ITAT: Payments of Foreign Companies to Broker Exempt from TDS Deduction

The Delhi Income Tax Appellate Tribunal (ITAT) ruled 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) sees that provisions of section 172 of the Income-tax act, 1961 would be applicable to the payments incurred to the agents of foreign shipping companies hence the provisions of section 194C of the Income-tax Act, 1961 shall not be applicable.

Section 172 of the Income-tax Act, of 1961 concerns the shipping business of non-residents. Section 194C mentioned that any individual would be obligated to pay any sum to the resident contractor for doing any work along with the labour supply.

The taxpayer’s company is involved in supply chain management, logistics, and freight forwarding, which is concerned with the goods and cargo movement all across India or outside through the road, rail, air, or ship. The taxpayer’s activity comprises packing, loading, unloading, trucking, containerization, and customs clearance, along with the additional management of the operations from both sides, apart from that goods movement by air or sea in which the goods cross the international borders. The taxpayers are said to be the Indian arm of a multinational firm, expeditors international.

Read Also: All Details About New Foreign Tax Credit Rule with Benefits

At the time of assessment proceedings, the assessing officer revealed that the taxpayer was furnishing the payments to the Indian subsidiaries of the foreign shipping firms and on the same payments there will be no TDS under section 194C deducted.

The taxpayer was requested to elaborate that why the taxpayer must not be deemed to be a taxpayer in default under section 201/201(1A) of the Income Tax Act.

The taxpayer claimed that the provisions of section 194C do not be applicable to the same however the filed information of payments without TDS.

In the dispute, the taxpayer does not find any favour with the assessing officer who takes a leaf from the proceedings of FY. 2009-10 and 2010-11, treated the taxpayer to be an assessee in default.

The taxpayer draws the case towards CIT(A). The taxpayer repeated its dispute that the same has incurred the payments to the agents of the foreign shipping firms. Hence the same payments would come under section 172 and are completely excused from the TDS deduction.

When CIT (A) read CBDT Circular No. 723 on 19.09.1995, he was persuaded via taxpayers’ argument and permitted the plea.

The circular on 19.09.1995 mentioned the provision of section 172 applies to payments furnished to agents of foreign shipping companies and, hence, provisions of section 194C would not be applied.

The tribunal ruled that the Circular complied via the CIT(A), and there is no reason to interfere with the findings of the CIT(A).