ACIT CIR 13(3), MUMBAI v. P.P. OVERSEAS, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH MUMBAI. BEFORE SHRI R.V.EASWAR PRESIDENT AND SHRI R.K.PANDA ACCOUNTANT MEMBER I.T.A. NO.733/MUM/2010 (ASSESSMENT YEAR : 2006-07) THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 13(3) 430 AAYAKAR BHAVAN M.K.ROAD MUMBAI-400 020. VS. M/S. P.P.OVERSEAS 254 NARSI NATHA STREET R.NO.9 1 ST FLOOR MASJID BUNDER MUMBAI-400 009. PAN:AADFP2661F (APPELLANT) (RESPONDENT) APPELLANT BY : MR. P.N.DEVDASAN DR RESPONDENT BY : MR. KESHAV B.BHUJLE O R D E R PER R.V.EASWAR PRESIDENT: THIS IS AN APPEAL BY THE REVENUE AND THE SAME RELATES TO THE ASSESSMENT YEAR 2006-07 . THE ASSESSEE IS A PARTNERSHIP FIRM CARRYING ON THE BUS INESS OF EXPORTING SPICES AND FOOD STUFF. THE APPEAL ARISES OUT OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT ON 30.12.2008. 2. THE FIRST GROUND IS AS UNDER:- 1. (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.4 02 252/- MADE BY THE ASSESSING OFFICER? (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THAT ADDITION RELATES TO C & F AGENCY CHARGES INCLUDES REIMBURSEMENT AND EXPENSES FALLS UNDER THE AMBIT OF SECTION 194C OF THE ACT. ITA NO.733/MUM/10 2 (C) THE LEARNED CIT(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW ERRED IN NOT APPRECIATING THE FACTS THAT CLARIFICATION IN VIEW OF CIRCULAR NO.715 DATED 08.08.1995 CLEARLY STATES THAT ANY PAYMENT TO C & F AGENT INCLUDING REIMBURSEMENT IS CONTRACT. THE BRIEF FACTS IN RELATION TO THE GROUND MAY BE NO TICED. IN THE RELEVANT ACCOUNTING YEAR THE ASSESSEE DEBITED RS.39 566/- UNDER THE HEAD C & F EXPENSES. IN THE COURSE OF T HE ASSESSMENT PROCEEDINGS THE ASSESSEE WAS REQUIRED T O FURNISH THE PARTY-WISE DETAILS OF THE EXPENSES AND EXPLAIN WHETHER ANY TAX WAS DEDUCTED AT SOURCE AS REQUIRED BY SECTION 1 94C OF THE ACT. IN RESPONSE TO THE SAME THE ASSESSEE SUBMITTE D THAT C & F AGENCY CHARGES WERE PAID TO M/S. VIDHI ENTERPRISES AND JAYASHREE SHIPPING BEING THEIR CHARGES AS AGENT OF THE ASSESSEE AND THAT C & F EXPENSES ARE REIMBURSEMENT OF EXPENS ES SUCH AS CUSTOMS DUTY FOOD STUFFING CHARGES DEPB LICENCE/MISCELLANEOUS EXPENSES CONVEYANCE AND OTHE R CHARGES PAID. IT WAS FURTHER SUBMITTED THAT CONSIDERING TH E NATURE OF THE EXPENSES NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE. 3. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSE ES EXPLANATION. ACCORDING TO HIM THE ASSESSEES CASE F ELL UNDER THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF ASSOC IATED CEMENT CO. LTD. VS. CIT. 201 ITR 435 AND THEREFO RE THE ASSESSEE OUGHT TO HAVE DEDUCTED THE TAX AT SOURCE. THE ASSESSING OFFICER FURTHER HELD THAT EVEN THE AMOUNT S REIMBURSED WERE SUBJECT TO TDS. HE ALSO RELIED ON THE CIRCULAR NO.715 ISSUED BY THE CBDT ON 8 TH AUGUST 1995 IN THIS REGARD. SINCE THE ASSESSEE HAD NOT DEDUCTED THE TAX FROM TH E PAYMENTS THE ASSESSING OFFICER INVOKED SECTION 40(A)(IA) OF THE ACT AND DISALLOWED THE TOTAL AMOUNT OF RS.4 02 252/-. ITA NO.733/MUM/10 3 4. ON APPEAL THE ASSESSEE ALSO TOOK UP THE PLEA W ITHOUT PREJUDICE THAT EACH OF THE PAYMENTS AS AGENCY FEES WAS LESS THAN RS.20 000/- AND THE AGGREGATE WAS ALSO LESS TH AN RS.50 000/- AND THEREFORE EVEN ON THAT GROUND THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX UNDER SECTION 194C. IT WAS CONTENDED THAT THE ASSESSEE WAS NOT COVERED BY THE PROVISIONS OF SECTION 194C BECAUSE OF THE JUDGEMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF EAST INDIA HOTELS LTD. VS. CBDT 179 TAXMAN 17 IN WHICH IT WAS HELD THAT THE SE CTION WAS NOT APPLICABLE TO A SERVICE CONTRACT WHICH IS NOT S PECIFICALLY INCLUDED IN THE SECTION UNDER EXPLANATION III. RELI ANCE WAS ALSO PLACED BY THE ASSESSEE ON THE DECISION OF THE VISAK HAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF MYTHRI TRANSPO RT CORPORATION VS. ACIT. (2009) 124 TTJ 970 WHERE IT WAS HELD THAT WHEN THE RISK OF THE MAIN CONTRACT IS NOT PASS ED ON TO THE INTERMEDIARY THEN THE PROVISIONS OF SECTION 194C DO NOT APPLY. 5. THE CIT(A) ACCEPTED THE CONTENTION OF THE ASSESS EE BASED ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT A ND THE ORDER OF THE VISAKHAPATNAM BENCH OF THE TRIBUNAL AN D DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE O F RS.4 02 252/-. IT IS AGAINST THIS DECISION THAT THE REVENUE HAS COME IN APPEAL. 6. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE R IVAL CONTENTIONS. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO FILED BRIEF WRITTEN SUBMISSIONS DATED 13.11.2009. IN THE JUDGEMENT IN THE CASE OF EAST INDIA HOTELS LTD. (SUPRA) WHIC H IS ALSO REPORTED IN 320 ITR 526 THE HONBLE BOMBAY HIGH CO URT HAS HELD AS UNDER:- (I) FROM THE DECISION OF THE APEX COURT IN THE CASE OF BIRLA CEMENT WORKS VS. CBDT (2001) 248 ITR 216 / 115 TAXMAN 359 IT IS CLEAR THAT THE WORDS CARRYING OU T ANY WORK IN SECTION 194C ARE LIMITED TO ANY WORK WHIC H ON ITA NO.733/MUM/10 4 BEING CARRIED OUT CULMINATES INTO A PRODUCT OR RESU LT. IN OTHER WORDS THE WORD WORK IN SECTION 194C IS L IMITED TO DOING SOMETHING WITH A VIEW TO ACHIEVE THE TASK UNDERTAKEN OR CARRY OUT AN OPERATION WHICH PRODUCES SOME RESULTS. (II) AS ILLUSTRATED IN CIRCULAR NO.86 DATED 29.05. 1972 SECTION 194C WOULD APPLY TO PAYMENTS FOR CARRYING O UT THE WORK SUCH AS CONSTRUCTING BUILDINGS OR DAMS OR LAYI NG OF ROADS AND AIR FIELDS OR RAILWAY LINES OR ERECTION O F INSTALLATION OF PLANT AND MACHINERY ETC. IN ALL THE SE CONTRACTS THE EXECUTION OF THE CONTRACT BY A CONTR ACTOR / SUB-CONTRACTOR RESULTS IN PRODUCTION OF THE DESIRED OBJECT OR ACCOMPLISHING THE TASK UNDER THE CONTRACT. (III) FROM THE FACT THAT THE CONTRACTS FOR SUPPLY OF LABOUR TO CARRY OUT ANY WORK HAVE BEEN SPECIFICALLY BROUGH T WITHIN THE PURVIEW OF SECTION 194C AND THE FACT THAT FOUR CATEGORIES OF SERVICE CONTRACTS HAVE BEEN SPECIFICA LLY BROUGHT WITHIN THE PURVIEW OF SECTION 194C BY INSER TING EXPLANATION III TO SECTION 194C IT CANNOT BE INFE RRED THAT THE SERVICES RENDERED BY A HOTEL TO ITS CUSTOMERS A RE ALSO COVERED UNDER SECTION 194C. (III) IT IS TRUE THAT THE WORD WORK IN SECTION 19 4C IS NOT RESTRICTED TO WORKS CONTRACT ONLY AS HELD BY THE APEX COURT IN THE CASE OF ASSOCIATED CEMENT CO.LTD. VS. CIT (1993) 201 ITR 345 / 67 TAXMAN 346. HOWEVER AS HEL D BY THE APEX COURT IN THE CASE OF BIRLA CEMENT WORKS (S UPRA) THE WORD WORK IN SECTION 194C HAS TO BE UNDERSTOO D IN A LIMITED SENSE AND WOULD EXTEND ONLY TO THE SERVICE CONTRACTS SPECIFICALLY INCLUDED IN THE SAID SECTION BY WAY OF EXPLANATION III. THE CONTRACT BETWEEN THE ASSESSEE AND THE C & F AGE NT IS A SERVICE CONTRACT WHICH HAS NOT BEEN SPECIFICALLY IN CLUDED IN ITA NO.733/MUM/10 5 EXPLANATION III BELOW SECTION 194C. IN THIS VIEW OF THE MATTER THE PROVISIONS OF SECTION 194C ARE NOT APPLICABLE T O THE PAYMENTS TO THE C & F AGENTS. IF THAT IS SO THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TA X FROM THE PAYMENT MADE TO THE C & F AGENTS. EVEN OTHERWISE AN D ASSUMING THAT SECTION 194C IS APPLICABLE TO THE ASS ESSEE AND TO THE PAYMENTS MADE TO THE FIVE C & F AGENTS THE PAY MENTS MADE TO M/S. EAGLE GLOBAL M/S. SHAM OCTRAI AND M/S . JAYASHREE SHIPPING WERE LESS THAN RS.20 000/- EACH AND EVEN THE AGGREGATE PAYMENTS TO THEM WAS LESS THAN RS.50 000/-. UNDER SUB-SECTION (5) OF SECTION 194C NO DEDUCTION NEED TO BE MADE IF THE AMOUNT PAID TO EACH CONTRACTOR DOES NOT EXCEED RS.20 000/- OR RS.50 000/- IN THE AGGREGATE. EVEN O N THIS SCORE THE SECTION IS NOT APPLICABLE. 7. IN RESPECT OF THE REMAINING TWO AGENTS NAMELY M/ S. VIDHI ENTERPRISES AND M/S. SAR MARINE THE PAYMENTS MADE INCLUDED THE PAYMENT OF STATUTORY LIABILITIES SUCH AS CUSTOM S DUTY DEPB LICENCE ETC. WHICH IS ACTUALLY THE LIABILITY OF TH E ASSESSEE AND THE RECEIPT FOR THE PAYMENT IS ISSUED BY THE CONCER NED AUTHORITY ONLY IN THE NAME OF THE ASSESSEE. THE C & F AGENTS MERELY COLLECTED THE PAYMENTS FROM THE ASSESSEE FOR PAYMEN T TO THE CONCERNED AUTHORITIES. SUCH PAYMENTS CANNOT BE CON SIDERED TO BE COVERED BY SECTION 194C AS THEY ARE NOT FOR ANY WORK OF THE NATURE MENTIONED IN EXPLANATION III. IT HAS BEEN SO HELD BY THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF S.S.C VS . STATE OF PUNJAB (2004) 268 ITR 398. SUCH PAYMENTS AMOUNT TO RS.76 643/- IN THE CASE OF M/S. SAR MARINE AND RS. 1 68 242/- IN THE CASE OF VIDHI ENTERPRISES. THEREFORE THESE A MOUNTS IN ANY CASE ARE NOT SUBJECT TO TDS EVEN IF IT IS HELD THA T SECTION 194C IS APPLICABLE TO THE PAYMENTS IN QUESTION. HOWEVER IT MUST BE REMEMBERED THAT THE BASIC QUESTION AS TO WHETHER TH E PAYMENT OF THE NATURE MADE BY THE ASSESSEE ARE COVERED BY T HE ASSESSEE ITA NO.733/MUM/10 6 ARE COVERED BY EXPLANATION III BELOW SECTION 194C HAS BEEN ANSWERED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMEN T OF THE HONBLE BOMBAY HIGH COURT CITED ABOVE AND ON THIS G ROUND ALONE THE DECISION OF THE CIT(A) HAS TO BE UPHELD. WE DO SO AND DISMISS THE FIRST GROUND RAISED BY THE DEPARTMENT. 8. THE SECOND GROUND IS AS UNDER:- THE LEARNED CIT(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE OF RS.4 00 529/- BEING PREMIUM PAID ON THE LIFE OF PARTNER UNDER THE KEYMAN INSURANCE POLICY BY MISINTERPRETING THE CBDTS CIRCULAR NO.76 2 DATED 18.02.1998 AND FAILING TO CONSIDER THE EXPLANATION(2) TO SECTION 10 (10D) OF THE I.T.ACT 1961 WHICH NEEDS TO BE RESTORED. THE BRIEF FACTS IN THIS CONNECTION ARE THAT THE ASS ESSEE IS A FIRM AND IT HAD TAKEN OUT KEYMAN INSURANCE POLICY ON THE PARTNERS OF THE FIRM. THE INSURANCE PREMIUM PAID IN RESPECT OF THE POLICIES WAS CLAIMED AS A DEDUCTION AS BUSINESS EX PENDITURE AND THEY APPEAR TO HAVE BEEN ALLOWED IN THE PRECEDI NG ASSESSMENT YEARS. HOWEVER IN THE YEAR UNDER APPEA L THE PREMIUM WAS NOT ALLOWED AS A DEDUCTION. THE CIT(A) HOWEVER DELETED THE DISALLOWANCE FOLLOWING THE ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. MODI M OTORS (2009) 27 SOT 476 WHEREIN IT WAS HELD THAT PREMIUM PAID U NDER KEYMAN INSURANCE POLICY IS ALLOWABLE AS A DEDUCTION IN THE CASE OF PARTNERSHIP FIRM WHERE POLICIES ARE TAKEN OUT ON THE LIVES OF THE WORKING PARTNERS. THE REVENUE IS IN APPEAL. WE FIND THAT THIS ISSUE NOW STANDS COVERED IN FAVOUR OF THE ASSE SSEE BY THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. B.N.EXPORTS (2010) 323 ITR 178. THEREFORE RESPECTFULLY FOLLOWING THE SAID JUDGEMENT WE CONFIRM THE DECISI ON OF THE CIT(A) AND DISMISS THE GROUND. ITA NO.733/MUM/10 7 9. GROUNDS 3 & 4 ARE GENERAL AND REQUIRE NO DE CISION. 10. IN THE RESULT THE APPEAL FILED BY THE DEPARTM ENT IS DISMISSED WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF FEBRUARY 2011. SD/- ( R.K. PANDA ) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER PRESIDENT MUMBAI DATED 18 TH FEBRUARY 2011. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-13 MUMBAI. 4. THE CIT(A)-24 MUMBAI 5. THE DR C BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR I.T.A.T MUMBAI