Steelco Gujarat Ltd., Vadodara V. The ACIT.,Circle-4, Vadodara

ITA 948/AHD/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9367 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 17-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 16-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD TANWANI HEARING CONCLUDE
• Assessee Lawyers: S N SOPARKAR
• Keywords: Recovery proceedings; Residential status
• Section: 143(3); 194C

Judgement Text

I.T.A. NO. 94 8 /AHD/201 5 ASSESSMENT Y EAR: 20 0 9 - 10 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND RAJPAL YADAV JM] I.T.A. NO. 94 8 /AHD/201 5 ASSESSMENT Y EAR : 20 0 9 - 10 STEELCO GUJARAT LIMITED ... ........... . APPELLANT 4 TH FLOOR, MARBLE ARCH, RACE COUR SE CIRCLE, VADODARA 390 007. [PAN: AADCS 0880 L ] VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE - 4, VADODARA. ..... ............ RESPONDENT APPEARANCES BY S.N. SOPARKAR & URVASHI SHODHAN FOR THE APPELLANT VINOD TANWANI FOR THE RESPONDEN T HEARING CONCLUDED ON: 1 8 / 0 1 / 20 17 ORDER PRONOUNCED ON : 20 / 0 1 / 20 1 7 O R D E R PER PRAMOD KUMAR , AM: 1. BY WAY OF THIS APPEAL THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 28.11.2014 PASSED BY THE LD. CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1 961 FOR THE ASSESSMENT YEAR 2009 - 10 , ON THE FOLLOWING GROUNDS: - THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 2 VADODARA HAS ERRED IN LAW AND IN FACTS IN CONFIRMING T HE ACTION OF THE LD . AS SESSING OFFICER IN THE DISALLOWANCE OF RS. 4,19,00,264/ - INV OKING THE PROVISIONS OF SEC. 40 (A)(IA) BEING THE PAYMENT MADE TOWARDS SEA FREIGHT EXPRESSES IGNORING THE PROVISIONS CONTAINED IN SEC 172 AND CBDT CIRCULAR NO.723 DATED 19.09.1995 . THE CLAIM OF THE APPELLANT BE ALLOWED AS MADE. I.T.A. NO. 94 8 /AHD/201 5 ASSESSMENT Y EAR: 20 0 9 - 10 PAGE 2 OF 6 3. THIS APPEAL WAS HEARD ALONG WITH ITA NO. 947 /AHD/201 5 I.E. APPEAL FILED BY THE SAME APPELLANT IN THE MATTER OF THE SAME ASSESSEE FOR THE ASSESSMENT YEAR 200 8 - 09 . LEARNED REPRESENTATIVES HAVE SUBMITTED THAT WHATEVER WE DECIDE IN THIS APPEAL WILL APPLY MUTATIS MUTANDIS ON THIS APPEAL AS WELL. 4. VIDE OUR ORDER OF EVEN DATE, WHILE ALLOWING THE SAID APPEAL FOR STATISTICAL PURPOSES , WE HAVE OBSERVED AS FOLLOWS: 2. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS , THE A SSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MADE PAYMENTS IN RESPECT OF FREIGHT AGGREGATING TO RS.7,88,50,812/ - WITHOUT DEDUCTION OF TAX AT SOURCE. IT WAS FOR THIS REASON THAT THE AFORESAID AMO UNT OF RS.7,88,50,812/ - WAS DISALLOWED UNDER SECTION 40 (A)(IA) OF THE ACT. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). IT WAS POINTED OUT B Y THE ASSESSEE THAT THESE PAYMENTS WERE MADE IN RESPECT OF FREIGHT AND THAT IN TERMS OF C IRCULAR N O . 723 THE PROVISION S OF SECTION 194C AND 195 WERE NOT APPLICABLE ON THE SAME. LD. CIT(A) , HOWEVER , WAS NOT SWAYED BY THESE SUBMISSIONS. HE UPHELD THE ACTION OF THE A SSESSING OFFICER AND OBSERVED AS FOLLOWS : - 4.3 I HAVE CONSIDERED THE FACTS O F THE CASE, THE AO'S OBSERVATIONS AND THE SUBMISSION MADE BY THE APPELLANT. BASED UPON THE PROVISIONS OF SECTION 172 AND CLARIFICATION ISSUED BY THE CBDT VIDE CIRCULAR NO.723 DATED 19.09.1995, THE APPELLANT'S CLAIM THAT IF PAYMENTS ARE MADE TO VARIOUS SHIP PING COMPANIES WHO ARE NON - RESIDENT OR TO THE AGENTS OF NONRESIDENT SHIPPING COMPANIES FOR EXPORT FOR PRODUCT, THEN, PROVISIONS OF SECTION 194C AND 195 ARE NOT APPLICABLE, IS CORRECT. THE APPELLANT HAS CLAIMED ACCORDINGLY THAT IT WAS UNDER NO OBLIGATION TO DEDUCT TDS FOR SUCH PAYMENTS AND HENCE, NO DISALLOWANCE U/S 40(A)(IA) OF THE I . T . ACT COULD HAVE BEEN MADE. THE APPELLANT HAS ALSO RELIED UPON THE JUDICIAL PRONOUNCEMENTS TO THIS EFFECT. THE APPELLANT HAS RELIED UPON THE DECISION OF ITAT AHMEDABAD IN THE CASE OF HARSH GEO CHEM LTD. IN ITA NO. 1948/AHD/2009. IN THIS DECISION, THE ITAT HAS STATED THAT IT IS AN ADMITTED FACT THAT THE ASSESSEE HAD MADE PAYMENTS TO THREE NRI SHIPPING COMPANIES OR THEIR AGENTS. BASED UPON THIS FINDING, THE ITAT HELD THAT THE PRO VISIONS OF SECTION 194C AND 195 OF THE IT ACT, 1961 WERE NOT APPLICABLE IN THAT CASE. ACCORDINGLY , RELYING UPON THE CIRCULAR NO. 723, THE DISALLOWANCE MADE BY THE AO OF SUCH PAYMENTS WAS DELETED. BUT, IN THIS DECISION THERE IS NO FACT ON RECORD TO SHOW THA T WHETHER THE APPLICABILITY OF THE PROVISIONS OF SECTION 172 OF THE ACT ON PERSONS TO WHOM PAYMENTS HAVE BEEN MADE HAD BEEN ASCERTAINED OR NOT AND THIS FACT HAS NEITHER BEEN DISCUSSED BY THE AO OR CIT (A) OR THE ITAT IN ITS ORDER, AS IS APPARENT FROM THE O RDER OF THE ITAT. IN THIS REGARD, IT IS SEEN THAT I.T.A. NO. 94 8 /AHD/201 5 ASSESSMENT Y EAR: 20 0 9 - 10 PAGE 3 OF 6 THE ITAT MUMBAI BENCH IN ITS RECENT DECISION IN THE CASE OF RAJ GIRISH KARIA 48 TAXMANN.COM 175 (MUM - TRIB) HAS EXAMINED THE PROVISIONS OF SECTION 195 AND SECTION 172 AND ALSO CIRCULAR NO.723 OF THE CBDT. THE ASSESSEE IN THAT CASE HAD ALSO OBTAINED CERTIFICATE FROM THE SHIPPING AGENTS OF THE NONRESIDENT SHIPPING COMPANY. AFTER CONSIDERING ALL THESE FACTS, THE TRIBUNAL HELD AS FOLLOWS: '6. A CAREFUL PERUSAL OF THE CIRCULAR NO.172 ISSUED BY THE CBDT (SUPRA ) WOULD SHOW THAT THE CBDT HAS MADE IT CLEAR THAT THE PROVISIONS OF SEC.194C AND 195 RELATING TO TAX DEDUCTION AT SOURCE WILL NOT APPLY TO THE PAYMENTS MADE TO NON - RESIDENT SHIPPING COMPANIES ONLY IF THEIR INCOME IS ASSESSED U/S . 172 OF THE ACT. HENCE, IN OUR VIEW, THE ASSESSEE HAS TO SHOW THAT THE SHIPPING COMPANIES TO WHOM PAYMENTS WERE MADE ARE NOT ONLY NON - RESIDENTS, BUT ALSO HE HAS TO SHOW THEY WERE ASSESSED U/S 172 OF THE ACT. ONLY IF THE ASSESSEE IS ABLE TO PROVE THE ABOVE FACTS, THEN HE WILL BE RELI EVED OF FROM THE LIABILITY TO DEDUCT TAX AT SOURCE FROM THE PAYMENTS MADE TO THEM TOWARDS FREIGHT AND INSURANCE CHARGES. IN THIS CONNECTION, WE MAY STATE THAT THE LEGAL POSITION WILL NOT CHANGE IF THE PAYMENTS TO THE NON - RESIDENT SHIPPING COMPANIES ARE MAD E THROUGH THEIR INDIAN AGENTS ALSO. HOWEVER, WE NOTICE THAT THE LD . CIT(A) WAS CARRIED AWAY BY THE RESIDENTIAL STATUS OF THE AGENTS AND ACCORDINGLY DELETED THE ADDITION RELATING TO THE PAYMENTS MADE TO NON - RESIDENTS AND CONFIRMED THE PAYMENTS MADE TO THE RESIDENTS. IN OUR VIEW, THE CRITERIA FOLLOWED BY THE LD . CIT(A) IS NOT IN ACCORDANCE WITH THE LEGAL PROVISIONS, WHICH HAS BEEN EXPLAINED IN THE CIRCULAR OF THE CBDT.' 4.3.1. ACCORDINGLY, THE AR IN THE PRESENT CASE WAS ASKED ABOUT THE FACTS OF ASSESSMENT OF SUCH NONRESIDENT SHIPPING COMPANIES AS PER THE PROVISIONS OF SECTION 172 OF THE IT ACT, 1961. THE AR, VIDE ORDER SHEET NOTING DATED 26 . 11.2014 STATED THAT FURTHER EVIDENCE REGARDING ASSESSMENT OF RECIPIENTS OF THE PAYMENTS U/S 172 OF THE ACT IS NOT AVAI LABLE WITH THE APPELLANT AND PRESENTLY IT CANNOT BE FURNISHED BY IT. 4.4. THE ALLOWABILITY OF SUCH PAYMENTS MADE BY THE ASSESSEE IS TO BE DECIDED IN THE LIGHT OF THE DISCUSSIONS MADE ABOVE. IN MAJORITY OF THE CASES, THE APPELLANT HAS ONLY FURNISHED COPY O F LEDGER ACCOUNTS CONTAINING PARTICULARS OF INVOICES AND CHARGES PAID FOR EXPORT OF GOODS BY SEA. IN CASES COPIES OF INVOICES HAVE ALSO BEEN FURNISHED AND IN FEW CASES SOME CASES COPIES OF INVOICES HAVE ALSO BEEN FURNISHED AND IN FEW CASES THE CERTIFICATE FURNISHED BY THE AGENTS OF THE SHIPPING COMPANIES HAVE ALSO BEEN FURNISHED. BUT, IN THE ABSENCE OF THE DETAIL REGARDING ASSESSMENT OF SUCH RECIPIENTS AS PER THE PROVISION OF SECTION 172, THE PAYMENTS MADE BY THE APPELLANT CANNOT BE ALLOWED AS A DEDUCTION IN THE I.T.A. NO. 94 8 /AHD/201 5 ASSESSMENT Y EAR: 20 0 9 - 10 PAGE 4 OF 6 COMPUTATION OF ITS INCOME. ACCORDINGLY, THE ACTION OF THE AO IS UPHELD AND THIS GROUND OF APPEAL IS DISMISSED. 3. THE ASSESSEE IS AGGRIEVED AND IS IN FURTHER APPEAL BEFORE US. 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 WITH TAX DEDUCTION AT SOURCE FROM PAYMENTS MADE TO THE FOREIGN SHIPPING COMPA NIES OR THEIR AGENTS. 2. SECTION 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 PORT 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 17 2 IS A SELF - CONTAINED CODE FOR THE 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 CONTAINED 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 F ROM 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 REF ERRED 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, I.T.A. NO. 94 8 /AHD/201 5 ASSESSMENT Y EAR: 20 0 9 - 10 PAGE 5 OF 6 SECTION 172 OPERATES IN THE AREA OF COMPUTATION OF PROFITS FROM SHIPPING 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 CHA RTERERS FOR CARRIAGE OF PASSENGERS 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 SEC TIONS 194C AND 195 WILL NOT APPLY. 6. IN VIEW OF THE ABOVE C IRCULAR , AS LONG A S 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 HAS BEEN CONSIDERATE ENOUGH TO REALIZE THAT THERE IS A STRONG AND EFFECTIVE MECHANISM FOR RECOVERING TAX DUE S IN RESPECT OF INCOME EMBEDDED IN FREIGHT PAYMENT MADE TO THE NON - RESIDENT SHIPPING CO MPANY . T HE SCHEME OF SECTION 172 PERMITS A VESSEL OWNED BY NON - RESIDENT OWNER OR CHARTERER TO LEAVE INDIAN PORT ONLY UPON TAKING CARE OF DUES OF INDIA N AUTHORITIES IN RESPECT OF TAX ON INCOME EMBEDDED IN FREIGHT RECEIPTS. IT IS ALSO ELEMENTARY THAT UNDER SECTION 119 OF THE ACT THE CB DT HAS THE POWERS TO RELAX RIGOR OF LAW IN APPROPRIATE CASE S 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 PROVIS ION S BY THE VIRTUE OF A CBDT C IRCULAR , SUCH PERMITTED DEVIATION S ARE TO BE DULY RESPECTED AND HONOURED BY THE FIELD AUTHORITIES. IN VIEW OF TH IS ANALYSIS, WHEN WE GO THROUGH THE C IRCULAR NO . 723 (SUPRA) WE FIND THAT IT IS A CONSCIOUS DECISION OF THE B OARD THAT SECTION 194C AND 195 WILL NOT APPLY TO THE SITUATIONS WHICH AR E COVERED BY SECTION 172 . I N CASE OF A SHIP OWNED OR CHAR TERED BY NON - RESIDENT COMPANY , PROVISION S OF SECTION 172 UNDISPUTEDLY COME INTO PLAY. ACCORDINGLY, AS LONG AS THE SHIP , IN RESPECT OF WHICH FREIGHT PAYMENTS ARE MADE , IS OWNED OR CHARTERED BY NON - RESIDENT OR ENTITY WHICH IS WHERE PROVISIONS OF SECTION 172 ARE APPLICABLE , T HE PROVISIONS OF SECTION 195 OR 194 C CANNOT BE INVOKED. UPON OUR CAREFUL PERUSAL OF THE AFORESAID B OARD C IRCULAR , WE ARE UNABLE TO FIND ANY REFERENCE TO SUGGEST THAT THIS RELA XATION 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 S T AND OF THE CIT (A) . W E ARE OF THE 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 O R SECTION 194C. HOWEVER, IN THE PRESENT CASE , IT APPEARS THAT COMPLETE DETAILS OF INVOICES TO THE SATISFACTION OF THE A SSESSING OFFICER HAVE NOT BEEN FURNISHED BEFORE THE A SSESSING OFFICER O R BEFORE THE CIT ( A ) ALSO. THERE IS AT BEST PARTIAL COMPLIANCE OF THIS REQUIREMENT. IN VIEW OF THESE 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 A SSESSING OFFICER WITH THE I.T.A. NO. 94 8 /AHD/201 5 ASSESSMENT Y EAR: 20 0 9 - 10 PAGE 6 OF 6 DIRECTION THAT AS LONG AS THE ASSESSEE CAN DEMONS TRATE THAT THE PAYMENT IS MADE TO A NON - RESIDENT DIRECTLY OR THROUGH AUTHORIZED AGENTS AND THE PAYMENT IS IN RESPECT OF THE FREIGHT , THE A SSESSING 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 REPETITION 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 ADJUDICATE D UPON ABOVE, REMAIN OPEN. WITH THESE DIRECTIONS, MATTER STANDS RESTORED TO THE A SSESSING OFFICER . 5. WE SEE NO REASON S TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US. 6. RESPECTFULLY FOLLOWING THE DECISION SO TAKEN BY US, WE ALLOW THI S APPEAL AS WELL FOR STATISTICAL PURPOSES . 7 . IN THE RESULT, APPEAL IS ALLO WED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF JANUARY, 2017 . SD/ - SD/ - RAJPAL YADAV PRAMOD KUMAR (JUDI CIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 20 TH DAY OF JANUARY, 201 7 . PBN/* COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR I NCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD