Steelco Gujarat Ltd., Vadodara V. The Asstt. Commissioner of Income Tax, Circle-4, Vadodara

ITA 2434/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8381 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 26-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Recovery proceedings
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SHR I S. S. GODARA , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER STEELCO GUJARAT LTD. 4 TH FLOOR, MARBLE ARCH, RACE COURSE CIRCLE, VADODARA - 390007 PAN: AADCS0880L (APPELLANT) VS THE ACIT, CIRCLE - 4, VADODARA (RESPONDENT) REVENUE BY : S H RI PRASOON KABRA , SR. D . R. ASSESSEE BY: S H RI MUKUND BAKSHI , A.R. DATE OF HEARING : 27 - 03 - 2 018 DATE OF PRONOUNCEMENT : 17 - 04 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2010 - 11 , ARIS ES FROM ORDER OF THE CIT(A) - 2, VADODARA DATED 30 - 06 - 2016 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. THE L D. COMMISSIONER OF INCOME TAX (APPEALS) - 2, VADODARA HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE ID. A.O. IN THE DISALLOWANCE OF THE EXPENSE OF RS. 8,73,17,861/ - BEING THE AMOUNT PAID TO THE AGENTS OF FOREIGN SHIPPING COMPANIES INVOKING T HE PROVISIONS OF SEC. 40(A)(IA). THE LD. CIT(A) OUGHT TO HAVE HELD THAT THE AMOUNTS PAID BEING NOT LIABLE TO TAX IN INDIA, THE PROVISIONS RELATING TO DEDUCTION OF TAX AT SOURCE DID NOT APPLY AND CONSEQUENTLY THE PROVISIONS OF SEC. 40(A)(IA) COULD NOT HAVE BEEN INVOKED. THE AMOUNT AS CLAIMED MAY PLEASE BE ALLOWED. I T A NO . 2434 / A HD/2 0 16 A SSESSMENT YEAR 2 0 10 - 11 I.T.A NO. 2434 /AHD/20 16 A.Y. 2010 - 11 PAGE NO STEELCO GUJARAT LTD. VS. ACIT 2 3 IN THIS CASE, THE ASSESSEE HAS FILED RETURN OF INCOME ON 30 TH SEP, 2010 DECLARING TOTAL INCOME AT RS. NIL. THEREAFTER, ON SCRUTINY ASSESSMENT, THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS . 8,73,17,861/ - U/S. 40(A)(IA) OF THE ACT ON THE GROUND THAT ASSESSEE HAS NOT BEEN ABLE TO GIVE JUSTIFICATION FOR NON - DEDUCTION OF TAX IN RESPECT OF PAYMENT OF FREIGHT AGGREGATING TO RS. 8,73,17,861/ - . 4. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CI T(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE BY STATING THAT ASSESSEE COMPANY HAS PAID FREIGHT CHARGES TO AS MANY AS 15 PARTIES WITHOUT DEDUCTION OF TAX TOTALING TO RS. 8,73,17,861/ - . DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS STATED THAT CO - ORDINATE BENCH OF THE ITAT VIDE ITA NO. 947/AHD/2015 DATED 20/01/2017 IN THE CASE OF THE ASSESSEE ITSELF HAS DECIDED THE IDENTICAL ISSUE PERTAINING TO ASSESSMENT YEAR 2008 - 09 IN FAVOUR OF THE ASSESSEE. THEREFORE, HE HA S SUBMITTED THAT THE APPEAL OF THE ASSESSEE BE ALLOWED. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LD. CIT(A). 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD CAREFULLY. THE ASSESSEE HAS CLAIMED THA T THE INCOME OF THE RECIPIENT OF THE FREIGHT CHARGES WAS CHARGEABLE UNDER SECTION 172 HENCE THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS. IN THIS CONNECTION, WE HAVE GONE THROUGH THE DECISION OF THE CO - ORDINATE BENCH AS MENTIONED SUPRA. RELEVANT PART OF THE DECISION IS REPRODUCED AS UNDER: - 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 5. WE FIND THAT THE CBDT VIDE CIRCULAR NO.723 HAS INTER ALIA OBSERVED AS FOLLOWS : - TAX DEDUCTION AT SOURCE FROM PAYMENT MADE TO FOREIGN SHIPPING COMPANIES NON - RESIDENTS, TDS SECTION 194C, SECTION 195, SECTION 172 1. REPRESENTATIONS HAVE BEEN RECEIVED REGARDING THE SCOPE OF SECTIONS 172, 194C AND 195 OF THE INCOME - TAX ACT, 1961, IN CONNECTION I.T.A NO. 2434 /AHD/20 16 A.Y. 2010 - 11 PAGE NO STEELCO GUJARAT LTD. VS. ACIT 3 WITH TAX DEDUCTION AT SOURCE FROM PAYMENTS MADE TO THE FOREIGN SHIPPING COMPANIES OR THEIR AGENTS. 2. SECTI ON 172 DEALS WITH SHIPPING BUSINESS OF NON - RESIDENTS. SECTION 172(1) PROVIDES THE MODE OF THE LEVY AND RECOVERY OF TAX IN THE CASE OF ANY SHIP, BELONGING TO OR CHARTERED BY A NON - RESIDENT, WHICH CARRIES PASSENGERS, LIVESTOCK, MAIL OR GOODS SHIPPED AT A POR T IN INDIA. AN ANALYSIS OF THE PROVISIONS OF SECTION 172 WOULD SHOW THAT THESE PROVISIONS HAVE TO BE APPLIED TO EVERY JOURNEY A SHIP, BELONGING TO OR CHARTERED BY A NON - RESIDENT, UNDERTAKES FROM ANY PORT IN INDIA. SECTION 172 IS A SELF - CONTAINED CODE FOR T HE LEVY AND RECOVERY OF THE TAX, SHIP - WISE, AND JOURNEY WISE, AND REQUIRES THE FILING OF THE RETURN WITHIN A MAXIMUM TIME OF THIRTY DAYS FROM THE DATE OF DEPARTURE OF THE SHIP. 3. THE PROVISIONS OF SECTION 172 ARE TO APPLY, NOTWITHSTANDING ANYTHING CONTA INED IN OTHER PROVISIONS OF THE ACT. THEREFORE, IN SUCH CASES, THE PROVISIONS OF SECTIONS 194C AND 195 RELATING TO TAX DEDUCTION AT SOURCE ARE NOT APPLICABLE. THE RECOVERY OF TAX IS TO BE REGULATED, FOR A VOYAGE UNDERTAKEN FROM ANY PORT IN INDIA BY A SHIP UNDER THE PROVISIONS OF SECTION 172. 4. SECTION 194C DEALS WITH WORK CONTRACTS INCLUDING CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN RAIL WAYS. THIS SECTION APPLIES TO PAYMENTS MADE BY A PERSON REFERRED TO IN CLAUSES (A ) TO (J) OF SUB - SECTION (1) TO ANY 'RESIDENT' (TERMED AS CONTRACTOR). IT IS CLEAR FROM THE SECTION THAT THE AREA OF OPERATION OF TDS IS CONFINED TO PAYMENTS MADE TO ANY 'RESIDENT'. ON THE OTHER HAND, SECTION 172 OPERATES IN THE AREA OF COMPUTATION OF PROFITS FROM S HIPPING BUSINESS OF NON - RESI DENTS. THUS, THERE IS NO OVERLAPPING IN THE AREAS OF OPERATION OF THESE SECTIONS. 5. THERE WOULD, HOWEVER, BE CASES WHERE PAYMENTS ARE MADE TO SHIPPING AGENTS OF NON - RESIDENT SHIP - OWNERS OR CHARTERERS FOR CARRIAGE OF PASSENGE RS ETC., SHIPPED AT A PORT IN INDIA. SINCE, THE AGENT ACTS ON BEHALF OF THE NON - RESIDENT SHIP - OWNER OR CHAR TERER, HE STEPS INTO THE SHOES OF THE PRINCIPAL. ACCORDINGLY, PROVISIONS OF SECTION 172 SHALL APPLY AND THOSE OF SECTIONS 194C AND 195 WILL NOT APPL Y. 6. IN VIEW OF THE ABOVE CIRCULAR, AS LONG AS THE PAYMENT IS MADE TO A NON - RESIDENT IN RESPECT OF SHIPPING BUSINESS, THE TAX DEDUCTION REQUIREMENT UNDER SECTION 194C AND 195 DO NOT COME INTO THE PLAY. IT IS SO THAT THE REASON THAT CBDT IN ITS WISDOM H AS BEEN CONSIDERATE ENOUGH TO REALIZE THAT THERE IS A STRONG AND EFFECTIVE MECHANISM FOR RECOVERING TAX DUES IN RESPECT OF INCOME EMBEDDED IN FREIGHT PAYMENT MADE TO THE NON - RESIDENT SHIPPING COMPANY. THE SCHEME OF SECTION 172 PERMITS A VESSEL OWNED BY NO N - RESIDENT OWNER OR CHARTERER TO LEAVE INDIAN PORT ONLY UPON TAKING CARE OF DUES OF INDIAN AUTHORITIES IN RESPECT OF TAX ON INCOME EMBEDDED IN FREIGHT RECEIPTS. IT IS ALSO ELEMENTARY THAT UNDER SECTION 119 OF THE ACT THE CBDT HAS THE POWERS TO RELAX RIGOR OF LAW IN APPROPRIATE CASES AND ONCE THE CBDT DOES SO THE RELAXATION SO GIVEN IS TO BE IMPLEMENTED BY THE FIELD AUTHORITIES IN LETTER AND IN SPIRIT. IN EFFECT THUS, EVEN IF THERE IS A DEVIATION FROM THE STRICT LEGAL PROVISIONS BY THE VIRTUE OF A CBDT CIR CULAR, SUCH PERMITTED DEVIATIONS ARE TO BE DULY RESPECTED AND HONOURED BY THE FIELD AUTHORITIES. IN VIEW OF THIS ANALYSIS, WHEN WE GO THROUGH THE CIRCULAR NO.723 (SUPRA) WE FIND THAT IT IS A CONSCIOUS I.T.A NO. 2434 /AHD/20 16 A.Y. 2010 - 11 PAGE NO STEELCO GUJARAT LTD. VS. ACIT 4 DECISION OF THE BOARD THAT SECTION 194C AND 195 WILL N OT APPLY TO THE SITUATIONS WHICH ARE COVERED BY SECTION 172. IN CASE OF A SHIP OWNED OR CHARTERED BY NON - RESIDENT COMPANY, PROVISIONS OF SECTION 172 UNDISPUTEDLY COME INTO PLAY. ACCORDINGLY, AS LONG AS THE SHIP, IN RESPECT OF WHICH FREIGHT PAYMENTS ARE M ADE, IS OWNED OR CHARTERED BY NON - RESIDENT OR ENTITY WHICH IS WHERE PROVISIONS OF SECTION 172 ARE APPLICABLE, THE PROVISIONS OF SECTION 195 OR 194C CANNOT BE INVOKED. UPON OUR CAREFUL PERUSAL OF THE AFORESAID BOARD CIRCULAR, WE ARE UNABLE TO FIND ANY REFE RENCE TO SUGGEST THAT THIS RELAXATION IS CONTINGENT UPON THE ASSESSEE BEING ABLE TO PRODUCE EVIDENCE OF ASSESSMENT UNDER SECTION 172 IN RESPECT OF SUCH NON - RESIDENT. TO THAT EXTENT, THEREFORE, WE ARE UNABLE TO APPROVE THE STAND OF THE CIT(A). WE ARE OF T HE CONSIDERED VIEW THAT AS LONG AS THE ASSESSEE CAN DEMONSTRATE THAT THE PAYMENT IS MADE IN RESPECT OF FREIGHT TO NON - RESIDENT SHIPPING COMPANIES, THE ASSESSEE DOES NOT HAVE ANY TAX WITHHOLDING OBLIGATION UNDER SECTION 195 OR SECTION 194C. HOWEVER, IN THE PRESENT CASE, IT APPEARS THAT COMPLETE DETAILS OF INVOICES TO THE SATISFACTION OF THE ASSESSING OFFICER HAVE NOT BEEN FURNISHED BEFORE THE ASSESSING OFFICER OR BEFORE THE CIT(A) ALSO. THERE IS AT BEST PARTIAL COMPLIANCE OF THIS REQUIREMENT. IN VIEW OF T HESE DISCUSSIONS AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE MATTER DESERVES TO BE REMITTED TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION THAT AS LONG AS THE ASSESSEE CAN DEMONSTRATE THAT THE PAYMENT IS MADE T O A NON - RESIDENT DIRECTLY OR THROUGH AUTHORIZED AGENTS AND THE PAYMENT IS IN RESPECT OF THE FREIGHT, THE ASSESSING OFFICER SHALL NOT MAKE ANY DISALLOWANCE UNDER SECTION 40(A)(IA) ON ACCOUNT OF SUCH PAYMENTS. WE ALSO MAKE IT CLEAR, AT THE COST OF REPETITIO N THAT THE ASSESSEE IS NOT UNDER ANY OBLIGATION TO GIVE EVIDENCE IN RESPECT OF ACTUAL COLLECTION OF TAX FROM THE NON - RESIDENT SHIPPING COMPANY UNDER SECTION 172 OF THE ACT. ALL OTHER CONTENTIONS, NOT SPECIFICALLY ADJUDICATED UPON ABOVE, REMAIN OPEN. WITH THESE DIRECTIONS, MATTER STANDS RESTORED TO THE ASSESSING OFFICER. 7. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 6. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THE ITAT AS SUPRA WE RESTORE THE MATTER TO THE ASSESSIN G OFFICER TO DECIDE AS PER THE DIRECTION GIVEN BY THE COORDINATE BENCH IN ITS DECISION AS ELABORATED ABOVE IN THIS ORDER. ACCORDINGLY THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PR ONOUNCED IN THE OPEN C OURT ON 17 - 04 - 201 8 SD/ - SD/ - ( S.S. GODARA ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 17 /04 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE I.T.A NO. 2434 /AHD/20 16 A.Y. 2010 - 11 PAGE NO STEELCO GUJARAT LTD. VS. ACIT 5 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,