By TIOL News Service

KOLKATA, AUG 23, 2018: THE ISSUE BEFORE THE BENCH IS - Whether handling & warehousing collection charges paid by the assessee to transporters, which is mere reimbursement of expenses and without any income element attracts TDS obligation u/s 194C. AND THE VERDICT IS NO.

Facts of the case

THE assessee-company filed return for the relevant AY. During the assessment proceedings, the AO noted that assessee had not deducted TDS on warehousing & collection charges paid by him. On being asked, the assessee contended that such amounts represent handling and warehousing collection charges incurred for warehousing and movement of tea. According to the assessee those amounts formed part and parcel of the transporters' bills, in addition to freight payable and the amount relating to freight has been debited under "primary freight expenses" and "secondary freight expenses", and the handling and collection expenses have been debited under "warehousing & collection charges". Therefore, the assessee contended that any sum paid to the contractor (transporter) for hiring vehicles for movement of goods is not eligible to TDS, subject to the condition that the transporter had furnished his PAN. Hence, there was no requirement for deduction of tax at source from such amounts credited and paid. However, the AO rejected the contention of the assessee and such amount was disallowed u/s 40(a)(ia) for the reason that TDS was not deducted. On assessee's appeal, the CIT(A) upheld the decision.

The Tribunal held that,

++ the assessee has reimbursed the collection charges and pick up charges to the various transporters, and this fact can be verified from the copies of freight bills and ledger account of warehousing collection charges. The reimbursement of expenses for and on behalf of assessee is not covered under the provisions of section 194C of the Act. Therefore, these expenses are not liable to TDS as the term 'contract' is absent. These reimbursement of expenses were not made by the assessee towards any services rendered by the agent, but has been made to set off the expenses incurred by the agent on behalf of the assessee. There is no element of 'income' in these transactions, it is just reimbursement of expenses incurred by the agent for and on behalf of assessee. Therefore, the assessee was not obliged to deduct tax at source. It is not a direct payment for freight to the transporter. Therefore, there is no TDS obligation on the assessee on the alleged amount of Rs.18,16,096/-;

++ provisions of section 194C of the Act is applicable, where payments is made to a contractor/sub-contractor, where contract is either a work contract or a contract for supply of labour. In the present case, the assessee has reimbursed the expenses to its agent and it was not a direct payment for freight by the assessee to the transporter. Besides, the Delhi High Court in the case of CIT Vs. Industrial Engg. Projects P. Ltd., held that it is a settled proposition of law that when there is no element of income and the payment is only as a reimbursement of expenses incurred by the payee, then no disallowance can be made u/s. 40(a)(ia) of the Act;

++ the amount paid to transporters on account of handling warehousing collection charges is not liable to TDS, as the handling and warehouse collection charges paid to transporters were having valid PAN number and, in assessee's case under consideration no income element is there and it is just reimbursement of expenses and moreover, there is no contract between the assessee and the payee, hence, TDS obligation is not applicable to the assessee. Therefore, the addition made by the AO and confirmed by the CIT-A needs to be deleted.

(See 2018-TIOL-1333-ITAT-KOL)