Income Tax Appellate Tribunal - Amritsar
Rattan Brothers, Jalandhar City vs Assessee on 8 August, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR
(CAMP AT JALANDHAR)
BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND
SH. T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A No.392(Asr)/2015
Assessment Year: 2008-09
M/s. Rattan Brothers Vs. Addl. CIT, Range-I,
94, Gakhal Road, Jalandhar City.
Basti Danishmandan,
Jalandhar City.
PAN: AABFR2521A
(Appellant) (Respondent)
Appellant by: Sh. Sandeep Vijh (CA)
Respondent by: Sh. A.N. Misra (DR)
Date of hearing: 23.06.2016
Date of pronouncement: 08.08.2016
ORDER
PER T. S. KAPOOR (AM):
This is an appeal filed by assessee against the order of learned CIT(A), Jalandhar, dated 05.05.2015 for Asst. Year: 2008-09.
2. The assessee has taken the following grounds of appeal.
"(i) That the learned Commissioner of Income Tax (Appeals), has erred in sustaining the disallowance of Rs.45,100/- from out of Telephone expenses made @ 1/5th of the expense claimed. The submissions made have not been appreciated. At any rate the disallowance is highly excessive.
(ii) That the learned Commissioner of Income tax (Appeals), has erred in sustaining the disallowance of Rs.1,05,779/- and Rs.22,016/- u/s 40(a)(ia). The legal as well as the factual position on this issue has not been appreciated.
(iii) That the learned Commissioner of Income tax (Appeals) has erred in sustaining disallowance out of Car expenses, Car depreciation & Car Insurance @ 1/5th of these expenses. The disallowance made is highly excessive."2 ITA No.392 (Asr)/2015
Asst. Year: 2008-09
3. The brief facts of the case as noted in the assessment order are that the assessee is engaged in the business of manufacturing and export of sports goods. The case of the assessee was selected for scrutiny. During the assessment proceedings, the Assessing Officer disallowed 1/5th out of Telephone expenses and Car expenses. The Assessing Officer also made disallowance u/s 40(a)(ia) on payment paid to M/s Freight Link India amounting to Rs.1,05,779/- which was made by assessee as liaison charges. The Assessing Officer held that this expenses were in the incurred for providing professional services rendered by M/s Freight Link India and were nature of professional fees on which the assessee was required to deduct TDS and since assessee had not deducted TDS on such payment the disallowance u/s 40(a)(ia) was made. Similarly, the Assessing Officer made a disallowance u/s 40(a)(ia) on an amount of Rs.22,016/- which was paid by assessee to M/s Hira Printers. The Assessing Officer held that since the amount was paid for advertisement charges, therefore, assessee was required to deduct TDS which it had failed to deduct and therefore, he made a disallowance u/s 40(a)(ia).
4. Aggrieved the assessee filed appeal before learned CIT(A) and submitted various submissions. The learned CIT(A) upheld the disallowances made by Assessing Officer. However, in respect of disallowance out of Car expenses he directed the Assessing Officer to allow interest paid on Car Loan.
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Asst. Year: 2008-09
5. Aggrieved the assessee is in appeal before us.
6. The learned AR, at the outset, submitted that the disallowance out of Telephone expenses @ 1/5th of expenses was not warranted as the assessee was engaged in the manufacturing & exports of sports goods and the mobile phones and telephones installed at the residence of the partners were being used to communicate with the customers who are situated outside India.
7. Without prejudice it was submitted that the disallowance was on a higher side and cited a few cases to demonstrate that a nominal disallowance out of Telephone expenses was a reasonable disallowance. In view of the above, it was submitted that the disallowance may be deleted and alternatively a reasonable relief may be provided. Similar arguments were advanced in respect of disallowance out of Car expenses.
8. As regards the disallowance u/s 40(i)(ia), the learned AR submitted that the amount of Rs.1,05,779/- was paid to M/s Freight Link India as liaison/professional charges which were paid for getting export incentive released and therefore, the payee had rendered services which was not covered by the provisions of Section 194C. It was submitted that for treating a transaction as covered by provisions of section 194C the initial requirement was that it should represent "work" which was not the case in the present case. The learned AR relied on the decision of Hon'ble 4 ITA No.392 (Asr)/2015 Asst. Year: 2008-09 Madras High Court in the case of Madras Bar Association and Ors. vs. Central Board of Direct Taxes and Ors reported at 216 ITR 240, for the proposition that "the words' any work' in section 194C take their colour from the words 'contractor' and 'contract' and the gamut of the words 'any work' gets crystallized and confined in the process of consideration to the category and quality of work involving activities which are predominantly physical and tangible. In view of the above judgment, it was argued that the works as contained in the definition of any work will represent items as defined in the section itself and also any other physical activity. It was submitted that liasioning charges are for activities involving intellectual aspects and thus outside the purview of Section 194C. It was further submitted that this activity was also not covered u/s 194J, therefore, no tax was required to be deducted in respect of payment made to this party for its services. The learned AR submitted that definition of professional services has been given in the explanation below. Sub-section (3) of Section 194J and the nature of service rendered by the above referred party is clearly not covered by Sec. 194J. Reliance in this respect was placed in the case of Siti Multimedia Network vs. ITO. Copy of which was stated to be placed at (PB page 22 to
27).
9. Without prejudice the learned AR submitted that the balance outstanding at the end of the year as on 31.03.2008 was only Rsw.30,319/- therefore, disallowance if any under the provisions of 5 ITA No.392 (Asr)/2015 Asst. Year: 2008-09 Sec.40(a)(ia) had to be restricted to this amount as the legislature has deliberately used the expression "payable" and therefore, section will not cover the amounts which have already been paid. Reliance in this respect was placed on the decision of Allahabad High Court in the case of CIT vs. M/s Vector Shipping Services Pvt. Ltd. reported at 85 CCH 201 where it has been held that provisions of section 40(a)(ia) will be applicable only to the amounts outstanding. The learned AR submitted that the SLP filed by Revenue against the order of Allhabad High Court has already dismissed by Hon'ble Supreme Court and a copy of such order was placed at (PB page-33).
10. Regarding the disallowance of Rs.21016/-, it was submitted that the amount was paid to M/s Hira Printers for purchase of catalogue cum brochures, a copy of which was placed at (PB page 38), it was submitted that the transaction was for purchases and thus was outside the purview of Sec.194C as no material was provided by the assessee to the printer for the work. Reliance in this respect was placed on the order of Punjab & Haryana High Court in the case of CIT vs. Deputy Chief Accounts Officer, Markfed reported at 304 ITR 0017, wherein it has been held that purchase of printed packing material for which raw material was not supplied by assessee was a contract for sale and was outside the purview of Sec.194C.
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Asst. Year: 2008-09
11. The learned DR, on the other hand, placed his reliance on the order of authorities below.
12. We have heard the rival parties and have gone through the material placed on record. We find as regards the disallowance out of Telephone expenses, it is an undisputed fact that the personal use of these Telephones cannot be denied as the expenses related to Mobile Phones and Telephone installed at the residence of partners. In earlier years, similar disallowance was made for A.Y.2005-06 which was accepted by the assessee firm as noted by Assessing Officer in his order. The arguments of learned AR that a nominal disallowance was made in various decisions of various Benches of ITAT do have some force. In the facts and circumstances of the present case we hold that a disallowance equal to 1/10th of expenses is a reasonable disallowance. The observation of Assessing Officer in the case of assessee that in Asst. Year 2005-06, the assessee had accepted 1/5th as disallowance do not hold much force as every year is a different year & moreover the Assessing Officer has not discussed the disallowance if any made in Asst. Years: 2006-07 & 2007- 08, therefore, we restrict the disallowance to the extent of 10%.
13. As regards disallowance for Car expenses, we find that personal use by partners and their family members of assessee cannot be ruled out and Assessing Officer has made disallowance car allowance of car expenses @ 1/5th car expenses after recording a finding that similar 7 ITA No.392 (Asr)/2015 Asst. Year: 2008-09 disallowance made in Asst. Year: 2005-06 was not contested by assessee. However, we hold that the disallowance equal to 1/10th of total expenses in the case of assessee is a reasonable disallowance as has been held in the case of disallowance of Telephone expenses. In view of above, Ground No. 1 to 3 are partly allowed.
14. As regards ground No.2 regarding disallowance u/s 40(a)(ia), we find that the amount of Rs.1,05,779/- has been paid to M/s Freight Link India as liaisoning charges. The authorities below has held that TDS was required to be deducted from such payment, however, we find that the provisions of Sec.194C relating to payment to Contractors is not applicable to the assessee as the payee had not carried out any work as Contractor as 'any work' as contained in the provisions of Sec.194C necessarily involve carrying out of some physical work. The decision of Hon'ble Madras High Court in the case of Madras Bar Association and Ors. vs. Central Board of Direct Taxes and Ors. has specifically held that expression ,any work, in Sec.194C means work involving activities which are predominantly physical resulting into tangible work. In the present case admittedly payee has not carried out any physical work resulting into tangible work and has only provided services to the assessee which cannot be categorized under the provisions of Sec. 194C for the purpose of deduction of tax at source. Therefore, the provisions of Sec.194C are not applicable to the assessee.
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Asst. Year: 2008-09
15. As regards the applicability of Sec.194J, we find that the Section requires the assessee to deduct TDS for any payment made as fee for 'professional services, or fee for 'technical services' and for making payments for royalty and or any sum referred to Clause V of Sec.28. The section vide explanation to section has explained the meaning of the professional services to be services rendered in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA of the Act. The services provided by payee does not fall into any of the above category. The "fees for technical services"
has been defined as in Explantion-2 to clause (vii) of sub-section(1) of Section 9. As per the meaning of fee for technical services as defined in section 9, we find that vide explanation -2 fees for technical services means any consideration for rendering of any managerial, technical or consultancy services including the provisions of services.
16. The terms managerial, technical and consultancy do not find mention in the I.T. Act, 1961 and it is a settled law that they need to be interpreted based on their understating in common parlance. Hon'ble Delhi High Court, in J.K. (Bom.) Limited Vs. CBDT and Antoehrs 118 312(Del), referred an article on Management Services wherein it is stated that the Management action includes at least the following: (a) 9 ITA No.392 (Asr)/2015 Asst. Year: 2008-09 Discovering, developing, defining and evaluating goals of the organization and the alternative policies that will lead towards the goals; (b) Getting the organization to adopt the policies; (c) Scrutinizing the effectiveness of the policies that are adopted and (d) Initiating steps to change policies when they are judged to be less effective than they ought to be. Management thus pervades all organizations. Technical: In the case of Skycell Communications Ltd. Vs DCIT, the Hon'ble High Court had held that the popular meaning associated with the word 'technical' is involving or concerning applied and industrial science. Consultancy: is generally understood to mean an advisory service. Further, it may be fair to state that not all kinds of advisory could qualify as technical services. For any consultancy to be treated as technical services, it would be necessary that a technical element is involved in such advisory. Thus, the consultancy should be rendered by someone who has special skills and expertise in rendering such advisory.
17. Now in the present case we find that the liaisoning services are provided by deductee were neither managerial nor consultancy nor technical in nature and therefore, in view of the above, the assessee was not required to deduct TDS on such payment u/s 194J also. In view of the above, we are in agreement with the learned AR that the provisions of Sec. 194C and Sec. 194J were not applicable to the assessee as regards payment of liaisoning charges.
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Asst. Year: 2008-09
18. As regards the TDS on payment of Rs.21,016/-, we find that it represents the amount paid to M/s Hira Printers for purchase of catalogue cum brochure and a copy of bill is placed at (PB page 36), therefore, we hold that this transaction is for purchase of an item which is out side the purview of Section 194C. Further, nothing has been placed on record to show that material was proved by the assessee. The Hon'ble Punjab & Haryana High Court in the case of CIT vs. Deputy Chief Accounts Officer, Markfed (supra) has held that where the material has not been supplied by assessee the TDS was not applicable. In view of the above, we hold that assessee was not required to TDS on this. In view of the above, Ground No.2 of appeal is also allowed.
19. In nutshell, the appeal filed by assessee is partly allowed.
Order pronounced in the open Court on 08.08.2016.
Sd/- Sd/-
(A.D. JAIN) (T. S. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated:08.08.2016.
/PK/ Ps.
Copy of the order forwarded to:
(1) The Assessee:
(2) The
(3) The CIT(A),
(4) The CIT,
(5) The SR DR, I.T.A.T.,
True copy
By Order