KIN-SHIP Services (India)P.Ltd, Cochin v. ACIT, Cochin

ITA 482/COCH/2009 | 2006-2007
Pronouncement Date: 27-12-2011

Appeal Details

RSA Number 48221914 RSA 2009
Assessee PAN AABCK1973G
Bench Cochin
Appeal Number ITA 482/COCH/2009
Duration Of Justice 2 year(s) 4 month(s)
Appellant KIN-SHIP Services (India)P.Ltd, Cochin
Respondent ACIT, Cochin
Appeal Type Income Tax Appeal
Pronouncement Date 27-12-2011
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 27-12-2011
Date Of Final Hearing 03-10-2011
Next Hearing Date 03-10-2011
Assessment Year 2006-2007
Appeal Filed On 27-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE S/SHRI N.R.S.GANESAN JM AND SANJAY AROR A AM I.T.A NO.482/COCH/2009 ASSESSMENT YEAR: 2006-07 KIN-SHIP SERVICES (INDIA) PVT. LTD. 24/492 MARAR ROAD W/ISLAND KOCHI-682 003. [PAN: AABCK 1973G] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1(3) ERNAKULAM. (ASSESSEE-APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI T.M.SREEDHARAN SR. ADV. REVENUE BY MS. S. VIJAYAPRABHA JR.DR DATE OF HEARING 03/10/2011 DATE OF PRONOUNCEMENT 27/12/2011 O R D E R PER SANJAY ARORA AM: THIS IS AN APPEAL BY THE ASSESSEE ARISING OUT OF T HE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-II KOCHI (CIT(A) FOR SHORT) DATED 19.6.2009 AND THE ASSESSMENT YEAR (A.Y.) UNDER REFERENCE IS 2006-07. 2. THE ONLY ISSUE ARISING IN APPEAL IS THE VALIDITY IN LAW OF THE DISALLOWANCE U/S. 40 (A)(IA) OF THE INCOME-TAX ACT 1961 ('THE ACT' HER EINAFTER) IN THE SUM OF ` 1 05 60 625/- MADE IN RESPECT OF PAYMENTS TO TWO PARTIES BY THE A SSESSEE. 3.1 THE ASSESSEE IS A COMPANY ENGAGED IN SHIPPING STEAMER STEVEDORING CLEARING AND FORWARDING BUSINESS. FOR THE RELEVANT YEAR IT WAS FOUND TO HAVE MADE PAYMENTS AT ` 71.64 LAKHS TO M/S. VASCO AGENCIES GOA AND ` 33.96 LAKHS TO M/S. NOBLE SHIPPING MUMBAI FOR VARIOUS PORT RELATED WORKS UNDERTAKEN BY THEM. AS THE ASSESSEE HAD NOT I.T.A. NO.482 /COCH/2009 KIN-SHIP SERVICES (INDIA) (P.) LTD. V. ASSTT. CIT ERNAKULAM 2 DEDUCTED TAX AT SOURCE THEREON; THE PAYEES BEING AD MITTEDLY RESIDENTS THE ASSESSING OFFICER (A.O.) INVOKING S. 40(A)(IA) OF THE ACT DISALLOWED THE SAME. 3.2 IN APPEAL IT WAS CLARIFIED BY THE ASSESSE E THAT THE IMPUGNED PAYMENTS WERE TO SHIPPING AGENTS APPOINTED AT PORTS WHERE THE VESSE L OWNERS/CHARTER DID NOT HAVE FACILITY TO RECEIVE/DESPATCH THE SAME. THE PAYMENTS WERE MAD E ON ACCOUNT OF THE FOLLOWING:- 1) PORT DUES PIOLATAGE DUTIES FOR CONVERSION ET C. COLLECTED. 2) SURVEY CHARGES RATES AND FEE TO DG/M MD COLLECTED. 3) CONVEYANCE AND COMMUNICATION EXPENSES COLLECTED. 4) PAYMENTS TO MASTER OF THE SHIP OR FO R SUPPLIES COLLECTED. 5) PAYMENTS FOR BOAT/TUG HIRE COLLECTED . 6) STEVEDORING/PORT WHARFAGE COLLECTED. 7) PAYMENT FOR HIRE OF EQUIPMENT/CARGO SHIFTING COLLECTED. 8) PAYMENT FOR C&F WAGES COLLECTED. 9) AGENCY FEE AND SERVICE TAX. (PARA 4.2 OF TH E APPELLATE ORDER) THE PROVISION OF SEC. 194C IS NOT APPLICABLE IN-A S-MUCH AS THE SHIPPING AGENTS ARE NOT CONTRACTORS DOING ANY `WORK BUT ONLY PERFORMING CERTAIN PORT RELATED ACTIVITIES AS INSTRUCTED BY THE PRINCIPAL I.E. THE APPELLANT-CO MPANY. SIMILARLY SEC. 194J ALSO HAD NO APPLICATION IN THE INSTANT CASE. FINALLY IT WAS SU BMITTED IN THE ALTERNATIVE THAT THE ENTIRE PAYMENT WAS NOT EXIGIBLE TO DEDUCTION OF TAX AT SOU RCE SINCE THE SAME ALSO INCLUDED AMOUNTS PAID TO DIFFERENT PARTIES. THE LD. CIT(A) N OTED THAT SEC. 194C IS NOT APPLICABLE IN VIEW OF EXPLANATION III TO THE SECTION (DEFINING THE EXPRESSION WORK THOUGH IN AN INCLUSIVE MANNER). HOWEVER SEC. 194H OF THE ACT PRESCRIBING DEDUCTION OF TAX AT SOURCE IN RESPECT OF COMMISSION OR BROKERAGE IS CLEARLY A TTRACTED PARTICULARLY CONSIDERING ITS DEFINITION AS GIVEN IN EXPLANATION THERE-TO WHICH READS AS UNDER:- EXPLANATION FOR THE PURPOSE OF THIS SECTION CO MMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE DIREC TLY OR INDIRECTLY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RE NDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUY ING OR SELLING OF GOODS OR IN I.T.A. NO.482 /COCH/2009 KIN-SHIP SERVICES (INDIA) (P.) LTD. V. ASSTT. CIT ERNAKULAM 3 RELATION TO ANY TRANSACTION RELATING TO ANY ASSET VALUABLE ARTICLE OR THING NOT BEING SECURITIES. IN THE ASSESSEES CASE THE SHIPPING AGENTS WERE ON LY ACTING FOR AND ON BEHALF OF THE ASSESSEE-COMPANY RENDERING PORT RELATED SERVICES PAYMENTS QUA WHICH WOULD STAND TO BE COVERED UNDER THE EXTENDED DEFINITION OF THE TER M `COMMISSION OR `BROKERAGE AS COVERED THEREBY (SEC. 194H). TAX HAVING NOT BEEN DE DUCTED FOR THE RELEVANT YEAR THE PROVISION OF SEC. 40(A)(IA) STANDS ATTRACTED AND T HUS RIGHTLY INVOKED BY THE AO. 3.3 AS REGARDS THE ASSESSEES ALTERNATIVE SUBMISSIO N HE ON THE BASIS OF THE DETAILS EXAMINED BY HIM HELD THAT THE BILLS RAISED BY THE DIFFERENT PARTIES/PERSONS WERE IN THE NAME OF THE SHIPPING AGENTS I.E. M/S. VASCO AGENC IES GOA AND M/S. NOBLE SHIPPING MUMBAI AND NO BILL WAS RAISED IN THE NAME OF THE A PPELLANT-COMPANY. THE PAYMENTS TO THE PAYEE-AGENTS HAD THUS BEEN MADE BY THE ASSESS EE ONLY AGAINST THE BILLS RAISED BY THEM ON IT. THERE IS NO MENTION OF ANY REIMBURSEMEN T OF EXPENSES IN THE CONTRACT FOR THEM TO CLAIM IT TO BE OR AS SO I.E. A REIMBURS EMENT OF EXPENSE FROM THE ASSESSEE. ACCORDINGLY DISALLOWANCE FOR THE ENTIRE PAYMENT/S OF ` 105.61 LAKHS WAS CONFIRMED U/S. 40(A)(IA). AGGRIEVED THE ASSESSEE IS IN APPEAL. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD AS WELL AS THE CASE LAW CITED. 4.1 THE PAYEES ARE ADMITTEDLY SHIPPING AGENTS A PPOINTED BY THE ASSESSEE A COMPANY ENGAGED IN SHIPPING BUSINESS FOR PORT-RELATED SERV ICES FOR REMUNERATION. THE ASSESSEE HAS HIMSELF CLARIFIED THE NATURE OF THE DIFFERENT ACTIV ITIES INVOLVED AND WHICH WOULD FALL TO BE COVERED UNDER THE SCOPE OF THE SERVICES CONTEMPLATE D U/S. 194H EVEN AS THE ACTIVITIES LISTED MAY WELL NOT COVER THE ENTIRE GAMUT OF THE S ERVICES WHICH THE AGENTS MAY BE REQUIRED TO UNDERTAKE. ACCORDINGLY THE PAYMENTS TH ERE-TO WOULD QUALIFY TO BE CONSIDERED AS `COMMISSION OR `BROKERAGE AS DEFINED U/S. 194 H. SO HOWEVER WE FIND CONSIDERABLE MERIT IN THE ASSESSEES CLAIM THAT TO THE EXTENT TH E IMPUGNED PAYMENTS MADE IN PURSUANCE OF THE BILLS RAISED BY THE SHIPPING AGENT S INCLUDE CORRESPONDING PAYMENTS I.T.A. NO.482 /COCH/2009 KIN-SHIP SERVICES (INDIA) (P.) LTD. V. ASSTT. CIT ERNAKULAM 4 MADE BY THEM TO DIFFERENT PARTIES/AGENCIES ON BEHAL F OF THE APPELLANT THE SAME WOULD NOT QUALIFY TO BE EITHER COMMISSION OR BROKERAGE AND T HUS ARE LIABLE FOR EXCLUSION IN DETERMINING THE AMOUNT EXIGIBLE FOR DEDUCTION OF TA X AT SOURCE U/S. 194H AND CONSEQUENTLY FOR DISALLOWANCE U/S. 40(A)(IA). THIS IS AS THE SECTION SPEAKS OF DEDUCTION OF TAX FROM THE PAYMENT OF COMMISSION OR BROKERAGE AND NOT THE GROSS RECEIPT BY THE PERSON RENDERING THE SERVICES. WE MAY CLARIFY HOWEVER TH AT SUCH EXPENSES WOULD NOT INCLUDE THOSE MADE BY THE PAYEE-AGENTS TO THEIR EMPLOYEES/S TAFF OR THE COSTS INCURRED BY THEM IN PERFORMING THEIR ACTIVITIES UNLESS AND UNTIL OF C OURSE THE SAME ARE CLEARLY DEFINED AND STAND RAISED ON AND PAID BY THE ASSESSEE ON THAT BA SIS. PAYMENTS TO DIFFERENT PARTIES FOR THE SERVICES OUTSOURCED AS PER THE DIRECTIONS OF T HE PRINCIPAL WOULD HOWEVER STAND FULLY COVERED. THIS IS IRRESPECTIVE OF THE FACT THAT THE DIFFERENT PARTIES/AGENCIES/PERSONS DEALING WITH THE SHIPPING AGENTS RAISE BILLS DIRECTLY ON TH EM AND NOT ON THE APPELLANT-COMPANY I.E. THE PRINCIPAL. THIS IS AS ONCE THE STATUS OF THE PAYEES AS AGENTS IS CONFIRMED ALL SUCH PAYMENTS BY THEM ARE ONLY FOR AND ON BEHALF OF THE ASSESSEE-COMPANY AND IT WOULD BE FOR ALL MATERIAL PURPOSES INCONSEQUENTIAL WHETHER T HE BILLS ARE RAISED ON THEM DIRECTLY OR NOT. AGAIN HOWEVER THE ONUS TO PROVE WITH REFER ENCE TO THE MATERIALS THAT THE IMPUGNED SUM INCLUDES REIMBURSEMENT OF EXPENSES AN D THE MANNER IN WHICH IT IS ARRIVED AT IS ONLY ON THE ASSESSEE. WE HEREBY CONFIRM AND CLARIFY THAT IN PRINCIPLE IT IS ONLY THE PAYMENTS MADE OVER AND ABOVE SUCH REIMBURSEMENT/S T HAT WOULD QUALIFY TO BE CONSIDERED AS BROKERAGE/COMMISSION LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S. 194H. THE MATTER IS ACCORDINGLY RESTORED BACK TO THE FILE OF THE LD. C IT(A) WHO SHALL DECIDE THE SAME AFRESH AFTER HEARING BOTH THE PARTIES ISSUING DEFINITE FI NDING OF FACT; THE LAW IN THE MATTER BEING NOT IN DISPUTE. THIS IS PARTICULARLY SO AS WE OBSER VE THAT OF THE NINE AREAS TOWARD WHICH PAYMENTS ARE STATED TO BE RECEIVED BY THE PAYEE-AGE NTS AS LISTED AT PARA 3.2 ABOVE SEVEN IF NOT EIGHT ARE `OSTENSIBLY REIMBURSEMENT OF EXP ENSES COVERED FOR PAYMENT AS SUCH UNDER THE TERMS OF THE SERVICE CONTRACT/ARRANGEMENT . WHERE HOWEVER SOME MATERIALS ARE DEEMED BY HIM AS NECESSARILY REQUIRED TO BE CONSIDE RED FOR THE PURPOSE THE SAME WOULD BE SUBJECT TO THE PROCEDURE LAID DOWN UNDER RULE 46 A OF THE INCOME-TAX RULES 1962. WE DECIDE ACCORDINGLY. I.T.A. NO.482 /COCH/2009 KIN-SHIP SERVICES (INDIA) (P.) LTD. V. ASSTT. CIT ERNAKULAM 5 4.2 THE ASSESSEE HAS RELIED ON THREE DECISIONS WHICH THOUGH STAND CONSIDERED BY US WOULD NEVERTHELESS BEAR MENTION AS A PART OF THIS O RDER. THE FIRST TWO ARE IN THE CASE OF KERALA STATE STAMP VENDORS ASSOCIATION VS. OFFICE O F ACCOUNTANT GENERAL 282 ITR 7 (KER.) AND AHMEDABAD STAMP VENDORS ASSOCIATION VS. UNION OF IN DIA 257 ITR 202 (GUJ.) BOTH ARE IN RELATION TO THE INAPPLICABILITY OF THE PROVISION OF S. 194H OF THE ACT TO LICENSED STAMP VENDORS. IT WAS HELD THEREIN BY THE HONBLE COURTS THAT THE PURCHASE OF STAMP PAPERS BY THEM FROM THE TREASURY AT A DISCOUN T (W.R.T ITS FACE VALUE) IS IN THEIR OWN RIGHT AND ACCORDINGLY THERE IS NO PRINCIPAL-AGENT RELATIONSHIP BETWEEN THE STAMP VENDORS AND THE STATE GOVERNMENT. AS SUCH THE DISCOUNT AMO UNT CANNOT BE CONSIDERED AS EITHER COMMISSION OR BROKERAGE FOR THE SERVICES RENDERED LIABLE FOR DEDUCTION OF TAX AT SOURCE. IN THE PRESENT CASE THE BUSINESS RELATIONSHIP BETW EEN THE PAYEES AND THE ASSESSEE IS ADMITTEDLY THAT OF PRINCIPAL AND AGENT AND THEREFO RE THE SAID DECISIONS WOULD NOT BE OF MUCH ASSISTANCE TO THE ASSESSEE. THE THIRD CASE REL IED UPON BY THE ASSESSEE IS IN THE CASE OF ACIT VS. P.P. OVERSEAS (IN ITA NO. 733/MUM./2010 DATED 18.2.2011 FOR A.Y. 2006- 07). IT WAS HELD IN THAT CASE THAT THE SERVICE CON TRACT BETWEEN THE ASSESSEE WHO WAS IN THE BUSINESS OF EXPORTING SPICES AND FOOD STUFFS A ND ITS C&F AGENTS COULD NOT BE CONSIDERED AS FALLING WITHIN THE PURVIEW OF S. 194C IN VIEW OF EXPLANATION III THERE-TO WHICH DEFINES THE EXPRESSION WORK OCCURRING THER EIN. IN THE FACTS OF THE PRESENT CASE THE LD. CIT(A) HAS HIMSELF GIVEN A SIMILAR FINDING WHICH (FINDING) HAS NOT BEEN CHALLENGED BY THE REVENUE SO THAT THE IMPUGNED PAY MENT/S IS NOT LIABLE FOR TDS U/S. 194C. ACCORDINGLY WE ARE UNABLE TO SEE AS TO HOW T HE FACTS AND/OR THE FINDINGS BY THE TRIBUNAL IN THE SAID CASE COULD BE OF ANY ASSISTANC E TO THE ASSESSEE. 5. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 27TH DECEMBER 2011 GJ COPY TO: I.T.A. NO.482 /COCH/2009 KIN-SHIP SERVICES (INDIA) (P.) LTD. V. ASSTT. CIT ERNAKULAM 6 1. KIN-SHIP SERVICES (INDIA) PVT. LTD. 24/492 MAR AR ROAD W/ISLAND KOCHI - 682 003. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE -1(3) ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II KOC HI. 4. THE COMMISSIONER OF INCOME-TAX KOCHI. 5. D.R. I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE .