2018 (8) TMI 1625 - AT - Income Tax

TDS not applicable on handling charges reimbursed to transporters; Section 40(a)(ia) disallowance deleted

The Tribunal held that handling and warehouse collection charges reimbursed to transporters were not subject to TDS as they were not payments for services ... TDS u/s 194C - non deduction of tax at source (TDS) on warehousing & collection charges - addition u/s 40(a)(ia)- reimbursement of expenses - Held that:- Assessee has reimbursed the collection charges and pick up charges to the various transporters, and this fact can be verified from the copies of freight bills and ledger account of warehousing collection charges. The reimbursement of expenses for and on behalf of assessee is not covered under the provisions of section 194C These expenses are not liable to TDS as the term ‘contract’ is absent. These reimbursement of expenses were not made by the assessee towards any services rendered by the agent, but has been made to set off the expenses incurred by the agent on behalf of the assessee. We note that there is no element of ‘income’ in these transactions, it is just reimbursement of expenses incurred by the agent for and on behalf of assessee. Therefore, the assessee was not obliged to deduct tax at source - decided in favour of assessee. Issues Involved:1. Disallowance under section 40(a)(ia) for non-deduction of TDS on handling and warehouse collection charges.2. Applicability of section 194C(6) regarding TDS exemption for payments to transporters with valid PAN.3. Argument on reimbursement of expenses and its exemption from TDS provisions.4. Verification and restriction of disallowance to unpaid taxes after due verification.Detailed Analysis:1. Disallowance under section 40(a)(ia) for non-deduction of TDS on handling and warehouse collection charges:The primary issue is the disallowance of Rs. 18,16,096/- under section 40(a)(ia) of the Income-Tax Act, 1961, due to non-deduction of TDS on handling and warehouse collection charges paid to various transporters. The Assessing Officer (AO) noted that the assessee did not deduct TDS on these payments, leading to the disallowance.2. Applicability of section 194C(6) regarding TDS exemption for payments to transporters with valid PAN:The assessee argued that the handling and warehouse collection charges paid to transporters were part of the freight payable and were covered under section 194C(6) of the Act. This section exempts payments for hiring vehicles for goods movement from TDS if the transporter furnishes a valid PAN. The assessee contended that since the transporters provided their PAN, there was no requirement for TDS deduction.3. Argument on reimbursement of expenses and its exemption from TDS provisions:The assessee further argued that the payments were merely reimbursements of expenses incurred by the transporters on behalf of the assessee, and thus, TDS provisions were not applicable. The assessee provided a chart showing instances where TDS was deducted in contractual obligations and not deducted in reimbursement scenarios. The ledger accounts and bills were submitted to support the claim that these were reimbursement expenses, not payments for services rendered.4. Verification and restriction of disallowance to unpaid taxes after due verification:The assessee requested that if any disallowance were to be made, it should be restricted to the amount of tax that remained unpaid by the concerned parties after due verification. This was a subsidiary argument aimed at minimizing the disallowance.Tribunal's Findings:Reimbursement of Expenses:The Tribunal noted that the assessee had reimbursed collection and pick-up charges to various transporters, which were verified from the freight bills and ledger accounts. It was held that these reimbursements were not covered under section 194C as they did not constitute payments for services rendered but were merely to set off expenses incurred by the agent on behalf of the assessee. The Tribunal emphasized that there was no element of 'income' in these transactions, thus no TDS obligation existed.No Contractual Obligation:The Tribunal observed that there was no direct contract between the assessee and the transporters for these payments, reinforcing the position that TDS was not applicable. The Tribunal relied on precedents, including the Co-ordinate Bench of ITAT Kolkata in the case of Satyendra Jhunjhunwalla Vs. ITO, which held that reimbursement of expenses without any income element does not attract TDS.Legal Precedents:The Tribunal cited several judgments, including the Delhi High Court's decision in CIT Vs. Industrial Engg. Projects P. Ltd., which established that reimbursements without income elements are not subject to TDS.Conclusion:The Tribunal concluded that the handling and warehouse collection charges paid to transporters were not liable to TDS as they were reimbursements and not payments for services rendered. The addition made by the AO and confirmed by the CIT(A) was deleted, and the appeal of the assessee was allowed.Order Pronounced:The appeal was allowed, and the order was pronounced in the open court on 31-07-2018.