Sections 40(a)(ia), 194C — Service contracts have not been specifically included in Explanation III below section 194C. Provisions of section 194C are not applicable to the payments to C & F agents. Payments made by the assessee to C & F agents towards reimbursement of statutory liability paid by C & F agent on behalf of the assessee cannot be considered to be covered by section 194C as they are not for any work of the nature mentioned in Explanation III.

The assessee had paid C & F agency charges to Vidhi Enterprises and Jayashree Shipping being their charges as agent of the assessee. These payments were made without deducting tax at source. Also, no tax was deducted from payments debited under the head ‘C & F Expenses; being reimbursement of expenses such as customs duty, food stuffing charges, DEPB licence/miscellaneous expenses, conveyance and other charges. The Assessing Officer rejected the contention of the assessee that considering the nature of payment, no tax was required to be deducted. He, accordingly, added a sum of Rs.4,02,252 to the total income by invoking the provisions of section 40(a)(ia) of the Act.

Aggrieved the assessee preferred an appeal to CIT(A) where relying on the decision of the Bombay High Court in the case of East India Hotels Ltd. v. CBDT, 179 Taxman 17 (Bom.) it was contended that section was not applicable to a service contract which is not specifically included in the section under Explanation III. Reliance was also placed on the decision of Visakhapatnam Bench of the Tribunal in the case of Mythri Transport Corporation v. ACIT, 124

TTJ 970, where it was held that when the risk of the main contract is not passed on to the intermediary, then the provisions of section 194C do not apply. The CIT(A) accepted these contentions and directed the AO to delete the disallowance of Rs.4,02,252. Aggrieved, the Revenue filed an appeal to the Tribunal.

Held:

 The contract between the assessee and the C & F agent is a service contract which has not been specifically included in Explanation III below section 194C. In this view of the matter, the provisions of section 194C are not applicable to the payments to C & F agents. If that is so, there was no obligation on the part of the assessee to deduct tax from the payment made to C & F agents.

In respect of payments to agents towards reimbursement of statutory liabilities such as customs duty, DEPB licence, etc., the Tribunal observed that these are actually the liabilities of the assessee and noted that the receipt for the payment is issued by the concerned authority only in the name of assessee. The C & F agents merely collected the payments from the assessee for payment to concerned authorities. The Tribunal held that such payments cannot be considered to be covered by section 194C as they are not for any work of the nature mentioned in Explanation III. These amounts are not subject to TDS, even if it is assumed that section 194C is applicable to the payments in question.

The Tribunal upheld the order of CIT(A) by observing that the basic question as to whether the payments of the nature made by the assessee are covered by Explanation III below section 194C has been answered in favour of the assessee by the judgment of the Bombay High Court cited above and on this ground alone the decision of the CIT(A) has to be upheld. The appeal filed by the Revenue was dismissed.