S/s. 40(a)(ia), 194C, 194IA – Provisions of S/s. 194C, 194IA are not applicable to amounts paid by Clearing & Forwarding Agent, on behalf of his client, receipts whereof are issued in the name of the client.
Facts:
The assessee, a clearing & forwarding agent, had charged service charges known as agency charges from its clients whose goods were exported through various ports mainly in Gujarat & Maharashtra. In respect of the amounts paid by the assessee on behalf of its clients, receipts whereof were issued by the recipients in the name of the clients, the assessee did not deduct tax at source. The assessee contended that it was merely a facilitator in the export business of its clients. The assessee received from its clients reimbursement of amounts paid on their behalf and also service charges/agency charges. It was only the agency charges which were credited as income to P&L account of the assessee.
The Assessing Officer (AO) made an addition of Rs. 1,69,11,269; Rs. 23,01,424 and Rs. 26,76,785 u/s. 40(a) (ia) r.w.s. 194C & 194I of the Act on the ground that the assessee had failed to deduct tax at source on payments made by it on behalf of its clients.
Aggrieved the assessee preferred an appeal to CIT(A) who allowed the appeal.
Aggrieved, the revenue preferred an appeal to the Tribunal.
Held:
The Tribunal noted that the assessee received railway freight, shipping freight, ICD charges, etc from its clients by way of reimbursement of expenses. It held that the assessee is merely a facilitator in the export business of its clients and facilitates to and fro movement of client’s goods both in land and overseas using road, rail, air and sea routes including temporary storage of the goods in custom bonded warehbouse for legal and procedural purposes, etc. The assessee received reimbursement of expenses incurred and also service charges. The Tribunal noted that the receipts were issued by various parties in the name of clients of the assessee and not in the name of the assessee and that it is only the agency charges which are credited to the P & L account of the assessee.
The Tribunal held that for applicability of provisions of section 194C and section 194I, the relationship of contractor and payee pursuant to contract between the parties is essential. In the facts of the assessee’s case, the Tribunal held that such a relationship is missing.
The Tribunal noted the finding given by CIT(A) that the clients of the assessee are reimbursing monies paid by the assessee to such agencies along with the assessee’s commission or handling charges and also that the CIT(A) has referred to number of decisions where the Hon’ble Courts have held that TDS provisions are not attracted in cases involving reimbursement of expenses held that addition on account of payments made to various parties on behalf of its clients by the assessee could not be sustained and deserves to be deleted. The Tribunal confirmed the order passed by CIT(A).
The appeal filed by the revenue was dismissed.
