Income Tax Appellate Tribunal - Delhi
Income Tax Officer vs Freight Systems (India) (P) Ltd. on 21 October, 2005
Equivalent citations: (2006)103TTJ(DELHI)103
ORDER
D.R. Singh, J.M.
1. These four appeals filed by the Revenue against the consolidated order of the CIT(A) passed in appeal Nos. 0058, 0059, 0060 and 0061/2004-05 dt. 14th Oct., 2004 for asst. yrs. 2000-01, 2001-02, 2002-03 and 2003-04, were heard together and are being disposed of through this common order, for the sake of convenience, because the issues involved in the grounds of appeal are identical.
2. In all its appeals, the Revenue has taken the following identical grounds:
On the facts and in the circumstances of the case, learned CIT(A) erred:
(i) in holding that the payment of ocean freight was not liable for TDS under Section 194C of the IT Act, in view of provisions of Section 172 of the Act in spite of the fact that the assessee despite sufficient opportunity failed to prove that payments of freight were made to non-resident shipping companies or their agents so as to be covered under Section 172 of the Act; and
(ii) in holding that inland haulage charges are covered under Sub-section (8) of Section 172 of the Act and ignoring the fact that charges for inland transportation or handling charges or any other amount of similar nature.
3. The relevant and material facts for the disposal of the issue involved in the abovestated grounds of appeal are that the assessee, M/s Freight Systems (India) (P) Ltd., is a limited company. It is in the business of carriage of goods and acts as a clearing and forwarding agent. It is having its head office at Mumbai and regional branch office of Northern India at New Delhi. In order to make on the spot verification, survey operation under Section 133A of the IT Act, 1961 (hereinafter referred to as 'the Act'), was carried out at the business premises of the assessee at New Delhi on 19/20th Nov., 2003. During the course of survey operations, it was found that the assessee has paid ocean freight and inland haulage charges for financial years 2000-01, 2001-02, 2002-03 and 2003-04 upto 30th Sept., 2003, as detailed in the order of the ITO (TDS). After considering the submissions of the assessee, the AO was of the opinion that the assessee had no reason for non-deducting tax at source under Section 194C of the Act and because the assessee failed to deduct tax under Section 194C on the payments of inland haulage charges, so, he worked out the total TDS liability under Sections 201(1) and 201(1A) of the Act at Rs. 15,47,278 and raised the demand against the assessee by passing a detailed order.
4. Aggrieved with the order of the AO, the assessee filed appeals before the CIT(A) and contended that no tax is deductible on the payments because of the provisions of Section 172 and Section 194C are not at all applicable in its case. The assessee relied upon the Board's Circular No. 723, dt. 19th Sept., 1995 [(1995) 128 CTR (St) 6} in support of its contention. Further according to the assessee Circular No. 723, dt. 19th Sept., 1995 has put the agents of foreign shipping line into their shoes for the purpose of deduction of TDS on ocean freight, etc. The assessee-company has submitted confirmations from sub-agents for being agents of the respective shipping lines. The assessee further contended that the demurrage/handling charges are not at all charges for carriage of goods by ship but paid for services rendered locally by the port trusts for storage of goods and handling of such goods by agents and sub-agents involved in the assistance of the carriage and any other amount paid for putting the goods on ship, These are all services rendered locally and not payments for carriage of goods by ship. Similarly, inland haulage charges are also paid to the shipping line or their authorized agents for the same cargo from the point of inland container depots made by the Government of India for promoting export by sea from the dry ports to the shores where the goods are eventually loaded on the ship. Most of the authorized agents of the foreign shipping lines have already confirmed vide their respective letters that they are filing returns under Section 172 and include inland haulage in such returns to compute their tax liability payable under Section 172. In view of the law under Section 172(8) and in view of the submissions made by the agents of the foreign shipping lines, there is no doubt or ambiguity that inland haulage is also covered under Section 172 and therefore, Section 194C should not be applicable.
5. Lastly, according to the learned Authorized Representative for the assessee, the assessee pays various charges to the agents of shipping line like ocean freight, inland haulage, storage charges, handling charges, etc. and hand over the goods to the agents of the shipping line or shipping lines themselves at the city where the shipper is located. Thereafter transporting the goods upto the destination of the consignee is the responsibility of the shipping line or their agents. All agents of the foreign shipping lines are also confirming that they are filing the returns under Section 172 and including the inland haulage in these returns. In view of this fact, singling out inland haulage charges for deduction of tax at source under Section 194C is not justified and the learned ITO has erred in doing the same.
6. On considering the submissions, the CIT(A) while passing a detailed order and reversing the order of the AO held that the assessee could not be treated as an assessee in default and hence cancelled the order of the AO.
7. Before us, the learned Departmental Representative for the Revenue, placed reliance on the reasoning given in the order of the AO, but was not able to controvert the factual observations made in the order of the CIT(A).
8. On the other hand, the learned Authorized Representative for the assessee, reiterating the submissions made before the CIT(A) submitted before us that the CIT(A) in a well-reasoned order has rightly cancelled the order of the AO holding that the assessee could not be treated as an assessee in default.
9. We have considered the rival submissions of both the parties, perused the records and carefully gone through the orders of the tax authorities below as well as looked into the relevant provisions of law and the CBDT Circular No. 723 referred to by the learned Authorised Representative for the assessee.
10. The provisions of Section 172 constitute a code in itself with regard to the mode of levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident. By virtue of Sub-section (8) of Section 172 the demurrage charge or handling charge or any other amount of similar nature' are treated at par with carriage paid or payable to such owner or charter. Thus, even as the amounts in the nature of demurrage, etc. may not end up being paid to non-residents, these are treated as amounts falling within special provisions of Section 172. This stands clarified in CBDT Circular No. 723, dt. 19th Sept., 1995 wherein these amounts have been taken outside the purview of Section 194C. This circular has made it further clear that where payments are made to shipping agents of non-resident ship owners or charter ship at a port in India, provisions of Section 172 will apply because the agent steps into the shoes of the principal. However, the problem arises only when restrictive interpretation is placed on the Board's circular referred to hereinabove when the AO has sought to draw distinction on the basis of the status of the agents. We would like to mention that even if the agent is to be treated as resident, by virtue of his acting on behalf of non-resident shippers or charters, he receives payments primarily on behalf of his principal, i.e., non-resident ship owners or ships charters shipped at a port in India. In our opinion, even if these amounts are inclusive of small element of the amounts that ultimately may be going into his own pocket or any of resident on account of demurrage or handling charge or any amount of similar nature, it will be covered by Sub-section (8) of Section 172 inasmuch as the circular does not draw any distinction between a dry port and a sea port. Thus, as per provisions of Section 172(8) the inland haulage charges are also covered under this provision of law and, hence, no deduction of tax is called under Section 194C of the Act. We are further of the opinion that such an interpretation is also fair because the dry ports or ICDs are treated at par with the regular ports. Hence, the contradictory stand taken by the AO, i.e., when he included certain charges in freight in respect of movement of goods by road at the destination contrary by the shipping line such charges are deemed to be covered under Section 172, but when the same shipping line or their agents take charges for transportation from ICD, where goods have been handed over to them by an exporter, then these amounts are not deemed to be covered under Section 172.
11. For the reasons stated above, in our opinion, in the existing facts and circumstances of the case of the assessee, the assessee cannot be treated as an assessee in default, so, the CIT(A) after properly considering the submissions of the assessee and properly analyzing the provisions of law, has rightly cancelled the impugned orders of the AO by passing a well-reasoned and well-discussed consolidated order. Accordingly, the impugned order of the CIT(A) is upheld and the grounds of appeal taken by the Revenue in the respective appeals under consideration before us are rejected.
12. In the result, the four instant appeals filed by the Revenue, against the consolidated order of the CIT(A), are dismissed.