The Delhi Income Tax Appellate Tribunal (ITAT) in the case DCIT Versus M/s Expeditors International [I] Pvt. Ltd observed and has held that the payments to agents of foreign shipping companies are exempt from TDS deduction.
The two-member bench comprising of Judicial Member, Saktijit Dey and the Accountant Member, N.K.Billaiya has observed that provisions of section 172 of the Income-tax Act, 1961 apply to payments made to agents of foreign shipping companies; therefore, it do not apply to the provisions of section 194C of the Income-tax Act, 1961.
It stated that Section 172 of the Income-tax Act, 1961, deals with the shipping business of non-residents. It stated under Section 194C that any person is responsible for paying any sum to the resident contractor for carrying out any work (including the supply of labor).
In the present case, the assessee/respondent is engaged in in supply chain management, logistics, and freight forwarding, which are related to the movement of goods and cargo within India or outside by road, rail, air, or ship. However, the activities of the assessee involve packing, loading, unloading, trucking, containerization, custom clearance, and other handling functions at both ends, besides moving the goods by air or sea, where goods cross international borders. Further, the assessee is an Indian arm of a multinational company, Expeditors International.
It was observed that the Assessing Officer came to know that the assessee was making payments to Indian subsidiaries of foreign shipping companies and that on such payments, no TDS under section 194C was deducted, during the course assessment proceedings.
It was asked by the assessee to explain as to why the assessee should not be deemed to be an assessee in default under section 201/201(1A) of the Income Tax Act.
Further, the assessee claimed that the provisions of section 194C do not apply to it but furnished details of payments without TDS.
Before the court, the contention of the assessee did not find any favour with the Assessing Officer who, taking a leaf out of the proceedings of FY. 2009-10 and 2010-11, treated the assessee to be an assessee in default.
It was agitated by the assessee that the matter before the CIT(A). Thus, the assessee reiterated its contention that it has made payments to agents of foreign shipping companies. However, these payments are covered under section 172 and are fully exempt from TDS deduction.
Further, he was convinced by the assessee’s argument and allowed the appeal, when CIT (A) read CBDT Circular No. 723 dated 19.09.1995.
It was observed that a circular dated 19.09.1995 states that provisions of section 172 apply to payments made to agents of foreign shipping companies and, therefore, provisions of section 194C do not apply.
It was held by the tribunal that the Circular has been followed by the CIT(A), and there is no reason to interfere with the findings of the CIT(A).