ACIT, JODHPUR V. M/s. Minpro Indsutries, UDAIPUR

ITA 394/JODH/2008

• Counselvise Citation: 39423314 RSA 2008
• Duration Of Justice: 3 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 30-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 26-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Recovery proceedings; Additional evidence; Question of law; TDS; Set aside
• Section: 143(3); 40(a)(ia); 194C; 195; 2

Judgement Text

1 ITA 394-08 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH JODHPUR. ( BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ) ITA NO. 394/JODH/2008 ASSTT. YEAR : 2005-06. THE ACIT, CIRCLE-1, VS. M/S. MINPRO INDUSTRIES, UDAIPUR. NOBLE HOUSE, SWAROOP SAGAR ROAD, UDAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUNIL MATHUR RESPONDENT BY : SHRI AMIT KOTHARI DATE OF HEARING : 30.11.2011. DATE OF PRONOUNCEMENT : 09.12.2011. ORDER DATED : 09/12/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY DEPARTMENT AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2005-06. 2. THE DEPARTMENT IS OBJECTING IN DELETING THE DISA LLOWANCE OF RS. 1,60,41,692/- MADE BY ASSESSING OFFICER UNDER SECTION 40A(1)(A). THE DEPARTMENT HAS ALSO FILED AN ADDITIONAL GROUND THAT LD. CIT (A) WAS NOT JUSTIFIE D IN ADMITTING ADDITIONAL EVIDENCE IN SHARE OF BOARD CIRCULAR NO. 723 DATED 19.9.1995. T HIS ADDITIONAL GROUND HAS ALREADY BEEN ADMITTED BY THE TRIBUNAL VIDE ORDER SHEET DATE D 19.4.2010. 3. THE BRIEF FACTS OF THE CASE AS OBSERVED BY THE A .O. ARE THAT IN THE PROFIT AND LOSS A/C THE ASSESSEE HAS SHOWN SELLING AND DISTRIBUTION EXPENSES AMOUNTING TO RS. 2 1,65,24,301/-. THE A.O. ASKED THE ASSESSEE TO FURNI SH THE DETAILS. IN RESPONSE TO WHICH THE ASSESSEE SUBMITTED THE DETAILS OF SELLING AND DISTR IBUTION EXPENSES AMOUNTING TO RS. 1,64,03,242/- INCURRED ON ACCOUNT OF EXPORT CLEARIN G AND FORWARDING EXPENSES OUT OF TOTAL SELLING AND DISTRIBUTION EXPENSES OF RS. 1,65,24,30 1/-. THE AO ALSO ASKED THE ASSESSEE O FURNISH THE PROOF OF PAYMENT AND DEPOSITION OF TDS TO CREDIT OF THE GOVERNMENT WITHIN THE DUE DATE, IF TDS MADE. IN RESPONSE TO WHICH THE ASSESSEE SUBMITTED THAT TDS HAS BEEN DEDUCTED ON PAYMENTS OF AGENCY CHARGES TO CLEA RING AND FORWARDING AGENTS. IN PROOF OF THE SAME COPY OF TDS CERTIFICATES FURNISHED. THE ASSESSEE FURTHER STATED THAT THE CLEARING AND FORWARDING AGENTS RAISED BILL IN TWO P ARTS, ONE FOR AGENCY CHARGES AND OTHER FOR REIMBURSEMENT OF ACTUAL EXPENDITURE. ACCORDING THE ASSESSEE DEDUCTED TDS ONLY ON AGENCY CHARGES TO C&F AGENT AS PRESCRIBED IN SECTIO N 194C OF THE ACT. 3.1. FROM THE ABOVE, THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE DEDUCTED TAX ONLY ON AGENCY CHARGES PAID TO C&F AGENT AND NOT ON THE GROSS AMOUNT. THEREFORE , THE AO ASKED THE ASSESSEE AS TO WHY THE ABOVE EXPENSES AMOUNTING TO RS. 1,64,03,242/- PAID TO THE C&F AGENT BE NOT DISALLOWED U/S 40(A)(IA) OF THE ACT AS PER SECTION 194C OF THE ACT AS THE ASSESSEE WAS SUPPOSED TO DEDUCT TAX ON THE G ROSS AMOUNT PAID TO C&F AGENT AND NOT ON THE AGENCY CHARGES ALONE. 3.2. IN RESPONSE TO WHICH HE ASSESSEE SUB MITTED THAT THE TDS IS NOT REQUIRED TO BE DEDUCTED ON REIMBURSEMENT OF ACTUAL EXPENDITURE INC URRED BY THE C&F AGENT ON OUT BEHALF DUE TO THE FOLLOWING REASONS : THAT THE C&F AGENT ACTED AS OUT PURE AGENT WHILE I NCURRING EXPENSE IN CONNECTION WITH OUR EXPORT CARGO UNDER OUR INSTRUCT ION AND ESTABLISHED IMPLICIT AGREEMENT IN THIS REGARD. HE DID NOT ACQUIRE ANY RI GHT, TITLE OR INTEREST IN ANY OF 3 THE SERVICES WHICH WERE PRODUCED ON OUR BEHALF AND COT. IN FACT , HE DID NOT NEED THOSE SERVICES ETC. EXCEPT FOR OUR NEEDS. HE DID NO T NEED THEM NOR USED THEM. HIS INTEREST WAS ONLY TO GET HIS SERVICE CHARGE FOR ARR ANGING SUCH SERVICES FOR US AT OUR COST AND THAT TOO NOT FIXED. IF THE RATES FOR SUCH SERVICES INCREASE, IN THE MEANWHILE, HE WAS REIMBURSED ENHANCED EXPENSES. CON VERSE WAS EQUALLY CORRECT. THE BILLS AND INVOICES ISSUED BY THE THIRD PARTIES WERE IN OUR NAME AND AS SUCH PRIVY OF CONTRACT AROSE BETWEEN YOU, ALBEIT TO THRO UGH THE MEDIUM OF OUR AGENT. IN CASE DEFAULT OF PAYMENT, WE ONLY WERE LIABLE FOR SU CH PAYMENT TO THIRD PARTIES. 3.3. FURTHER, IN ANY CASE THE C&F AGENT BY MAKING P AYMENT OF TRANSPORTATION CHARGES TO DIFFERENT TRANSPORTERS DEDUCTED / DEPOSITED THE TDS IN GOVERNMENT ACCOUNT AND THEREAFTER THESE EXPENSES WERE REIMBURSED BY US ON THE BASIS OF THEIR DEBIT NOTES. IN VIEW OF THE ABOVE FACTS AND SPECIALLY SINCE DUE TDS STAN DS ALREADY DEDUCTED/DEPOSITED IN RESPECT OF PAYMENT TO TRANSPORTATION, NO LIABILITY AROSE FOR FURTHER DEDUCTION OF TDS FROM SUCH REIMBURSED EXPENSES. 3.4. APART FROM THE ABOVE IT IS SUBMITTED THAT IN V IEW OF THE CLARIFICATION CONTAINED IN CIRCULAR NO. 715, TDS MAY HAVE BEEN DEDUCTIBLE ON T HE GROSS SUM FROM C&F AGENTS IN CASE THERE WAS A CONSOLIDATED BILL FOR HIS OWN SERV ICES AND SERVICES PROCURED FROM OTHERS TO FULFILL HIS OWN CONTRACT. TDS CANNOT BE DEDUCED FROM THE AMOUNT WHICH WE ONLY AUTHORIZE HIM TO INCUR ON OUR BEHALF FOR OUR BENEFI T AND THUS OURSELVES INCURRING LIABILITY TO THIRD PARTY DIRECTLY. HAD C&F AGENT NOT PAID THE AMOUNT OF FREIGHT OR OTHER SERVICES, WE WOULD HAVE BEEN LIABLE FOR THE SAID PAYMENT AND NOT THE C&FA. 3.5. EVEN IN THE WORST CASE SCENARIO, ACCORDING TO THE ABOVE CIRCULAR, IF A CONSOLIDATED BILL IS RAISED INCLUDING BOTH THE AGENCY CHARGES AN D THE REIMBURSEMENT OF ACTUAL EXPENDITURE THEN TDS WOULD BE REQUIRED TO BE DEDUCT ED ON THE CONSOLIDATED BILL WITHOUT 4 EXCLUDING REIMBURSEMENTS (BECAUSE IN ANY CASE THEY ARE NOT SEPARATELY INDICATED). HOWEVER, IN CASES WHERE SEPARATE BILLS AND DEBIT NO TES ARE RAISED/ISSUED I.E. ONE FOR AGENCY CHARGES AND THE OTHER FOR REIMBURSEMENT OF A CTUAL EXPENSES, THEN TDS SHALL BE DEDUCTED ONLY ON THE BILLS FOR AGENCY CHARGES AND N OT ON REIMBURSEMENTS. UNDER THE ABOVE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE LE GAL POSITION, APPLICATION OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT IS NOT APPLICABLE I N OUR CASE. 3.6. THE AO CONSIDERED THE EXPLANATION FURNISHED BY THE ASSESSEE AND OBSERVED THAT IT WAS CLEAR THAT THE ASSESSEE HAS MADE THE ABOVE PAYM ENT TO C&F AGENT FOR CARRIAGE OF GOODS. THE CARRIAGE OF GOODS IS COVERED AS TRANSPOR TATION CONTRACT WITHIN THE DEFINITION OF SECTION 194C. ACCORDINGLY, THE ASSESSEE WAS REQUIRE D TO DEDUCT TAX ON PAYMENT MADE/CREDITED TO SUCH C&F AGENTS ON THE BASIS OF 'A NY SUM PAYABLE'. HOWEVER, THE ASSESSEE HAS DEDUCTED TAX ONLY ON THE AMOUNT PERTAI NING TO AGENCY CHARGES EXCLUDING THE REIMBURSEMENTS. THE ASSESSEE IN ITS SUBMISSIONS HAS TRIED TO EXPLAIN THAT NO TAX WAS TO BE DEDUCTED ON THE REIMBURSEMENT OF EXPENSES. FOR SAYI NG SO THE ASSESSEE HAS ALSO RELIED ON CIRCULAR NO.715 DATED 8-8-195 OF THE BOARD. HOWEVER , THE ASSESSEE HAS NOT INTERPRETED THE CIRCULAR AND ITS CONTENTS IN CORRECT MANNER. THE AS SESSEE HAS NOT BEEN ABLE TO UNDERSTAND THE RATIONAL AND LOGIC BEHIND THE ISSUE DISCUSSED I N QUESTION 30 OF THE CIRCULAR WHICH IN A VERY CRYSTAL CLEAR MANNER LAYS DOWN THAT TAX HAS TO BE DEDUCTION 'ON ANY SUM' PAID TO THE CLEARING AND FORWARDING AGENT. THE RELEVANT QUESTIO N NO.30 AND ANS. IS AS UNDER : QUESTION NO. 3 : WHETHER THE DEDUCTION OF TAX AT SO URCE UNDER SECTION 194C AND 194J HAS TO BE MADE OUT OF THE GROSS AMOUNT OF THE BILLS INCLUDING REIMBURSEMENTS OR EXCLUDING REIMBURSEMENT FOR ACTUAL EXPENSES? ANS.: SECTION 194C AND 194J REFER TO ANY SUMS PAID. OBVIOUSLY, REIMBURSEMENTS CANNOT BE DEDUCTED OUT OF THE BILL AMOUNT FOR THE P URPOSE OF TAX DEDUCTION AT SOURCE. 5 'ANY SUNS REFERRED IN THE CIRCULAR MEANS THE ENTIR E PAYMENT BEING MADE TO THE CLEARING AND FORWARDING AGENT WHETHER IT WAS THE AGENCY CHAR GES OR ANY OTHER EXPENSES BEING INCURRED BY THE AGENT ON BEHALF OF THE ASSESSEE. 3.7. THE AO FURTHER OBSERVED THAT FROM THE SUBMISS IONS OF THE ASSESSEE IT WAS VERY CLEAR THAT THE VERY BASIS OF ARGUMENT OF THE ASSESS EE WAS THE MODE IN WHICH THE PAYMENT WAS BEING MADE TO THE C&F AGENT WHICH WAS CLEAR FRO M THE REPLY OF THE ASSESSEE WHEREIN IT HAS BEEN STATED THAT SEPARATE BILL AND DEBIT NOT ES WERE RAISED FOR AGENCY CHARGES AND REIMBURSEMENT OF EXPENSES. HOWEVER, THE MAIN ISSUE WHICH WAS DISCUSSED IN CIRCULAR NO.715 WAS THE REIMBURSEMENT OF EXPENSES AND NOT TH E MODE OF REIMBURSEMENT. THE MANNER IN WHICH THE C&F AGENT SEEKS FOR THE REIMBUR SEMENT OR THE METHOD FOLLOWED TO REIMBURSE THE EXPENSES EITHER THROUGH RAISING OF A SINGLE CONSOLIDATED BILL OR BY RAISING SEPARATE BILLS OR BY RAISING DEBIT NOTES AS SEEN IN THE CASE OF THE ASSESSEE. FURTHER WHEN THE GOODS WERE EXPORTED BY THE ASSESSEE THROUGH THE C&F AGENT IT IMPLIES THAT A CONTRACT EXISTS BETWEEN THE ASSESSEE AND THE CLEARING AND FO RWARDING AGENT AS PER WHICH THE CLEARING AND FORWARDING AGENT SUPPLIES GOODS OF THE ASSESSEE TO VARIOUS DESTINATIONS FOR WHICH VARIOUS EXPENSES WERE INCURRED BY THE AGENT A PART FROM THE SERVICES BEING RENDERED BY THE AGENT TO THE ASSESSEE. THIS PAYMENT WAS MADE TO THE C&F AGENT IN LIEU OF THE CONTRACT WHICH EXISTS BETWEEN THE ASSESSEE AND AGENT. IT WAS THE C&F AGENT WHO HAS BEEN ASSIGNED THE CONTRACT FOR PROVIDING VARIOUS SE RVICES BY THE ASSESSEE FOR TRANSPORTATION OF ITS GOODS. HENCE AS PER THE PROVI SIONS OF SECTION I 94C OF THE ACT IT BECAME IMPERATIVE THAT THE TAX HAS TO BE DEDUCTED O N THE GROSS PAYMENT BEING MADE TO THE AGENT. THEREFORE, ON THE BASIS OF ABOVE THERE W AS NO DOUBT THAT THE ASSESSEE HAS NOT DEDUCTED TDS ON PAYMENT MADE TO C&F AGENT FOR CARRI AGE OF GOODS AND THUS THE 6 EXPENSES TO THE EXTENT OF SUCH PAYMENT WERE DISALLO WABLE IN VIEW OF THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT. AS PER THE DETAILS O F EXPORT CLEARING AND FORWARDING EXPENSES FURNISHED BY THE ASSESSEE, OUT OF TOTAL EX PENSES INCURRED ON PAYMENT MADE TO C&F AGENT AMOUNTING TO RS.1,64,03,242/- TAX HAS BEE N DEDUCTED ONLY ON AGENCY CHARGES AMOUNTING TO RS.3,61,550/-. THEREFORE, THE AMOUNT O F RS. 1,60,41,692/- WAS DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40 (A)(IA) AN D ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. DETAILED WRITTEN SUBMISSIONS FILED BEFORE LD. CI T (A) WHICH WERE TABULATED AT PAGES 6 TO 22. IT WILL BE USEFUL TO REPRODUCE THOS E WRITTEN SUBMISSIONS HERE AS UNDER :- DURING THE COURSE OF APPELLATE PROCEEDINGS THE I. D. A/R SUBMITTED AS UNDER: 'THAT APPELLANT IS A REGISTERED PARTNERSHIP FIRM, E NGAGED IN THE BUSINESS OF MANUFACTURING AND PROCESSING OF MINERAL. DURING THE YEAR UNDER APPEAL, THE LD. ASSISTANT COM MISSIONER OF INCOME TAX, CIRCLE-1, UDAIPUR, COMPLETED THE ASSESSMENT U/ S 143(3) OF THE IT ACT, 1961, VIDE ORDER DATED 28.12.2007, RECEIVED ON 31.12.20 07 AND MADE ADDITION OF RS. 1,60,41,692/- BY APPLYING SECTION 40(A)(IA) OF THE IT ACT,1961. THE AFORESAID ORDER IS BAD IN LAW ON FACTS, AGAINST WHICH, THE AP PELLANT HAS PREFERRED APPEAL BEFORE YOUR HONOUR ON THE FOLLOWING GROUNDS : 1. THE ASSESSMENT ORDER PASSED BY THE LD. ASSESSIN G OFFICER DETERMINING THE TOTAL INCOME AT RS. 2,64,63,000/- AS AGAINST TH E RETURNED INCOME OF RS. 1,04,21,303/- IS NOT IN ACCORDANCE WITH THE LAW. 2. THE LD. ASSESSING OFFICER HAS GROSSLY ERRED IN L AW AS WELL AS ON FACT OF THE CASE IN MAKING ADDITION OF RS 1,60,41,692/- TO THE RETURNED INCOME ON ACCOUNT OF NON DEDUCTION OF TDS FROM REIMBURSEMENTS OF EXPENSES/ PAYMENT TO VARIOUS PARTIES ON OUR BEHALF BY APPELLA NT'S CLEARING & 7 FORWARDING AGENT, BY WRONGLY INVOKING THE PROVISION S OF SECTION 40(A)(IA) OF THE IT ACT, 1961, WHICH IS UNJUSTIFIED, UNWARRAN TED AND BAD IN LAW. 3. THE LD. ASSESSING OFFICER GROSSLY ERRED IN LAW A S WELL AS ON FACT IN DISALLOWING SOME EXPENSES U/S 40(A)(IA) WHEN INFACT , NO TDS WAS DEDUCTIBLE. 4. THE LD. ASSESSING OFFICER HAS GROSSLY ERRED IN LAW AS WELL AS ON FACT OF THE CASE IN CHARGING INTEREST U/S 234-B AND 234-D, WHEREAS NO SUCH INTEREST WAS CHARGEABLE. BEFORE ADDRESSING EACH GROUND OF APPEAL INDIVIDUALL Y, APPELLANT SEEK YOUR KIND INDULGENCES TO CONSIDER OUR GENERAL SUBMISSION AS TO CORRECT APPROACH AND PRINCIPLES IN INTERPRETING APPARENTLY SIMPLE LOOKIN G PROVISIONS LIKE SECTIONS 40 (A)(IA) OF THE IT ACT 1961, A PROVISION WHICH IS IN EFFECT PUNITIVE AND CONFISCATORY NATURE. THE LD. AO ADOPTED A FUNDAMENTALLY WRONG APPROACH IN INTERPRETATION AND IMPLEMENTATION OF THE PROVISIONS OF SECTION 40( A)(IA) OF THE IT ACT, 1961. HE IGNORED THE NOW WELL-ESTABLISHED 'PURPOSIVE APPROA CH' OF INTERPRETATION OF STATUTORY LAWS ENACTED TO TAKE CARE OF SPECIFIC MI SCHIEF. THE BACKGROUND OF ENACTMENT OF PROVISIONS CONTAINED IN SECTION 40(A)(IA) WAS THAT GOVERNMENT WANTED TO ENSURE THAT NO PAYMEN T CONTAINING ELEMENT OF TAXABLE INCOME ESCAPES THE TAX NET, AND THE PAYER O F SUCH INCOME IS COMPELLED TO DEDUCT THE TAX IN TIME FOR THE FEAR OF LOSING THE D EDUCTION OF SUCH EXPENSE FROM HIM TAXABLE INCOME. THIS PROVISION WAS NOT A SUBSTA NTIVE CHARGE OF TAX ON THE PAYER OF SUCH INCOME AND WAS MERELY A DEVICE OF SEE KING HELP FROM SUCH PAYER OF INCOME IN COLLECTION OF RIGHT TDS. THE INTENTION WA S THAT GOVERNMENT'S INTEREST OF DUE COLLECTION OF TDS FROM THE PAYMENT IS PROTECTED , AND THE RECIPIENT OF THE INCOME DOES NOT SIMPLY DISAPPEAR AFTER THE RECEIPT AND DOES NOT PAY THE TAX EITHER. 8 THIS SECTION DID NOT CREATE ANY CHARGE OF TAX IN RE SPECT OF THE PAYER. IN THE INSTANT CASE, THE LD. AO DISREGARDED THIS WE LL-ESTABLISHED CANNON OF INTERPRETATION OF STATUTORY LAW AND PROCEEDED AS IF IT WAS SUBSTANTIVE CHARGE OF TAX ON THE ASSESSEE - DETACHING IT FULLY FROM THE PURPO SE FOR WHICH THE PROVISION WAS ENACTED. IT IS NOT THE CASE OF THE LD. AO THAT THE RECIPIENT OF THE PAYMENT IS NOW NOT TRACEABLE, OR HE WAS NOT AN INCOME-TAX ASSESSEE OR HAS CONCEALED THE RECEIPT FROM THE APPELLANT (IN HIS RETURN OF INCOME), WHEN ALL THE PAYMENTS WERE THROUGH BANKING CHANNELS ONLY AND AMENABLE TO FULL VERIFICA TION. THE GROSSNESS OF APPROACH OF THE AO AND ITS IMPACT ON THE APPELLANT CAN BE APPRECIATED FROM THE FACT THAT EVEN IF THE LD. A O'S STAND IS ACCEPTED TO BE CORRECT THE ALLEGED DEFAULT IN DEDUCTION OF TDS WAS ABOUT RS. 3.52 LAKS ONLY AND THE TAX DEMAND ON APPELLANT IS ABOUT RS. 58.00 LAKH S. LAW ENACTED TO TAKE CARE OF 'MISCHIEF' OF NON-DEDUCTION OF TDS OF RS. 3.52 LAKH S BECAME A 'MISCHIEF' IN ITSELF BY SADDLING THE APPELLANT WITH A TAX DEMAND OF RS. 58.00 LAKHS. THIS COULD NOT HAVE BEEN THE PURPOSE OF ENACTMENT OF SECTION 40(A) (IA) OF THE IT ACT, 1961. ANOTHER IMPORTANT LEGAL MISTAKE, WHICH THE LD. AO M ADE, WAS THAT HE FAILED TO APPRECIATE THE CONCEPT OF AGENCY IN INDIA . WHILE THE AO DID NOT DISPUTE THAT A SHIPPING COMPANY COULD ACT THROUGH A BOOKING AGENT (CBDT CIRCULAR ENVISAGES SUCH SITUATIONS). HE FAILED TO APPRECIATE THAT THE APPELLANT COULD ALSO DEAL WITH THE FOREIGN SHIPPING COMPANY OR ITS AGENT ERECT Y OR M TURN, THROUGH ITS OWN AGENT. THE CLEARING AND FORWARDING AGENT OF THE ASSESSEE WAS A 'PURE AGENT' OF THE APPELLANT AND SATISFIED ALL THE CONDITIONS I N THIS REGARD. FOR RENDERING SERVICES OF AN AGENT, HE CHARGED AGENCY CHARGES FRO M THE APPELLANT AND THE APPELLANT DEDUCTED THE NECESSARY TDS. AS REGARDS EX PENSES INCURRED BY THE AGENT ON BEHALF OF THE APPELLANT, NO TDS WAS DEDUCTIBLE, AND IN ANY CASE IN RESPECT OF MAJOR PART OF THE EXPENSES, IT WAS SO (E.G. OCEAN F REIGHT PAID TO THE NON-RESIDENT COMPANY = RS.1.16 CRORE - IN VIEW OF CBDT CIRCULAR) . AS REGARDS TDS FROM TRANSPORT EXPENSES INCURRED ON BEHALF OF THE APPELL ANT, DUE TDS WAS DEDUCTED BY THE APPELLANT'S AGENT AND PAID OVER TO THE GOVERNME NT. 9 THOUGH THE TRANSPORTER GOT HIS RECEIPT AFTER DUE TD S, THE LD. AO INSISTS THAT THE APPELLANT SHOULD HAVE DEDUCTED THE SAID AMOUNT OF TDS FROM THE AGENCY CHARGES PAYABLE TO THE CFA. IT WAS ILLOGICAL AND NOT IN ACCORDANCE WITH THE OBVIOUS PURPOSE OF LAW. SECONDLY, EVEN THE TOTA L CHARGES RECEIVABLE BY THE AGENT FROM THE APPELLANT, AS ITS SERVICE CHARGE WAS VERY MUCH BELOW THE TOTAL TAX, WHICH THE LD. AO WANTED US TO DEDUCT. THE REIMBURSEMENT OF EXPENSES TO AGENT WAS NOT A PA YMENT TO HIM. HE WAS GIVEN MONEY TO PAY IT OVER TO THE CONCERNED PAR TIES/ PROVIDERS OF VARIOUS SERVICES TO THE APPELLANT, ON BEHALF OF THE APPELLA NT. THERE MAY HAVE BEEN OCCASIONS THAT BECAUSE OF LONG STANDING RELATIONS, AGENT PAID THE SERVICE PROVIDERS EVEN BEFORE RECEIVING THE MONEY FROM THE APPELLANT. THE NATURE OF TRANSACTION CAN ALSO BE UNDERSTOOD BY THE FOLLOWING EXAMPLE: THE APPELLANT ASKS ONE OF ITS EMPLOYEES TO TAKE SOME MONEY FROM THE CASHIER AT UDAIPUR AND GO OVER TO THE SEA PORT AID ARRANGE THE TRANSPORTER ETC.. NEGOTIATE THE PROPER RATES AND MAKE THE PAYMENT, GE T THE BILL OF LADING ETC., IN THE NAME OF THE APPELLANT AND IF THERE IS ANY SHORTFALL IN PAYMENT, GET HIMSELF REIMBURSED FROM THE CASHIER IN UDAIPUR ON HIS RETUR N BACK TO UDAIPUR. SIMILAR RESULTS CAN BE ACHIEVED BY APPOINTING AN INDEPENDEN T PERSON AS AGENT. ARRANGEMENT OF SERVICES FROM THIRD PARTIES EITHER B Y THE EMPLOYEE OF THE APPELLANT OR A PAID AGENT STANDS AT PAR. IN THE CASE OF THE E MPLOYEE, HE GETS HIS SALARY FOR THE ARRANGEMENT OF SERVICES. IN THE CASE OF AGENT, HE G ETS AGENCY SERVICE CHARGES. WITHOUT PREJUDICE TO THE APPELLANT'S SUBMISSIONS, A S TO THE DEMERITS OF THE DISALLOWANCE, IT IS SUBMITTED THAT THE PROVISIONS O F SECTION 40(A)(IA) WHICH WAS MADE EFFECTIVE FROM 1.4.2005 WAS NOT APPLICABLE TO THE APPELLANT'S CASE AS PREVIOUS YEAR ENDED BEFORE THE SAID DATE. THIS LAW WAS APPLICABLE W.E.F. THE ASSESSMENT YEAR 2006-07, AND THIS SUBMISSION IS DUL Y SUPPORTED BY THE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT, IN THE CASE OF KR ISHAN MOHAN AGARWAL VS. CIT (2007) 295 ITR 190 (ALL) AND ALSO SUPPORTED BY THE DECISION OF THE HON'BLE ITAT, 10 COCHIN BENCH, IN THE CASE OF MUTHOOT M. GEORGE BROT HERS VS. ACIT 47 TTJ 434 RESPECTIVE LY. THE APPELLANT'S GROUND-WISE SUBMISSIONS ARE AS UNDE R: 1. DURING THE ASSESSMENT PROCEEDINGS, THE LD. AO ASKED TO SHOW CAUSE WHY THE CLEARING AND FORWARDING EXPENSES BE NOT DISALLO WED U/S 40(A)(IA) OF THE IT ACT,1961, AS THE TAX WAS TO BE DEDUCTED ON ENTIRE AMOUNT REIMBURSED TO C&F AGENT AS PER PROVISION OF SECTION 194-C OF THE IT ACT,1961. 2. THE APPELLANT FILED THE REPLY VIDE LETTER DATED20.1 2.2007 & 24.12.2007 AND COPIES OF AFORESAID LETTERS ARE ENCLOSED HEREWITH F OR YOUR READY REFERENCE AT PAGE NO.1 TO 23 AND 24 TO 120 OF PAPER BOOK RESP ECTIVELY. 3. THE LD. AO, WITHOUT CONSIDERING THE SUBMISSION O F THE APPELLANT IN RIGHT PERSPECTIVE , MADE ADDITION OF RS.1,60,41,692/- BY INVOKING THE PROVISION OF SECTION 40(A)(IA) OF THE IT ACT,1961AND ALSO CON TENTED THAT TAX WAS TO DEDUCTED ON ENTIRE AMOUNT REIMBURSED TO C&F AGENT A S PER PROVISION OF SECTION 194-C OF THE IT ACT1961. 4. THE ACTION OF LD. AO IN DISALLOWING RS.1,60,41,6 92/- BY APPLYING THE PROVISION OF SECTION 40(A)(IA) R.W.S.194C OF THE IT ACT,1961, IS UNJUSTIFIED, UNWARRANTED AND BAD IN LAW DUE TO THE FOLLOWING FAC TS AND LEGAL POSITION : (I)DURING THE YEAR UNDER APPEAL, THE APPELLANT REIM BURSED EXPENSES OF RS.1,64,03,242/- TO C&,F AGENT ON APPELLANT'S BEHALF, WHICH INCLUDES AGENCY CHARGES AND FOLLOWING EXPENSES UNDER THE AC COUNTING HEAD 'EXPORT CLEARING & FORWARDING EXPENSES'. THE DETAILS ARE AS UNDER : 11 S.NO. PARTICULARS AMOUNT 1. SEA FREIGHT (OCEAN FRIGHT) BEING FREIGHT FROM THE I NDIAN PORT TO THE DESTINATION PORT PAID BY APPELLANT THROUGH I TS FORWARDING AGENT TO NON-RESIDENT SHIPPING COMPANIES . AS PER APPELLANT, NO TDS WAS DEDUCTIBLE, AS EXPLAIN ED HEREINAFTER. 1,16,11,550/- 2. REPO CHARGES MEANS REPOSITIONING CHARGES OF EMPTY CONTAINERS AND THIS ACTIVITY MEANS TRANSPORTATION O F EMPTY CONTAINERS BY INDIA RAILWAYS FROM THE PORT TO INTER NAL CONTAINER DEPOT (ICD), WHICH IN APPELLANTS CASE IS ICD SABARMATI, AHMEDABAD. AS PER APPELLANT, NO TDS WAS DEDUCTIBLE, AS EXPLAIN ED HEREIN AFTER 9,16,000/- 3. CCI CHARGES ARE THE ACTUAL RAILWAY FREIGHT FOR TRAN SPORTATION OF CUSTOM CLEARED, EXPORT BOUND STUFFED CONTAINER F ROM DRY PORT, WHICH IN APPELLANTS CASE IS INTERNAL CONTAI NER DEPOT (ICD), SABARMATI, AHMEDABAD. THIS RAILWAY FREIGHT I S PAID BY THE C& F AGENT OF THE APPELLANT TO THE CONTAINER CORPORATION OF INDIA (CCI), WHICH IS A GOVERNMENT O F INDIA UNDERTAKING. AS PER APPELLANT, NO TDS WAS DEDUCTIBLE, AS EXPLAIN ED HEREIN AFTER. 3,74,652/- 4. TERMINAL HANDLING CHARGES (THC) ARE INCIDENTAL TO T HE SHIPMENT OF ECH CONTAINER AND PERTAINS TO HANDLING OF CONTAINER WITHIN THE PORT AREA MEANT FOR EXPORT WHI CH ARE BEING REIMBURSED BY APPELLANT TO THE FORWARDING AGE NT. AS PER APPELLANT, NO TDS WAS DEDUCTIBLE AS EXPLAINE D HEREIN AFTER. 8,79,731/- 5 ROAD TRANSPORTATION CHARGES IS THE FREIGHT CHARGES FOR TRANSPORTING EMPTY CONTAINER FROM DRY PORT I.E. ICD AHMEDABAD TO APPELLANTS FACTORY AT SIROHI ROAD AND BACK FROM APPELLANTS FACTORY TO THE DRY PORT. TDS HAS ALREADY BEEN DEDUCTED BY APPELLANTS C&F AG ENT AND DEPOSITED WITH THE GOVT. 20,31,226/- 6. AGENCY CHARGES PAID TO M/S. CHINU BHAI KALIDAS, AHMEDABAD ON WHICH TDS IS DEDUCTED BY THE APPELLANT (AGENCY CHARGES RS. 3,30,604/- SERVICE TAX 30,946/- ). 3,61,550/- 7. CONTAINER HANDLIGN SERVICE CHARGES PAID TO M/S. STA R SHIPPING & TRANSPORT AGENCIES, MUMBAI, ON WHICH TDS HAS ALREADY BEEN DEDUCTED BY THE APPELLANT. 54,000/- 12 8. BILL OF LADING/SHIPPING BILL & SUNDRY CHARGES 1,72,717/- 9. OTHER EXPENSES 1,816/- TOTAL : 1,64,03,242/- THE APPELLANT SUBMIT POINT-WISE REASONS FOR WHICH T DS HAVE NOT BEEN DEDUCTED ON PAYMENTS OF THE AFORESAID SERVICES, AS UNDER : 1. SEA FREIGHT (OCEAN FREIGHT) RS. 1,16,11,550/ NO TDS WAS DEDUCTIBLE ON THE AFORESAID AMOUNT IN V IEW OF FOLLOWING REASONS : (A) THE AMOUNT PERTAINS TO THE AMOUNT OF SEA FREIGH T FROM INDIAN TORT TO DESTINATION PORT PAID BY APPELLANT'S AGENT (CFA) TO NON-RESIDENT SHIPPING COMPANIES THROUGH THEIR BOOKING AGENTS. (B) IN SUPPORT OF THE ABOVE, COPY OF THE CERTIFICAT E DATED 28TH FEBRUARY, 2008 ALONG WITH STATEMENT ARE ENCLOSED HEREWITH AT PAGE NO. 121 TO 122 OF PAPER BOOK, GIVEN BY THE FORWARDING AGENT OF THE APPELLA NT M/S. STAR SHIPPING &, TRANSPORT AGENCY, WHICH CLEARLY CERTIFIES THAT HE H AS PAID THE OCEAN FREIGHT TO THE VARIOUS AGENTS OF NON-RESIDENT SHIPPING COMPANI ES ON BEHALF OF APPELLANT. (C) AS PER CIRCULAR NO. 723 DATED 19.9.1995 OF THE BOARD, SUCH PAYMENTS MADE FOR THE OCEAN FREIGHT ARE NOT LIABLE TO TDS. THEREFORE, NO TDS ON SUCH OCEAN FREIGHT HAS BEEN DE DUCTED BY APPELLANT, WHILE REIMBURSING SUCH OCEAN FREIGHT TO FORWARDING AGENT, WHO MADE SUCH PAYMENT TO THE NON-RESIDENT SHIPPING COMPANIES ON BEHALF OF THE APPELLANT. 2. REPO CHARGES RS. 9,16,.000/- AS EXPLAINED ABOVE, THIS IS TRANSPORT ATION CHARGE OF EMPTY CONTAINERS FROM PORT TO ICD - PAID TO THE INDIAN RAILWAYS AND ANY PAYMENT FOR FR EIGHT TO THE INDIAN RAILWAYS IS NOT LIABLE FOR DEDUCTION OF TAX AS PER SECTION 194C R.W.S. 196 OF 13 THE IT ACT ,1961 3. CCI CHARGES RS.3,74,652/- (I) AS EXPLAINED ABOVE, THIS IS THE RAILWAY FREIGHT FOR T RANSPORTATION OF THE STUFFED CONTAINERS FROM ICD AHMEDABAD TO THE PORT A ND HAS BEEN PAID TO THE 'CONTAINER CORPORATION OF INDIA', WHICH IS A GOVER NMENT OF INDIA UNDERTAKING. (II) IN SUPPORT OF A BOVE, THE APPELLANT ENCLOSE HEREWITH SPECIMEN COPY OF BILL AT PAGE NO. 63 OF PAPER BOOK, WHICH CLEARLY MENTIONED THAT THIS RAILWAY FREIGHT HAS BEEN PAID BY THE FORWARDING AGE NT, M KS CHINU BHAI KALICLAS & BROS (CKB), AHMEDABAD TO CCI AGENT ON B EHALF OF THE APPELLANT. (III) AS PER SECTION 196 OF IT ACT, 1961, ANY PAYM ENT MADE TO GOVERNMENT OR A CORPORATION ESTABLISHED BY OR UNDE R A CENTRAL ACT/GOVERNMENT OF INDIA UNDERTAKING, NO TDS IS DEDUCTIBLE IF ANY R AILWAY FREIGHT EITHER TO RAILWAYS DIRECTLY OR TO A GOVERNMENT OF INDIA UNDERTAKING IS MADE BY THE APPELLANT. (IV) IN ADDITION TO ABOVE ,EXPLANATION OF SUB-SECTION (2) OF SECTION 194- C OF THE IT ACT 1961 ALSO CLEARLY STIPULATES THAT ANY FREIGHT PAID FOR TRANSPORTATION OF GOODS BY THE INDIAN RAILWAY IS NOT SUBJECT TO DE DUCTION OF TDS. (V) SINCE C&F AGENT OF THE APPELLANT PAID THE CCI CHARG ES ON BEHALF OF THE APPELLANT, FOR TRANSPORTATION OF CONTAINER S FROM THE LCD, AHMEDABAD TO THE PORT BY RAILWAYS, NO TDS WAS DEDUCTIBLE FROM SU CH PAYMENTS. (VI) THE APPELLANT WISH TO FURTHER PU T ON RECORD THAT THE APPELLANT RECEIVE THE EMPTY CONTAINERS AT FACTORY SITUATED IN SIROHI ROAD, STUFF-IT (FILL- UP) THESE CONTAINERS IN THE PRESENCE OF CUSTOM AUTHO RITIES, WHO AFTER CHECKING, CLOSE THE CONTAINER AND AFFIX THEIR SEAL (LEAD) AND THERE AFTER THE CONTAINERS ARE DISPATCHED TO THE ICD AHMEDABAD. AS SUCH, THESE ARE CUSTOM CLEARED AND ARE EXPORT BOUND CONTAINERS WHERE THE APPELLANT HAVE NO CONTROL WHATSOEV ER, ONCE 14 THE CONTAINERS ARE SEALED BY THE CUSTOM AUTHO RITIES AT APPELLANT'S FACTORY. 4 . TERMINAL HANDLING CHARGES (THC) RS. 8,79,731/- (I) AS EXPLAINED ABOVE, THC ARE REIMBURSED BY THE A PPELLANT TO THE FORWARDING AGENT AND ARE INCIDENTAL T O THE SHIPMENT OF THE CONTAINER FOR EXPORT AND A RE GOVERNED BY SECTION 172 OF IT ACT, 1961 AND ALSO AS PER CIRCULAR NO.723 DATED 19TH SEPTEMBER, 1995 THAT THE PROVISIONS OF SECTION 194- C DOES NOT APPLY FOR SUCH PAYMENTS. (II) IN THIS REGARD, YOUR HONOURS ATTENTION IS SPE CIALLY DRAWN TO SUB- SECTION 8 OF SECTION 172 OF THE IT ACT, 196 1, WHICH STATES AS U NDER: 'FOR THE PURPOSE OF THIS SECTION THE AMOUNT REFERRE D TO IN SUB SECTION 2 SHALL INCLUDE THE AMOUNT PAID OR PAYABLE BY WAY OF DEMURRAGE CHARGES OR HANDLING CHARGES OR ANY OTHER AMOUNT OF SIMILAR NAT URE '. (EMPHASIS SUPPLIED). (III) IN VIEW OF ABOVE FACTS, NO TDS IS DEDUCTIBLE ON TER MINAL HANDLING CHARGES,(THC) REIMBURSED BY THE APPELLANT. 5 . ROAD TRANSPORTATION CHARGE RS. 20,31,226/- (I) T HIS TRANSPORTATION CHARGE PERTAINS TO TRANSPORTATIO N OF EMPTY AS WELL AS STUFFED CONTAINER DULY CUSTOM CLEARED AND BOUNDE D FOR EXPORT AND ARE PAID BY THE APPELLANT TO THE CLEARING AND FORWARDING AGENTS , WHO HAS ALREADY DEDUCTED THE TDS ON ALL SUCH CHARGES. (II) IN SUPPORT OF ABOVE, THE APPELLANT ENCLOSE HEREWITH A CERTIFICATE DATED 26.12.2007 FROM M/S CHINU BHAI KALIDAS & BROS. (CKB), AHMEDABAD, AT PAGE NO. 120 OF PAPER BOOK, WHICH IS SELF-EX PLANATORY. (III) HAVING ALREADY PAID THE TD S ON SUCH TRANSPORTATION CHARGES, THE TDS CANNOT BE DEDUCTED TWICE WHICH YOUR HONOUR WILL KINDLY AGR EE. 6. AGENCY CHARGES RS. 3,61,550/- 15 AS ALREADY CLARIFIED, TDS FROM AGENCY CHARGES PAID TO M/S CHINU BHAI KALIDAS & BROS., AHMEDABAD, WAS DULY DEDUCTED, COPY OF TDS CERTIFICATE ENCLOSED AT PAGE NO. 21 TO 23 OF PAPER BOOK. THE LD. AO, WHILE COMPLETING THE ASSESSMENT U/S 143(3), HAS ALLOWED THE SAME. 7. CONTAINER HANDLING SERVICE CHARGES : RS. 54 ,000/ AS ALREADY CLARIFIED, THE APPELLANT ALREA DY DEDUCTED TDS FROM PAYMENT TO M/S STAR SHIPPING & TRANSPORT AGENCY, MUMBAI, BEING CON TAINER HANDLING SERVICE CHARGES, COPY OF TDS CERTIFICATE ENCLOSED AT PAGE NO. 123 OF PAPER BOOK. HOWEVER, THE LD. AO, WHILE COMPLETING THE ASSESSMEN T U/S 143 (3) DID N OT ALLOWED THE AFORESAID EXPENSES OF RS. 54,000/-. IT WAS PATENTLY UNJUSTIFIED, UNWARRANTED AND BAD IN LAW AND THE SAME MAY KINDL Y BE CONSIDERED AND ALLOWED. 8. BILL OF LADING/SHIPPING BILL AND SUNDRY CHARGES RS. 1,72,717/- AGAIN, THIS A MOUNT BEING INCIDENTAL CHARGES OF SHIPMENT OF EXPOR T CARGO, WHICH ARE NOT LIABLE FOR DEDUCTION OF TDS AND THE SAME DE SERVES TO BE CONSIDERED AND ALLOWED. (II) ON PERUSAL OF THE ABOVE, YOUR HONOUR WOULD FIN D THAT, THE AFORESAID EXPORT CLEARING & FORW ARDING EXPENSES INCLUDED REIMBURSEMENT OF EXPEN SES ON ACCOUNT OF OCEAN FREIGHT, CCI CHARGES, THC CHARGES, REPO CHARGES, TRANSPORTATION CHARGES AND OTHER CHARGES ETC., WHIC H WAS PAID BY THE C&F AGENT ON BEHALF OF THE APPELLANT AND IN TURN, ISSUE D DEBIT NOTES ON THE APPEALENT , CLAIMING REIMBURSEMENT. (III) FURTHER, THE C&F AGENT ISSUED BILLS FOR SERVI CES RENDERED BY HIM TOWARDS AGENCY CHARGES, AND ISSUED DEBIT NOTES FOR EXPENSES INCURRED BY HIM ON BEHALF OF THE APPELLANT. (IV) THUS, C&F AGENT RAISED B ILLS AGAINST AGENCY CHARGES AND DEBIT NOTES FOR 16 EXPENSES INCURRED BY HIM ON BEHALF OF APPELLANT I.E . OCEAN FREIGHT, REPO CHARGES, CCI CHARGES, THC CHARGES,TRANSPORTATION CHARGES, OTHER CHARGES ETC. TO CORROBORATE THESE FACTS, SPECIMEN COPIES OF BILLS AND DEBIT NOTES OF C&F AGENTS ARE ENCLOSED HEREWITH AT PAGE NO. 36 TO 1 1 Q OF PAPER BOOK FOR YOUR KIND PERUSAL, VERIFICATION AND RECORD. (V) THAT WHILE MAKING PAYMENT TO C&F AGENT THE APPE LLANT DEDUCTED TDS FROM AGENCY CHARGES. IN EVIDENCE, COPY OF TDS CER TIFICATES HAVE ALREADY BEEN FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. (VI) FURTHER, THE APPELLANT SUBMIT THAT TDS IS NOT REQUIRED TO BE DEDUCTED FROM REIMBURSEMENTS OF ACTUAL EXPENDITURE INCURRED BY TH E C&F AGENT ON BEHALF OF THE APPELLANT DUE TO THE FOLLOWING REASONS: A. THAT THE C&F AGENT ACTED AS 'PURE AGENT' OF T HE APPELLANT, WHILE INCURRING EXPENSES IN CONNECTION WITH EXPORT CARGO, UNDER THE APPELLANT'S INSTRUCTI ON AND ESTABLISHED IMPLICIT AGREEMENT IN THIS REGARD. THE AFORESAID C&F AGENT DID NOT ACQUIRE ANY RIGHT, TITLE OR INTEREST IN ANY OF THE SERVICES WHICH ARE CARRIED OUT ON BEHALF OF THE APPELLA NT . IN FACT AND OTHERWISE, THE C&F AGENT NEVER NEE DED THESE. B. SERVICES ETC. FOR HIMSELF EXCEPT FOR NEEDS OF TH E APPELLANT AND T HE C&F AGENT NEITHER NEEDS NOR USES THEM. C&F AGENT'S INTEREST W AS ONLY TO GET `SERVICE CHARGES' FOR ARRANGING SUCH SERVICES FOR APPELLANT AT APPELLANT'S COST AND THAT TOO NOT FIXED. IF THE RATES/CHARGES OF SUCH SERVICES IN CREASED IN THE MEANTIME, THE ENHA NCED CHARGES WERE TO BE REIMBURSED. THE BILLS AND I NVOICES ISSUED BY THE THIRD PARTIES STAND IN APPELLANT'S NAME AND AS SUCH PRIVY OF CONTRACT AROSE BETWEEN THEM AND THE APPELLANT, ALBEIT THROUGH THE MEDIUM O F THE AGENT. IN CASE OF DEFAULT IN PAYMENT, THE APPELLANT WAS ONLY LIABLE FOR SUCH PAYMENTS TO THIRD PARTIES. C. FURTHER, IN ANY CASE THE C&F AGENT DEDUCTED TDS WHILE MAKING PAYMENT OF TRANSPORTATION CHARGES TO DIFFERENT TRANSPORTERS AN D DEPOSITED THE SAME IN 17 GOVERNMENT ACCOUNT. THEREAFTER, T HE APPELLANT REIMBURSED THESE EXPENSES, ON THE BASIS OF HIS DEBIT NOTES. IN VIEW OF THE ABOVE FACTS AND SINCE DUE TDS STANDS ALREADY DEDUCTED/DEPOSITED IN RESPECT OF PAYMENT TO TRANSPORTATION, NO LIABILITY OF TDS AROSE FOR FURTHER DEDUCTION FROM SUCH REIMBU RSED EXPENSES. D. I N CONFIRMATION AND TO CORROBORATE THE AFO RESAID FACTS, THE UNDERTAKING/CERTIFICATE RECEIVED FROM C&F AGENT, M/ S CHINUBHAI KALIDAS & BROTHERS, AHMEDABAD, IS ENCLOSED HEREWITH AT PAGE N O. 120 OF PAPER BOOK, WHICH CLARIFIE S THE FACTS AND LEAVE NO SCOPE FOR DEDUCTION OF TDS ON REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF THE APPELLANTS. E. FURTHER, THE C&F AGENT INCURRED EXPENSES ON REPO CHARGES, CCI CHARGES ETC. MERELY ON BEHALF OF THE APPELLANT, ON WHICH NO LIABILITY FOR DEDUCTION OF TAX AT SOURCE WAS THERE. TO CORROBORATE THIS FACT, THE APPELLANT SUBMIT THAT M/S STAR SHIPPING 8S TRANSPORT AGENCY, MUMBAI ALSO CONFIRMS VIDE THEIR LETTER DATED 28.02.2008 THAT THE AMOUNT RECEIVED FROM THE APPELL ANT FOR MAKING VARIOUS PAYM ENTS I.E. SHIPMENT, OCEAN FREIGHT ETC., WERE DIRECT LY MADE BY THEM TO FOREIGN SHIPPI4 G COMPANIES. COPY OF CONFIRMATION RECEIVE D IS ENCLOSED HEREWITH AT PAGE NO. 121 AND 122 OF PAPER BOOK FOR YOUR KIND VE RIFICATION AND PERUSAL. . F . IN ANY CASE, PAYM ENT ON ACCOUNT OF SEA FREIGHT (OCEAN FREIGHT) AND T HC CHARGES WERE PAID TO NON- RESIDENT SHIPPING AGENTS, (WHICH CONSTITUTES ALMOST 80% OF SUCH REIMBURSED EXPENSES) AND THEREFORE 194- C AND 195 OF THE IT ACT, 1961 DO NOT APPLY .THE CIRCULAR NO. 723 DATED 19 .09.1995 WHICH IS REPRODUCED BELOW CLARIFIES THE ISSUE : TAX DEDUCTION AT SOURCE FROM PAYMENT MADE TOFOREIGN SHIPPING COMPANIES: 1. REPRESENTATIONS HAVE BEEN RECEIVED REGARDING TH E SCOPE OF SECTIONS 194C AND 195 OF THE INCOME-TAX ACT, 1961, IN CONNECTIO N WITH TAX DEDUCTION AT SOURCE FROM PAYMENTS MADE TO THE FOREIGN SHIPPING COMPANIE S OR THEIR AGENTS. 18 2. SECTION 172 DEALS WITH SHIPPING BUSINESS OF NON- RESIDENTS. SECTION 172 (1) PROVIDES THE MODE OF THE LEVY AND RECOVERY OF TAX I N THE CASE OF ANY SHIP, BELONGING TO OR CHARTERED BY A NON- RESIDENT, WHICH CARRIES PASSENGERS, LIVESTOCK, MAIL OR GOODS SHIPPED AT A PORT IN INDIA. AN ANALYS IS OF THE PROVISIONS OF SECTION 172 WOULD SHOW THAT THESE PROVISIONS HAVE TO BE AP PLIED 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 THE LEVY A ND RECOVERY OF THE TAX, SHIP- WISE, AND JOURNEY- WISE, AND REQUIRES THE FILMY OF THE RETURN WITHIN A MAXIMUM TIME OF THIRTY DAYS FROM THE DATE OF DEPARTURE OF T HE SHIP. 3. THE PROVISIONS OF SECTION 172 ARE TO APPLY, NOTW ITHSTANDING ANYTHING CONTAINED IN OTHER PROVISIONS OF THE ACT. THEREFORE, IN SUCH CASES, THE PROVISIONS OF SECTIONS 194C AND 195 RELATING TO TAX DEDUCTION AT SOURCE AR E 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 TR ANSPORT OTHER THAN RAILWAYS. THIS SECTION APPLIES T O 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 F ROM THE SECTION THAT THE AREA OF OPERATION OF TDS IS CONFINED TO PAYM ENTS MADE TO ANY RESIDENT. ON THE OTHER HAND, SECTION 172 OPERATES IN THE AREA OF COMPUTATI ON OF PROFITS FROM SHIPPING BUSINESS OF NON- RESIDENTS. THUS, THERE IS NO OVERLAPPING IN THE AR EAS OF OPERATION OF THESE SECTIONS. 5. THERE WOULD, HOWEVER, BE CA SES WHERE PAYMENTS ARE MADE TO SHIPPING AGENTS OF NON-RESIDENT SHIP- OWNERS OR CHARTERERS 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 HE SHOES OF THE PRINCIPAL. ACCORDINGLY, PROVISIONS OF SECTION 172 SHALL APPLY AND THOSE OF SECTIONS 194C AND 195 WILL NOT APPLY. ON PERUSAL OF THE ABOVE, YOUR HONOUR WOULD APPRECIA TE THAT IN THE PRESENT APPEAL, 19 SINCE THE C&F AGENT OF THE APPELLANT MADE VARIOUS P AY MENTS LIKE OCEAN FREIGHT ETC., DIRECTLY TO THE FOREIGN SHIPPING COMPANIES ON BEHALF OF APPELLANT, PROVISIONS OF SECTION 194-C AND 195 DO NOT APPLY WH ICH PLEASE NOTE. APART FROM THE ABOVE, YOUR HONOUR WOULD FIND THAT, IN THE PRESENT APPEAL, THE NATURE OF;PAYMENT TO C&F AGENTS ARE OF TWO TYPES - (1) AGENCY CHARGES; AND (2) REIMBURSEMENTS OF EXPENDITURE INCURRED BY THE AGEN T ON BEHALF OF THE APPELLANT, AS AGENT. IN VIEW OF THE ABOVE, THE APPELLANT WERE LIABLE TO DEDUCT TAX ONLY ON THE BILL OF AGENCY CHARGES AND NOT ON REIMBURSEMENT OF EXPENSES. THE APPELLANT DRAW YOUR KIND ATTENTION TOWARD THE F OLLOWING DECISIONS WHEREIN IT WAS HELD THAT PAYMENT OF OCEAN FREIGHT AND INLAND H AULAGE CHARGES CANNOT BE SUBJECTED TO TDS BY VIRTUE OF THE PAYMENT OF THE PR OVISION OF. SECTION 172 OF THE IT ACT 1961. 1. INCOME TAX OFFICER VS. FREIGHT SYSTEM (INDIA) PUT. LTD., (2006) 103 17J (DEL.) 103, WHEREIN IT WAS HELD THAT 'TDS U/S 194-C - PAYMENT OF OCEAN FREIGHT AND INLAND HAULAGE CHARGES - CANNOT BE SUBJECTED TO TDS BY VI RTUE OF THE PROVISION OF SECTION 172 - THIS POSITION IS CLARIFIED BY THE CBDT CIRCULAR NO . 723 DATED 190, SEPTEMBER, 1995 - ASSESSEE, THEREFORE CANNOT BE IN DEFAULT FOR NON DEDUCTION OF TAX AT SOURCES FROM PAYMENTS TOWARDS O CEAN FREIGHT AND INLAND HAULAGE CHARGES'. (COPY ENCLOSED AT PAGE NO. 124 TO 127 OF PAPER BOOK). 2. COMMISSIONER OF INCOME TAX (TDS) VS. CONTINENTAL CA RRIERS PUT. LTD., (2007) 163 TAXMAN 479 (DEL.) WHEREIN IT WAS HELD BY THE HON'BLE HIGH COURT THAT SECTION 194-C, READ WITH SECTION 172 OF THE IT ACT, 1961 - DEDUCTION OF TAX AT SOURCE - CONTRACTORS/SUB- CONTRACTORS, PAYMENTS OF ASSESSEE COMPANY, ENGAGED IN BUSINESS OF FREIGHT FORWARDING, DID NOT DEDUCT TAX AT SOURCE ON PAYMENTS MADE TOWARDS OCEAN FREIGHT AND INLAND HAUL AGE CHARGES (IHC) ASSESSEE CONTENDED THAT PAYEE COMPANY WAS AGE NT OF NON- RESIDENT SHIPPING COMPANY AND, THEREFORE, PAYMENT MADE TO IT WAS NOT CONSIDERED FOR PURPOSE OF 20 TDS HOWEVER, ASSESSING OFFICER HELD THAT SINCE A LL AGENTS OF NON- RESIDENT SHIPPING COMPANIES WER E RESIDENT COMPANIES, PROVISIONS OF SECTION 194C WE RE ATTRACTED - COMMISSIONER (APPEALS) HELD THAT THOUGH AGENT WAS A RESIDENT, LIE RECEIVED PAYMENTS ON BEHALF OF NON- RESIDENT SHIPPERS AND, AS SUCH, ASSESSEE COULD NOT BE MADE LIABLE FOR TDS ON SUCH PAYMENTS - TRIBUNAL HELD THAT GOODS HAVING BEEN TRANSPORTED BY A FOREIGN SHIPPING LINE, PAYMEN TS HAD OBVIOUSLY TO BE MADE TO FOREIGN SHIPPING LINES OR AGENTS THEREOF, WHO F ILED RETURN UNDER SECTION 172 IN RESPECT OF SUCH PAYMENTS ON BEHALF OF SHIPPING LINE S, AND THAT CONFIRMATION FROM ALL AGENTS FILING RETURNS UNDER SECTION 172 HAD NOT BEEN CONTROVERTED BY REVENUE- 3. TRIBUNAL, ACCORDINGLY, HELD THAT PROVISIONS OF SECTION 194C WERE NOT - WHETHER SINCE CONCLUSIONS ARRIVED AT BOTH BY COMMIS SIONER (APPEAL S) AND TRIBUNAL WERE BASED ON APPRECIATION OF EVIDENCE, AN Y SUBSTANTIAL QUESTION OF LAW AROSE HELD, NO. (COPY ENCLOSED AT PAGE NO. 128 TO 130 OF PAPER BOO K). UNDER THE ABOVE FACTS AND CIRCUMSTANCES AND IN VIE W OF THE LEGAL POSITION, PROVISIONS OF S ECTION 40(A)(IA) OF THE IT ACT, 1961 AS WELL AS PRO VISIONS OF SECTION 194-C OF THE IT ACT 1961 ARE NOT APPLICABLE IN THE APPELLANT'S CASE. 5. AFTER CONSIDERING DETAILED SUBMISSIONS AND PERUS ING MATERIAL ON RECORD, THE LD. CIT (A) GAVE THE FOLLOWING FINDING :- THE APPELLANT FIRM IS ENGAGED IN MANUFACTURING AND EXPORTING OF 21 MINERAL. THE APPELLANT HAS PAID AN AMOUNT OF RS. 1, 16,11,550/- AS SEA FREIGHT BEING FREIGHT FROM THE INDIAN PORT TO THE DESTINATI ON PORT TO NON RESIDENT SHIPPING COMPANIES, RS.9,16,000/- REPO CHARGES FOR TRANSPORTATION OF EMPTY CONTAINERS BY INDIAN RAILWAYS FROM THE PORT TO INTE RNAL CONTAINER DEPOT THROUGH ICD, SABARMATI, AHMEDABAD, RS.3,74,652/- CCI CHARGE S TO RAILWAYS, WHICH IS A GOVERNMENT OF INDIA UNDERTAKING, RS.8,79,731/- TERM INAL HANDLING CHARGES REIMBURSED TO C&A AGENTS, RS.20,31,226/- ROAD TRANS PORTATION CHARGES FOR FREIGHT CHARGES FOR TRANSPORTING EMPTY CONTAINER FR OM DRY PORT I.E. ICD AHMEDABAD TO APPELLANT'S FACTORY AT SIROHI ROAD AND BACK FROM FACTORY TO THE DRY PORT THROUGH THE APPELLANT'S C&F AGENTS M/S CHINU B HAI KALIDAS, AHMEDABAD AND M/S STAR SHIPPING & TRANSPORT AGENCIES. MUMBAI AND RS.54,000/- AS CONTAINER HANDLING SERVICE CHARGES PAID TO M/S STAR SHIPPING & TRANSPORT AGENCIES, MUMBAI ON WHICH TDS HAS ALREADY BEEN DEDU CTED AND RS.3,61,550/- AS AGENCY CHARGES PAID TO M/S CHINU BHAI KALIDAS, AHME DABAD AND M/S STAR SHIPPING & TRANSPORT AGENCIES, MUMBAI AND DEDUCTED TDS AND SERVICE TAX OF RS.30,946/-. THE AO HAS MENTIONED IN THE ASSESSMEN T ORDER THAT CARRIAGE OF GOODS IS COVERED AS TRANSPORTATION CONTRACT WITHIN THE DEFINITION OF SECTION 194C AND, THEREFORE, THE APPELLANT WAS REQUIRED TO MAKE TDS ON THE PAYMENTS MADE. THE AO HAS ALSO REFERRED THE BOARD'S CIRCULAR NO.71 5 DATED 8-8-95 QUESTION NO. 6 AND QUESTION NO.30 AS UNDER: Q.NO.6: WHETHER PAYMENT UNDER A CONTRACT FOR CARRI AGE OR GOODS OR PASSENGERS BY ANY MODE OF TRANSPORT WOULD INCLUDE PAYMENT MADE TO A TRAVEL AGENT FOR PURCHASE OF A TICKET OR PAYMENT MADE TO A CLEARING AND FORWARDING AGENT OR CARRIAGE OF GOODS? ANS. THE PAYMENTS MADE IO A TRAVEL AGENT OR AN AI RLINE FOR PURCHASE OF A TICKET FOR TRAVEL WOULD NOT BE SUBJECTED TO TAX DEDUCTION AT SOURCE AS THE PRIVITY OF THE CONTRACT IS BETWEEN THE INDIVIDUAL PASSENGER AND TH E AIRLINE/TRAVEL AGENT, NOTWITHSTANDING THE FACT THAT THE PAYMENT IS MADE B Y AN ENTITY MENTIONED IN SECTION 1 94C( I ). THE PROVISIONS OF SECTION 1 94C SHALL, HOWEVER, APPLY WHEN A PLANE OR A BUS OR ANY OTHER MODE OF TRANSPORT IS CH ARTERED BY ONE OF THE ENTITIES 22 MENTIONED IN SECTION I94C OF THE ACT. AS REGARDS P AYMENTS MADE TO CLEARING AND FORWARDING AGENTS FOR CARRIAGE OF GOODS, THE SAME S HALL HE SUBJECTED TO TAX DEDUCTION AT SOURCE 'UNDER SECTION I94C OF THE ACT. QN.NO.30 WHETHER THE DEDUCTION OF TAX AT SOURCE UNDER SECTION I94-C AND I 94J HAS TO BE MADE OUT OF GROSS AMOUNT OF THE BILL INCL UDING REIMBURSEMENTS OR EXCLUDING REIMBURSEMENT FOR ACTUAL EXPENSES? ANS. SECTION 194C AND I94J REFER TO ANY SUM PAID. OBVIOUSLY, REIMBURSEMENTS CANNOT BE DEDUCTED OUT OF THE BILL AMOUNT FOR THE P URPOSE OF TAX DEDUCTION AT SOURCE'. 11. AS PER THESE TWO QUESTIONS AND ANSWERS THE PRO VISIONS OF SECTION194C WOULD APPLY WHEN A PLANE OR A BUS OR ANY OTHER MODE OF TR ANSPORT IS CHARTERED BY ONE OF THE ENTITIES MENTIONED IN THE SECTION 194C OF THE A CT. FURTHER THE DEDUCTION OF TAX AT SOURCE HAS TO BE MADE ON THE GROSS AMOUNT OF THE BILL INCLUDING REIMBURSEMENTS OR EXCLUDING REIMBURSEMENT FOR THE A CTUAL EXPENSES. 12. THE A/R HAS SUBMITTED IN THIS REGARD THAT THE FINANCE ACT NO.(2) 2004 HAS MADE THE PROVISION APPLICABLE W.E.F.1-4-2005. THE AMENDED PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE FOR THE PREVIOUS YEAR ENDI NG AFTER 1-4-2005 I.E. 31-3- 2006FOR ASSESSMENT YEAR 2006, 07RMAI POT ASSESSMENT YEAR 2005-06. THE A/R HAS FURNISHED THE BREAK UP OF THE PAYMENT .AS UNDER :- SEA FREIGHT TRANSPORT RS. 1,16,11 ,550/- CCI CHARGES RS. 3.74.652/- STEAMER FREIGHT (TI IC CHARGES) RS. 8,79,73 I /- RIPO (EMPTY CONTAINER CHARGE, , RS. 9, 16,000/- TRANSPORTATION CHARGES RS. 20 ,3I,226/- AGENCY CHARGES RS. 3,61 ,550/- BL/SHIPPING BILLS/SVUNDRV CHARGES RS. 2,18,718/- TOTAL RS 1,63.93.427/- OTHER EXPENSES RS. 9.816/- TOTAL RS, 1,64,03,742/- THE COPY OF HILLS OF AGENTS, COPY OF LEDGER ACCOUNT , COPY OF EXPORT BILLS 23 HAVE ALSO BEEN SUBMITTED. FROM THE ABOVE BREAK UP I T IS SEEN THAT RS. 1,60,3 1,877/- WERE PAID TO M/S CHINU BHAI KALIDAS, AHMEDA BAD AND M/S STAR SHIPPING & 'TRANSPORT AGENCIES, MUMBAI, FOR DIRECT TRANSPORT /SEA FREIGHT ON BEHALF OF THE NON RESIDENT SHIP OWNER TO EXPORT AND SHIPPING THE GOODS UPTO THE DESTINATION PORTS. THE A/R HAS ALSO QUOTED CBDT CIRCULAR NO.723 DATED 1 9-9-2005 AS UNDER: 'THERE WOULD BE CASES WHERE PAYMENTS ARE MADE TO SH IPPING AGENTS OF NON RESIDENT SHIP OWNERS CHARTERERS OF SHIP FOR CAR RIAGE OF PASSENGER ETC. SHIPPED AT PORT IN INDIA. SINCE THE AGENT ACTS ON B EHALF OF THE NON RESIDENT SHIP OWNERS OR CHARTERER, HE STEPS INTO THE SHOES O F THE PRINCIPAL. ACCORDINGLY, PROVISIONS OF SECTION 172 SHALL APPLY AND THOSE OF SECTION194C AND 195 WILL NOT APPLY' IN THE LAST PARA IT IS WRITTEN THAT THERE WOULD BE CASES WHERE PAYMENTS ARE MADE TO SHIPPING AGENTS OF NON RESIDENT SHIP OWNERS /CHARTERERS OF SHIP FOR CARRIAGE OF PASSENGER ETC., SHIPPED AT PORT IN INDI A. SINCE THE AGENT ACTS ON BEHALF OF THE NON RESIDENT SHIP OWNERS OR CHARTERER, LIE S TEPS INTO THE SHOES OF THE PRINCIPAL. ACCORDINGLY, PROVISIONS OF SECTION 172 S HALL APPLY AND THOSE OF SECTION 194C WILL NOT APPLY. THE CERTIFICATE FROM THE AGENT M/S CHINU BHAI KALIDAS. AHMEDABAD AND M/S STAR SHIPPING & TRANSPORT AGENCIE S. MUMBAI HAS ALSO BEEN SUBMITTED, WHICH CONFIRMS THAT THE PAYMENT IS MADE AS SEA FREIGHT TO FOREIGN SHIPPING LINES OF GOODS SENT BY THE APPELLANT FOR E XPORT FOR EACH CASE TO CASE. 13. FURTHER-194C DEALS WITH WORKS CONTRACT. INCL UDING CARRIAGE OF GOODS AND PASSENGER BY ANY MODE OF TRANSPORT OTHER THAN RAIL TO ANY RESIDENT MENTIONED IN SUB SECTION (I) IN CLAUSES (A) TO (J).IT IS CLEAR T HAT AREAS OF OPERATION FOR TDS ARE CONFINED TO RESIDENT. ON THE OTHER HAND SECTION 172 OPERATES IN THE AREA OF COMPUTATION OF PROFIT OF SHIPPING BUSINESS OF NON R ESIDENT WHO PAY THE TAX BY THEMSELVES AS PER SECTION 172 AND NO TDS IS ATTRACT ED. 14. PAYMENT OF RS. I, 16,11,550/- ARE REIMBURSEM ENTS FOR SHIPPING TO FOREIGN AGENT AND STATUTORY REIMBURSEMENTS AND HENCE NOT C OVERED U/S 194C FOR TDS AS IT IS NOT CONTRACT BEING HIS AGENCY/OTHER CHARGES. 24 15. BESIDES, THE APPELLANT PAID/CREDITED TO THE C&F AGENTS FOR VARIOUS IMPORT CHARGES SUCH AS CUSTOM DOTE. PORT TRUST CHARGES. CO NTAINER DETENTION, PACKAGING, SEALING CHARGES. DOCUMENTATION CHARGES, PAYMENT TO RAILWAY ETC. TOTAL AMOUNT OF RS.34,63,849/- THROUGH ITS C&F AGENTS.. AGENCY CHAR GES WERE ONLY RS.3,61,550/- FOR SEVERAL TRANSACTIONS AND ON WHICH TDS AND SERVI CE TAX HAS ALREADY BEEN DEDUCTED AND DEPOSITED BY THE APPELLANT. 16. REGARDING BALANCE AMOUNT, THEY ARE NOT IN TH E NATURE OF AGENCY PAYMENT BUT OTHER MISC. PAYMENT SUCH AS LICENCE VERIFICATION CH ARGES, CUSTOM DUTY CHARGES, LICENSE BULLETIN CHARGES, EXTRA TONNAGE CHARGES ETC . DOC CHARGES AND SERVICE CHARGES, CONTAINER DETENTION CHARGES AND PACKAGING CHARGES. 17. IN CASE OF SEA FREIGHT TRANSPORT OF RS.1.16, 11,550/- IT HAS BEEN PAID TO THE AGENT ON BEHALF OF THE NON RESIDENT SHIP OWNERS AND RS. 9,15,000/- AND RS. 3,74,652/- PAID TO RAILWAY THROUGH AGENT. THEREFORE, PROVISIONS OF SECTION 194C ARE NOT APPLI CABLE IN THIS REGARD. THE BOARD'S CIRCULAR NO.715 HAS BEEN WRONGLY QUOTED BY THE AO. FURTHER THE BOARD'S CIRCULAR NO.723 IS IN FAVOUR OF THE APPELLA NT AS UNDER:- 'THERE WOULD BE CASES HERE PAYMENTS ARE MADE TO SH IPPING AGENTS OF NON RESIDENT SHIP OWNERS CHARTERERS OF SHIP FOR CAR RIAGE OF PASSENGER ETC. SHIPPED AT PORT IN INDIA. SINCE THE AGENT ACTS ON B EHALF OF THE NON RESIDENT SHIP OWNERS OR CHARTERER, HE STEPS INTO THE SHOES O F THE PRINCIPAL. ACCORDINGLY, PROVISIONS OF SECTION 172 SHALL APPLY AND THOSE OF SECTION 194C AND 195 WILL NOT APPLY' THEREFORE, THE ADDITION RS.1,60,41,692 /- IS DELET ED . THE APPEAL IS ALLOWED ON THIS GROUND. 6. THE LD. D/R FIRST PLACED RELIANCE ON THE ORDER O F LD. CIT (A). IT WAS FURTHER SUBMITTED THAT CIRCULAR NO. 715 DATED 8.8.1995 CONS IDERED BY ASSESSING OFFICER IS DIRECTLY ON THE ISSUE. IN THIS CIRCULAR BOARD HAS C LARIFIED THAT EVEN ON REIMBURSEMENT OF 25 EXPENSES TDS HAS TO BE DEDUCTED. IT WAS FURTHER SU BMITTED THAT CIRCULAR NO. 723 DATED 9.9.95 HAS BEEN WRONGLY CONSIDERED BY LD. CIT (A). THE LD. CIT (A) SHOULD HAVE ALLOWED OPPORTUNITY TO THE ASSESSING OFFICER BEFORE CONSIDE RING THIS CIRCULAR. IT WAS FURTHER SUBMITTED THAT IN CASE OF KARNATAKA URBAN INFRASTRU CTURE DEVELOPMENT FINANCE CORPORATION, 308 ITR 297, THE HONBLE KARNATAKA HIG H COURT HAS DECIDED SIMILAR ISSUE WHEREBY IT HAS BEEN HELD THAT ON REIMBURSEMENT OF E XPENSES TDS IS DEDUCTIBLE. COPY OF THE ORDER WAS ALSO FILED. FURTHER, RELIANCE HAS AL SO BEEN PLACED IN CASE OF ASSOCIATED CEMENT CO., 201 ITR 435 WHEREBY IT HAS BEEN HELD TH AT ON REIMBURSEMENT OF EXPENSES THE TDS IS DEDUCTIBLE. ACCORDINGLY, IT WAS SUBMITT ED THAT THOUGH ASSESSING OFFICER HAS CONSIDERED THIS ASPECT OF REIMBURSEMENT OF EXPENSES BUT IN VIEW OF THE DECISION OF HONBLE KARNATAKA HIGH COURT AND IN VIEW OF THE DEC ISION OF HONBLE SUPREME COURT, THE TDS IS DEDUCTIBLE. THEREFORE, LD. CIT (A) WAS NOT JUSTIFIED IN ALLOWING THE ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY IT WAS SUBMITT ED THAT ORDER OF LD. CIT (A) IS LIABLE TO BE SET ASIDE AND ORDER OF ASSESSING OFFICER IS LIAB LE TO BE RESTORED. 7. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE STATED THAT LD. CIT (A) HAS PASSED A REASONED ORDER WHICH IS LIABLE TO BE SUSTA INED. IT WAS SUBMITTED THAT MANY OF THE PAYMENTS MADE BY C & F AGENTS ARE EVEN NOT LIABLE T O DEDUCT TDS AT ALL WHICH INCLUDES CERTAIN GOVERNMENT PAYMENTS AND ON FOREIGN COMPANIE S DIRECTLY ON WHICH NO TDS IS DEDUCTIBLE. THOSE PAYMENTS ARE OUT OF PROVISIONS O F SECTION 194C. PROVISIONS OF SECTION 194 WERE READ ALSO BY LD. COUNSEL. IT WAS FURTHER SUBMITTED THAT IN SOME OF THE CASES THE C & F AGENTS HAS ALREADY DEDUCTED TDS AND, THEREFOR E, THERE WAS NO QUESTION OF DEDUCTING TDS OF THE SAME AMOUNT AGAIN. VARIOUS BE NCHES OF THE TRIBUNAL HAVE HELD CLEARLY THAT ON REIMBURSEMENT OF EXPENSES TDS IS NO T DEDUCTIBLE. RELIANCE WAS PLACED 26 ON THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN C ASE OF FREIGHT SYSTEM, 103 TTJ 103 AND ON THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CONTINENTAL CARRIERS PVT. LTD., 163 TAXMAN 479. ATTENTION OF THE BENCH WAS D RAWN ON DETAILS OF EXPENSES REIMBURSED BY ASSESSEE WHICH ARE TABULATED IN THE O RDER OF LD. CIT (A) AT PAGE 7 AND COPY OF WHICH IS PLACED IN THE PAPER BOOK AT PAGES 75 & 76 AND EACH AND EVERY PAYMENTS WERE EXPLAINED BY LD. A/R THAT HOW THE SAME IS NOT LIABL E TO TDS. CIRCULAR NO. 723 OF 1995 IS VERY CLEAR AND IS APPLICABLE ON THE DEPARTMENTAL AU THORITIES AND, THEREFORE, THIS WAS NOT AN ADDITIONAL EVIDENCE WHICH WAS FILED BEFORE LD. CIT (A). THE LD. CIT (A) HAS RIGHTLY CONSIDERED THE BOARDS CIRCULAR, WHICH IS APPLICABL E ON THE FACTS OF THE PRESENT CASE. THEREFORE IT WAS REQUESTED THAT THE ORDER OF LD. CI T (A) IS LIABLE TO BE SUSTAINED. FURTHER, STRONG RELIANCE WAS PLACED ON THE ORDER OF LD. CIT (A). 8. AFTER CONSIDERING THE ORDERS OF THE ASSESSING OF FICER AND LD. CIT (A) AND THE ARGUMENTS OF BOTH THE PARTIES, WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). 8.1. THE DEPARTMENT HAS RAISED ADDITIONAL GROUND TH AT LD. CIT (A) WAS NOT JUSTIFIED IN ADMITTING BOARD CIRCULAR NO. 723 DATED 19.9.1995 WI THOUT AFFORDING OPPORTUNITY TO THE ASSESSING OFFICER. BOARD CIRCULAR IS ISSUED BY THE CBDT AND WHICH CANNOT BE TERMED AS AN ADDITIONAL EVIDENCE. THEREFORE, WE REJECT THIS GROUND OF THE DEPARTMENT THAT ASSESSING OFFICER WAS NOT ALLOWED ANY OPPORTUNITY. THE LD. D /R HAS STATED THAT EVEN BOARD CIRCULAR NO. 723 IS NOT IN FAVOUR OF THE ASSESSEE AND LD. CI T (A) WAS NOT JUSTIFIED IN CONSIDERING THE SAME IN FAVOUR OF THE ASSESSEE. 8.2. WE HAVE GONE THROUGH THE BOARD CIRCULAR NO. 72 3, COPY OF WHICH IS PLACED ON RECORD AND CONTENTS OF THE SAME HAVE BEEN TABULATED IN THE ORDER OF LD. CIT (A) ALSO AND FOUND THAT ABOUT CERTAIN PAYMENT IT HAS BEEN CLARIF IED BY THE BOARD THAT ON THESE 27 PAYMENTS PROVISIONS OF SECTION 194 AND 195 WILL NOT APPLY AND PROVISIONS OF SECTION 172 WILL BE APPLICABLE. THE LD. CIT (A) HAS TAKEN INTO CONSIDERATION THIS CIRCULAR AND FOUND THAT CERTAIN PAYMENTS MADE BY THE ASSESSEE TO THE C & F AGENTS WHO HAVE ALREADY MADE THE PAYMENT ON BEHALF OF THE ASSESSEE WERE NOT COVE RED EITHER UNDER SECTION 194C OR UNDER SECTION 195, AS THEY COVERED UNDER THE PROVIS IONS OF SECTION 172. THEREFORE, WE HOLD THAT LD. CIT (A) WAS JUSTIFIED IN HOLDING THAT ON CERTAIN PAYMENTS THE PROVISIONS OF SECTION 194C AND 195 WERE NOT APPLICABLE AND, THERE FORE, ASSESSEE WAS NOT LIABLE TO DEDUCT TDS. SUCH PAYMENTS HAVE BEEN DISCUSSED BY L D. CIT (A) IN HIS ORDER. THEY WERE ON ACCOUNT OF SEA FREIGHT TRANSPORT WHICH WERE AT R S. 1,16,11,550/-, CCI CHARGES, STEAMER FREIGHT CHARGES, RIPO CONTAINER CHARGES. R EMAINING EXPENSES REIMBURSED BY THE ASSESSEE WERE ON ACCOUNT OF TRANSPORTATION CHAR GES AT RS. 20,31,226/- AND ON THIS AMOUNT THE AGENT HAS DEDUCTED TDS BEFORE MAKING PAY MENT TO THE PRINCIPAL. SIMILARLY, TDS HAS BEEN DEDUCTED ON SHIPPING BILL OF RS. 2,18, 718/-, AGENCY CHARGES OF RS. 3,61,550/- PAID BY ASSESSEE ON WHICH TDS HAS BEEN D EDUCTED BY ASSESSEE. THERE WERE OTHER SMALL PAYMENTS OF RS. 9816/- ON ACCOUNT OF OT HER EXPENSES ON WHICH TDS WAS NOT APPLICABLE. IN THIS WAY, THE ENTIRE ADDITION OF RS . 1,60,41,692/- WAS DELETED BY LD. CIT (A). THE LD. CIT (A) HAS DISCUSSED EACH ITEM IN DET AIL AND THEN ONLY IT HAS BEEN HELD THAT ASSESSEE WAS NOT LIABLE TO MAKE DEDUCTION OF TDS ON REIMBURSEMENT EXPENSES. VARIOUS BENCHES OF THE TRIBUNAL ARE TAKING A CONSISTENT VIE W THAT IF THE PAYMENTS ARE MADE ON ACCOUNT OF REIMBURSEMENT, THEN NO TDS IS LIABLE TO BE DEDUCTED ON BEHALF OF THE PAYER I.E. ASSESSEE. 28 9. THE LD. D/R PLACED RELIANCE ON THE DECISION OF H ONBLE KARNATAKA HIGH COURT IN CASE OF KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT FINANCE CORPORATION, 308 ITR 297 (KAR.). 10. WE HAVE GONE THROUGH THE RATIO OF THIS DECISION AND FOUND THAT THE SAME IS DISTINGUISHABLE. IN THIS CASE ON BONA FIDE BELIEF OF THE ASSESSEE COMPANY WHICH WAS WHOLLY OWNED BY STATE OF KARNATAKA HAD NOT DEDUCTED TDS ON ACCOUNT OF NON-RESIDENT COMPANY BY OBSERVING THAT THE AMOUNT SPENT TOWARDS ACCOMMODATION AND CONVEYANCE OF THE OFFICER/EMPLOYEE OF THE NON RESIDENT COMPANY WA S NOT REQUIRED TO BE TREATED AS A PART OF THEIR INCOME, WHEREAS IT WAS PART OF THEIR INCOM E. THEREFORE, HONBLE KARNATAKA HIGH COURT HELD THAT ON THIS AMOUNT TDS WAS DEDUCTIBLE. HOWEVER, IN THE PRESENT CASE THE FACTS ARE ENTIRELY DISTINGUISHABLE. THERE IS NO CO MPONENT OF INCOME ON THE AMOUNT PAID BY ASSESSEE ON ACCOUNT OF REIMBURSEMENT. WHATEVER THE AMOUNT WAS PAID BY THE AGENT, THAT WAS REIMBURSED BY THE ASSESSEE. THEREFORE, TH ERE WAS NO INCOME COMPONENT IN THE HANDS OF AGENT. IT IS FURTHER SEEN THAT PROVISIONS OF SECTION 172 WAS VERY CLEAR THAT SUCH TYPE OF PAYMENTS WHICH ARE MADE BY ASSESSEE HAD BEE N HELD THAT THEY ARE NOT PART OF REGULAR INCOME AND, THEREFORE, PROVISIONS OF SECTIO N 194C AND 195 ARE NOT APPLICABLE AND BOARD HAS CLARIFIED THE SAME. THEREFORE, THERE IS NO QUESTION OF MAKING ANY TDS ON THE PART OF THE ASSESSEE AND LD. CIT (A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE. ONE MORE DECISION HAS BEEN RELIED ON BY THE LD. D/R IN CASE OF M/S. ASSOCIATED CEMENT CO. LTD., 201 ITR 435 (S.C.) AND WE FIND THAT FACTS IN THIS C ASE ARE ALSO DISTINGUISHABLE. IN THIS CASE ALSO WE FIND THAT FACTS ARE TOTALLY DIFFERENT FROM THE FACTS INVOLVED IN THE CASE IN HAND. MOREOVER, THE PAYMENTS MADE BY ASSESSEE ARE COVERED BY SECTION 172 WHERE PROVISIONS OF SECTION 194C AND 195 ARE NOT APPLICAB LE AS CLARIFIED BY THE BOARD VIDE 29 CIRCULAR NO. 723 DATED 19.9.1995. THE ASSESSING OF FICER HAS PLACED RELIANCE ON THE CIRCULAR NO. 715 WHICH IS OF EARLIER DATE FROM THE CIRCULAR NO. 723. THE LD. CIT (A) HAS OBSERVED THAT THIS CIRCULAR WAS WRONGLY APPLIED BY ASSESSING OFFICER AS CIRCULAR NO. 723 IS APPLICABLE ON THE FACTS OF THE PRESENT CASE. NA TURE OF PAYMENTS HAS ALREADY BEEN DISCUSSED BY LD. CIT (A) AT PAGE 11 OF HIS ORDER. THEREFORE, WE ARE NOT REPEATING THOSE DETAILS AGAIN AND IN THESE DETAILS IT HAS BEEN CLAR IFIED THAT THE ENTIRE PAYMENTS ARE COVERED BY CIRCULAR NO. 723 DATED 19.9.1995 AND ON REMAININ G PAYMENT, THE AGENT HAS DEDUCTED TDS OR THE ASSESSEE HAS DEDUCTED THE TDS. THEREFOR E, IN VIEW OF THESE FACTS AND CIRCUMSTANCES AND IN VIEW OF DETAILED REASONING GIV EN BY LD. CIT (A) WHICH HAS BEEN REPRODUCED IN THIS ORDER, WE HOLD THAT LD. CIT (A) WAS JUSTIFIED IN HOLDING THAT ASSESSEE WAS NOT LIABLE TO DEDUCT TDS ON THE AMOUNT REIMBURS ED BY THE ASSESSEE. ACCORDINGLY, WE CONFIRM THE ORDER OF LD. CIT (A). 11. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. 12. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 09 .12.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JODHPUR, COPY FORWARDED TO :- THE ACIT, CIRCLE-1, UDAIPUR. M/S. MINPRO INDUSTRIES, UDAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 394/JODH/2008) BY ORDER, AR ITAT JODHPUR. 30