|QUERY:||Assessee engaged in imports and/or exports engage services of Clearing and Forwarding (C & F) agents. Payments to such C & F agents typically comprises of following:
(a) Reimbursement of freight paid to shipping companies or airlines.
(b) Reimbursement of freight on local transportation.
(c) Reimbursement of import or export clearing expenses like payments to Port Trust, Airport Authorities of India, miscellaneous charges, etc.
(d) Reimbursement of bonded warehousing charges.
(e) Reimbursement of Customs duties and Octroi.
(f) Reimbursement for Crane and Machinery charges to Port Trust. etc.
(g) Agency service charges.
(h) Service tax.
Whether any tax is liable to be deducted u/s. 194C of the Income-tax Act, 1961 on any of the above payments to C & F agents?
|ANSWER:||In ITO vs. Dr. Willamer Schwable India (P) Ltd. [3 SOT 71 (Del.)], the Tribunal has held that reimbursement of actual expenses where no profit element is involved, is not liable for the TDS. Similarly, it has been held by the Delhi High Court in Handicrafts & Handloom Export Corpn. of India vs. ITO [140 ITR 532]; that the amounts received by an assessee from its holding company to enable it to recoup losses incurred by it or by way of reimbursement or recoupment of its research expenditure is not liable to tax as per CIT vs. Dunlop Rubber Co. Ltd. [142 ITR 493 (Cal.)].
As regards C & F services charges or Agency Service Charges, the CBDT while answering the Question No. 7 of Circular No. 715 dated August 8, 1995 has replied as under:
“The clearing and forwarding agents act as independent contractors. Any payment made to them would be liable for TDS. They would also be liable to deduct tax at source while making payments to a carrier of goods”.
Now, the Explanation III to section 194C inserted by the Finance Ac t, 1995 with effect from July 01,1995 reads as under:
“Explanation III – For the purposes to this section, the expression ‘work’ shall also include-
(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) carriage of goods and passengers by way mode of transport other than by railway;
The Apex Court in case of Birla Cement Works vs. CBDT [248 ITR 216] has held that the word ‘work’ in section 194C has to be understood in a limited sense and would extend only to the service contracts specifically included in the section by way of Explanation III. The aforesaid decision, has been followed by the Bombay High Court in East India Hotels Ltd. vs. CBDT [179 Taxman 17].
Recently, following the aforesaid decisions the Mumbai Tribunal in ACIT vs. P.P. Overseas vide ITA No. 733/Mum/2010 dated February 18, 2011 has held that:
“The contract between the assessee and 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 the C & F agents. If that is so, there was no obligation on the part of the assessee to deduct tax from the payments made to C & F agents”.
In view of the above judicial precedents, the view expressed by the Board does not hold good.
|EXPERT:||CA. H. N. Motiwalla|
|CATCH WORDS:||Contractor, reimbursement, tax deducted at source|
Opinion Of Eminent Legal Luminaries On Controversial Issues
Whether TDS Is Required While Making Payment To C & F Agent?
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