By TIOL News Service:

KOLKATA, NOV 14, 2016: THE ISSUE IS - Whether TDS obligation can be attached to a case, where the assessee has been provided with a certificate u/s. 197(1) by the I-T Department. NO IS THE VERDICT.

Facts of the case:

The assessee Revenue had preferred the present appeal challenging the order, whereby the CIT(A) had deleted the disallowance made u/s. 40(a)(ia) in respect of payments made to Port Management Board, stevedoring charges, freight and payment made to Indian registrar of shipping. The AO observed that the aforesaid payments were made without deduction of tax at source and accordingly invoked the provisions of section 40(a)(ia). The CIT(A) deleted the disallowance on the ground that the payments were made before the end of the previous year and accordingly by placing reliance on the Special Bench decision in the case of Merilyn Shipping & Transport Ltd., supra held that the provisions of section 40(a)(ia) could not be invoked in the facts and circumstances of the case.

On appeal, the ITAT held:

++ we find that CIT(A) had deleted all the disallowances u/s. 40(a)(ia) only on the ground that the expenses were paid by the assessee before the end of the previous year. In this regard he had placed reliance on the Special bench Decision of Vizag Tribunal in the case of Merilyn Shipping & Transport Ltd., supra. However, we find that the issue has been held in favour of the revenue by the decision of Calcutta HC in the case of CIT Vs. Crescent Exports Syndicate 2013-TIOL-404-HC-KOL-IT wherein it has been held that the provisions of section 40(a)(ia) would be applicable even if amounts were paid before the end of the previous year. In respect of payments made to Port Management Board in the sum of Rs.17,29,970/-, we are convinced on verification of the invoices given by Port Management Board that the said payment is made towards supply of fresh water to the ships. Hence, the same does not fall under the ambit of deduction of tax at source under any of the provisions of the Act. Hence, disallowance made u/s. 40(a)(ia) to that effect is deleted;

++ in respect of payments made in the sum of Rs.50,82,771/- towards stevedoring charges, we find that AO had not given any finding in his order as to how the subject mentioned expenditure would fall under the ambit of provisions of deduction of tax at source. Accordingly, we deem it fit and proper to set aside this issue to the file of the AO to give a clear finding in this regard in the light of the evidence submitted by the assessee with regard to the subjection mentioned expenditure. In respect of payments made to Indian Register of Shipping in the sum of Rs.3,52,726/-, we are convinced from page 32 of the paper book that the said party had given a certificate u/s. 197(1) issued by the I. T. Department wherein payments made to them has to be made without deduction of Tax at source which has been clearly mentioned. Hence, there is no violation of provision of section 194C warranting any disallowance u/s. 40(a)(ia);

++ in respect of payment of freight charges in the sum of Rs.14,93,044/-, we are in agreement with the argument of AR which was also considered by DR that the issue requires fresh examination by the AO as to whether the payment exceeded in the aggregate of Rs.50,000/- in respect of each party thereby warranting any deduction of tax at source in terms of section 194C. It is true that no such finding was given in the assessment order in this regard. Accordingly, we deem it fit and proper to set aside this issue to the file of AO to decide this issue afresh in accordance with law after affording reasonable opportunity of being heard to the assessee. The assessee is also at liberty to adduce fresh evidence in support of his contention to justify the claim of expenditure. Accordingly, this aspect of the issue is set aside to the file of the AO.

(See 2016-TIOL-1928-ITAT-KOL)