The learned author identifies the amendments introduced by the finance act 2016 which impact corporate sector. he discussion is not confined only to provisions exclusively applicable to companies. some provisions which apply to companies and non company assessees have also been discussed.
1.Introduction
Corporate sector is an integral part of the company of a country and india can be no exception. this sector, besides contributing substantial revenues to the Govt.'s kitty, also enriches the GDP of the country year-after-year. Hence, its natural that each year's Finance acts have number of provisions concerning Corporates. In later paragraphs, an account of the provisions contained in the Finance act 2016, specifically applicable to companies are discussed and measures also applicable to companies.
2.Finance act provisions concerning corporate sector
These, in brief, are us under
(1)Lower tax rate for companies
In the previous year's budget ,the FM had announced that in a period of next 4 years, he would bring down the rate of corporate tax to 25% from 30%. He has made a beginning for this year's budget. the proposal is that new manufacturing companies incorporated on or after march 1, 2016 will have an option either to adopt a reduced corporate tax of 27.55%(Where the income exceeds Rs. 1crore but does not exceed Rs. 10crore)or 28.84% (where income exceeds 10crore) provided such companies do not claim profit linked /invest linked deduction or do not avail of investment allowance and accelerated depreciation. The new startup companies who do not wish to claim any exemption can straight away claim tax rate of 25%. The conditions to avail of 25% rate are:
(a)The company should be set up and registered on or after 1st day of march, 2016;
(b) the company should be engaged in the business of manufacture or production of any article or thing and is not engaged in any another business;
(c)the company while computing its total income has not claimed any benefit under section 10AA, benefit of accelerated depreciation, benefit of additional depreciation, investment allowance, expenditure on scientific research and any deduction in respect of certain income under part-C of chapter 6-A Other than the provisions of section 80JJAA; and
(d) the option is furnished in the prescribed manner before the due date of furnishing the return of income.
The issue is as to how the corporates will react to such proposals. The initiative seems to have been taken to give a boost to the manufacturing units in the country and make in india programme of the P M a success. But, the scheme is not expected to be enthusiastically welcomed in view of the fact that heavy capital is needed for manufacturing units and they may not like to continue with higher rates with incentives , which effectively bring down the rates to nearly 24%.
(2)Other amendments
(1)new startups, involving innovation development , setup before april1,2019 will get 100% deduction of profits for a period of 3 years out of 5 years (subject to satisfaction of certain conditions ). However, the MAT would be applicable on such startups. some conditions have already been started earlier . Others relate to benefit -under section 54E&54GB.
(2)Effective corporate tax rate for small companies having turnover less than 5crore is reduced to 31.96%. the reduced corporate is expected to lead growth of such companies.
(3)the act taxes long term capital gains in the hands of non residents @10% which arise from the transfer of unlisted shares of a company in which public are not substantially interested, i.e. private companies. this ensures taxability of gains arising from transfer shares of unlisted companies and likely to incentivize corporate reorganization in india.
(4)If an assessee purchases a luxury car exceeding the price of Rs.10lakhs or purchase goods or avails of services exceeding 2lakhs in cash, tax at source is to be collected @1% This measure is intended to provide money trail and give clues regarding black money invested in such assets.
(5)The existing provision of sub-section (1A) in section 32AC of the act provides for investment allowance at the rate of 15% on investme4nt made in new assets (plant and machinery) exceeding Rs.25crore in a previous year by a company engaged in manufacturing or production of any article or thing subject to the condition that the acquisition and installation has to be done in the same previous year. this tax incentive is available up to 31-3-2017.
The dual condition of acquisition and installation can cause a genuine hardship in cases in which assets having been acquired could not be installed in same previous year . Hence sub section (1A ) in section 32AC has been amended so as to provide that the acquisition of the plant $machinery of the specified value has to be made in the previous year. However installation may be made by 31-03-2017.
The dual condition of acquisition and installation can cause genuine hardship in case in which assets have been acquired could not be installed in same previous year. Hence sub section (1A) of section 32AC has been amended so as to provide that the acquisition of the plant &machinery of the specified values has to be made in the previous year .however , installation may be made by 31-03-2017 in order to avail the benefit of investment allowance of 15%. It is further provided that where the installation of the new asset in a year or other than the year of acquisition, the deduction under this sub section shall be allowed in the year in which the new asset is installed.
(6) A person resident in india or a non resident having a permanent establishment in india , making payment exceeding in aggregate Rs.1lakh in a year towards online advertisement to a non resident, who does not have a permanent establishment in india would have to withhold tax at 6% of gross amount paid ,as an equalisation levy which is to discharged by way of withholding this provision is intended to bring alignment of domestic tax law with OECD recommendation on BEPS on digital economy . this provision would impact the income of non resident e-commerce giants providing online advertisement services (such as Google, yahoo, etc...)or other services to the companies in india
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Section 2 (42A) provides that short term capital asset means a capital asset held by an assessee for not more than thirty six months immediately preceding the date of its transfer.
It is provided that in the case of a security ( other than a unit) listed in a recognised stock exchange in indiaor a unit of the unit trust of india established under the Unit Trust of India Act, 1963 or a unit of an equity oriented fund or a zero coupon bond, the provisions of this clause shall have effect as if for the words " thirty Six Months" the words " twelve months" had been substituted.
The Finance Act, 2016 has inserted a third proviso to section 2 (42A) from the assessment year 2017-18 so as to provide that in the case of a share of a compnay ( not being share listed in a recognised stock exchange in India), the provisions of section 2 ( 42A) shall have effect as if for the workds " thirty Six Months" the words " Twety Four Months " had been substituted.
The advertisement charges for advertising on google, facebook, Linkedin and other digital advertising platform are usually paid out of india in foreign currency, though entire advertising activity happens in india, and escapes any taxation in India.
The Indian Finance Minister Sri Arun Jaitly has introduced the equalization levy with effect from june 1, 2016. The provision for equalization are provided in Chapter VIII of the Finance Act 2016.
Brief summary of Provisions are as follows :
Rate of tax and Services Covered :
The equalization levy would apply @ 6% on amount paid or payable for Online advertisement, any provision for digital advertising space or any facility service for the purpose of online advertisement or any other service as may be notified later by government. Levy is applicable on amount paid or payable for above services to non-resident.
The scope of the levy may be expanded to cover a wider range of digital goods and services as time progresses.
Equalization levy is aimed at taxing business-to-business (B2B) e-commerce transactions. Levy is not applicable where payment is not for the purposes of carrying out business or profession.
Levy is not applicable if aggregate of payment to a non resident during the financial year does not exceed Rs 1 lakh.
Collection and deposit and filing of return :
The said tax of 6% is required to be deducted from the amount paid or payable to non-resident for specified services.
Tax so deducted is required to deposited on a monthly basis within 7th of following month. Interest at the rate of 1 % per month or part of month is applicable for delayed deposit of taxes.
Annual statement with respect to levy is required to filed with specified period form end financial year in which service are provided. To rectify any mistake or omission in the statement filed revised statement can be filed within 2 years from end of financial year in which service is provided. Statement will be processed and intimation for any demand or refund will be sent with in end of 1 year from the end of financial year in which statement is filed. Any mistake in such intimation can be rectified within one year from the end of financial year in which intimation was issued.
Penalty :
Non deduction of equalization of levy would attract penalty equal to amount of equalization levy in addition to payment of equalization levy and interest on delayed payment.
Where Equalization Levy is deducted but not deposited with government would attract penalty of Rs 1,000 per every day during which such failure continues. This penalty is subject to maximum limit of equal to amount of equalization levy.
Non filing of annual statement would attract penalty of Rs 100 for each day during which the failure continues.
No penalty shall be imposed where assessee proves to the satisfaction of the Assessing Officer that there was reasonable cause for the said failure.
Chapter provides for appeal to Commissioner ( appeals) and to Income Tax Tribunal against order levying penalty.
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Limited Liability Partnership Act- 2008 gave a new and easy way to run a business with less of compliance which also reduces compliance cost and provides tax benefits etc. LLP helped small business/ new entrepreneurs to run their business in an easy and cost-effective way. Let’s have an overview of the comparison between Private Limited Company and LLP.
LLP is governed by Limited Liability Partnership Act- 2008 which came in to force on 1st day of April 2008. This Act was introduced with the idea of promoting MSME Sector (Micro Small Medium Enterprise) with the advantage of self-governance and less compliance.
LLP is an alternate corporate body, comprising the benefit of both Company and Partnership.
A registered limited company in India (Private or Public) has a lot of complex formalities and incurs additional overheads for managing affairs including mandatory board meeting, maintenance of statutory records, filling of e-forms with MCA etc. Absence of such mandates for LLP combined with advantages such as non-applicability of dividend distribution tax on profit repatriation, transfer of profit rules and deemed dividend profit issues, MAT provisions.
In India, formation, registration, and regulation of an LLP is exclusively governed and controlled by the rules, provisions, and regulations provided in the LLP Act of 2008 and the LLP Rules of 2009. The Ministry of Corporate Affairs (MCA), Government of India, and its well-equipped web portal [www.llp.gov.in] is directly concerned for establishing an LLP.
The comparative chart of compliances to be made by a company and LLP is given below:
|
Particulars |
LLP |
Private Company |
|
Maintenance of Statutory Records |
No statutory registers are required to be maintain by LLP |
As per Companies Act,2013 many statutory registers are required to be maintained eg. Register of Members etc. |
|
Convening of Meetings |
No such requirement |
Require to hold Meetings as per Section- 173. (At least Two Board Meeting and one Annual General Meeting for Small Company and At least four Board Meeting and One Annual General Meeting for other than Small company). |
|
Addition & deletion of Directors |
Require to amend LLP Agreement and File E-form- 3 & E-form-4. |
Require to Pass Resolution in General Meeting, File e-form-DIR-12 and require many documents from the person who is appointed as Director. (As per Section-152 of Companies Act, 2013.) |
|
Increase in Capital |
Only require to amend LLP Agreement and File e-form Form-3. |
Require to Pass Ordinary resolution in General Meeting and file form SH-7. |
|
Annually form filling requirement |
Only Two annual E-form- 8, E-form-11 |
There are much formsE-form-AOC-4 E-form- MGT-7, E-form- MGT-14 E-form-ADT-1 |
|
Loans & borrowings |
As per LLP Agreement |
There is Cap for Loans and Borrowings as per section 179 & 180, Require to hold Board Meeting and file form with ROC. |
|
Related Party Transactions |
No restrictions |
Transaction to be at arm’s length price only and as per provisions of Secton-188 of Companies Act-2013. |
|
Audit of Accounts |
Require only if turnover above 40 lacs or Contribution more than 25 lacs. |
Audit is Compulsory. |
Benefits of LLP as compared to Corporates
|
Particulars |
LLP |
Private Company |
|
Members |
Minimum 2 Partners |
Minimum Member-2, Maximum Member- 200 |
|
Easy to Form, Run and manage |
No Minimum Capital requirement for Incorporation |
Minimum Capital for Incorporation of Private Limited Company is Rs. 1,00,000/- and for Public Limited Company is Rs. 5,00,000/-. |
|
Management through |
LLP Agreement |
MOA and AOA of the Company |
Benefits under Income Tax Law
Procedure to convert a Company into LLP.
Designated Partners of LLP must have their DIN and DSC.
Any private company or unlisted public company can be converted into LLP. However, in this case LLP shall take the same name as that of the company at the time of conversion.
Attachments: Board Resolution passed by the Company approving the conversion into LLP shall be attached with the aforesaid form
File LLP Form-2
Attachment:
LLP agreement has to be drafted line with LLP Act. It is not mandatory to file LLP agreement at the time of registration and same can be file within 30 days from the date of incorporation. Designated partners are responsible for doing all acts, matters and things that are required to be done for complying with the provisions of the LLP act. They are liable to all penalties imposed on the LLP. So it is very important to draft LLP agreement with professional help.
File LLP E-Form-18 with the ROC
Attachment:
Attachment: LLP Agreement
As per notification dated 15th October, 2015 issued by Ministry, Form-14 is not required to be filed in case of conversion of private company/unlisted public company into LLP.
Attachment:
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Presently the following services are exempt from service tax as per entry no 9 of the Mega Exemption Notification 25/2012.
Services provided :-
(a) by an Educational Institution to its students, Faculty, and Staff.
(b) by any person to an Educational Institution, by way of
(i) transportation of students, faculty and Staff.
(ii) Catering, or cleaning or house keeping services performed in such educational institution.
( iii) Services relating to admission to , or conduct of examination by, such institution.
The notification 25/2012 defines Educational Institution as an Institution providing services by way of :
(i) pre- school education and education up to higher secondary school or equivalent.
(ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force.
(iii) education as a part of an approved vocational education course.
The new notification No 10/2017- ST dated 08.03.2017 has been issued to curtail the exemption granted earlier to few specific services provided to educational institutions. The notification provides that nothing in clause (b) of entry no 9 of mega exemption notification 25/2012 shall apply to an educational institution other than an institution providing service by way of pre-school education and education up to higher secondary school or equivalent. The amendment is effect from April 1st 2017.
In effect the following services provided to educational institution other than an institution providing service by way of pre-school education and education up to higher secondary school or equivalent, which were till now were exempt will be taxable to service tax with effect from April 1st 2017.
(b) by any person to an Educational Institution, by way of
( i) transportation of students, faculty and Staff.
(ii) Catering, or cleaning or house keeping services performed in such educational institution.
( iii) Services relating to admission to , or conduct of examination by, such institution.
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Leviability is essential feature to collect tax from any taxable person. In absence of leviablity, tax could not be collected. Under the new tax regime GST, the concept of leviablity is paradigm history in the levaiblity of indirect taxes.
1.Introduction
Leviablity gives the power to the taxation regime to collect taxes from any person. In the absence of levy, tax could not be charged and collected. GST contains crucial provision in relating to levy of tax which are discussed hereunder.
2.Levy of tax under CGST & SGST
The power to levy tax is provided in section 8 of the revised model of GST law. Asper the relevant section Central & State GST is to be levied on interstate supply of goods and services as per the value determined of the said goods and services in terms of provision of this act. Although the rates of taxes is not notified in the law itself but the law provides for the caping of taxes rates and the said cap is fourteen percent.
3.Levy of tax under GST
The power to levy taxes is provided in section 5 of the revised model IGST law. As per the relevant section IGST is to be levied on all interstate supply of goods and services as per value determined of the said goods and services in terms of the provisions of the act. Although the rates of taxes is not notified in the law itself but the law provides for caping of tax rates and the said cap in twenty eight per cent.
IGST will be levied on goods imported into India inaccordance with the provisions of section 3 the Customs Tariff Act 1975 at the point when duties of customs are levied on the said goods.
4.Reverse Charge
Presently, payment of tax on reverse charges basis is applicable in case of provision of services. The concept will be carried forward as legacy for services and newly introduced for supply of goods. However, the goods and services tobe notified for reverse charge will be on the recommendation of the council, In the case of reverse charge the person receiving the supply has to pay taxes and the provisions of the act shall apply accordingly.
5.Electronic Commerce Operator.
In the digitization era an increasing online shopping of goods and services ,electronic commerce are also covered in the tax net and the same shall be liable to Pay taxes on notified goods and services on the recommendation of the council.
Further in the present global market, one can provide platform for supply of goods and services from any part of the world. Accordingly, if the electronic commerce operators situated in any parts of the world except India, then he hasto appoint some person on its behalf to comply with the provisions of the GST.
6. Composition of Levy
The small scale business man always enjoys some privileges. Composition levy is one of such benefits. Present laws contains different monetary limits from composition levy in addition to different monetary limits in different states. However GST being a uniform law will provide single composition scheme to be applicable through India. Accordingly business with taxable turnover not exceeding fifty lakhs can avail the option of paying composition fees. The composition fees are different for manufacturers and others. In case of manufacturing industry rate of composition is 2.5% and for others it is 1%.
7. Restriction under Composition Levy
Payment of option under composition scheme calls for limitation or restrictions, stated as under-
1. This option is not available to the person who is engaged in supply of services. Meaning thereby the provider of service cannot opt for composition scheme. Further the language suggest that in case of a person engaged in supply of services and goods both the also the option of composition scheme in not available.
2. The option to pay composition schemes is not available to the person who are not leviable to tax under this act.
3. The person making inter-state supply can also not avail of this option.
4. The electronic commerce operator who is required to collect tax at source also cannot avail of this option.
5. The manufacturer of notified goods are also not eligible to avail of the option of payment of taxes under composition fees.
6. In case turnover RS 50 lakhs the for the turnover exceeding RS 50 lakhs this option for paying tax under composition scheme will not be available.
7. The person availing the benefit of paying taxes under composition scheme are not eligible to avail of input tax credit.
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A partnership firm cannot think of growth on large scale without converting itself into Private Limited/Public Limited Company. Conversion of Partnership firms into a Company has its own advantages such as Limited Liability, Perpetual Succession, Transferability of shares, easy access to funds etc. Corporatisation is the need of the hour. Section 366 of Companies Act, 2013 provides the Companies capable of being to registered under the Act.
As per the provision of Section 366(1) the Companies Act, 2013, “Company" includes any Partnership Firm, Limited Liability Partnership, Cooperative Society, Society or any other business entity formed under any other law for the time being in force which applies for registration under this Part.
Key benefits of conversion
1. Automatic Transfer:
All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the company.
2. No Capital Gain Tax:
No Capital Gains tax shall be charged on transfer of property from firm to Company (upon fulfilment of certain conditions mentioned under heading "Effect of Tax on conversion" below in this Article).
3. Continuation of Brand Value:
The goodwill of the Partnership firm and its brand value is kept intact and continues to enjoy the previous success story with a better legal recognition.
4. Carry Forward and Set off Losses and Unabsorbed Depreciation:
The accumulated loss and unabsorbed depreciation of Partnership firm is deemed to be loss/ depreciation of the successor company for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor company.
5. No Stamp Duty:
All movable and immovable properties of the firm automatically vest in the Company. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.
Mandatory Conditions for Conversion
Effect of tax on conversion
Capital Gains : Section 45(1) of the Income tax Act, 1961 provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54Gand 54H, be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place.
Before a levy on the capital gain can be imposed, it must be ensured that, such a gain has arisen from the disposal of the asset by any one of the mode, referred to in the definition of the term ‘transfer’ in Section 2(47) of the Income Tax Act, 1961.
Section 2(47) of the Income Tax Act, 1961 (‘Act’ for short) defines the term ‘transfer’ in relation to capital asset, as including-
Section 45(4) provides for the chargeable of the tax on the transfer of a capital asset of a firm or other association of persons or body of individuals. The Section provides that the profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer.
Under Section 45(4) of the Act two conditions are required to be satisfied for the levy of tax on capital gains-
In case of conversion of a partnership firm into a company no capital gain shall arise if the following conditions are fulfilled:-
Requirements towards conversion under Companies Act, 2013
Procedures for conversion of Partnership Firm to Private Company
STEP 1: Hold a meeting of the partners to transact the following business
(If the above requirement is not fulfilled by the firm, then the Partnership deed should be altered)
STEP 2: Obtaining the Name Approval in INC 1 for Proposed Company
Step 3: Publishing the Advertisement in Two Newspaper (English Daily and Vernacular)
For the purpose of clause (b) of section 374 of the Act, every ‘company’ seeking registration under the provision of Section 366 shall publish an advertisement about registration under the said Part, seeking objections, if any within twenty one clear days from the date of publication of notice and the said advertisement shall be in Form No. URC. 2, which shall be published in a newspaper and in English and the in the principal vernacular language of the district in which Partnership is in existence and circulated in that district.
Step 4: Affidavit
File an affidavit, duly notarised, from all the members or partners to provide that in the event of registration under this Part, necessary documents or papers shall be submitted to the registering or other authority with which the company was earlier registered, for its dissolution as partnership firm, limited liability partnership, cooperative society, society or any other business entity, as the case may be.
Step 5: Filing of E form URC 1 with ROC with Following Attachments:- (For Companies limited by Shares)
f)statement of accounts, prepared not later than fifteen days preceding the date of seeking registration and certified by the Auditor together with the Audited Financial Statements of the previous year, wherever applicable shall be attached with Form No. URC. 1
If the assets of the existing company during the immediately preceding three years are revalued for the purpose of vesting of its assets with the company to be incorporated under this Act, the surplus arising out of such revaluation shall not be deemed to have been credited to the capital account or current account of partners.
Step 6: Certificate of Incorporation
If the Registrar is satisfied on the basis of documents and information filed by the applicants, decides that the applicant should be registered, he shall issue a certificate of incorporation in Form No. INC.11
NOTE – As per Section 366(2) and Rule 3 of The Companies (Authorised to Registered) Rules, 2016. There shall be seven or more members for the purposes of registration of a company under this sub-rule and Section.
Step 7: Other Obligation of Companies Seeking Registration
where a firm has obtained a certificate of registration under section 367, an intimation to this effect shall be given within fifteen days of such registration to the concerned Registrar of firms under which it was originally registered, along with papers for its dissolution as a firm.
Conclusion
Therefore, for enlarging or growth of a small scale business led by few partners into a large scale business, corporatization of firm is the needed.
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The learned author takes up for discussion a very recent Tribunal decision in which the assesse had made reimbursement of expenditure to a certain party, which the assessing officer treated as payment to clearing and forwarding agent, therefore, attracting section 194C and consequently 40(a)(ia). The Tribunal, however, departed thus view
As per section 40 of the income Tax Act, 1961 (in short, ‘the Act’), certain amounts mentioned therein are not allowed as deduction, notwithstanding anything to the contrary in sections 30 to 38, in computing the income chargeable under the head “Profit and gains of business or profession”. Section 194C of the Act lays down provisions in respect of TDS on payment to contractors.
Recently, in ACIT, Kottayam v. St. Mary’s Rubbers Private Ltd., Kottayam 2017 TaxPub (DT) 2153 (Coch-Trib) [I.T.A. Nos. 224/coch/2016 date of decision 15-06-2017], the Revenue, aggrieved on the deletion of disallowance by CIT(A) of Rs.60,80,063 made by the assessing Officer(AO) under section 40(a)(ia) of the Act for non-deduction of tax at source on payment made by the assesse o C&F agents, filed appeal before ITAT, Cochin.
Facts in brief
The assesse, a manufacturer and seller of centrifuged latex, had filed its return of income for the impugned assessment year, declaring income of Rs.70,89,989. An assessment under section 43(3 was completed on 21-12-2011, computing total income of the assessee at Rs.77,87,14. Thereafter, the assessment was paid without deducting tax at source. During the course of assessment proceedings, it was noted by the AO that the course of assessment proceedings, it was noted by the AO that assessee had paid Rs.60,80,063 as clearing and forwarding charges to one
Mark Logistics. Claim of the assessee before the AO was that these were reimbursement of expenditure incurred by he said agent. As per the assessee, the said C&F agent was incurring expenditure on its behalf and therefore, According to him, the assessee should have deducted tax at source on the payment effected to Mark Logistics. Since assessee had not deducted such tax, AO applied section 40(a)(ia) of the Act and made a disallowance of Rs.60,80,063.
They also stated that they had deducted tax at source while effecting payments to various person with whom they had entrusted the work of assessee. CIT(A) sought a remand report from the AO>As per the CIT(A), in the remand report, the AO has admitted that amounts paid by assessee to Mark Logistics were re-imbursements. CIT(A) held that payment of Rs.60,80,063 made by the assessee to Mark Logistics were in the nature of reimbursement of expenditure and the payment received by them were not C&F charges. Relying on the judgment of the Hon’ble Gujarat High Court in the case of CIT v. Narmada Valley Fertilizer Co. ltd 2013 taxPub(DT) 2222 (guj-HC); (2014) 361 ITR 192 (Guj), the CIT(A) held that re-imbursement of expenditure, deduction of tax was not required. He deleted the disallowance made under section 40(a)(ia) of the Act.
Submission by Revenue
DR, assailing the order of the CIT(A), submitted before ITAT that assessee had paid Rs.60,80,063 for the service received by the assessee from Mark Logistics, which were contractual in nature. According to him, these were not reimbursement of expenditure and even if it was reimbursement, as per the DR, there would have been profit booking by Mark Logistics in built in the billings. In his opinion , AO has rightly considered the payment as liable for deduction of tax at source under section 194C of the Act. According to him , CIT(A), merely based on the submissions of the assessee, had allowed the claim of the assessee. Reliance was placed on the judgment of the Hon’ble jurisdictional High Court in the case of CBDT v. Cochin goods transport Association (1999) 236 ITR 993 (ker) and the judgement of the Hon’ble Apex Court in the case of Associated Cement Co. Ltd. v. CIT and Another (1993) 201 ITR 435 (SC)
Reply by Ar
In reply, AR submitted that the Delhi Bench of the Tribunal in the case of ITO v. Deepak Bhargawa 2017 Taxpub (DT) 21520(del’B-Trib) [ITA No.343/Del/2012, dated 13-11-2014] had clearly held that section 194C would not be applicable for reimbursement of expenditure. As per the AR, facts of this case were very similar to that case. Reliance was also placed on the decision of the Bangalore Bench of the Tribunal in case of DCIT v. Dhanyaa seeds (P) Ltd. 2014 Tax Pub (DT) 2664 (Bang ‘b’-Trib) : (2014) 64 SOT 15 (bang ;B’-trib) and that of the Hon’ble Gujurat High Court in the case of Principle CIT v. Consumer Marketing (India) (P) Ltd. 2017 Taxpub (DT) 2154 (Guj-HC)
Decision by ITAT, Cochin
The Tribunal considered the effector CBDT Circular No. 715, dated 08-0-1995 and observed that the said Circular was applicable only where consolidated bills ere raised inclusive of contractual payments and reimbursement of actual expenditure. Same view was taken by the Bangalore Bench of ITAT, Cochin in the case of Pr. CIT v. Consumer Marketing (India) (p) Ltd. (supra) held that when separate bills are there for reimbursemet of expenditure received by C&F agent, TDS was not required to be made on reimbursement. The assessee in addition to reimbursement of expenses, separately paid brokerage and commission of Rs. 2,52,410 which was subjected to disallowance in the original assessement. Hon’ble Members of the ITAT held that the CIT(A) was justified in deleting the disallowance made under section 40(a)(ia) of the Act.
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