M/S.balaji On Board Courers,Rep By Its v. The Income Tax Officer, Business Ward Vi (I), Room

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 20.09.2019CORAM: THE HONOURABLE Dr.JUSTICE ANITA SUMANTHW.P.No.8496 of 2011and M.P.No.1 of 2011 M/s.Balaji On Board Courers,Rep by its Partner C.Andrews Rajkumar,No.85/19, Pantheon Road,Srirangam Avenue, Egmore,Chennai-8. ... Petitioner Vs. 1.The Income Tax Officer, Business Ward VI (I), Room No.204 New block, 121, Mahatma Gandhi Road, Chennai-34. 2.The Commissioner of Income Tax New block Aayakar bhavan, 2[nd] Floor, 121, Mahatma Gandhi Road, Chennai-34. ... Respondents Prayer: Writ Petition is filed under Article 226 of theConstitution of India, praying to issue a Writ of Certiorari,calling for the records on the files of the 2[nd] respondent passedu/s 264 of I.T. Act relating to the year 2006 – 07 dated08.02.2011 confirming the proceedings of the 1[st] respondent inAAGFB0131M/2006 – 07 dated 31.12.2008 and quash the same beingillegal, invalid, contrary to the law laid down by theHonourable Delhi High Court reported in 218 CTR 695 and violatedthe principles of natural justice. For Petitioner :Mr.R.SivaramanFor Respondents:Mrs.Hema Murali KrishnanSenior Standing Counsel https://hcservices.ecourts.gov.in/hcservices/ ORDER Heard the detailed submissions of Mr.R.Sivaraman, learnedcounsel for the petitioner and Mrs.Hema Murali Krishnan, learnedSenior Standing Counsel for the respondents. 2.The petitioner is an on-board agency engaged in thetransportation of parcels entrusted to it by various couriercompanies to destinations across the world. The business of thepetitioner is thus not that of a courier itself, but, an on-board agency as the parcels are transported from couriercompanies in Chennai for delivery to their counterparts in otherdestinations. This is done via air, paying air cargo or freightcharges. The petitioner does not have any oral or writtencontract with the courier agencies in question. 3. Upon booking of the parcel with the airlines agent,airway bills are provided to the petitioner by the respectiveairlines. These bills are a receipt for the parcels themselvesand are issued in duplicate, one to the petitioner and one tothe consignee/agent oversees. Freight charges are collected inthis regard, on a weekly/monthly basis based on the airway billsissued by the air cargo authority. 4.An alternative mode of operation is that the petitionerpurchases an air ticket from the airlines and physically carriesthe materials as accompanying baggage, either checked-in or in-cabin. The cost of the ticket and additional cost if any paidfor the baggage would constitute direct cost in respect of thetransport of materials. These are the two methodologies statedto be followed by the petitioner for the rendition of theservices. 5.In respect of assessment year 2006-2007, an order ofassessment dated 31.12.2008 has been passed in terms of Section143(3) of the Income Tax Act 1961 (in short Act). A disallowancewas effected in terms of Section 40(a)(ia) in respect of thefreight payment that had been effected without deduction of taxat source (in short TDS). 6. The petitioner challenged the assessment by way ofrevision under Section 264 of the Act. After consideration ofmatter as well as a remand report received from the AssessingOfficer, the revisional authority, arrayed as respondent No.2before me, rejects the same in the following terms: ‘7.After carefully going through the facts of thecase and the relevant records, it is noticed thatassessee is taking the view that payment ofRs.1,75,76,637/- to the various contractors falls under u/s 29. The payment made to the followingconcerns for the courier services are: a) Pawan Cargo Forwards (P) Ltd 1,56,27,051b) EDS International (P) Ltd. 17,82,475c) Mudita Marketing 78,286d) Anjalin Enterprises 35,631e) Sai OBC 28,225f) Southern Cargo 17,293g) Sachet OBC7,676 ___________1,75,76,637___________ ‘7.After carefully going through the facts of thecase and the relevant records, it is noticed thatassessee is taking the view that payment ofRs.1,75,76,637/- to the various contractors falls under u/s 29. The payment made to the followingconcerns for the courier services are: a) Pawan Cargo Forwards (P) Ltd 1,56,27,051b) EDS International (P) Ltd. 17,82,475c) Mudita Marketing 78,286d) Anjalin Enterprises 35,631e) Sai OBC 28,225f) Southern Cargo 17,293g) Sachet OBC7,676 ___________1,75,76,637___________ According to the assessee, as these are notlisted to in section 30 to 38, section 40a(ia) is notapplicable. Assessee has received courier charges ofRs.1,95,18,536/- and against that receipt it has givenfreight charges / courier charges to the tune ofRs.1,75,76,637/-. It is for carriage of goods by theonline courier services promoted by the variousairlines. Those courier services are working on behalfof the appellant. Hence, it will come under the workcontract and TDS is applicable under Chapter XVII-B. Board’s Circular No.713 is not applicable in theassessee’s case as the courier services are acceptingthe goods of other parties also. And assessee, is notonly reimbursing the ticket expenses. It is alsomaking the full payment for the work contract forcarriage of goods. In view of the aforesaid discussion, theapplication filed by the appellant is rejected and theaddition made by the learned AO is confirmed. Assesseeis directed to pay the demand as per the Demand Noticeissued by the AO.’ 7.The Commissioner of Income Tax, in my view, has notappreciated the modus operandi followed by the petitioner inproper perspective and has proceeded upon the erroneousunderstanding that the petitioner is rendering courier servicesin respect of which the income therefrom would be tax https://hcservices.ecourts.gov.in/hcservices/ deductable. The petitioner is not, in fact, a courier agencyitself, but an on-board courier, that transports/carries parcelsfor transport from one courier agency to its counterpart inother States. For these services it receives a commission, whichundisputedly, has been offered to tax. The payment received bythe petitioner as freight charges represents the direct costincurred as charges for cargo or cost of ticket purchased. Suchpayment constitutes a direct cost and hence would not fallwithin the sweep of ‘income’ upon the tax is liable to bededucted. 8.Incidentally, the identical question appears to havearisen in the assessment of the petitioner in AY 2008-2009,challenged by it in statutory appeal. The Commissioner of Incometax (Appeals), upon a proper consideration of the relevant factsand legal position has passed an order dated 28.01.2013 allowingthe appeal of the petitioner. The relevant portion is extractedbelow: ‘5.2 I have perused the appellant’s submissionscarefully. As seen from the provisions of sec. 28 of theAct, the income chargeable to tax under the head“Profits and gains of business or profession” includesthe profits and gains of any business or professioncarried on by the assessee. The relevant provisions are– Sec. 28 The following income shall be chargeableto income tax under the Head ‘Profits and gains ofbusiness or profession’-(i)the profits and gains of any business orprofession which was carried on by theassessee at any time during the previousyear; ‘5.2 I have perused the appellant’s submissionscarefully. As seen from the provisions of sec. 28 of theAct, the income chargeable to tax under the head“Profits and gains of business or profession” includesthe profits and gains of any business or professioncarried on by the assessee. The relevant provisions are– Sec. 28 The following income shall be chargeableto income tax under the Head ‘Profits and gains ofbusiness or profession’-(i)the profits and gains of any business orprofession which was carried on by theassessee at any time during the previousyear; Thus what is to be included in the sec. 28 as Incomeunder the head “Profits and gains of business orprofession” is “Profits and gains of business orprofession carried on by the assessee”. The word Profitsand Gains of the business means the surplus incomeearned by the appellant after meeting all the outgoings,as could be understood in the common general pariance.Thereafter, from such “Profits and gains of business orprofession” the expenses provided under sections 30 to43 are to be allowed in order to arrive at the netincome to be included under the head “Profits and gainsof business or profession.” 5.3The above view has been clearly held by the Hon’bleSupreme Court in the case of Madeva Upendra Sinai v. https://hcservices.ecourts.gov.in/hcservices/ Union of Indian (1975) 98 ITR 209 (SC). In the said casethe Apex Court observed that section 2(2)(i) of the Actdefines “income” to include “Profits and gains”. Section28(i) makes the “profits and gains of any business orprofession which was carried on by the assessee at anytime during the previous year chargeable to income tax.Section 29 requires that the income referred to insection 28 shall be computed in accordance with theprovisions including those for deductions contained insections 30 to 43A. Since the tax is chargeable on“profits and gains” and not on gross receipts, theprofits to be assessed must be the real profitscomputed, subject to the special requirements of the Actin accordance with the ordinary principles of commercialaccounting. It follows that if the deduction of aparticular item from the incomings of the business orprofession is neither expressly covered by the aforesaidsections, nor prohibited expressly or by necessaryimplication by those provisions, it can be allowed undersection 28(i) provided, on ordinary commercialprinciples, it is a proper item to be debited againstthe incomings in ascertaining the “profits and gains”properly so called. While delivering the judgement, theHon’ble court also relied on Badridas Daga vs.Commissioner of Income tax (1958) 34 ITR 10 (SC) andCommissioner of Income tax vs. Mysore Sugar Co. Ltd.(1962) 46 ITR 649 (SC). 5.4The Supreme Court in the case of Badridas Dagav. CIT (1958) 34 ITR 10(SC), held that ordinarycommercial principles should be applied. Profits andgains which are liable to be taxed under section 10(1)of the 1922 Act [corresponding to section 28 of 1961Act] are what are understood to be such according toordinary commercial principles. The expression ‘profitsand gains’ has to be understood in its commercial senseand there can be no computation of such profits andgains until the expenditure which is necessary for thepurpose of earning the receipts is deducted therefrom(Calcutta Co. Ltd. V. CIT (1959) 37 ITR 1 (SC). Thevalue of the stock-in-trade has to be taken into accountwhile determining the gross profits under section 28 onprinciples of commercial accounting. Attar Singh GurmukhSingh v. Income tax Officer [1991] 191 ItR 667 (SC). 5.5Similarly, the ITAT Hyderabad Bench, in the case ofTeja Construction vs. ACIT (2010) 39 SOT 13 (Hyd.) alsoheld that provisions of section 40(a)(ia) are applicableonly to items covered by sections 30 to 38 and not to 8. section 28 and, therefore, all direct costs /expenditures covered by section 28 are beyond scope ofdisallowance under section 40(a)(ia). 5.5Similarly, the ITAT Hyderabad Bench, in the case ofTeja Construction vs. ACIT (2010) 39 SOT 13 (Hyd.) alsoheld that provisions of section 40(a)(ia) are applicableonly to items covered by sections 30 to 38 and not to 8. section 28 and, therefore, all direct costs /expenditures covered by section 28 are beyond scope ofdisallowance under section 40(a)(ia). 5.6The Hon’ble ITAT of Chennai (C Bench) in the caseof ACIT vs. Lakshmi Jewellery, (ITA No.2005/Mds/2010dated 6.9.2011) held that the making charges paid by ajeweler constitutes direct expenses allowable u/s 28 andhence cannot be disallowed as per the provisions ofsection 40(a)(ia) for want of non deduction/nonremittance of TDS. 5.7Thus, from the above judicial pronouncements it isclear that all the direct expenses are allowable u/s 28of the Act itself. The only expense specified u/s 30 to38 alone are subjected to the provisions of sec.40(a)(ia) of the Act before allowance. In the instant casethe payment of freight being direct expenses, areallowable u/s 28 itself and not under the provisions ofsec. 30 to 38. However, the AO has not considered thatthis expenditure is allowable u/s 28 of the Act beingthe direct cost, and the provisions of Sec. 40 of theAct are not applicable for the deduction allowable u/s28. In other words, the AO has treated the freightpayments as allowable expenditure u/s 30 to 38 of theAct and hence applied the provisions u/s 40 for makingthe above disallowance of Rs.3,23,34,423/-. 5.8Therefore, the payments of freight are not withinthe purview of the provisions of section 40(a)(ia) ofthe Act and hence the AO is not justified in disallowingthe freight payments of Rs.3,23,34,423/- on the groundthat the TDS was not deducted. The AO is thereforedirected to delete the addition of Rs.3,23,34,423/-.This ground of appeal is allowed. 6.With regaqrd to addition of Rs.50,732/- made onvarious heads of expenditure as stated in para 3.1above, the AO disallowed the same to the extent ofvouchers not product. During appeal proceedings also theappellant has not produced any evidence in support ofits claim. Therefore, the addition made by the AO inthis regard is justified and hereby confirmed. 7.In the result, the appeal is partly allowed.’ 9.The above order has attained finality and has beenaccepted by the Revenue. In such a case, I see no justificationfor the revenue to take a different stand for the present yearon, admittedly, identical facts and legal position. The impugnedorder is liable to be set aside and I do so. This writ petitionis allowed. No costs. Consequently, connected miscellaneouspetition is closed. sd/- Assistant Registrar(CS-III) // True Copy// Sub Assistant RegistrarVs/slTo 1.The Income Tax Officer, Business Ward VI (I), Room No.204 New block, 121, Mahatma Gandhi Road, Chennai-34.2.The Commissioner of Income Tax New block Aayakar bhavan, 2[nd] Floor, 121, Mahatma Gandhi Road, Chennai-34.+1cc to Mrs.Hema Murali Krishnan, Advocate, SR.No.81055. W.P.No.8496 of 2011 and M.P.No.1 of 2011VG-II(CO)CSR(26.11.2019) https://hcservices.ecourts.gov.in/hcservices/