It is an admitted position that the air freight is paid to the agents on the actual basis and that the bills and air freight documents have been directly issued by the foreign airlines. The agents, while accepting payments for air freight components, have acted merely as agents of the respective airlines and have not received the air freight payments in their own right. In copies of airway bills, the name of these agents is shown as ‘Issuing carrier’s agent, further the agent’s code is given as ‘Agent’s IATA code’. There is thus enough material to demonstrate that the persons having received money for the air freight have received the same in their capacity as ‘issuing carrier’s agent’, i.e., agent of the airline concerned. The air freight payment is thus made to the foreign airlines, though through the agents. Therefore, the payments cannot be said to have been made to a resident company. Accordingly, the provisions of section 194C do not come into play.
As for the stand that the assessee should have moved the application under section 195(2) in case of payments to non-residents and assessee’s failure to do so is to be visited with consequences for non deduction of tax at source, the law is now settled by the Supreme Court in the case of GE India Technology Centre (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234; wherein it has been held that ‘where a person responsible for deduction is fairly certain, then he can make his own determination as to whether the tax was deductible at source and, if so, what should be the amount thereof’.
It is not even the revenue’s case that the amounts paid to foreign airlines, on account of air freight payments, are taxable in India. It is only elementary that a tax deduction at source under section 195 is only a vicarious liability inasmuch as when recipients of income, i.e., the airlines concerned, have no primary liability to pay tax, there cannot be any vicarious liability to deduct tax from payments in which such income is embedded.
Therefore, the assessee did not have any obligations to deduct tax at source either under section 194C or under section 195 from payments made to the foreign airlines for air freight. In this view of the matter, the impugned disallowances under section 40(a)(ia) are devoid of any merits, nor can these disallowances be made under section 40(a)(i) either as alternatively suggested by the authorities below. Therefore, the impugned disallowances were liable to be deleted.
Source- Taj Leather Works v. Assistant Commissioner of Income-tax (ITAT Kolkata) – IT APPEAL NOs. 1686 AND 1687 (KOL.) OF 2011, Dated- 31.05.2012
