Income Tax Appellate Tribunal - Mumbai
Mehta Exports, Mumbai vs Assessee on 4 August, 2010
आयकर अपील य अ धकरण "बी" यायपीठ मुंबई म।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI ी बी.आर. म तल, या यक सद य एवं ी संजय अरोड़ा,लेखा सद य के सम ।
BEFORE SHRI B. R. MITTAL, JM AND SHRI SANJAY ARORA, AM
आयकर अपील सं./I.T.A. No.7321/Mum/2010
( नधारण वष / Assessment Year: 2007-08)
Mehta Exports, Addl. CIT,
B-9, Viral Apartments, Opp. Shoppers Range 20(2),
Stop, S. V. Road, Andheri (W), बनाम/ Mumbai
Mumbai-400 059 Vs.
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AAAFM 1566 B
(अपीलाथ /Appellant) : ( यथ / Respondent)
अपीलाथ ओर से / Appellant by : Shri H. N. Motiwalla &
Shri Piyush Chhajed
यथ क ओर से/Respondent by : Shri O. P. Singh
सनु वाई क तार ख / : 25.07.2013
Date of Hearing
घोषणा क तार ख /
: 28.08.2013
Date of Pronouncement
आदे श / O R D E R
Per Sanjay Arora, A. M.:
This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-31, Mumbai ('CIT(A)' for short) dated 04.08.2010, partly allowing the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2007-08 vide order dated 10.12.2009.
2 ITA No.7321/Mum/2010 (A.Y. 2007-08)2. Opening the arguments for and on behalf of the assessee, it was submitted by the ld. Authorized Representative (AR), its counsel, that the issue arising in the instant appeal, agitated per its Gd. Nos. 1 to 3 (with Gd. No.3 being alternative and not pressed), are in respect of disallowance u/s.40(a)(ia) for Rs.15,30,150/- on account of non- deduction of tax at source on payment by the assessee, an exporter, to two clearing and forwarding (C & F) agents, i.e., M/s. Monarch Shipping Services (Rs.6,33,389/-) and M/s. Mahendra Shipping Agency (Rs.8,96,761/-). The same, in fact, represents a part of the total payment to them, being at Rs.7,10,845/- and Rs.12,18,304/- for the year for the two payees aforesaid respectively; the assessee having deducted tax at source on the balance, so that the same stood excluded in computing the disallowance u/s. 40(a)(ia). The assessee while deducting the tax at source has excluded the amount payable to them to the extent it relates to the reimbursement of expenses incurred by the C & F agents for and on behalf of the assessee-client. On this, it was made known to him that the Bench was of the clear view that exclusion of the amount claimed to be by way of reimbursement of expenses would only be where it stands charged separately and the assessee is able to demonstrate of it being a reimbursement, i.e., as a fact, and not where a consolidated amount is charged, of which a part is claimed to be toward reimbursement. It was explained by him that in the instant case, the Agent has in fact raised charges per two separate bills (for each consignment), i.e., toward reimbursement, and the other towards their own charges, with the assessee having admittedly deducted tax at source on the latter, so that the same came to be excluded, furnishing a paper-book (for 35 pages) containing ledger accounts as well as sample invoices. The invoice for reimbursement expenses is duly vouched with supporting documents, for which he would also take us through the contents of the paper-book. The ld. DR, on the other hand, would place reliance on the orders of the authorities below.
3. We have heard the parties, and perused the material on record.
3.1 The ld. CIT(A) has discussed the matter at length vide para 4 through 4.2.3 (pgs.4 to 7) of his order. With reference to paras 3.10 and 3.13 of the assessment order, he states 3 ITA No.7321/Mum/2010 (A.Y. 2007-08) Mehta Exports vs. Addl. CIT that the assessee has completely failed to substantiate its claim of reimbursement of expenses before the Assessing Officer (A.O.) (para 4.2). Even no supporting evidence toward raising separate charges, with one being toward reimbursement of expenses, much less duly evidenced, had been placed before him (para 4.2.1). Further, with reference to CBDT Circular No.715 dated 08.08.1995 (in answer to Q. No. 30), he expressed a view that no deduction qua reimbursement of expenses out of a gross bill amount could be made, i.e., on notional basis (para 4.2.2). The assessee's claim was, accordingly, found not acceptable, and the disallowance in its respect confirmed (para 4.2.3).
3.2 We may at this stage explain the basis for our holding that where the expenditure incurred is by way of reimbursement of expenses, the same would not be liable to deduction of tax at source and, consequently, for disallowance u/s.40(a)(ia). The reason is two fold. Firstly, as it is a reimbursement, the same bears or encompasses no element of income as far as the payee is concerned, on which the tax is to be deducted; the reimbursement by definition being at cost actually incurred. Two, the TDS provision (as vide section 194C) provides for deduction of tax by the person making the payment. The payment in respect of the relevant charges is made by the C & F Agents, though for and on behalf of their principals, as the assessee. It is they who are responsible for making the payment, as a part of their business/business arrangement and, as such, liable to deduct the tax at source on the payments to the payees, and which would also include their income component. Thus, while it is the C & F Agents who are liable to deduct the tax at source, the expenditure is actually borne by the principals, in whose hands only, therefore, the disallowance u/s.40(a)(ia) could be made on default. As such, no disallowance could be made even in case of a default in deducting tax at source by the C & F Agents making the payment in case of reimbursement. This dichotomy arises in view of the specific provision of the Act, and the clear principle of law that no one can shift his statutory responsibility/obligation through contract; the privity of contract for payment of 'income' being between the Agents and the payees. As such, it is only the C & F Agents who are responsible for paying the income to the relevant payees and, accordingly, 4 ITA No.7321/Mum/2010 (A.Y. 2007-08) Mehta Exports vs. Addl. CIT responsible for tax deduction at source on the said payments, even as the same being paid for and on behalf of their principals, are claimed from them by way of reimbursement. This matter stands also explained and discussed by the tribunal per its decision in the case of Mitra Logistic (P.) Ltd. vs. ITO [2012] 139 ITD 420 (Kol).
3.3 Coming to the facts of the case, we are surprised that both the parties did not consider it proper or relevant to draw our attention to the specific findings by the authorities below, which are findings of fact, being in fact contrary to the specific submissions made by the ld. AR before us. We discountenance the ld. AR's action in not bringing the full facts to our notice during hearing. It is apparent that only one of the statements represents the truth; the assessee having furnished before us a paper-book certifying the contents thereof to have been submitted before both the Revenue authorities. Be that as it may, the issue, therefore, cannot be decided by us. We, therefore, taking the paper-book on record, restore the matter back to the file of the ld. CIT(A) to examine the assessee's claims. Further, the charges, as we observe from the sample invoices furnished, are raised per separate bills, which further bear reference to the specific charges, as by way of freight charges, custom charges, MICT charges, port/custom document charges, etc. As such, to the extent the assessee is able to demonstrate of the same as representing reimbursement of expenses, no liability to TDS and, consequently, disallowance u/s. 40(a)(ia) would arise. The onus to establish its claims though would only be on the assessee. We decide accordingly.
4. Gd. No. 4 impugns the disallowance of Rs.6,48,843/- on account of delayed payment of TDS. The ld. AR would toward the same rely on the decision by the hon'ble Calcutta High Court in the case of CIT vs. Virgin Creations (in ITA no. 302 of 2011 dated 23.11.2011/copy on record), holding the amendment to section 40(a)(ia) as retrospective. The TDS payments have been, as apparent from the listing thereof at pgs. 7-8 of the assessment order, made well before the due date of the furnishing of return of income u/s. 139(1) and, accordingly, no disallowance would ensue for the current year.
5 ITA No.7321/Mum/2010 (A.Y. 2007-08)Mehta Exports vs. Addl. CIT However, on being pointed out that the said ground does not arise out of the impugned order, he conceded to the same.
5. We have heard the parties and perused the material on record. The said ground though does not arise out of the impugned order, does so out of the assessment order. The matter being legal, with the facts being abundantly clear, we admit the said ground. The matter is restored back to the file of the A.O. to consider the same afresh in the light of the decision by the hon'ble Calcutta High Court in the case of CIT vs. Virgin Creations (supra). We decide accordingly.
6. The fifth ground relates to a disallowance of a part (1/3rd) of car insurance expenses, i.e., at Rs.9,594/-, towards personal user of car. The disallowance stands made and confirmed in view of the admitted position of the vehicles being also used by the partners for their personal (non-business) purposes. So however, it needs to be appreciated that the insurance premium is for a fixed sum and would not vary with the extent of user for purposes other than for business. The cars/vehicles are admittedly business assets, used principally for business purposes. The insurance cost being fixed in quantum, no part of the said cost can, therefore, be said to have been incurred for the admitted non-business user by the partners. No disallowance, therefore, under the circumstances is called for. We, accordingly, direct its deletion.
7. The last and the sixth ground of appeal impugns the treating of interest received from bank on short term deposit (STD) with it as income from other sources. During the hearing, the ld. AR would submit that the said deposit/s being made in compliance with the contractual obligation to furnish margin money against the overdraft facilities enjoyed from the bank/s, the same (STD) in fact represents margin money and, therefore, a part of the working capital of the business. Income by way of interest thereon should, therefore, only be considered as business income. The ld. DR would object by stating that there is nothing, not even a contention in this respect, before the authorities below.
6 ITA No.7321/Mum/2010 (A.Y. 2007-08)8. We have heard the parties, and perused the material on record. The contention by the assessee that the bank FDR/s under reference stand made by way of margin money placed with the banks against overdraft facilities for its business from them, is only a bald assertion. There is no reference to such a claim in the orders of the authorities below and is also de hors any material on record. The decision in the case of CIT vs. Swiss Jewels Ltd. & Anr. [2006] 284 ITR 389 (Bom) would thus not apply on facts; the STDs in that case being undisputedly made for the purpose of import of machinery. Accordingly, we find no infirmity in the assessment of the said interest as income from other sources, i.e., by construing it as an income derived from out of surplus (for the time being) funds of the business placed in short term deposits with banks. Such arrangements are usually adopted by businesses to retain liquidity, as well as to, at the same time, earn some income, which though cannot be considered as part of their business or arising out of a business activity. We decide accordingly.
9. Before parting with the order, we may deal with another matter. The ld. AR sought to raise a collateral issue during hearing, i.e., the remuneration to the working partners as allowable under the Act; the same having been restricted by the Revenue by excluding from the computational formula the income assessed u/s.56. We find that though a specific ground in its respect was raised before the first appellate authority, no ground in its respect has been raised before us, indicating acceptance of his decision on this ground. Further, there is no plea for raising additional ground and, consequently, no specific arguments in its respect were set up. The hearing, it is to be appreciated, is not a one sided affair, and the other party has to be put to notice of the issue/s being agitated, so that it could present its case in its respect. Under the circumstances, we decline to admit the said issue, much less go into its merits. We may, however, mention that the said issue, i.e., the inclusion of the income assessed as income from other sources in reckoning the quantum of remuneration allowable to the working partners, deductible u/s.37(1) of the Act, is not a clear or a settled issue. In fact, it raises several fundamental issues, viz., as to how the expenditure allowable in the computation of the income assessable under one 7 ITA No.7321/Mum/2010 (A.Y. 2007-08) Mehta Exports vs. Addl. CIT head of income could possibly be based on the income assessed under another head of income. Put differently, how income assessed under one head, viz. 'income from other sources', could possibly form the basis for allowance of expenditure in computing the income under another head, i.e., 'profits and gains from business and profession'. Two, without prejudice, under which head of income or provision of law would the expenditure attributable to the income assessed under the other head, as income from other sources in the instant case, be allowed. This is as only the expenditure exigible to be set off against the income assessable under that head, as section 56, being specifically provided for, as u/s.57, could be allowed there-against. We decide accordingly.
10. In the result, the assessee's appeal is partly allowed and partly allowed for statistical purposes.
प रणामतः नधा रती क अपील आं शक वीकृत और सां यक य उ े य के लए
आं शक वीकृत क जाती है ।
Order pronounced in the open court on August 28, 2013
Sd/- Sd/-
(B. R. MITTAL) (SANJAY ARORA)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai; दनांकDated : 28.08.2013
व. न.स./rRoshani, Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु त(अपील) / The CIT(A)
4. आयकर आयु त / CIT - concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मुंबई / DR, ITAT, Mumbai
6. गाड फाईल / Guard File
आदे शानस
ु ार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai