ACIT 19(3), MUMBAI V. S.R. BROTHERS, MUMBAI

ITA 5361/MUM/2009

• Counselvise Citation: 536119914 RSA 2009
• Duration Of Justice: 2 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 12-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-09-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: VISHWAS V MEHENDALE
• Keywords: Gift; Double taxation relief; Opportunity of being heard; Non-deduction of tax
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI N.V.VASUDEVAN, JUDICIAL MEMBER. I.T.A. NO. 5361/MUM/2003. ASSESSME NT YEAR : 2006-07 ASSTT. COMMISSIONER OF INCOME-TAX, M/S S.R. BROTHERS, 19(3), MUMBAI. VS. 204/205, BALARAMA, BANDRA KURLA COMP LEX, BANDRA (EAST), MUMBAI 400 051. PAN AAAFS9880L. APPELLANT. RESPONDENT. APPELLANT BY : SHR I JITENDRA YADAV. RESPONDENT BY : SHRI VISHWAS V. MEHENDALE. DATE OF HEARI NG : 09-01-2012. DATE OF PRONOUNC EMENT : 30-03-2012 O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LEARNED CIT(APPEALS)-19, MUMBAI DATED 10 TH JULY, 2009. 2. THE MAIN ISSUE INVOLVED IN THIS APPEAL RELATING TO DELETION BY THE LEARNED CIT(APPEALS) OF THE DISALLOWANCE OF RS.50,91,541/- MADE BY THE AO U/S 40(A)(IA) IS RAISED BY THE REVENUE IN GROUND NO. 1 AND 2 OF T HIS APPEAL WHICH READ AS UNDER : 2 ITA NO.5361/MUM/2009 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWAN CE OF RS.50,91,541/- MADE BY THE AO U/S 40(A)(IA) ON ACCO UNT OF NON DEDUCTION OF TDS ON AIR FREIGHT PAID TO FOREIGN AIR LINE COMPANIES, IGNORING THE FACT THAT :- (A) THE FOREIGN AIRLINES INCOME IS DEEMED TO BE TA BLE IN INDIA AT A PRESCRIBED RATE AND UNLESS SPECIFICALLY EXEMPTED FR OM THE TDS PROVISIONS BY THE AO THROUGH AN ORDER U/S 195(2) AN D NO SUCH ORDER U/S 195(2) HAS BEEN PRODUCED BEFORE THE A.O. (B) THE CBDTS CIRCULAR NO. 723 DATED 19.09.1995, W HICH COVERS ONLY SHIPPING COMPANY AND NOT AN AIRLINE COMPANY. (C) THE ASSESSEE HAS NOT PAID FREIGHT DIRECTLY TO A IRLINES BUT TO DIFFERENT PARTIES WHO ACT AS FREIGHT BOOKING AGENTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) ERRED IN PLACING RELIANCE ON ARTICLE 8 OF TH E DTAA AND DID NOT GIVE ANY OPPORTUNITY TO THE AO ON THIS POINT IN VIO LATION OF RULE 46A OF THE I.T. RULES. 3. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHI P FIRM WHICH IS ENGAGED IN THE BUSINESS OF EXPORT OF GIFT ARTICLES AND PROMOTIONAL ITEMS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 11 TH JANUARY, 2007 DECLARING TOTAL INCOME OF RS.2,05,77,160/-. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS MADE PAYMEN T OF FREIGHT CHARGES WITHOUT DEDUCING TAX AT SOURCE. IN THIS REGARD, THE EXPLANA TION OFFERED BY THE ASSESSEE BEFORE THE AO WAS THAT PAYMENT OF FREIGHT MADE BY IT WAS RECOVERED AS SALE PROCEEDS AS PER THE INVOICES AND ONLY THE NET FREIG HT WAS DEBITED TO THE PROFIT & LOSS ACCOUNT WHICH WAS HARDLY 5% OF THE FREIGHT AND IT WAS MOSTLY PAID TO AIRLINES OR SHIPPING COMPANIES. RELYING ON THE CBDT CIRCULAR NO. 723, IT WAS CONTENDED THAT NO TAX AT SOURCE WAS DEDUCTIBLE FROM THE PAYME NT OF SUCH FREIGHT CHARGES. THIS STAND OF THE ASSESSEE WAS NOT FOUND FULLY ACCEPTAB LE BY THE AO. ACCORDING TO HIM, CIRCULAR NO. 723 RELIED UPON BY THE ASSESSEE WAS AP PLICABLE ONLY IN CASE OF 3 ITA NO.5361/MUM/2009 SHIPPING COMPANIES COVERED BY SECTION 172 OF THE IN COME-TAX ACT AND THE BENEFIT THEREOF WAS NOT APPLICABLE IN RESPECT OF AIRLINES. HE ALSO NOTED THAT THE ASSESSEE HAD NOT MADE ANY PAYMENTS ON ACCOUNT OF FREIGHT CHARGES DIRECTLY TO THE AIRLINES. THE AO, THEREFORE, WAS OF THE VIEW THAT THERE WAS FAILU RE ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE FROM THE PAYMENT OF FREIGHT CH ARGES AND REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY SUCH FREIGHT CHARGES SHOULD NOT BE DISALLOWED U/S 40(A)(IA) FOR ITS FAILURE TO DEDUCT TAX AT SOURCE FROM THE PA YMENTS THEREOF. IN REPLY, THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF OF THE AS SESSEE BEFORE THE AO : 2) WE HAVE ALREADY SUBMITTED TO YOUR OFFICE THE DE TAILS OF FREIGHT CHARGES PAID. IN THIS CONNECTION, WE HAVE TO SUBMIT THAT OU T OF THE LIST ONLY 7 PARTIES ARE SUCH WHERE PAYMENT IN EXCESS OF RS.50,000/- DUR ING THE YEAR IS MADE. WE HAVE TO STATE THAT IN RESPECT OF FREIGHT PAID TO THEM, NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE CONSIDERING THE PROVISIONS OF DOUBLE TAX AVOIDANCE AGREEMENTS ENTERED INTO BY INDIA WITH THESE COUNTRI ES. WE HAVE ALSO PRODUCED SAMPLE LETTERS FROM THE AIRLINES COMPANIES IN REGARD TO THE PROVISIONS OF THESE PAYMENTS. 3) WE HAVE TO SUBMIT THAT THE PAYMENT FREIGHT TO CI TY TRANSPORT SYNDICATE IS FOR SHIPPING FREIGHT STRAIGHT COVERED BY THE PROVISIONS OF SECTION 172 OF THE I.T. ACT, 1961. WE ARE ENCLOSING HEREWIT H COPIES OF SAMPLE BILLS OF CITY TRANSPORT TO SHOW THAT IT IS ALL SHIPPING F REIGHT. 4) WE ARE ALSO ENCLOSING HEREWITH BILL DETAILS OF A IR SHIP SERVICES PVT. LTD., D. WAMDEO AND CO., AROSCAN CARGO TRADE PVT. L TD. AND DHL EXPRESS PVT. LTD. WITH SAMPLE BILLS. YOU WILL FIND THAT ALL THE PAYMENT IS TOWARDS AIR FREIGHT TO AIRLINES COMPANIES REGISTERED OUTSIDE IN DIA AND NO TAX IS REQUIRED TO BE DEDUCTED ON PAYMENTS TO THEM SINCE THE PAYMEN TS TO THEM ARE COVERED BY THE PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGRE EMENTS WITH THOSE COUNTRIES. 4 ITA NO.5361/MUM/2009 4. THE ABOVE SUBMISSIONS MADE BY THE ASSESSEE WERE FOUND TO BE ACCEPTABLE BY THE AO TO THE EXTENT THE SAME WAS IN RELATION TO PA YMENT OF FREIGHT TO SHIPPING. HE, HOWEVER, FOUND THAT THERE WAS A PAYMENT OF FREIGHT CHARGES MADE BY THE ASSESSEE ON ACCOUNT OF AIR FARE AND ROAD TRANSPORT AGGREGAT ING TO RS.50,91,206/- TO THE SIX PARTIES ON WHICH TAX WAS DEDUCTIBLE BY THE ASSESSEE AT SOURCE. HE NOTED IN THIS CONTEXT THAT THE PAYMENT OF SUCH FREIGHT CHARGES WA S NOT DIRECTLY MADE BY THE ASSESSEE TO AIRLINES BUT THE SAME WAS MADE TO DIFFE RENT PARTIES WHO ACTED AS FREIGHT BOOKING AGENT. HE ALSO NOTED THAT THE SAID PARTIES HAD ALSO NOT FURNISHED ANY CERTIFICATE ISSUED U/S 197 FOR NO DEDUCTION OF TAX AT SOURCE. ACCORDINGLY THE FREIGHT CHARGES PAID TO THE SAID PARTIES FOR AIR FARE/ROAD TRANSPORT AMOUNTING TO RS.50,91,206/- WAS DISALLOWED BY THE AO U/S 40(A)(I A) IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 23-12-2008 . 5. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS FILED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE DETAILS AND DOC UMENTS FURNISHED BY THE ASSESSEE, THE LEARNED CIT(APPEALS) DELETED THE DISA LLOWANCE OF RS.50,91,541/- MADE BY THE AO U/S 40(A)(IA) FOR THE FOLLOWING REAS ONS GIVEN IN PARAGRAPH NO. 1.4 OF HIS IMPUGNED ORDER : I HAVE CONSIDERED THE FACTS OF THIS CASE AND THE SUBMISSIONS MADE. THE INCOME OF NON RESIDENT SHIPPING COMPANIES AND NON R ESIDENT AIRLINES COMPANIES IS COVERED BY SPECIAL PROVISIONS OF SECTI ON 44B AND SECTION 44BBA OF THE INCOME TAX ACT, 1961, RESPECTIVELY. SE CTION 44BBA WAS INSERTED LATER. THE CIRCULAR WAS ISSUED BY THE CBDT WHICH COVERED SHIPPING COMPANIES SINCE AT THAT TIME ONLY SECTION 44B WAS I N FORCE. THE PRINCIPLES GOVERNING NON RESIDENTS SHIPPING COMPANIES AND NON RESIDENT AIRLINES COMPANIES ARE THE SAME AND THEREFORE THE CIRCULAR I N MY OPINION SHOULD EQUALLY APPLY TO THE PAYMENTS MADE TO THE NON RESID ENTS AIRLINES 5 ITA NO.5361/MUM/2009 COMPANIES. MOREOVER THE DOUBLE TAXATION AVOIDANCE A GREEMENTS ALSO COVERS THIS ASPECT BY A SPECIFIC ARTICLE IN MOST OF THE TREATIES WHICH INDIAN HAS ENTERED INTO WITH VARIOUS COUNTRIES. THE DETAIL S OF SUCH FREIGHT PAID BY THE APPELLANT ARE AS UNDER : DETAILS OF FREIGHT PAID A/C. SR. NO. NAME OF PARTY AMOUNT TYPE OF BILLS PAYMENT MADE COUNTRY 1 AIRSHIP SERVICES (I) PVT. LTD. 3,777,462.00 AIR WAY BILL SINGAPORE AIRLINES CARGO SINGAPORE EXEMPT UNDER ARTICLE 8 OF DTAA AIR WAY BILL EMIRATES SKY CARGO U.A.E. EXEMPT UNDER ARTICLE 8 OF DTAA AIR WAY BILL SWISS WORLD CARGO SWITZERLAND EXEMPT UNDER ARTICLE 8 OF DTAA AIR WAY BILL GULF AIR COMPANY G.S.C. BAHRAIN EXEMPT UNDER ARTICLE 8 OF DTAA 2 CITY TRANSPORT SYNDICATE PVT. LTD. 549,834.00 SHIPPING BILL CITY TRANSPORT SYNDICATE PVT. LTD. DOHA/QATAR EXEMPT UNDER CIRCULAR SHIPPING BILL PEE EXPRESS LTD. LONDON UK EXEMPT UNDER CIRCULAR. 3 AROSCAN CARGO TRADE PVT. LTD. 497,840.00 AIR WAY BILL GULF AIR COMPANY G.S.C. BAHRAIN EXEMPT UNDER ARTICLES 8 OF DTAA. AIR WAY BILL SINGAPORE AIRLINES CARGO SINGAPORE EXEMPT UNDER ARTICLES 6 ITA NO.5361/MUM/2009 8 OF DTAA. AIR WAY BILL AIRWAYS U.A.E. EXEMPT UNDER ARTICLES 8 OF DTAA 4 DHL EXPRESS (I) PVT. LTD. 63,096.34 AIR WAY BILL DHL EXPRESS CARGO CHINA EXEMPT UNDER ARTICLES 8 OF DTAA 5 OXM 115,324.00 OCTROI BILL KESAR OCTROI SERVICES NO TDS ON OCTROI 6 DELUX ROADWAYS 87,985.00 OCTROI BILL SATGURU OCTROI SERVICE NO TDS ON OCTROI. TOTAL 5,091,541.34 CONSIDERING THIS LEGAL POSITION AND ALSO THE DECISI ON OF DELHI HIGH COURT CITED BY THE APPELLANT, I FIND NO REASON TO D ISALLOW THE FREIGHT PAYMENT ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE. THE A PPELLANT HAS IN A TABULAR FORM GIVEN AS TO HOW EACH OF THE PAYMENT IS NOT TO BE SUBJECTED TO THE TDS. I AM IN AGREEMENT WITH THE CONTENTIONS OF THE APPEL LANT IN HIS WRITTEN SUBMISSIONS AND ACCORDINGLY DELETE THE DISALLOWANCE OF RS.50,91,541.34. THIS GROUND OF APPEAL IS ALLOWED. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS RIGHTLY SUBMITTED BY THE LEA RNED DR, ONE OF THE REASONS GIVEN BY THE AO FOR MAKING DISALLOWANCE U/S 40(A)(I A) WAS THAT THE PAYMENT OF FREIGHT CHARGES WAS MADE BY THE ASSESSEE ON ACCOUNT OF AIR FARE AND NOT SHIPPING CHARGES AND EVEN THE SAID AIR FARE WAS NOT DIRECTLY PAID TO THE AIRLINES BUT THE SAME WAS PAID TO THE DIFFERENT PARTIES WHO ACTED AS FREI GHT BOOKING AGENTS. AS PER THE DETAILS FURNISHED BY THE ASSESSEE FOR THE FIST TIME BEFORE THE LEARNED CIT(APPEALS), THE SAID PAYMENT, HOWEVER, WAS SHOWN TO BE MADE IN SOME CASES DIRECTLY TO THE 7 ITA NO.5361/MUM/2009 AIRLINES AND ALL THESE PAYMENTS WERE HELD TO BE EXE MPT BY THE LEARNED CIT(APPEALS) RELYING ON ARTICLE 8 OF THE DOUBLE TAX AVOIDANCE TREATY AS WELL AS IN SOME CASES RELYING ON THE CBDT CIRCULAR. HE, HOW EVER, HAS NOT GIVEN ANY REASON OR BASIS TO SHOW AS TO HOW THE SAID PAYMENTS WERE EXEMPT EITHER UNDER THE RELEVANT TAX TREATIES OR UNDER THE BOARDS CIRCULAR . NO OPPORTUNITY WAS ALSO GIVEN BY HIM TO THE AO TO EXAMINE THE VARIOUS DETAILS AND DOCUMENTS FILED BY THE ASSESSEE FOR THE FIRST TIME BEFORE HIM BEFORE GIVIN G RELIEF TO THE ASSESSEE RELYING ON THE SAID DETAILS AND DOCUMENTS. AS RIGHTLY SUBMITTE D BY THE LEARNED DR, THE PAYMENTS WERE MADE TO DIFFERENT PARTIES FROM DIFFER ENT COUNTRIES AND THE APPLICABILITY OF ARTICLE 8 IN CASE OF EACH PARTY WA S REQUIRED TO BE EXAMINED IN THE LIGHT OF DIFFERENT TREATIES APPLICABLE TO THE RESPE CTIVE PARTY. ON PAGE NO. 3 OF HIS IMPUGNED ORDER, THE LEARNED CIT(APPEALS) HAS ALSO N OTED THE SUBMISSION OF THE ASSESSEE OF HAVING ENCLOSED IN SOME CASES CERTIFICA TES ISSUED U/S 197 FOR NON DEDUCTION OF TAX BY THE DEPARTMENT WHICH AGAIN IS C ONTRARY TO THE FINDING GIVEN BY THE AO ON PAGE NO. 4 OF THE ASSESSMENT ORDER THAT N O CERTIFICATE FOR NON DEDUCTION OF TAX AT SOURCE ISSUED U/S 197 WAS FURNISHED BY AN Y OF THE SIX PARTIES TO WHOM FREIGHT CHARGES WERE PAID BY THE ASSESSEE. HAVING R EGARD TO ALL THESE FACTS OF THE CASE, WE CONSIDER IT FAIR AND PROPER AND IN THE INT EREST OF JUSTICE TO SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING R ELIEF TO THE ASSESSEE ON THE ISSUE UNDER CONSIDERATION AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH AFTER TAKING INTO CONSIDERATION THE DETAILS AND DOCUMENTS FURNISHED BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE LEARN ED CIT(APPEALS). NEEDLESS TO OBSERVE THAT THE AO SHALL AFFORD PROPER AND SUFFICI ENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE DECIDING THIS ISSUE IN THE SET ASIDE PROCEEDINGS. 8 ITA NO.5361/MUM/2009 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS TREA TED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 30 TH DAY OF MARCH, 2012. SD/- S D/- (N.V.VASUDEVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI, DATED: 30 TH MARCH, 2012. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, L-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI.