TDS Exemption On Payments To Agents Of Foreign Shipping Companies: ITAT

The Delhi Income Tax Appellate Tribunal (ITAT) has held that the payments to agents of foreign shipping companies are exempt from TDS deduction.

The two-member bench of Saktijit Dey (Judicial Member) and N.K.Billaiya (Accountant Member) has observed that provisions of section 172 of the Income-tax Act, 1961 apply to payments made to agents of foreign shipping companies; therefore, provisions of section 194C of the Income-tax Act, 1961 do not apply.

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 company is engaged 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. 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. The assessee is an Indian arm of a multinational company, Expeditors International.

During the course of assessment proceedings, 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.

The assessee was asked 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.

The assessee claimed that the provisions of section 194C do not apply to it but furnished details of payments without TDS.

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.

The assessee agitated the matter before the CIT(A). The assessee 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.

When CIT (A) read CBDT Circular No. 723 dated 19.09.1995, he was convinced by the assessee's argument and 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).

Case Title: DCIT Versus M/s Expeditors International [I] Pvt. Ltd

Citation: ITA No. 1006/DEL/2020 [A.Y 2012-13)

Date: 16.09.2022

Counsel For Respondent: Advocate Rohan Khare

Counsel For Appellant: Sr. DR Sanjay Kumar

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