Income Tax Appellate Tribunal - Delhi
Glaxo Smithkline Consumer Healthcare ... vs Ito on 13 October, 2006
ORDER
R.C. Sharma, Accountant Member
1. These are four appeals filed by the assessee against the consolidated order of the Commissioner (Appeals) dated 20-9-2004 for the assessment years 2000-01 to 2003-04, in the matter of order passed under Section 201(1) and 201(1A) of the Income Tax Act, 1961 wherein following common grounds have been raised by the assessee:
1. That the Commissioner (Appeals) erred on facts and in law in confirming the action of the assessing officer in treating the appellant as an assessee in default under Section 201(1) of the Act for alleged short deduction of tax at source from payment made to Clearing and Forwarding Agents ('C&FA') during the relevant financial year.
2. That the Commissioner (Appeals) erred on facts and in law in confirming the action of the assessing officer holding that the payments made to C&FA were for rendering managerial services and, therefore, tax was required to be deducted therefrom under Section 194J instead of Section 194C of the Act.
3. That the Commissioner (Appeals) erred on facts and in law in not holding that interest under Section 201(1A) of the Act, was not leviable where the C&FA had considered the amount received from the appellant in computing its taxable income and paid tax thereon by way of TDS/advance-tax.
2. Rival contentions have been heard and record perused. The facts of the case are that the assessee-company is engaged in the business of manufacturer and sale of consumer health care products such as Boost, Horlicks, etc. For the relevant assessment years under consideration it filed annual returns in respect of tax deducted at source from payment made to contractors under Section 194C of the Income Tax Act in Form No. 26C. A survey under Section 133A of the Act was carried out at the assessee's regional office at New Delhi on 20-1-2004. Thereafter, an order dated 26-3-2004 was passed under Section 201(1)/201(lA) of the Act wherein the assessee was held to be an assessee in default for short deduction of tax at source under Chapter XVII of the Act on the payment made to clearing and forwarding agents. According to the assessing officer, the services rendered by the C&F Agents were managerial services on which tax should have been deducted under Section 194J instead of Section 194C under which tax was deducted by the assessee. The assessee was, therefore, held by the assessing officer to be liable to be an assessee in default under Section 201(1)/201(IA) of the Act in respect of tax short deducted and the consequential interest. This action of the assessing officer in treating the assessee as an assessee in default has been confirmed by Commissioner (Appeals). The crucial issue to be decided is as to whether the services rendered by the C&F Agents were in the nature of "work" in terms of Section 194C or "managerial services" in terms of Section 194J and how the tax should have been deducted on such payments under the provisions of the Income Tax Act, 1961.
3. We have considered the rival contentions carefully gone through the orders of the authorities below as well as provisions of the law contained under Sections 194C and 194J of the Income Tax Act, 1961. In the instant case, from the record we found that the assessee had entered into clearing and forwarding agency agreements with various persons. On the payments made to the Clearing and Forwarding Agents, the assessee deducted tax at source under Section 194C of the Act. The payment made by the assessee to the C&F Agents was for a consolidated set of services, The services included receipt and despatch of goods, storing the goods, keeping accounts/ records of the same, ensuring the safety of the goods, complying with formalities for effecting receipt and despatch of goods, etc. The object of the agreements was to ensure handling and delivery of the goods as per the directions of the assessee. Since the services involved carrying out of "work" within the meaning of the said term in Section 194C of the Act, the assessee, therefore, correctly deducted tax at source under the said section out of the payments made to C&F Agents. The assessing officer held that the services rendered by the C&F Agents were in the nature of managerial services and, therefore, tax should have been deducted on such payments under Section 194J of the Act. The assessing officer, thus, treated the assessee as an assessee in default for short deduction of tax at source and accordingly computed tax payable under Section 201(l) of the Act. Action of the assessing officer was confirmed by the Commissioner (Appeals).
4. We have carefully gone through the agreement entered into by the assessee with C&F Agents and perused the terms relating to services to be rendered by C&F Agents. We found that the C&F Agents was required to store, dispose, deliver or redeliver goods as may be determined and notified to such C&F Agents by the assessee. The C&F Agents was required to store the goods by the assessee with all care, prudence and responsibility so that such goods are free from risks as theft, pilferage and damages. He shall have full responsibility in respect of clearing consignment, loading/ unloading, carriage, cartage to and for the warehouse and godown of the agents, staking or storing. He shall put such mark or marks in the warehouse to distinguish the goods of the assessee from the goods that such agents may receive from any other person. He shall indemnify the assessee against any loss in respect of the goods in its custody. Furthermore, the C&F Agents undertake to deliver the goods or consignment to such persons or parties as nominated by the assessee, maintain and render proper account of goods or consignments received, stored, and delivered periodically and submit such statement to the assessee from time to time.
5. We also found that C&F Agents was liable for all damages, pilferage and other losses incurred due to negligence, etc., and undertake to pay on demand in writing made by the assessee without protest the market value of the goods entrusted to such agents. The goods of the assessee was to be received and held by the C&F Agents as bailee/trustee, for and on behalf of the assessee. The agreement entitled the agents for reimbursement of all approved expenses incurred on behalf of the assessee.
6. Thus, it is crystal clear from the terms of the agreement that payment was made by the assessee to the C&F Agents, was for consolidated set of services which have been broadly described above. The main object of the agreement was to ensure correct handling and delivery of goods as per the terms of the assessee. We found that as per the nature of services rendered, the same are in pari materia to the services as contemplated under Section 194C, and the same was not for any professional or technical services as mentioned under Section 194J of the Act. As per Section 194J(I) of the Act, any person, not being an individual or a Hindu Undivided Family, who is responsible for paying to a resident any sum by way of (a) fee for professional services, or (b) fees for technical services, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount of equal to five per cent of such sum as income-tax on income comprised therein. Explanation (a) and (b) to Section 194J of the Act defines "professional services" and "fees for technical services" respectively. The same reads as under:
Explanation-for the purposes of this section:
(a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural professional 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 or of this section;
(b) "fees for technical services" shall have the same meaning as Explanation 2 to Clause (vii) of Sub-section (1) of Section 9.
Explanation 2 to Section 9(1)(vii) of the Act "fees for technical services"to mean any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provisions of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".
7. Thus it is crystal clear from the provisions of Section 194J that services of the agents are neither professional services nor technical services. Such services are also clearly not in the nature of technical, consultancy or managerial services, therefore, tax in respect of these services are not to be deductible under Section 194J of the Act. C.B.D.T. in its Circular No. 720 dated 30-8-1995 had also provided that various provisions of Chapter XVII relating to deduction of tax at sources are mutually exclusive and that Chapter XVII deals with a particular kind of payment to the exclusion of all other sections in this Chapter. Thus, any payment of any sum shall be liable for deduction of tax only under one section, therefore, payment is also liable for tax deduction only under one section, as warranted by the nature of services stipulated therein. Combined reading of provisions of Sections 194C and 194J vis-a-vis C.B.D.T. Circular No. 720 makes it abundantly clear that in the instant case payment made by the assessee to the C&F Agents, was for the services which was predominantly for "carrying out work", inter alia, relating to storage despatch, transportation, loading and unloading of goods, etc. Thus, the assessee has rightly deducted tax at source under Section 194C of the Act.
8. In view of the above discussion, we are inclined to agree with the learned AR that assessee was not in default for deduction of tax as per provisions of Section 194C at the rate of 2 per cent and that lower authorities were not justified for treating the services rendered to the assessee as falling under Section 194J of the Act and thereby liable for deduction of tax at 5%.
9. In the result, the appeals of the assessee in all the years are allowed.