF ELLY LILLY CO. P. LTD. 312 ITR 225 (SC) HAS HELD THAT THE PURPOSE OF PROVISIONS FOR DEDUCTI ON OF TAX AT SOURCE IN CHAPTER XVII-B OF THE INCOME-TAX ACT, 1961 IS TO SEE THAT FROM THE SUM WH ICH IS CHARGEABLE UNDER SECTION 4 FOR LEVY AND COLLECTION OF INDIAN TAX, THE PAYER SHOULD DE DUCT TAX AT THE RATES IF THE AMOUNT IS TO BE PAID TO NON-RESIDENT. THEY ARE MEANT FOR TENTATIVE DEDU CTION OF INCOME-TAX SUBJECT TO REGULAR ASSESSMENT. SPECIAL BENCH OF THE ITAT IN THE CASE O F PRASAD PRODUCTION [3 ITR TRIB. 58] HAS HELD THAT IT IS ONLY WHEN THE REVENUE ESTABLISHES T HAT THE SUM PAYABLE TO THE NON-RESIDENT IS TAXABLE UNDER THE PROVISIONS OF THE ACT, THE PROVIS IONS OF SECTION 40(A)(I) CAN BE INVOKED. THIS PROPOSITION OF LAW HAS BEEN APPROVED BY THE HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P) VS. CIT DATED 09.09.2010. SI NCE THE PAYMENT OF RS.3,22,042/- IS NOT CHARGEABLE TO TAX IN INDIA UNDER SECTION 9(1)(VII) READ WITH SECTION 195 OF THE ACT, PROVISIONS OF SECTION 40 (A) (I) WILL NOT BE APPLICABLE. ACCORDI NGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) DELETING THE ADDITION. 6. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DELE TING THE ADDITION OF RS.7,10,095/-, BEING 20 PER CENT OF TRAVELLING EXPENSES DISALLOWED BY THE A SSESSING OFFICER FOR PERSONAL USE OF THE VEHICLES BY THE DIRECTORS AND OTHER EMPLOYEES FOR T HEIR PERSONAL PURPOSES. ON APPEAL IT WAS SUBMITTED THAT THE AMOUNT OF RS.35,54,574/- WAS THE TOTAL EXPENDITURE INCURRED ON FOREIGN TRAVEL AND LOCAL CONVEYANCES INCLUDING VEHICLES MAINTENANC E EXPENSES. IT WAS ALSO SUBMITTED THAT THE 5 I. T. A. NO. 1605 (DEL) OF 2010. ASSESSEE HAD MADE PAYMENT OF FRINGE BENEFIT TAX [FB T] AND, THEREFORE, NO DISALLOWANCE CAN BE MADE IN THE HANDS OF THE ASSESSEE. THE LD. CIT (A) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE OBSERVED THAT THE DISALLOWANCE HAS BEE N MADE BY THE ASSESSING OFFICER ON THE GROUND THAT VEHICLES MUST HAVE BEEN UTILIZED BY THE ASSESS EE FOR THE NON-BUSINESS PURPOSES OF THE DIRECTORS AND EMPLOYEES. THE ASSESSING OFFICER HAD MADE THE DISALLOWANCE ON THE GROUND THAT LOG BOOK WAS NOT MAINTAINED. THERE IS NO DISPUTE T HAT THE ASSESSEE HAD MADE PAYMENT OF TAX UNDER FBT. THE ASSESSEE HAD MADE PAYMENT IN RESPEC T OF FBT IN ITS HAND ON RS.35,54,574/-. WHEN THE ASSESSEE HAD MADE PAYMENT OF TAX ON FRINGE BENEFIT, NO FURTHER DISALLOWANCE CAN BE MADE IN THE HANDS OF THE ASSESSEE ON THE GROUND THA T THE EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ACCOR DINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (APPEALS) DELETING THE ADDITION. 7. THE LAST ISSUE FOR CONSIDERATION RELATES TO DISA LLOWANCE OF RS.20,035/- [IN FACT RS.2,00,350/-] BEING DISALLOWANCE AT THE RATE OF 20 PER CENT ON VEHICLE MAINTENANCE EXPENSES. ON APPEAL IT WAS SUBMITTED THAT THE ASSESSING OFFIC ER HAD MADE DISALLOWANCE TWICE, ONCE BEING PART OF RS.35,54,574/- AND THEN AGAIN WITH RE FERENCE TO MOTOR VEHICLE EXPENSES OF RS.10,01,773/-. THE LD. CIT (A) VERIFIED THE CONTE NTION OF THE ASSESSEE. HE HAD DELETED THE ADDITION FOR THE SAME REASON FOR WHICH HE DELETED T HE DISALLOWANCE OF RS.7,10,915/- AS THE DISALLOWANCE WAS MADE INCORRECTLY. 8. WE HAVE HEARD BOTH THE PARTIES. FROM THE DETAIL S FILED IT IS SEEN THAT THE ASSESSEE HAS SPENT RS.25,33,751/- ON LOCAL CONVEYANCE, FOREIGN A ND INLAND TRAVEL. THE ASSESSEE HAS INCURRED ANOTHER AMOUNT OF RS.15,43,968/- ON ACCOUNT OF VEHI CLE HIRE CHARGES, REPAIRS AND MAINTENANCE, DEPRECIATION ETC. THE ASSESSEE HAD PAID FRINGE BEN EFIT TAX ON THESE AMOUNTS. THE ASSESSING OFFICER HAS DISALLOWED 1/5 TH OF THE VEHICLE MAINTENANCE EXPENSES OF RS.10,01,77 3/-, WHICH HAS BEEN TAKEN BY THE ASSESSING OFFICER IN THE ASSESSME NT ORDER AT RS.20,035/- AS AGAINST RS.2,00,350/-. SINCE THE AMOUNT OF RS.10,01,773/- IS PART OF RS.35,54,574/- AND THE ASSESSEE HAD PAID FBT IN RESPECT OF THIS AMOUNT, NO FURTHER DISA LLOWANCE CAN BE MADE IN THE HANDS OF THE 6 I. T. A. NO. 1605 (DEL) OF 2010. ASSESSEE. ACCORDINGLY, WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE LD. CIT (APPEALS) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER . 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 13 TH MAY, 2011. SD/- SD/- [ I. P. BANSAL ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH MAY, 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.