Income Tax Law does not allow Assessee to resort under the Garb of Reimbursement to avoid TDS: Calcutta HC [Read Order]

A division bench of the Calcutta High Court, while considering an issue of applicability of TDS on the entire amounts paid to the agent, held that the Income Tax Act does not grant any exceptional clause by which non-deduction of tax at source can be resorted to by the assessee under the garb of reimbursement.

Earlier, the appellate authority held that amounts of brokerage and freight can be paid by the assessee, Surendra Commercial & Exim Pvt. Ltd, to consignment agent are the only available criteria to decide the deductibility of tax at source on the payment of brokerage and freight. Further, the terms and conditions of the agreement of consignment sale was taken note of wherein it is stated that the consignment agent is required to remit the entire sale proceeds and depending on the maximum price realized or other such criteria the assessee will pay commission to the consignment agent.

On second appeal, the Income Tax Appellate Tribunal held that deduction of tax at source under Section 194C is required to be made on “any sum paid” by the assessee to clearing and forwarding agent and it includes reimbursement of the expenditure.

Before the High Court, the assessee contended that no tax needs to be deducted at source on the reimbursement.

“This aspect of the matter was considered by the First Appellate Authority and after taking note of the document placed before it, the appeal filed by the assessee was rejected. Before the Tribunal once again, the factual position was examined and the Tribunal has quoted the order passed by the First Appellate Authority with approval. On perusal of the paragraph 9 of the impugned order we find that the Tribunal has approved the factual finding recorded by the First Appellate Authority stating that there is no proof that brokerage and freight charge by consignment agent from the assessee are not loaded with profit and if it had been a case of true reimbursement the consignment would have enclosed the bill drawn by its brokers and transporters and in that case the assessee could have decided the deductibility of TDS from such bills of brokers and transporters without depending on the consignment agent.

Upholding the Tribunal order, Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyy observed that “To test the correctness of this finding, we have carefully perused the assessment order dated 28.12.2007 and in paragraph 7.3 of the said order, the Assessing Officer has dealt with the issue on hand and by pointing out of the fact, the Income Tax Act does not grant any exceptional clause by which non-deduction of tax at source can be resorted to by the assessee under the garb of reimbursement. Thus, on facts, the Assessing Officer disbelieved the stand taken by the assessee.”

To Read the full text of the Order CLICK HERE

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