ITO 8(3)(4), MUMBAI V. VRITTI IMPEX P. LTD, MUMBAI

ITA 3438/MUM/2010

• Counselvise Citation: 343819914 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 21-06-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 30-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T T JACOB
• Keywords: Residential status; Additional evidence
• Section: 6; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SMT. ASHA VIJAYARA GHAVAN (JM) ITA NO. 3438/MUM/2010 ASSESSMENT YEAR-2005-06 THE ITO 8(3)(4), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. VRITTI IMPEX PVT. LTD., 258, GREE ACRES, N.S. ROAD, NO. 5, MUMBAI-400 049 PAN-AABCV 3176C (APPELLANT) (RESPONDENT) APPELLANT BY: NONE RESPONDENT BY: SHRI T.T. JACOB O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 16.2.2010 PASSED BY THE LD. CIT(A)-18 FOR THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPOR T OF VENEER AND PLYWOOD. THE ASSESSING OFFICER DISALLOWED AN AMOUN T OF RS. 18,93,034/- ON THE GROUND THAT NO TDS WAS DEDUCTED U/S. 40(A)(I A). THE AO ALSO DISCUSSED THE PROVISIONS OF SEC. 40 AND 194C AND HE LD THAT JOB OF CLEARING AND FORWARDING AGENT IS THAT OF CONTRACTOR FOR CARRIAGE OF GOODS, THEREFORE, THE TAX SHOULD HAVE BEEN DEDUCTED BY THE ASSESSEE ON THE ENTIRE AMOUNT OF EXPENSES INCLUDING CLEARING AND FO RWARDING CHARGES. 3. THE LD. AR OF THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) AS FOLLOWS: ITA NO. 3438/M/2010 2 (A) THAT, THE CHARGES FOR CLEARING AND FORWARDING SERVI CES ARE A FRACTION OF TOTAL PAYMENTS MADE. (B) THAT, THE TOTAL AMOUNT PAID INCLUDES THE FOLLOWING CATEGORIES OF EXPENSES: 1. CWC CHARGES PAID TO CUSTOM AUTHORITIES 2. DOCUMENTATION CHARGES (FOR DOCUMENTS) 3. STAMP DUTY 4. SUNDRY EXPENSES 5. DECC CHARGES 6. SHIPPING LINE EXPENSES (PAID TO SHIPPING LINE) 7. BILL OF ENTRY HANDING CHARGES 8. CLEARING AND FORWARDING CHARGES. (C) THAT AS PER EXPLANATION III TO SEC.194C, TDS IS TO BE DEDUCTED FOR THE WORK UNDERTAKEN FOR CARRIAGE OF GOODS AND PASSE NGER BY ANY MODE OF TRANSPORT OTHER THAN RAILWAYS. THEREFORE, T DS SHOULD BE DEDUCTED ONLY FOR WORKS RELATING TO TRANSPORTATION OF GOODS AND CLEARING AND FORWARDING CHARGES AND NOT ON THE PAYM ENTS MADE FOR OTHER PURPOSES. (D) THAT, THE PAYMENTS WERE INCURRED FOR DIFFERENT PURP OSES AS MENTIONED ABOVE BUT THEY ARE CATEGORIZED UNDER THE HEAD CLEARING AND FORWARDING CHARGES. (E) THAT, IT IS WELL SETTLED LAW THAT ACCOUNTING CAN NO T SUPER CEDE THE ACTUAL PROVISIONS OF LAW, ONE SHOULD NOT GO BY THE MERE HEADING UNDER WHICH PARTICULAR EXPENDITURE IS CATEGORIZED. IN THIS REGARD, RELIANCE IS PLACED ON THE FOLLOWING CASES. SUTLEJ COTTON MILLS LTD. VS. CIT (1979) 116 ITR 1 ( SC) KEDARNATH JUTE MFG. CO. LTD. VS. CIT (1971) 82 ITR 363 (SC) (F) THAT, SECTION 40(A)(IA) APPLIES ONLY FOR ITEMS COVE RED UNDER EXPLANATION III TO SEC.194C. ITA NO. 3438/M/2010 3 (G) THAT, THE DEFINITION OF WORK AS PER EXPLANATION III TO SEC.194C IS AS UNDER:- EXPLANATION III: FOR THE PURPOSES OF THIS SECTION, THE EXPRESSION WORK SHALL ALSO INCLUDE (A) ADVERTISING; (B) BROADCASTING AND TELECASTING INCLUDING PRODUCTION O F PROGRAMS FOR SUCH BROADCASTING OR TELECASTING. (C) CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRA NSPORT OTHER THAN BY RAILWAYS (D) CATERING, (E) MANUFACTURING OR SUPPLYING A PRODUCT ACCORDING TO T HE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USIN G MATERIAL PURCHASED FROM SUCH CUSTOMERS. (H) AS PER THE ABOVE PROVISIONS OF SEC.40(A)(IA) AND 19 4C, SERVICE TAX IS LEVIABLE ONLY ON CLEARING AND FORWARDING CHARGES AN D NOT ON OTHER SERVICES. IN FACT OTHER PAYMENTS ARE MADE NOT FOR A NY WORK OR SERVICES. THESE PAYMENTS ARE PAID TO GOVERNMENT OR GOVERNMENT AGENCIES ON WHICH NO TDS IS DEDUCTIBLE. (I) THAT, AS PER CBDT CIRCULAR NO.723, THE PAYMENTS MAD E TO AGENTS OF NON RESIDENT SHIPPING COMPANIES ARE NOT SUBJECT TO TDS PROVISIONS U/S.194 AND 195. IN SUCH CASES, THE PROVISIONS OF S ECTION 172 ARE APPLICABLE. (J) THAT, THE APPELLANT MADE THE PAYMENTS TO AGENTS AND THE AGENTS IN- TURN HAVE PAID TO VARIOUS OTHER PARTIES HENCE THERE IS NO ELEMENT OF INCOME AND NO TDS PROVISIONS ARE APPLICABLE. ITA NO. 3438/M/2010 4 4. THE LD. CIT(A) CONSIDERED THE CBDT CIRCULAR NO. 723 DT. 19.9.1995 AND ALSO THE LETTER OF M/S. MAERSK SEALAN D PVT. LTD. DT. 18.12.2009 ON WHOSE BEHALF THE ASSESSEE HAD RECEIVE D THE PAYMENTS WHICH READS AS FOLLOWS: IN VIEW OF THE ABOVE AND CLARIFICATION GIVEN BY CB DT, VIDE ITS CIRCULAR NO.723 DATED 19 TH SEPTEMBER, 1995 THE PROVISIONS OF SECTIONS 194C AND 195 OF INCOME TAX ACT, 1961 FOR D EDUCTION TO TAX AT SOURCE SHALL NOT APPLY IN RESPECT OF FREIGHT CHA RGES, THC CHARGES, IHC CHARGES AND ANY OTHER AMOUNT OF A SIMILAR NATUR E PAYABLE TO US BY YOU. ACCORDINGLY, TAX AT SOURCE IS NOT DEDUCTIBL E FROM THE ABOVE MENTIONED PAYMENTS. 5. AFTER CONSIDERING THE CIRCULAR & LETTER, THE LD . CIT(A) HELD AS FOLLOWS: AS PER ABOVE CBDT CIRCULAR, THE TDS PROVISIONS U/S .194C WERE NOT APPLICABLE WHEN THE PAYMENTS ARE MADE TO I NDIAN AGENT OF NON RESIDENT SHIPPING LINES. THUS, THE PROVISIONS O F SEC.172 ARE APPLICABLE IN THIS CASE. HENCE THE AO IS NOT CORREC T IN DISALLOWING THE PAYMENTS MADE ON THE GROUND THAT THE TDS WAS NO T DEDUCTED. ACCORDINGLY, THE ADDITION MADE IS DELETED. 6. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), REVENU E IS IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND OF AP PEAL. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS . 18,27,364/- U/S.40(A)(1A) RELYING ON CBDT CIRCULAR NO. 723 DT. 19.9.1995 WITHOUT APPRECIATING THE FACT OF THE CASE AND ACCEP TING ADDITIONAL EVIDENCE IN VIOLATION OF RULE 46A OF THE I.T. RULES 7. WE FIND THAT THE FOLLOWING PAYMENTS WERE MADE BY THE ASSESSEE IN CONNECTION WITH IMPORT AND EXPORT OF GOODS. SEAGULL AGENCY (IMPORT) RS.8,75,663/- GOYAL CARRYING (IMPORT) RS. 68,705/- ITA NO. 3438/M/2010 5 SEAGULL AGENCY (EXPORT) RS.7,71,758/- ASTRA MARINE (EXPORT) RS.1,11,238/- RS.18,27,364/- 8. ALSO M/S. SEAGULL AGENCY (INDIA) IS AN INDIAN AG ENT FOR A NON- RESIDENT COMPANY NAMELY M/S. MAERSK SEALAND, WHO IS A NON RESIDENT, ENGAGED IN INTERNATIONAL TRAFFIC. THE CONFIRMATION GIVEN BY M/S. SEAGULL AGENCY (INDIA) LTD. READS AS UNDER: WE M/S. SEAGULL AGENCIES (INDIA) PVT. LTD. LOCATED AT CONTRACTOR BLDG.15, VAJU KOTAK MARG, 3 RD FLOOR 31, FORT, MUMBAI-400 001 ARE AGENTS FOR EXPORT FOR VRITTI IMPEX PVT. LTD . WE HEREBY CONFIRM THAT AS PER THE PROVISION OF INDIAN INCOME TAX ACT, 1961 M/S. MAERSK SEALAND RESIDENTIAL STATUS IS NON RESIDENT AND THEY ARE ENGAGED IN INTERNATIONAL TRAFFIC OF CONTAINERS AND THE PAYMENTS RECEIVED FROM VRITTI IMPEX PVT. LTD. ARE RECEIVED O N THEIR BEHALF. 9. THE CBDT CIRCULAR NO. 723 DT. 19.9.1995 AT PARA 4 & 5 READS AS UNDER: SECTION 172 DEALS WITH SHIPPING BUSINESS OF NON-RE SIDENTS, SECTION 172(1) PROVIDES THE MODE OF LEVY AND RECOVE RY OF TAX IN THE CASE OF ANY SHIP, BELONGING TO OR CHARTERED BY A NO N-RESIDENT, WHICH CARRIES PASSENGERS, LIVE-STOCK, MAIL OR GOODS SHIPP ED AT A PORT IN INDIA. AN ANALYSIS OF THE PROVISIONS OF SECTION 172 WOULD SHOW THAT THESE PROVISIONS HAVE TO BE APPLIED TO EVERY JOURNE Y A SHIP, BELONGING TO OR CHARTERED BY A NON-RESIDENT, UNDERT AKES FROM ANY PORT IN INDIA. SECTION 172 IS A SELF-CONTAINED CODE FOR THE LEVY AND RECOVERY OF THE TAX, SHIP-WISE AND JOURNEY-WISE, AN D REQUIRES THE FILING OF THE RETURN WITHIN A MAXIMUM TIME OF THIRT Y DAYS FROM THE DATE OF DEPARTURE OF THE SHIP. THE PROVISIONS OF SEC.172 ARE TO APPLY, NOTWITHSTAN DING ANYTHING CONTAINED IN THE OTHER PROVISIONS OF THE A CT. THEREFORE, IN SUCH CASES, THE PROVISIONS OF SECTIONS 194C AND 195 RELATING TO TAX DEDUCTION AT SOURCE ARE NOT APPLICABLE. THE RECOVER Y OF TAX IS TO BE REGULATED, FOR A VOYAGE UNDERTAKEN FROM ANY PORT IN INDIA BY A SHIP, UNDER THE PROVISIONS OF SECTION 172. ITA NO. 3438/M/2010 6 SECTION 194C DEALS WITH WORKS CONTRACTS INCLUDING C ARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN THE RAILWAYS. 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 SECTIO N THAT THE AREA OF OPERATION OF TDS IS CONFINED TO PAYMENTS MADE TO AN Y RESIDENT. ON THE OTHER HAND, SECTION 172 OPERATES IN THE AREA OF COMPUTATION OF PROFITS FROM SHIPPING BUSINESS OF NON-RESIDENTS. TH US, THERE IS NO OVERLAPPING IN THE AREAS OF OPERATION OF THESE SECT IONS. THERE WOULD, HOWEVER, BE CASES WHERE PAYMENTS ARE M ADE TO SHIPPING AGENTS OF NON-RESIDENT SHIP-OWNERS OR CHAR TERERS FOR CARRIAGE OF PASSENGERS, ETC., SHIPPED AT A PORT IN INDIA. SINCE THE AGENT ACTS ON BEHALF OF THE NON-RESIDENT SHIP-OWNER OR CHARTERER, HE STEPS INTO THE SHOES OF THE PRINCIPAL. ACCORDINGLY, THE PROVISIONS OF SECTION 172 SHALL APPLY AND THOSE OF SECTIONS 194 C AND 195 WILL NOT APPLY. 10. FURTHER LETTER OF M/S. MAERSK SEALAND DT. 18.12 .2009 READS AS UNDER: WE MAERSK INDIA PVT. LTD. ARE SHIPPING AGENTS FOR A.P. MOLLER MAERSK A/S. (HEREBY KNOWN AS THE PRINCIPAL). WE HEREBY CONFIRM THAT AS PER THE PROVISIONS OF THE INDIAN INCOME TAX ACT, 1961 (THE ACT) OUR PRINCIPALS RESIDENTIAL STATUS IS NON-RE SIDENT AND THEY ARE ENGAGED IN OPERATION OF SHIPS. PLEASE NOTE THAT OUR PRINCIPAL ARE THE RESIDENTS OF DENMARK AND UNDER ARTICLE 9(SHIPPING) OF THE AGREEMENT FOR AVOI DANCE OF DOUBLE TAXATION BETWEEN INDIA AND DENMARK, THE PROFITS DER IVED BY OUR PRINCIPAL FROM THE OPERATION OF SHIPS IN INTERNATIO NAL TRAFFIC ARE TAXABLE ONLY IN DENMARK. FURTHER WE ARE REGULARLY FILING RETURNS OF INCOME B ASED ON THE PROVISIONS OF SECTION 139/172 OF THE ACT FOR THE FR EIGHT CHARGES, TERMINAL CHARGES, TERMINAL HANDLING CHARGES (HTC) A ND ANY OTHER AMOUNT OF A SIMILAR NATURE COLLECTED BY US ON BEHAL F OF OUR PRINCIPAL IN RESPECT OF GOODS SHIPPED AT A PORT IN INDIA. WE HEREBY CONFIRM THAT THE ENTIRE AMOUNT PAYABLE BY YOU TO US TOWARDS FREIGHT AND OTHER CHARGES MENTIONED ABOVE FOR THE FINANCIAL YEA R 2004-05 HAS BEEN OR SHALL BE INCLUDED IN THE RETURNS FILED OR T O BE FILED BY US UNDER SECTION 172 OF THE ACT. IN THESE RETURN AFTER TAKING INTO ACCOUNT THE PROVISIONS OF THE AGREEMENT FOR AVOIDANCE OF DO UBLE TAXATION BETWEEN INDIA & DENMARK, TAX APPLICABLE, IF ANY, HA S BEEN OR WILL BE PAID. ITA NO. 3438/M/2010 7 IN VIEW OF THE ABOVE AND CLARIFICATION GIVEN BY CBD T, VIDE ITS CIRCULAR NO.723 DATED 19 TH SEPTEMBER, 1995 THE PROVISIONS OF SECTIONS 194C AND 195 OF INCOME TAX ACT, 1961 FOR D EDUCTION TO TAX AT SOURCE SHALL NOT APPLY IN RESPECT OF FREIGHT CHA RGES, THC CHARGES, IHC CHARGES AND ANY OTHER AMOUNT OF A SIMILAR NATUR E PAYABLE TO US BY YOU. ACCORDINGLY, TAX AT SOURCE IS NOT DEDUCTIBL E FROM THE ABOVE MENTIONED PAYMENTS. 11. THEREFORE WE ARE OF THE OPINION THAT SINCE PROV ISIONS OF SEC. 172 IS APPLICABLE IN THIS CASE AND THE TDS PROVISIONS U/S. 194C ARE NOT APPLICABLE WHEN THE PAYMENTS ARE MADE TO INDIAN AGE NT OF NON-RESIDENT SHIPPING LINES AS PER THE CBDT CIRCULAR, WE CONFIRM THE ORDER OF THE LD. CIT(A) AND THE ADDITION IS DELETED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 24 TH DAY OF JUNE, 2011 SD/- SD/- (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 24 TH JUNE, 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 3438/M/2010 8 DATE INITIALS 1 DRAFT DICTATED ON: 21 . 0 6 . 201 1 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 22 .0 6 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10 . DATE OF DISPATCH OF ORDER: _________ ______