INCOME TAX ACT, 1961

Section 194C

Tax deduction under section 194C - Payments made to clearing and forwarding agents - Separate bills for reimbursements -

Assessee challenged order of Tribunal holding that assessee liable to deduct tax at source under section 194C on payments made to clearing and forwarding agents, which was outright reimbursement of freight charges having no element of profit. Assessee, therefore, contended that disallowance under section 40(a)(ia) could not be made in its case. Held: Unless paid amount has any 'income element' in it, there will arise no liability to pay any income tax upon such amount. In such a situation, there will also arise no liability of any deduction of tax at source upon such amount. Sub-section (2) of section 190 provides that nothing in this section shall prejudice the charge of tax on such income under the provisions of sub-section (1) of section 4. Section 190 of Income Tax Act states the general rule where provisions of Chapter XVII will apply. Section 194C of the Income Tax Act which is a part of Chapter XVII specifically concerns payments to be made to contractors which would include C&F agents. Amounts by way of reimbursement expenses do not constitute income as such and liable to any income tax. Assessees only contended that in clear cases where separate bills were raised by clearing and forwarding agents towards reimbursement of freight charges, they were not liable to deduct tax at source upon payment towards such reimbursement components, since, such payment had no income element embedded in it. Assessee's contention deserved to be upheld.