Income Tax Appellate Tribunal - Mumbai
Jtb Express Services Pvt. Ltd , Mumbai vs Department Of Income Tax
1
JTB Express Services P Ltd
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI ' J ' BENCH
MUMBAI BENCHES, MUMBAI
BEFORE SHRI R K PANDA,
PANDA, AM & SHRI VIJAY PAL RAO, JM
ITA No. 1842/Mum/2008
(Asst Year2004
Year2004-
2004-05 )
The Dy Commr of Income Tax Vs JTB Express Services P Ltd
15(1), Mumbai 6th Floor, NKM International House
V M Chainai House
178 Backbay Reclamation
Mumbai
(Appellant) (Respondent)
PAN No. AAACJ3174J
Assessee by Sh Sashi Tulsiyan
Revenue by Sh D S Sunder Singh
Dt.of hearing 8th Nov 2011
Dt of pronouncement 9th,Dec 2011
ORDER
PER VIJAY PAL RAO, RAO, JM This appeal by the revenue is directed against the order dated 8th Jan 2008 of the CIT(A) relating to Assessment Year 2004-05. 2 The revenue has raised the only ground in this appeal as under:
"Whether on the facts and in the circumstances of the case and in law the ld CIT(A) erred in deleting addition of Rs. 59,78,684/- on account of commission paid to sister concern M/s Jupiter Air India Pvt ltd ignoring the facts that the assessee had not produced any proof of any actual services rendered by its sister concern M/s Jupiter Air India P Ltd."
3 The assessee company is engaged in the business of whole sale courier services. The assessee collects freight charges from clients and remits it to the Air lines who are the ultimate carriers of the freight. The assessee gets commission @ 5% on such freight. The assessee has income from retail freight sales, break bulk income and processing charges also. The Assessing Officer has noted that the assessee collected freight charges of Rs. 30,71 crores during the 2 JTB Express Services P Ltd year. On the said freight charges the commission @ 5% comes to Rs. 68,56,369/- but the assessee has declared the commission at Rs. 8,77,684/-. The Assessing Officer asked the assessee to explain as to why the difference of the two, which comes to Rs. 59,78,685/-, should not be treated as suppressed commission and added to the total income of the assessee.
3.1 The assessee submitted before the Assessing Officer that part of the commission is remitted back to its clients and particularly to the sister concern of the assessee. The Assessing Officer was not satisfied with the explanation of the net commission received by the assessee and accordingly, made the addition of the difference of the two amount of Rs. 59,78,685/-.
3.2 On appeal, the CIT(A) allowed the claim of the assessee to the extent of 1/3rd of the total receipt as commission paid to sister concerned and accordingly confirmed the disallowance to the extent of Rs. 13,60,900/-. 4 Before us, the ld DR has submitted that the assessee has diverted 80% of the commission income to its sister concern. The CIT(A), while deciding the issue took the total receipt including the break bulk income and then estimated 1/3rd of the total receipt as reasonable amount of commission payable to the sister concern. He has further contended that even other wise 43% of the total receipt was passed on to the sister concern which is on the higher side and not prevailing in the business practice. He has supported the order of the Assessing Officer.
4.1 On the other hand, the ld AR of the assessee has submitted that the assessee is new in the business and got major chunk of business from its sister concern M/s Jupiter Air India Pvt Ltd . He has further submitted that the entire air freight business was booked by sub agent namely M/s Jupiter Air India Pvt Ltd which comes to about 98% of the entire booking business. The assessee 3 JTB Express Services P Ltd received 5% commission over and above the break bulk income received from the air lines. He has further submitted that the assessee company received commission income of Rs. 68,56,368/- along with break bulk income of Rs. 69,97,494/- on total freight business of Rs. 13.71 crores approximately. The total receipt of the assessee is at Rs. 1,38,53,862/- out of which the assessee passed on the commission of Rs. 59,78,684/- to the sub agent namely M/s Jupiter Air India P Ltd., which constitutes about 4% of the commission received by the assessee. The ld AR has submitted that since the assessee has received 98% business of freight booked through its sub agent and therefore, when income of the sub agent, namely M/s Jupiter Air India P Ltd, is otherwise at 4.5% as the commission on the entire business, then 4% commission passed by the assessee is not excessive. He has relied upon the order of the CIT(A). The ld AR of the assessee has also relied upon the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs Indo Saudi Services (Travel)(P) Ltd reported in 310 ITR 306 and the decision of the Tribunal in the case of Batlivala & Karani vs ACIT reported in 2 SOT 379.
5 We have considered the rival contention as well as the relevant material on record. The assessee is an IATA agent and received 5% commission on air freight charges collected. Apart from the commission, the assessee also received break bulk income from the air lines as IATA agency. M/s Jupiter Air India Pvt Ltd was appointed by the assessee as a sub agent for booking of the air freight. The assessee passed on 4% out of 5% commission on the air freight collection to its sister concern/sub agent.
5.1 The moot question arises is reasonableness of the commission passed on by the assessee to its sister concern. The Assessing Officer disallowed the entire commission paid to the sister concern by observing that the assessee has shown 4 JTB Express Services P Ltd only net commission without showing the full amount in the P&L account and then passing on the commission to the sister concern; because 80% of the commission earned by the assessee was given to the sister concern, the Assessing Officer found it unreasonable. The CIT(A) after obtaining two remand reports held that the assessee is passing on 43% of its total receipts to its sister concern as commission for doing major chunk of business through it, which in his view is on higher side and accordingly, he held that 33% of the total receipt as reasonable commission given to the sister concern. The relevant part of the impugned order of the CIT(A) in para 3.7 is as under:
"3.7 To judge the reasonability of the commission paid, I find that the 43% of passing on the receipt to a sister concern appears to be slightly on higher side, if we take into account of all facts and circumstances of the case in tandem. The appellant has got major advantage on account of being IATA agent, which is dealing directly with the International Air Lines. It is having the principle responsibility with the Air Lines to get the business done, for them being a Principal agent. The sub-agents as such are not in a position to deal with International Air Lines directly without having IATA agency. Therefore, there is gain saying that it has to retain the major chunk of receipt with them as a gain in comparison of the sub-agent who are booking the air freight for the customers. If we look into all these facts in tandem, I find that a ratio of sharing of receipt of 2 into 1 between the appellant company and Jupiter Air India Pvt.Ltd. will meet the justice of sharing the profit reasonably. Therefore, 1/3rd of total receipt Rs.1,38,53,862/- i.e. Rs.46,179I- is to be considered as reasonable amount of commission payable to Jupiter Air India Pvt.Ltd. Since, the appellant has passed on commission at Rs.59,78,654/- to Jupiter Air India Pvt.Ltd. the amount at Rs.13,60,900/- approximately (59,78,654 - 46,17,789/-) is considered as unreasonable and excessive which alone is to be added to the total income of the appellant. The appeal is allowed partly on this point, sustaining the disallowance only to the extent of Rs.13.60,900."
5.2 As evident from the order of the CIT(A) that he took the ratio of sharing the receipts at 2:1 between the assessee and the sister concern. The term reasonableness is a relative term having regard to the fair market value (FMV) of 5 JTB Express Services P Ltd the goods, services or facility for which the payment is made as stipulated in sec. 40A(2).
5.3 In order to determine the reasonableness of the expenditure, it is to be compared with the FMV of such services or facility as prevailing in the peculiar business or trade. Thus, the transaction between the two associate persons has to be tested by comparing with the uncontrolled transactions between non associated persons. Both Assessing Officer and CIT(A) found that the expenditure on account of passing of the commission by the assessee is excessive and unreasonable; though the criteria of judging the same was different. The CIT(A) widen the basis for examining the reasonable amount and took the entire receipt i.e. commission receipt and other receipts for ascertaining the reasonableness of commission paid by the assessee to its sister concern.
5.3 We may point out that the arrangement and understanding between the assessee and the sister concern was to share the commission income and not any other payments or receipts of the assessee. Therefore, expanding the horizon to the entire receipt instead of sharing of commission for judging the reasonableness of payment is not born out of the agreement and understanding between the assessee and the sister concern/sub agent. When the assessee agreed to part with its commission income only then, taking into consideration the other receipts is not warranted in the facts and circumstances of the case. The assessee is an agent of IATA and the sister concern is sub agent of the assessee; therefore, any expenditure for the services of sub agent has to be at ALP. The assessee has to justify the exceptional high price at 80% of its commission passed on to its sister concern without comparing instances of uncontrolled transactions between the unrelated parties. No such instances or comparables were claimed or produced by the assessee. The CIT(A) took the 6 JTB Express Services P Ltd reasonable rate at 33% of the total receipts, which is also without giving any comparable in the business like assessee.
5.4 The Hon'ble High Court in the case of Indo Saudi Services (Travel)(P) Ltd has observed that the assessee was paying handling charges to its sister concern at the same rate at which the assessee paid to other agents. Further, the claim of the assessee was allowed in the earlier as well as in the subsequent years. The observation of the Hon'ble High Court in the case of Indo Saudi Services (Travel)(P) Ltd (supra) in para 4 , is reproduced as under:
"4. We have heard the ld advocates appearing for both sides. We have also perused the order passed by the Tribunal dt 21st Oct, 1999 which is impugned by the Revenue in the present appeals. e find that the following facts were established before the Tribunal and the same have been accepted by the Revenue even before us.
(i) That the assessee apart from paying handling charges @ 9 1/2 per cent to its sister concern, have paid handling charges at the same rate to other agents viz., M/s A.K. Travels, M/s Om, Travels and M/s Jet Age Travels.
(ii) For asst. yrs.1986-87 and 1987-88 the assessee had paid the handling charges @ 10 per cent to the sister concern of the assessee and such charges paid were considered to be reasonable by the appellant.
(iii) For asst.yrs.1989-90 and 1990-91 the assessee had reduced the payment of handling charges to 9 1/2 per cent to its sister concern. The AO has considered the payment of commission to the sister concern in the asst. yr. 1989-90 and allowed the claim after due scrutiny. For asst. yr. 1990-91 also the claim of the assessee @ 9 1/2 per cent has been allowed though the same has not been dealt with by the AO specifically in the order.
(iv) For asst.yrs.1993-94 and 1994-95 the assessment has been made by the AO under s. 143 (3) and handling charges paid to the sister concern @ 9.5 per cent have been considered to be reasonable and allowed.
(iv) The sister concern of the assessee M/S Middle East International is also assessed to tax and income assessed for the asst. yr. 1991-92 is Rs. 9,38,510 and for asst.yr.1992-93 7 JTB Express Services P Ltd is Rs. 14,65,880 and the said assessment orders have been placed on record.
(v) Under the CBDT Circular No. 6-P, dt. 6th July, 1968 it is stated that no disallowance is to be made under s. 40A(2) in respect of the payments made to the relatives and sister concerns where there is no attempt to evade tax.
5.5 It is clear that the Hon'ble High Court has also taken into consideration the facts of comparative rates while deciding the issue. Whereas the estimation of the CIT(A) is not based on any such comparable or any material or admitted prevailing market value of the services in question. Even before us, no material has been produced either by the assessee or by the revenue in support of their respective claim. Therefore, we are of the view that the matter is required to be examined properly in the light of the comparable instances or prevailing fair market value of the services. Accordingly, we set aside this issue to the record of the Assessing Officer to re-examine and adjudicate the same after taking into consideration the FMV as stipulated in sec. 40A(2) of the I T Act. 6 In the result, the appeal filed by the revenue is allowed for statistical purpose.
Order pronounced on the 9th, day of Dec 2011.
Sd - Sd/-
( R K PANDA ) ( VIJAY PAL RAO )
Accountant Member Judicial Member
Place: Mumbai : Dated: 9th, Dec 2011
Raj*
8
JTB Express Services P Ltd
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai