2014 (12) TMI 719 - AT - Income Tax

Assessee not liable to deduct tax for intermediary payments. Tribunal directs deletion of demands.

Income tax Officer (TDS) -3(4) Versus M/s. Universal Traffic Co., M/s. Express Transport Pvt. Ltd.

The Tribunal upheld the CIT(A)'s decision that the assessee, acting as an intermediary, was not liable to deduct tax under Sections 194C, 194I, and 194J ... TDS liability - assessee claimed that the provisions of section 194 C and 194J of the Act are not applicable as there was no contract of the assessee with the payees and further the assessee is merely acting as an agent - payment of freight charges, seal wire charges, warehouse charges, detention charged, de-stuffing charges, crane/fork lift charges and survey fee etc. - Held that:- CIT(A) relied upon CIT vs Cargo Linkers 2008 (3) TMI 619 - DELHI HIGH COURT] wherein it has been held that the assessee being a C&F agent, is an intermediary, who booked cargo for and on behalf of importers and exporters and facilitated the contract for carrying goods, therefore not liable to withhold tax u/s 194C from payments made towards air freight on behalf of its customers, decided in favour of the assessee – CIT(A)’s view was right because such person who acts as an agent has no liability to deduct tax at source because he is acting merely as an intermediary between the airlines/shipping lines as also custodians of goods on one hand and the importers/exporters on the other - The contract is between the parties and not with the agent - The invoices and other shipping documents are in the names of importer/exporter and the assessee merely receives funds and disburses to the airline/shipping lines till clearance by the customs. The statutory warehousing charges is also the sole liability of the clients and the assessee merely defrays the expenses on behalf of the clients, thus, the assessee/agents are not liable to deduct tax u/s 194C of the Act - The privity of contract is between the clients and not with the assessee - There was no contract between the assessee and the authorities rather the assessee is working as a facilitator/agent between the parties and the authorities - TDS is deductable u/s 194C on the payments made to the contractors/ sub-contractors thus the basic premise for deducting tax is on the contracting parties - In the absence of any contractual relationship between the assessee and airlines/shipping lines/Authorities the assessee agent is not liable to withhold tax/deduct tax u/s 194C of the Act – the same has been decided in Commissioner of Income-tax Versus Bhagwati Steels [2010 (1) TMI 411 - PUNJAB & HARYANA HIGH COURT] and CIT vs United Rice Land Ltd. [2008 (5) TMI 142 - PUNJAB AND HARYANA HIGH COURT] – CIT(A) has dealt with the individual fee/payment/charges and the conclusion arrived at therein is identical –also in Hindustan Coca Cola Beverages Pvt. Ltd. vs CIT [2007 (8) TMI 12 - SUPREME COURT OF INDIA] it has been held that where the deductee concerns have already paid taxes on the payments made by the assessee payer then the Department could not deduct tax from the deductor on the same income by treating the latter to be an “assessee in default” – here also, the payees have offered the corresponding income in their returns, therefore, the alleged TDS liabilities, raised upon the assessee was not enforceable. The freight charges, detention charges and de-stuffing charges, etc. were paid to foreign lines or to their agents or shipping lines for transportation of cargo thus the privity of contract is not between the assessee and foreign lines/shipping lines to whom such charges were paid, thus, the assessee cannot be held to be a person responsible to deduct tax on such payments while acting for his clients - in CIT vs Cargo Linkers [2008 (3) TMI 619 - DELHI HIGH COURT] it has been held that since the contract was between the exporter and shipping lines and the assessee was merely working as intermediary/agent, therefore, he is not a person responsible to deduct tax in terms of section 194C – thus, the order of the CIT(A) is upheld. Survey fee – Held that:- It is paid to the persons or agencies appointed by CCSP’s who conduct inspection of the goods - Inspection of cargo is integral step for custom clearance - Likewise seal wire charges are paid to local labour operating within the customs notified premises to seal/unseal the cargo/container, thus, such payments are paid on behalf of the client and the assessee is merely acting as intermediator for the smooth clearance on behalf of the clients - Identical is the situation for crane/fork lift charges – relying upon Reliance can be placed upon the decision in ACIT vs Accenture Sericves (P) Ltd. [2010 (10) TMI 572 - ITAT, MUMBAI] – thus, the order of the CIT(A) is upheld – Decided against revenue. Issues Involved:1. Liability to deduct tax under Section 194C of the Income-tax Act.2. Liability to deduct tax under Section 194I of the Income-tax Act.3. Liability to deduct tax under Section 194J of the Income-tax Act.Issue-wise Detailed Analysis:1. Liability to Deduct Tax Under Section 194C:The Department's appeals were directed against the order of the CIT(A) which held that the assessee was not liable to deduct tax under Section 194C. The Assessing Officer had treated the assessee as an 'assessee in default' for not deducting tax at source on various expenses like freight charges, seal wire charges, warehouse charges, detention charges, de-stuffing charges, crane/forklift charges, and survey fees. The CIT(A) decided in favor of the assessee, stating that the assessee was merely an intermediary and not responsible for deducting tax on these payments.The CIT(A) noted that payments were made on behalf of the clients, and the assessee was not the person responsible for deducting tax. The CIT(A) cited the Delhi High Court's decision in CIT Vs Cargo Linkers, where it was held that the assessee, being an intermediary, was not liable to deduct tax under Section 194C. The CIT(A) also referred to the decisions in CIT Vs Bhagwati Steel and CIT Vs United Rice Land Limited, which supported the view that unless a contract exists between the assessee and the transporters, the assessee could not be held liable to deduct tax under Section 194C.2. Liability to Deduct Tax Under Section 194I:For M/s Express Transport Pvt. Ltd., the CIT(A) held that the payments made to Container Freight Stations (CFS) were not in the nature of rent requiring deduction of tax under Section 194I. The CIT(A) explained that CFS provided a range of services as statutory custodians of cargo under customs regulations, and the payments were statutory charges for these services, not rent. The CIT(A) emphasized that the importer/exporter had no option but to utilize the services of CFS to comply with customs regulations, and the charges were based on the weight or value of the cargo, not the area occupied.The CIT(A) concluded that the payments to CFS were not in the nature of rent but statutory charges for services rendered, and the assessee, acting as a Customs House Agent (CHA), was not responsible for deducting tax under Section 194I.3. Liability to Deduct Tax Under Section 194J:Regarding survey fees, the CIT(A) directed the Assessing Officer to verify the appellant's claim that some payments did not exceed the threshold limits prescribed in Section 194J and that lower withholding tax certificates were available. The CIT(A) found that the Assessing Officer had applied a 10% rate on gross payments without considering these factors.For fumigation charges, the CIT(A) held that these services did not involve rendering professional or technical services requiring tax deduction under Section 194J. The CIT(A) noted that fumigation involved manual spraying of chemicals to prevent pest damage, which did not require technical skill or knowledge.For crane and forklift charges, the CIT(A) found that the appellant hired contractors for material handling services, and the contractors engaged cranes and forklifts. The CIT(A) held that such payments were liable for tax deduction under Section 194C, not Section 194I, as the contractors provided services using their equipment.Conclusion:The CIT(A) concluded that the assessee was not liable to deduct tax under Sections 194C, 194I, and 194J for the various payments made on behalf of its clients. The CIT(A) directed the Assessing Officer to delete the demands raised under Sections 201(1) and 201(1A) for non-deduction of tax. The Tribunal upheld the CIT(A)'s orders, dismissing the Department's appeals and confirming that the assessee, acting as an intermediary, was not responsible for deducting tax on these payments.