Payment to agents of foreign shipping companies exempted from TDS: ITAT
The Delhi Income Tax Appellate Tribunal has held that Payments to agents of foreign shipping companies are exempted from TDS deduction.
The Tribunal has observed that since the provisions of section 172 of the Income-tax Act, 1961 apply to payments made to agents of foreign shipping companies; provisions of section 194C of the Income-tax Act, 1961 do not apply.
It was further observed that Section 172 of the Income-tax Act, 1961 deals with the shipping business of non-residents. Section 194C states that any person is responsible for paying any sum to the resident contractor for carrying out any work (including the supply of labor).
The respondent/assessee is an Indian arm of a multinational company, Expeditors International is engaged in the supply chain management, logistics and freight forwarding relating to the movement of goods and cargo within India or outside by road, rail, air or ship. The activities of the assessee involve packing, loading, unloading, trucking, containerisation, custom clearance, and other handling functions at both ends, besides moving the goods by air or sea, where goods cross international borders.
During the assessment proceedings, the Assessing officer observed that payments were made to Indian subsidiaries of foreign shipping companies by the assessee and no TDS was deducted under Section 194C. In pursuant to this, the assess was directed to explain as why the assessee should not be deemed to be an assessee in default under section 201/201(1A) of the Income Tax Act.
The assessee claimed that the provisions of section 194C do not apply to it but furnished details of payments without TDS. However, the Assessing Officer ruled against the assessee treating it to be an assessee in default.
The assessee strongly agitated the matter before the CIT(A) and reiterated its contention that it has made payments to agents of foreign shipping companies. Therefore, these payments are covered under section 172 and are fully exempt from TDS deduction.
The contention of the assessee read with CBDT Circular No. 723 dated 19.09.1995, convinced the CIT(A) of the assessee's argument and the CIT(A) allowed the appeal.
The 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.
The tribunal held that the Circular has been followed by the CIT(A), and there is no reason to interfere with the findings of the CIT(A).