Income Tax Appellate Tribunal - Rajkot
M/S. Jindal Saw Ltd.,, vs The Income Tax Officer, Tds-4,, ... on 3 December, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
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BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER And
SHRI WASEEM AHMED, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No. 220/Rjt/2014
( नधा रण वष / Assessment Year : 2009-10)
M/s. Jindal Saw Limited, बनाम/ ITO,
Village: Samagogha, Vs. TDS-4,
Taluka: Mundra, Gandhidham.
Kutch.
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AABCS 7280 C
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से / Appellant by : Shri D. M Rindani, A.R.
यथ क ओर से/Respondent by : Shri Praveen Verma, Sr. D.R.
ु वाई क तार ख /
सन Date of Hearing 27/09/2018
घोषणा क तार ख /Date of Pronounce ment 03/12/2018
आदे श / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-II, Rajkot, vide Appeal No. CIT(A)-II/Rjt/0096/11-12 dated. 21.01.2014 for the Assessment Year (A.Y.) 2009-10.
ITA No.220/Rjt/2014Jindal Saw Ltd vs. ITO Asst.Year -2009-10 -2-
2. First we take up assessee's grounds of appeal in ITA No.220/Rjt/2014 for Asst. Year 2009-10:
"3) Hon. CIT(A) erred in law as well as on fact in confirming deduction of tax at source u/s. 194-I on demurrage/detention charges paid to non-resident shipping companies which are assessed u/s.172 of the Act.
4) Hon. CIT(A) erred in law as well as on fact in confirming deduction of tax at source u/s. 194-I on demurrage/detention charges, which is not applicable to nonresident companies.
5) Hon. CIT(A) erred in law as well as on fact in remitting matter back to assessing officer."
3. The above grounds of appeal were recalled for fresh adjudication in pursuance to the direction issued by the ITAT in MA No.11/Rjt/2017 vide order dated 3rd August 2018. Therefore, we proceed to adjudicate the aforesaid grounds of appeal.
4. The only issue raised by the assessee is that ld. CIT(A) erred in confirming the order of AO by sustaining the disallowance of Rs. 27,00,497/- on account of non-deduction of TDS u/s 194-I of the Act.
5. Briefly stated facts are that the assessee is a limited company and engaged in the business of shipping agency. The assessee during the year has claimed demurrage charges amounting to Rs. 27,00,497/- only. The demurrage charges were paid to a foreign company which was liable to tax u/s 172 of the Act. However, the assessee paid the demurrage charges without deducting the TDS u/s 194-I of the Act.
ITA No.220/Rjt/2014Jindal Saw Ltd vs. ITO Asst.Year -2009-10 -3-
6. However, the AO was of the view that the demurrage charges are paid for the delay of loading/unloading of the goods. As such, the goods are stored in the premises of the companies which were not lifted by the assessee within the specified time. Therefore, the demurrage charges are like rent paid by the assessee to other companies. Accordingly, the provision of section 194-I of the Act is attracted. Accordingly, the AO sought an explanation from the assessee for non-deduction of TDS u/s 194-I of the Act on the demurrage charges claimed by it.
6.1 In compliance with it, the assessee submitted that the demurrage charges were paid to nonresident shipping companies which are subject to tax under the provision of Section 172 of the Act. Therefore, the assessee claimed that there is no liability for deduction of TDS u/s 194-I of the Act. The assessee in support of his claim relied on the Circular issued by the CBDT bearing no.723 dated 19.09.1995.
However, the AO disregarded the contention of the assessee and held that the payment made to the foreign shipping companies on account of demurrage charges are representing the rent. Therefore, the assessee was liable for deduction of TDS u/s 194-I of the Act. The AO in holding so relied on the judgment of Hon'ble Bombay High Court in the case of CIT vs. Orient (Goa) Pvt. Ltd. in Tax Appeal No.7/2005 dated 16.10.2009. In the view above, the AO treated the assessee in default u/s 201(1) of the Act and raised the demands of TDS for Rs. 27,00,497/- along with ITA No.220/Rjt/2014 Jindal Saw Ltd vs. ITO Asst.Year -2009-10 -4- interest of Rs. 9,80,215/- aggregating to Rs. 36,80,712/- u/s 201(1) and 201(1A) of the Act.
7. Aggrieved, assessee preferred an appeal to ld. CIT(A) who has confirmed the order of AO by observing as under:
"3. Demurrage:
As regards the demurrage charges, it is held by the AO that it is a general term to indicate surcharge for delays. In the instant case the demurrage has been paid by the appellant for not shifting the containers/goods within the specified time. Thus, they are clearly related to the use of space for certain time. Such charges are therefore clearly in he nature of rent paid by the appellant company. The AO has relied upon the decision of the Hon'ble Bombay High Court in the case of CIT Panaji vs. Orient Goa P. Ltd in Appeal No.7/2005 dt. 16/10/2009. The Hon'ble High Court has upheld the AO's order that non deduction of tax on demurrage charges made to foreign/ non resident companies was liable for disallowance u/s 40(a)(ia) thereby implying that tax should. have been deducted u/s 194-I. It is also categorically mentioned that tax should. have been deducted u/s 194-I. It is also categorically mentioned that the provisions of s.194C are not applicable.
The appellant has raised an alternative plea that Mundra Port & Kandla SEZ have offered the said income in their income tax returns and tax has been paid on the same. Hence, the demand u/s 201(1) should. not be enforced. For this purpose, the appellant has relied on the decision of the Hon'ble Supreme Court in case of Hindustan Coca Cola Beverage Ltd. vs. CIT 211 CTR 545. The AO is directed to verify the contention of the appellant. It will be the responsibility of the appellant to provide the necessary details to the AO in support of its contention. The AO will, in turn, decide the matter in light of the decision of the Hon'ble Supreme Court in case of Hindustan Coca Cola Beverage P. Ltd. (supra).
This ground of appeal is thus partly allowed.ITA No.220/Rjt/2014
Jindal Saw Ltd vs. ITO Asst.Year -2009-10 -5- Ground No.1: Learned AO erred in law as well as on fact in charging interest u/s 201A of the Act.
6. As regards calculation on interest u s.201(1A) it was contended by the appellant that since the payee has already filed the return of income and paid the tax on the same disclosing receipts from the appellant, the interest should. be calculated upto the dale on which the payee has filed his return of income. The AO has relied on the decision of the Hon'ble Chennai High Court in case of CIT vs. Chennai Metro Politan Water Supply & Sewage Board 202 Taxmann 454. The appellant's contention is considered and the AO is directed to compute the interest us.201(1A) from the date the tax was deductible to the date of filing of return by the payee."
Being aggrieved by the order of ld. CIT(A) assessee is in appeal before us.
8. The ld. AR before us filed a paper book running from pages 1-58 and submitted that the judgment relied by the AO in the case of Orient (Goa) Pvt. Ltd. as discussed above had been reversed by the larger bench of Bombay High Court in the case of CIT vs. Dempo & Company Pvt. Ltd. reported in 95 CCH 0030.
9. On the other hand, ld. DR vehemently supported the order of Authorities below.
10. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates whether the assessee is liable to deduct the TDS u/s 194-I of the Act on account of the payment made to nonresident shipping company for demurrage charges.
ITA No.220/Rjt/2014Jindal Saw Ltd vs. ITO Asst.Year -2009-10 -6- In this regard, we note that the AO has made the disallowance after having reliance on the judgment of Bombay High Court in the case of Orient (Goa) Pvt. Ltd. which has been reversed by the larger Bench of Hon'ble Bombay High Court in the subsequent judgment in the case of Dempo & Company Pvt. Ltd. (supra). The relevant portion and the observation of the Hon'ble Bombay High Court in the case of Dempo and Company Pvt. Ltd. is extracted below:
"6. That is how the Revenue requested this Court to admit this appeal as it raises substantial questions of law. The appeal together with other Tax Appeals was placed before a Division Bench of this Court and it came to be admitted on the following substantial questions of law :
(I) Whether in facts and circumstances of the case, the ITAT has erred in applying the provision of Section 172 in holding that section 40(a)(i) is not applicable, particularly when section 173 concerned with levy and recovery of tax in a case of any ship, as against section 195 r/w 40(a)(i) of the IT Act, refers to non-resident assessee as in the present case?
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7. Out of the above substantial questions, we are concerned with Question No. I.
8. After admission, the present appeal and the other appeals came to be placed for final hearing before a Division Bench of this Court and the Division Bench noted the stand of the assessee in paragraph 4 of its order. In paragraph 5, the Division Bench noted the reference by the Tribunal to its decision in Deputy? Commissioner of Income Tax vs. Orient (Goa) and following it, the Tribunal allowed the assessee's appeal. The order passed by the Tribunal holds that section 40(a)(i) of the Income Tax Act, 1961 (for short "IT Act") would. apply only when there is an obligation to deduct tax at source. Reliance was placed upon the Circular No. 723 issued by the Central Board of Direct Taxes to support the conclusion that there was no obligation to deduct tax at source in respect of payment made towards demurrage charges in cases where section 172 of the IT Act applies. The Revenue did not dispute in the present case that section 172 applied. The Tribunal held that section ITA No.220/Rjt/2014 Jindal Saw Ltd vs. ITO Asst.Year -2009-10 -7- 172 is a charging as well as machinery provision in respect of non- resident shipping companies. It provides for determination and collection of tax. Thus, Chapter XVI of the Act in respect of deducting tax at source would. not apply in such cases. Consequently, the disallowance of expenditure on account of section 40(a)(i) of the Act was deleted.
9. The Revenue placed reliance, before the Division Bench hearing present appeals, on the decision of Orient (Goa) by which this Court reversed the Tribunal's order in that assessee's case.
In other words, the Tribunal's view taken in the case of DGIT vs. Orient (Goa) was expressly rejected by this court was the submission of the Revenue.
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47. To our mind, the Division Bench judgment in Commissioner of Income-tax vs. Orient (Goa) Pvt. Ltd. seen in this light does not, with greatest respect, take into account the scheme and setting as understood above. There need not be apprehension because there is no escape from the levy and recovery of tax. The tax has to be levied and collected. The ship cannot leave the port or if allowed to leave any port in India, it must either pay or make arrangement to pay the tax. Hence, the apprehension of avoidance or evasion both are taken care of by the legislature. That is how advisedly the legislature cast the obligation to deduct, tax at source on the person responsible to make payment to a non-resident in shipping business.
48. The resident assesses contended before the Division Bench in Orient (Goa) (supra) as well as the Division Bench which made the referring order that section 172 of the Income Tax Act has a bearing and an important one on the obligation to deduct tax at source. Therefore, it is the recipient's position and the perspective in which the recipient's income would. be taxed will have to be borne in mind. The non-resident shipping company in respect of it's income would. be in a position to rely upon section 44B and consequently section 17S, However, we do not see how there is an obligation to deduct tax at source on the resident assessee/Indian company before us. While computing the income of the non-resident Indian / foreign ITA No.220/Rjt/2014 Jindal Saw Ltd vs. ITO Asst.Year -2009-10 -8- company, assistance can be derived by such non-residents from section 44B if they are in shipping business. It would. also be in a position to rely upon section 172 but the responsibility of the person making payment to a non-resident in sub-section (1) of section 195 cannot be avoided in tho manner Get nut in other cases. The scheme as above operates only to cases covered by section 172 of the IT Act and none else.
49. The term "non-resident" means a person who is not a resident as per section 2(30) of the Income Tax Act and for the purposes of sections 93, 93 and 168, includes a person who is not ordinarily a resident within the meaning of clause (6)of section 6. The term "person" includes an individual, a HUF, a company, firm and every artificial juridical person not falling within any of the preceding sub-clauses of clause (31) of section 2. By section 2(23A), a foreign company is defined to mean a company which is not a domestic company. Hence, any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act not being income chargeable under the head "Salaries", would. have to deduct the tax thereon at the rates in the force.
50. The view that we are taking is based on the enunciation and exposition of law by the Hon'ble Supreme Court of India, firstly in the case of Union of India vs. Gosalia Shipping (PVT.) Ltd. reported in (1978) 3 SCC 23. Insofar as section 172 of the IT Act as it stood then, its ambit and scope, the Hon'ble Supreme Court of India held as under:-
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53. In the view that we have taken, it is not necessary to refer the judgment of a Division Bench of the Delhi High in the case of Emirates shipping Line, FZE vs. Assistant Director of Income Tax A reported in (2012) 349 ITR 493. Suffice it to note that the view taken by the Division Bench and particularly in paras 17 and 18 of this judgment accords with the conclusion reached by us.
54. The difficulty is presented only when provisions are not read together and harmoniously so also without bearing in mind the setting ITA No.220/Rjt/2014 Jindal Saw Ltd vs. ITO Asst.Year -2009-10 -9- and placement thereof in the chapteRs. These chapters of the Income Tax Act cover several aspects in relation to imposition, levy, assessment, collection and recovery of tax on the income specified above. To the extent contrary to above, we overrule the view in Orient Goa's case (supra). The question referred is answered accordingly.
Since the question above is referred to us, having answered it, let the Appeals be now listed for hearing before appropriate Division Bench. ***********"
In view of above, their remains no ambiguity that the assessee was not liable for deduction of TDS u/s 194-I of the Act on the payment made to the Foreign Shipping Companies on account of demurrage charges. Accordingly, we set aside the order of ld. CIT(A) and delete the addition made by the AO. Hence, the ground of appeal of the assessee is allowed.
11. In the result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 03/12/2018
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(MAHAVIR PRASAD) (WASEEM AHMED)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 03/12/2018
Priti Yadav, Sr.PS
ITA No.220/Rjt/2014
Jindal Saw Ltd vs. ITO
Asst.Year -2009-10
- 10 -
आदे श क ! त#ल$प अ%े$षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं'धत आयकर आयु)त / Concerned CIT
4. आयकर आय) ु त(अपील) / The CIT(A)-II, Rajkot.
5. ,वभागीय /त/न'ध, आयकर अपील य अ'धकरण, अहमदाबाद / DR, ITAT, Ahmedabad.
6. गाड4 फाईल / Guard file.
आदे शानुसार/BY ORDER, स या,पत /त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation 23/10/2018 (dictation pages 4 )
2. Date on which the typed draft is placed before the Dictating Member 12/11/2018
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S 15/11/2018.
5. Date on which the fair order is placed before the Dictating Member for pronouncement...
6. Date on which the fair order comes back to the Sr.P.S./P.S.......
7. Date on which the file goes to the Bench Clerk.....................
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................