2012-VIL-954-ITAT-CHN

Income Tax Appellate Tribunal COCHIN

ITA No. 325/Coch/2010

Date: 20.07.2012

T.T. KURUVILLA (ALLEPPEY PARCEL SERVICE COMPANY)

Vs

DEPUTY COMMISSIONER OF INCOME-TAX

For the Petitioner : R. Srintvasan
For the Respondent : S. Vijayaprabha

BENCH

N. E. S. Ganesan (Judicial Member) and B. R. Baskaran (Accountant Member)

JUDGMENT

N. R. S. Ganesan (Judicial Member)

This appeal of the assessee is directed against the order of CIT(A)-IV, Kochi dt. 30th April, 2010 and pertains to asst. yr. 2006-07.

2. The first issue which arises for consideration is with regard to the disallowance of Rs. 2,42,27,428 for non-deduction of tax.

3. Shri R. Srinivasan, the learned representative for the assessee submitted that the AO disallowed a sum of Rs. 2,42,27,428 on the ground that the assessee has not deducted tax while making the payments. According to the learned representative, the assessee is engaged in the business of transport of goods within the State of Kerala. The assessee has its own branch and also franchisees at various places in the State. The franchisees would receive and deliver the goods transported by the assessee at the rate fixed by the assessee. The franchisee has also received money for loading, unloading, door delivery expenses and delay in taking delivery apart from the rate fixed by the assessee for transportation. According to the learned representative, the franchisees receive the goods for transportation together with charges for loading and other incidental expenses. The charges collected by the franchisees would be paid to the assessee only in respect of the transport charges. The franchisees would retain the other expenditure like loading and incidental expenses. Therefore, the assessee has no control over the payment of money. According to the learned representative, the franchisees would pay the money after deducting all the expenses. Therefore, it is not correct to say that the assessee has not deducted" tax as required under s. 194H of the Act. The learned representative further submitted that there is no agency and principal relationship between the franchisees and the assessee. The franchisees act on their own and handover the goods for transportation to the assessee. Though the amount retained by the franchisee was shown as commission in the books of account, according to the learned representative, in fact, no commission was paid to any of those franchisees. Merely because the nomenclature was shown as commission, it will not automatically attract the provisions of s. 194H of the Act.

3.1 Shri R. Srinivasan, the learned representative for the assessee further submitted that the franchisees are not doing any service for the assessee. It is only a principal to principal relationship. The transportation of goods is the entire responsibility of the assessee. Therefore, the amount retained by the franchisees while receiving the goods is locally known as commission, however, in law it is not commission at all. According to the learned representative, even for the storage of the goods beyond certain period, the franchisees would collect demurrages. However, no part of the demurrages is paid to the assessee. The entire demurrages would be retained by the franchisees on their own. Therefore, according to the learned representative, the franchisees receive the goods on their own and collect the money and after deducting their commission and expenditure, if any, only the actual transporting charges are paid to the assessee. For accounting purpose, the assessee has shown the payment retained by the assessee as commission, but, in fact, it is not commission.

4. Referring to the decision of the Special Bench of this Tribunal in the case of Merityn Shipping and Transports vs. Addl. CIT (2012) 70 DTR (Visakha)(SB)(Trib) 81, the learned representative submitted that the Special Bench of the Tribunal at Visakhapatnam had an occasion to consider the provisions of s. 40(a)(ia). After referring to the judicial pronouncements on the subject, the Special Bench of the Tribunal found that the provisions of s. 40(a)(ia) are applicable only to the amount of expenditure which is payable as on 31st March of the year and it cannot be invoked to disallow the expenditure which had actually been paid during the previous year without deduction of tax. According to the learned representative, the entire amount was already retained by the franchisee and no amount remains to be paid. In other words, according to the learned representative, the entire amount was paid before 31st March of the accounting year, therefore, the provisions of s. 40(a) (ia) are not applicable in view of the judgment of the Visakhapatnam Bench of this Tribunal in the case of Merilyn Shipping and Transports (supra).

5. On the contrary, Smt. Vijayaprabha, the learned Departmental Representative submitted that admittedly, the assessee is in the business of transportation of goods. The assessee has appointed various agents for receiving goods and paid commission. Referring to the provisions of s. 194H of the Act, the learned Departmental Representative submitted that when the assessee paid commission to the agents, tax has to be deducted at the time of payment. Since the tax was not deducted, the AO disallowed the entire payment of the commission under s. 40(a)(ia) of the Act. The learned representative further submitted that the calculation sheet furnished by the assessee shows that the commission was allowable at 5 per cent of the net booking. Therefore, it is not correct to say that the assessee has not paid any amount at all. The assessee has not furnished the details before the AO for payment of commission. Therefore, the AO disallowed the payment of commission under s. 40(a)(ia) of the Act.

6. We have considered the rival submissions on either side and also perused the material available on record. Admittedly, the AO disallowed the claim of the assessee under s. 40(a)(ia) of the Act. Though the AO says that the assessee has not furnished complete details, the genuineness of the payment is not doubted. The disallowance was made only under s. 40(a)(ia) of the Act. We have carefully gone through the decision of the Special Bench of this Tribunal in the case of Merilyn Shipping and Transports (supra). The Special Bench of this Tribunal, after considering the language employed by the legislature in s. 40(a)(ia) by majority opinion came to the conclusion that the provisions of s. 40(a)(ia) are applicable only on expenditure which is payable as on 31st March of every year and it cannot be invoked to disallow the expenditure which had been actually paid during the previous year without deduction of tax at source. In this case, admittedly, the payments were made before 31st March of the accounting year and no amount remains to be paid as on 31st March of the accounting year. Therefore, in view of the decision of the Special Bench of this Tribunal at Visakhapatnam in Merilyn Shipping and Transports (supra), the provisions of s. 40(a)(ia) cannot be applied to the amounts which were already paid. Both the authorities below have not considered the decision of the Special Bench of this Tribunal in the case of Merilyn Shipping and Transports (supra). By following the Special Bench decision of this Tribunal in the case of Merilyn Shipping and Transports (supra) and for the reasons stated therein in respect of the amount already paid before 31st March of the relevant accounting period there cannot be any disallowance under s. 40(a)(ia) of the Act. Accordingly, the orders of authorities below are set aside and the addition made by the AO is deleted.

7. The next issue is with regard to disallowance of rent paid by the assessee.

8. We heard Shri R. Srinivasan, the learned representative for the assessee and Smt. S. Vijayaprabha, the learned Departmental Representative. The main contention of the learned representative for the assessee is that the rent claimed was already paid before 31st March. Therefore, in view of the decision of the Special Bench of this Tribunal at Visakhapatnam in Merilyn Shipping and Transports (supra), there cannot be any disallowance. It is not in dispute that rent has already been paid and nothing remains to be paid as on 31st March. Therefore, this Tribunal is of the opinion that the decision of the Special Bench of this Tribunal at Visakhapatnam in Merilyn Shipping and Transports (supra) is squarely applicable to the facts, therefore, there cannot be any disallowance with regard to the rent also. We accordingly direct the AO to delete the disallowance.

9. The assessee has taken one more ground with regard to expenses disallowed by the AO towards penalty imposed by the police.

10. We heard the learned representative for the assessee and the learned Departmental Representative. The AO disallowed a sum of Rs. 1,20,000 being the penalty imposed by the police on various dates. The CIT(A) confirmed the addition made by the AO on the ground that the penalty levied by the police is for infringement of law. The contention of the assessee before the lower authorities is that these expenses were incurred to deliver the goods at a fixed time. Whatever may be the reasons, the facts remains that the assessee has paid the penalty for violating provisions of law. The police authorities levied penalty in the course of regulating the traffic. Therefore, whatever may be the reason for paying penalty, it is paid for violation of traffic rules. Therefore it is against the public policy and hence such payment cannot be allowed as business expenditure. Accordingly, the order of the CIT(A) is confirmed on this ground.

11. In the result, the appeal of the assessee stands partly allowed.

 

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