M/s Anand Engineers, Chandigarh V. ACIT, Chandigarh

ITA 718/CHANDI/2014

• Counselvise Citation: 71821514 RSA 2014
• Duration Of Justice: 1 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 11-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS MEENAKSHI VOHRA
• Assessee Lawyers: A K SOOD
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.718 /CHD/2014 (ASSESSMENT YEAR : 2007-08) M/S ANAND ENGINEERS, VS. THE A.C.I.T., 242, INDL. AREA, PHASE-I, CIRCLE 2(1), CHANDIGARH. CHANDIGARH. PAN: AAJFA6288M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.K. SOOD RESPONDENT BY : MRS.MEENAKSHI VOHRA, DR DATE OF HEARING : 19.10.2015 DATE OF PRONOUNCEMENT : 28.12.2015 O R D E R PER RANO JAIN, A.M . : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INC OME TAX (APPEALS), CHANDIGARH DATED 30.5.2014 FOR ASSESSMENT YEAR 2007-08. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED AN A MOUNT OF RS.18,61,473/- BEING FREIGHT AND FORWARDING CHAR GES BEYOND AND UPTO CUSTOMS. THE ASSESSING OFFICER DU RING THE ASSESSMENT PROCEEDINGS NOTED THAT OUT OF THESE 2 EXPENSES OF RS.18,61,473/-, AN AMOUNT OF RS.4,42,57 0/- WAS CLAIMED AS INLAND HAULAGE AND AN AMOUNT OF RS.1,39,000/- AS TRANSPORTATION CHARGES. ON QUESTI ONING ABOUT THE TDS ON THESE EXPENSES, THE ASSESSEE REPLI ED THAT THE TAX IS NOT DEDUCTIBLE UNDER SECTION 194C O R 195 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) BE ING PAYMENTS TO INDIAN AGENTS OF NON-RESIDENT SHIPPING COMPANIES. MOREOVER, EVEN IF THE PAYMENT IS MADE T O AN AGENT OF SMALL ELEMENT OF THE AMOUNT, THAT ULTIMATE LY BE GOING INTO THE POCKET OF RESIDENT AGENT OR ANY OTHE R ON ACCOUNT OF DEMURRAGE OR HANDLING CHARGE OR ANY AMOU NT OF SIMILAR NATURE, IT WOULD BE COVERED BY SECTION 172( 8) OF THE ACT IN AS MUCH AS CIRCULAR NO.723 DOES NOT DRAW ANY DISTINCTION BETWEEN A DRY PORT AND A SEA PORT. THU S, THE INLAND HAULAGE CHARGES ARE ALSO COVERED UNDER THIS PROVISION OF LAW. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE ASSESSING OFFICER HELD THAT THE PAYME NT OF OCEAN FREIGHT WAS COVERED BY THE PROVISION OF SECTI ON 172 OF THE ACT, BUT THE INLAND HAULAGE AND TRANSPORT CH ARGES PAID TO S.N. LOGISTICS (P) LTD. WERE NEITHER COVERE D BY SECTION 172 OF THE ACT, NOR BY CIRCULAR NO.173 AND SO TAX SHOULD HAVE BEEN DEDUCTED AT SOURCE ON THE AMOUNT O F RS.5,81,570/- (RS.4,42,570/- + RS.1,39,000/-) AND ACCORDINGLY, MADE AN ADDITION OF RS.5,81,570/- INVO KING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 3 3. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER AND FURTHER RELIED UPON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF M/S CONTINENTAL CARRIERS (P) LTD., 163 TAXMANN 479. THE LEARNED CIT (APPEALS), HOWEVER, WAS OF THE VIEW THAT THE PAYMENT WAS MADE BY THE ASSESSEE TO M/S S.N.LOGISTICS (P) LTD., WHO IS NOT THE DIRECT AGENT OF NON-RESIDENT SHIPPING COMPANY AND S O CIRCULAR NO.723 IS NOT APPLICABLE. THE LEARNED CIT (APPEALS) FURTHER DISTINGUISHED THE JUDGMENT OF DEL HI HIGH COURT IN THE CASE OF M/S CONTINENTAL CARRIERS (P) LTD. (SUPRA), RELIED UPON BY THE ASSESSEE, AS IN THAT CA SE THE PAYMENTS WERE MADE TO DIRECT AGENTS OF THE NON-RESI DENT SHIPPING COMPANY. SINCE M/S S.N. LOGISTICS (P) LTD . IS NOT A DIRECT AGENT OF THE NON-RESIDENT SHIPPING COM PANY, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS CONFIRMED BY THE LEARNED CIT (APPEALS). 4. AGGRIEVED BY THE SAID ACTION OF THE LEARNED CIT (APPEALS), THE ASSESSEE HAS COME UP IN APPEAL BEFOR E US, RAISING THE FOLLOWING GROUNDS OF APPEAL : 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) A RE CONTRARY TO LAW AND THE FACTS OF THE APPELLANT'S CA SE BY UPHOLDING THE ADDITIONS MADE BY THE LD AO. 2. THAT THE LD COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE ADDITIONS OF RS 5.81,570/- MA DE U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961 FOR NON 4 DEDUCTION OF TAX AT SOURCE U/S 194 C ON ACCOUNT OF AMOUNTS PAID TO M /S S.N. LOGISTICS PRIVATE LIMITED RS 4,42,570/- PAID ON ACCOUNT OF INLAND HAULAGE AND RS.1,3,9000/- PAID ON ACCOUNT OF TRANSPORTATION CHARGES DESPITE THE FACT THAT THE SAID AMOUNTS ARE N OT COVERED BY THE PROVISIONS OF SECTION 40(A)(IA) AS T HE TRANSACTIONS FALLS WITHIN THE PROVISIONS OF SECTION 172 AND CIRCULAR: NO. 723, DATED 19-9-1995 ISSUED BY THE CB DT WHICH STATES AS UNDER ; SINCE, THE AGENT ACTS ON BEHALF OF THE NON-RESIDENT SHIP-OWNER OR CHARTERER, HE STEPS INTO THE SHOES OF THE PRINCIPAL. ACCORDINGLY, PROVISIONS OF SECTION 172 S HALL APPLY AND THOSE OF SECTIONS 194C AND 195 WILL NOT APPLY'. 3. FOR THESE AND OTHER REASONS THAT MAY BE URGED AT THE TIME OF HEARING THE APPELLANT PRAYS FOR RELIEF. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE AMOUNT OF RS.5,81,570/- INCLUDES A SUM OF RS.4,42,570/- PAID ON ACCOUNT OF INLAND HAUL AGE CHARGES ON ELEVEN BILLS/CONSIGNMENTS RELATING TO RA ILWAY FARE FOR TRANSPORTING GOODS FROM ICDTLD/NEW DELHI T O PORT OF LOADING, MUMBAI AND RS.1,39,000/- ON ACCOUN T OF FREIGHT PAID ON THESE ELEVEN BILLS/CONSIGNMENTS ON ACCOUNT OF TRANSPORTATION CHARGES FOR TRANSPORTING GOODS FROM THE FACTORY PREMISES TO RAILWAY HEAD. A READI NG OF SECTION 172 OF THE ACT, SPECIFICALLY SUB-SECTION (8 ) WAS MADE AND AGAIN RELYING ON THE CBDT CIRCULAR NO.723, DATED 19.9.1995, IT WAS SUBMITTED THAT THE CIRCULAR MAKES IT ABSOLUTELY CLEAR THAT WHERE THE PROVISIONS OF SE CTION 172 OF THE ACT ARE APPLICABLE, THE PROVISIONS OF SE CTIONS 194C AND 195 OF THE ACT ARE NOT APPLICABLE. TH E INLAND 5 HAULAGE CHARGES PAID TO PORT AUTHORITIES AND TRANSPORTATION CHARGES ARE COVERED UNDER SUB-SECTIO N (8) TO SECTION 172 OF THE ACT AS PAYMENTS ARE MADE TO M /S S.N. LOGISTICS (P) LTD., WHO ARE AGENTS OF NON-RESI DENT SHIPPING COMPANY. FURTHER, IT WAS STATED THAT THE ASSESSING OFFICER HAS TAKEN A CONTRADICTORY STAND B Y TREATING M/S S.N. LOGISTICS (P) LTD. AS AGENT FOR T HE PURPOSES OF PAYMENT OF OCEAN FREIGHT AND OTHER EXPE NSES AND ON THE OTHER HAND, NOT TREATING IT AS A DIRECT AGENT FOR THE PURPOSES OF PAYMENT OF INLAND HAULAGE AND TRANSPORTATION CHARGES. RELIANCE WAS PLACED ON THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF M/S CONTINENTAL CARRIERS (SUPRA) AND CHANDIGARH BENCH O F THE I.T.A.T. IN THE CASE OF ITO VS. BHOGAL EXPORTS, IT A NO.1218/CHD/2011. 6. THE LEARNED D.R. RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT SINCE M/S S.N. LOGISTICS (P) LTD., NOT BEING A DIRECT AGENT O F NON- RESIDENT SHIPPING COMPANY, THE PROVISIONS OF SECTIO N 40(A)(IA) OF THE ACT ARE CLEARLY APPLICABLE TO THE PRESENT CASE. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE UNDISPUTED FACTS OF THE CASE ARE THAT AN AM OUNT OF 6 RS.5,81,570/-, CONSISTING OF RS.4,42,570/- ON ACCOU NT OF INLAND HAULAGE CHARGES AND AN AMOUNT OF RS.1,39,000 /- ON ACCOUNT OF TRANSPORTATION WERE PAID BY THE ASSES SEE TO M/S S.N. LOGISTICS (P) LTD. DURING THE YEAR UNDER CONSIDERATION. THE PROPOSITION LAID DOWN BY VARIOU S AUTHORITIES THAT SECTION 172 OF THE ACT BEING A COM PLETE CODE IN ITSELF, ANY PAYMENT REFERRED TO IN THIS SEC TION TO A NON-RESIDENT SHIPPING COMPANY IS NOT EXIGIBLE TO TH E PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, AS PROV ISIONS OF SECTIONS 194C AND 195 OF THE ACT ARE NOT APPLICABLE TO THE SAME, HAS NOT BEEN CONTROVERTED BY ANYONE, NEITHER BY ANY OF THE LOWER AUTHORITIES, NOR BY THE LEARNED D. R. DURING THE COURSE OF ARGUMENTS. FURTHER, AS A CLARIFICATION, CBDT, VIDE ITS CIRCULAR NO.723, DATE D 19.9.1995, HAS INSTRUCTED ALL ITS OFFICERS TO EXTEN D THE BENEFIT OF PAYMENTS UNDER SECTION 172 OF THE ACT, M ADE ALSO TO THE AGENTS OF THE NON-RESIDENT SHIPPING COM PANY, AS REFERRED TO IN THIS SECTION. THE CIRCULAR READS AS UNDER: 5. THERE WOULD, HOWEVER, BE CASES WHERE PAYMENTS A RE 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-R ESIDENT SHIP-OWNER OR CHARTERER, HE STEPS INTO THE SHOES OF T HE PRINCIPAL. ACCORDINGLY, PROVISIONS OF SECTION 172 SHA LL APPLY AND THOSE OF SECTIONS 194C AND 195 WILL NOT APPLY. 8. BEFORE PROCEEDING FURTHER WE MUST CLARIFY THAT 7 EVEN THE CONTENTS OF CIRCULAR HAVE NOT BEEN CONTROV ERTED BY ANY LOWER AUTHORITIES. THE ONLY ISSUE IS WHETHE R THE RELAXATION PROVIDED BY THE AFORESAID CIRCULAR CAN B E EXTENDED TO THE PAYMENTS MADE TO THOSE PERSONS WHO ARE NOT THE DIRECT AGENTS OF THE NON-RESIDENT SHIPPING COMPANY. 9. FROM THE PERUSAL OF HER ORDER, IT IS QUITE CLEA R THAT THE ASSESSING OFFICER HAS NOT DISPUTED THE NAT URE OF THE PAYMENTS, I.E. INLAND HAULAGE CHARGES AND TRANSPORTATION CHARGES. THIS FACT HAS ALSO NOT BEE N CONTROVERTED THAT THESE PAYMENTS ARE ULTIMATELY GOI NG TO THE NON-RESIDENT SHIPPING COMPANY. THIS IS ALSO A FACT ON RECORD THAT THE ASSESSING OFFICER HERSELF HAS CONSI DERED M/S S.N. LOGISTICS (P) LTD. AN AGENT OF THE NON-RES IDENT SHIPPING COMPANY FOR THE PURPOSES OF PAYMENT OF OCE AN FREIGHT AND OTHER EXPENSES. IN THIS BACKGROUND, WE SEE FROM THE LANGUAGE OF THE CIRCULAR THAT THIS IS IN O RDER TO REMOVE THE COMPLICATION ARISING OUT OF TDS BEING DEDUCTED OUT OF PAYMENT TO AGENTS OF SUCH NONRESID ENT SHIPPING COMPANY, IN VIEW OF THE FACT THAT THE SAID ENTITIES ARE NOT EXIGIBLE TO TAX ON THESE PAYMENTS IN TERMS OF SECTION 172 OF THE ACT. THE WORDS USED ARE HE STEPS INTO THE SHOES OF THE PRINCIPAL. KEEPING THIS IN MIND WE ARE OF THE VIEW THAT THE NATURE OF THE EXPENDITURE AND ULTIMATE RECEIVER OF THE PAYMENT ARE THE TWO MOST IMPORTANT FACTORS TO DECIDE THE ISSUE. NEITHER THE NATURE NOR THE ULTIMATE RECIPIENT HAVE BEEN CONTROVERTED I N THIS 8 CASE. THEREFORE, WE ARE OF THE OPINION THAT THE PR OVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT APPLICABLE IN THIS CASE, EVEN IF THE PAYMENT IS MADE TO A PERSON WHO I S NOT A DIRECT AGENT OF THE NON-RESIDENT SHIPPING COMPANY. THE CRUX BEING THAT IN ANY CASE THE PAYMENTS ARE IN THE NATURE OF TAX FREE INCOME IN THE HANDS OF ULTIMATE RECEIVER. 10. IN VIEW OF THE ABOVE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF DECEMBER, 2015. SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH DECEMBER, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH