India has a coastline spanning 7517 km with 13 major ports and about 200 small ports. According to the Ministry of Shipping, around 95 per cent of India’s trading by volume and 70 per cent by value is done through maritime transport. About 90% of India sea cargo is handled by foreign carriers
Section 172 of income tax act is a special
provision which deals with levy and recovery tax from foreign shipping
companies. It opens with a non obstante clause and if the prescribed conditions
are satisfied it would apply for the purpose of levy and recovery of tax in the
case of any ship. The section requires in the first instance that a ship should
belong to or be chartered by a non-resident; secondly, the ship carries
passengers, live-stock, mail or goods; and thirdly, such cargo of passengers
etc., should be shipped at a port in India.
Objective
of section 172
The
objective underlying section 172 is to ensure that the owners or charterers of
shipping vehicles are made to pay tax with respect to the profits generated by
them through carrying passengers or cargo from Indian ports. This section
applies to ‘tramp ships’, that is, ships, which belong to a non-resident, which
call at Indian ports occasionally, and do not have an agent in India from whom
such tax can be recovered. As a result, such ships are allowed to sail only
once the payment of the income calculated through the process of accelerated
assessment is complete. It is clear that if such ships are allowed to set sail,
they may not be traceable later, and as a result, the delay of the assessment
process may prove to be fatal, and as a result of the peculiar situation that
arises with respect to non-resident shipping companies, this section was
required to be enacted.
Section 172 applies to
This section applies to any ship, belonging to or
chartered by a non-resident, which carries passengers, livestock, mail or goods
shipped at a port in India. The Finance Act, 1997, with retrospective effect
from 01.04.1976 has also included demurrage charge or handling charge or any
other amount of similar nature in freight income.
Text of Section 172
172. Shipping business
of non-residents.
(1) The provisions of this
section shall, notwithstanding anything contained in the other provisions of
this Act, apply for the purpose of the levy and recovery of tax in the case of
any ship, belonging to or chartered by a non-resident, which carries
passengers, livestock, mail or goods shipped at a port in India. [1][***]
(2) Where such a ship carries passengers, livestock, mail or goods
shipped at a port in India, [2][seven and
a half per cent] of
the amount paid or payable on account of such carriage to the owner or the
charterer or to any person on his behalf, whether that amount is paid or
payable in or out of India, shall be deemed to be income accruing in India to
the owner or charterer on account of such carriage.
(3) Before the departure from any port in India of any such ship, the
master of the ship shall prepare and furnish to the [3][Assessing
Officer] a return of the full amount
paid or payable to the owner or charterer or any person on his behalf, on
account of the carriage of all passengers, livestock, mail or goods shipped at
that port since the last arrival of the ship thereat:
PROVIDED that where the [3][Assessing Officer] is satisfied that it is not possible for the master of the ship to
furnish the return required by this sub-section before the departure of the
ship from the port and provided the master of the ship has made satisfactory
arrangements for the filing of the return and payment of the tax by any other
person on his behalf, the [3][Assessing
Officer] may, if the return is filed
within thirty days of the departure of the ship, deem the filing of the return
by the person so authorised by the master as sufficient compliance with this
sub-section.
(4) On receipt of the return, the [3][Assessing
Officer] shall assess the income
referred to in sub-section (2) and determine the sum payable as tax thereon at
the [4][rate or
rates in force]
applicable to the total income of a company which has not made the arrangements
referred to in section 194 and such sum shall be payable by the
master of the ship.
PROVIDED that
where the return under sub-section (3) has been furnished before the 1st day of
April, 2007, such order shall be made on or before the 31st day of December,
2008.
(5) For the purpose of determining the tax payable under sub-section
(4), the [3][Assessing
Officer] may call for such accounts
or documents as he may require.
(7) Nothing in this section shall be deemed to
prevent the owner or charterer of a ship from claiming before the expiry of the
assessment year relevant to the previous year in which the date of departure of
the ship from the Indian port falls, that an assessment be made of his total
income of the previous year and the tax payable on the basis thereof be
determined in accordance with the other provisions of this Act, and if he so
claims, any payment made under this section in respect of the passengers,
livestock, mail or goods shipped at Indian ports during that previous year
shall be treated as a payment in advance of the tax leviable for that
assessment year, and the difference between the sum so paid and the amount of
tax found payable by him on such assessment shall be paid by him or refunded to
him, as the case may be.
[6][(8) For
the purposes of this section, the amount referred to in sub-section (2) shall
include the amount paid or payable by way of demurrage charge or handling
charge or any other amount of similar nature.
KEY NOTE
1. The words “unless the Income-tax Officer is
satisfied that there is an agent of the non-resident from whom the tax will be
recoverable under the other provisions of this Act” omitted by the Finance Act, 1975, with effect from 01.06.1975.
2. Substituted for “one-sixth per cent” by the
Finance Act, 1975, with effect from 01.06.1975.
3. Substituted for “Income-tax Officer” by the
Direct Tax Laws (Amendment) Act, 1987, with effect from 01.04.1988.
4. Substituted for “rate or rates for the time
being” by the Finance (No. 2) Act, 1967, with effect from 01.04.1966.
5. Inserted by the Finance Act, 2007, with
retrospective effect from 01.04.2007.
6. Inserted by the Finance Act, 1997, with
retrospective effect from 01.04.1976.
Section
172 vis-a-vis Section 44B
Section
44B of the Act, is a special provision that relates to the computing of profits
and gains of shipping business with respect to non-resident assessees. Section
44B and section 172 do not conflict with each other, since they operate in
different spheres: while the former relates to non-residents carrying out
shipping business in India on a regular basis, the latter deals with the
assessment of those non-residents carrying out shipping business in India
occasionally. While section 44B overrides sections 28 to 43A of the Act,
section 172 overrides all the other provisions contained in the Act. Section
172 only refers to levy and recovery of tax in the case of any ship belonging
to or chartered by a non-resident which carries passengers, livestock, mail or
goods shipped at a port in India.
Section 44B and Section 172 - Salient Features
|
Section 44B |
Section 172 |
|
Inserted by the Finance Act,
1975 with effect from 01.04.1976 |
Introduced since beginning, i.e., 1962 |
|
Regular shipping business are
covered by section 44B and they will be assessed in accordance with the
provision of the Act at the rates specified in section 44B. In other words, a special provision applies to foreign shipping companies engaged in business of operations of ships. |
While causal visit to Indian ports is covered by
section 172. In other words, a complete code itself and applies to occasional Shipping Businesses/also on every ship arrives Indian Ports/owners, charterers carrying passengers, livestock goods etc. |
|
It overrides sections 28 to 43A |
It overrides all other provisions of the Act. subject to availing facility of regular
assessment under Section 172(7) |
|
Losses can be set-off and carry
forward as per provisions of the Income Tax Act |
Provisions of set-off and carry forward are not
applicable while computing tax liability under provisions of Section 172(4) |
|
Chapter-VI-A deductions
available |
Deductions under Chapter VI-A would not be
allowed while computing tax liability under provisions of Section 172(4) |
|
No such detailed procedure
prescribed for the levy, collection of tax but general practice will be
followed |
A detailed procedure has been prescribed for the levy, collection of tax, obtaining of due No Objection Certificate, Voyage return, etc. |
|
Tax liability : At the rate applicable to a non-resident |
Tax liability : At the rate applicable to a foreign company |
|
An assessment shall be
completed as provided under section 153 of the Act, i.e., within 12 months
from the end of the relevant financial year |
Assessment is subject to sub-section (4A) of section 172, i.e., assessment shall be completed within 9 months from the end of the relevant financial year |
§ Applicability
of TDS Provisions - Since both Sections start with a 'non-obstante clause' and
a harmonious reading of them together reveals that TDS Provisions as provided
under section 195 do not apply.
§ Non-applicability
of section 44B/172 - Non-Vessel Owner Common Carriers carry their businesses
through hiring arrangements and not by its owners, charterers or operators,
hence, both section 44B and section 172 do not apply. However, these will be
governed by general provisions of the Act and also subject to Double Taxation
Avoidance Agreement (DTAA), if any.
§ Deemed Income
- Income shall be taxable under the head "Profits & gains of business
or profession" estimated at 7.5 per cent
Deemed Income of shipping business
7.5% of the amount paid or payable on account of
such carriage to the owner or the charterer or to any person on his behalf,
whether that amount is paid or payable in or out of India, shall be deemed to
be income accruing in India to the owner or charterer on account of such
carriage.
Master of the ship is empowered to file the return before the ship leaves India [Section 172(3)]
The master of the ship is empowered to file the
return before the ship leaves India, and if it is not possible for the master
to file the return, it is open to the master to make satisfactory arrangements
for the filing of the return or for the payment of tax on behalf of the master.
Under the statutory scheme when the assessee filed
the return under section 172(3), it must be taken that the assessee filed the
return as an agent of the master as section 172 makes a difference between the
agent of a non-resident and the agent of the master.
Time limit for passing the assessment order [Section 172(4A)]
Assessing Officer shall pass the assessment order
within a period of 9 months, from the end of the financial year in which the
return of income under section 172(3) is filed.
PROVIDED that where the return under 172(3)
has been furnished before 01.04.2007, such order shall be made on or before
31.12.2008.
Grant of port of clearance to the ship [Section 172(6)]
Before granting any port clearance to the ship, the
Commissioner of customs or other authorized officer, should be satisfied that:-
(i)
Tax assessable under section 172 has been duly paid
; or
(ii)
Satisfactory arrangements have been made by the
non-resident/master of the ship, for the payment of Tax assessable under
section 172
Option of regular assessment [Section 172(7)]
Section 172(7) allowed the owner or charterer of
the ship to request an assessment of its total income for the relevant year in
accordance with the provisions of the Income Tax Act, taking account of any
applicable benefits and exemptions, and with any taxes already paid under
section 172 being treated as advance taxes.
In other words, under section 172(7), the assessee
has the option of claiming an assessment of his total income in the previous
year, provided that such a claim is made before the relevant assessment year is
over. The assessee may claim that the payment made by him under this section in
relation to passengers, livestock, mail or goods shipped at Indian ports in the
course of the previous year be treated as payment in advance of tax, which is
leviable for that particular assessment year, and, consequently, the difference
between the sum paid and the amount of tax that is found to be payable by him,
after the assessment has been carried out, may be paid by him or refunded to
him, depending on the situation.
CBDT Circular No. 30/2016, Dated 26.08.2016
Subject : Section 172 of the Income-tax Act, 1961 -
Non-residents - Shipping business of - streamlining process of no objection
certificate (NOC), Part Clearance Certificate (PCC), voyage return and voyage
assessment in case of foreign shipping companies (FSCs)
Representations have been received in the Board
regarding the procedural difficulties faced by foreign shipping companies in
issuance of Port Clearance Certificate (PCC) required as per provisions of
section172 of the Income-tax Act, 1961 (the Act). Board had earlier issued
Circular No 732 dated 20-12-1995 to do away with procedure of obtaining NOC for
each voyage in cases covered by full DTAA (Double Taxation Avoidance Agreement)
relief. However, it has been represented that
(a) FSCs (Foreign Shipping
Companies) having treaty benefits are still required to approach Port Assessing
Officer (at all ports of call) for issuance of No Objection Certificate (NOC)
for every vessel at the port for onward submission to Customs department at the
port
(b) no uniform practice is
being followed by the Port Assessing officers in giving NOC to each voyage and
also in making the assessment of voyage return.
2. Section 172 of the Act provides for a self
contained code for assessment of shipping business of non residents. As per the
scheme of taxation contained in the said section, income of a foreign shipping
company carrying passengers, livestock, mail or goods and leaving from an
Indian port shall be deemed to be seven and a half percent of the amount paid or
payable on account of such carriage to the owner or the charterer or to any
person on his behalf. The said section further lays down that before the
departure of such a ship from the port, the Master of such a foreign ship shall
prepare and furnish a return of the voyage, to the Assessing Officer (AO) or
shall make sufficient and necessary arrangement that the return is filed within
30 days of the ship leaving the port. The AO, upon receipt of the return, shall
assess the income on account of the voyage and determine the tax payable on the
same, It is the duty of the Customs authorities to ensure that port clearance
is not given to the ship unless (a) either the tax due on the income has been
paid or (b) satisfactory arrangements have been made for the payment of such
taxes, section172 of the Act also lays down that the owner or the charterer of
the ship may claim before the expiry of the assessment year relevant to the
financial year in which the ship has sailed, that an annual assessment of its
total income be made under the provisions of other sections of the Act and in
such a case the tax paid before each voyage shall be treated as payment of
advance tax for that assessment year.
3. There are instances where the foreign shipping
company is covered by a DTAA of India with other country wherein the taxing
right on the shipping income of the foreign shipping company is wholly with the
other country, In such cases, the foreign shipping company is not required to
make any payment of taxes in respect of, either the voyage returns filed under
section172(3) or the annual return filed under section 139 read with
section172(7) of the Act. On representation to the Board to do away with
procedure of obtaining NOC for each voyage in cases covered by DTAA, Circular
No 732 dated 20-12-1995 had been issued. As per the said Circular, the AO is
competent to issue annual NOC valid for a year after carefully verifying
applicability of DTAA. It was expected that the filing of voyage return and the
issue of Port Clearance Certificate (PCC) to such foreign shipping companies
shall happen in a routine and expeditious manner.
4. It has been represented now that no uniform
practice is being followed by the port Assessing Officers in giving NOC for
each voyage and also in making the voyage assessment in this regard. Further it
is represented that at some of the ports, annual NOC issued by the
jurisdictional AO is being honoured and port clearance and voyage return
assessment are being done in a routine manner; whereas at some other ports, the
port Assessing officers are not honouring the annual NOC and are still
insisting for documentation such as submission of tax residency certificate,
proof of effective management etc before the NOC leading to the port clearance
is issued.
It has been represented that in these cases, the
insistence on filing details is leading to duplication of work as these
documents have already been filed before and verified by the jurisdictional AO
at the time of issue of annual NOC. It has also been stated that the procedure
of obtaining NOC from the officer having jurisdiction over the port creates
logistical difficulties for FSCs as the Port assessing officer is normally
situated at a considerable distance from the jurisdictional AO.
5. The matter has been examined by the Board and
following guidelines are issued for streamlining the process.
6. Circular No 732 dated 20-12-1995 provides for
issue of annual NOC by AO after carefully verifying the applicability of DTAA.
Annual NOC is to be issued in cases where no tax is leviable on foreign
shipping company due to the DTAA. The AO before whom the request for annual NOC
is filed by the foreign shipping company should accordingly examine the
applicability of DTAA to the foreign shipping company before issue of annual NOC.
The annual NOC should clearly mention the names of the ships owned by the
foreign shipping company, names of the ships chartered or names of shipping
companies from which ships are chartered by the foreign shipping company and
names of the members of the pool and their ships which are part of this pool.
The AO should continue to take the declaration from the applicant that the
treaty benefits would be available only in respect of freight in international
traffic.
Issue of Voyage NOC
7. The issue of voyage NOC, and its requirement,
which is dependent upon the resultant taxability of the freight relating to the
voyage shall be dealt with as below in three different ways:
(i) In
cases wherein entire cargo belongs to a single foreign shipping company which belongs
to a country with full DTAA relief, the annual NOC issued by the jurisdictional
AO will also serve the purpose of voyage NOC. In such cases, the requirement of
voyage wise NOC has already been done away through Circular 732 of 1995. It is
further clarified that there is no need for a voyage NOC from the Income Tax
Officer having jurisdiction over the port and the Customs Authorities shall
accept annual NOC issued by jurisdictional AO before issuing PCC to such ships.
(ii) In
cases wherein the cargo belongs to a number of foreign shipping companies, each
belonging to a country with full DTAA relief and to each of which annual NOC
has been issued by their respective jurisdictional AO, voyage NOC is not
required. To facilitate verification by Customs Authorities before issue of PCC
in such cases, a certificate from a Chartered Accountant (CA) as per enclosed
proforma would be required to be filed by the Master of the ship before
concerned Customs authority. The CA certificate will be accompanied with annual
NOC for all the foreign shipping companies to which the cargo in the ship
belongs.
(iii) In any
other case, the Master of the ship would be required to obtain a voyage NOC
from the Officer having jurisdiction over the port. The Customs Authorities shall
issue the PCC only upon production of such NOC or an authenticated copy.
Filing of voyage return
8. For a voyage where cargo belongs to a number of
foreign shipping companies, even if all of them belong to treaty countries with
full DTAA relief, there shall be different AOs for each such foreign shipping
company. Since the voyage return is in respect of the ship and its cargo etc,
it will not be possible to file it with jurisdictional AOs of the various
foreign shipping companies. Thus, in all such cases, the voyage return shall
continue to be filed with the AO having jurisdiction over the port. Since the
voyage return has to be filed within one month of the departure of the ship, it
does not anyway affect the timely departure of the ship from the port.
Voyage Assessment
9. In cases where a foreign shipping company
eligible for full treaty relief prefers to be assessed on a voyage-wise basis
i.e., on a ship basis, the Port Assessing Officer before whom such a voyage
return has been filed shall give due credit to the annual NOC issued by the AO.
Assessment in such cases must be expeditiously done and without conducting any
further verification with respect to the eligibility of the foreign shipping
company as regard to treaty benefits and the annual NOC issued by the
jurisdictional AO must be honoured. In other cases, i.e., in a situation where
the foreign shipping company files an intimation under section172(7) expressing
its willingness to be assessed on an annual basis instead of on a voyage basis,
the voyage assessment before the port Assessing Officer should cease and the
port Assessing officer shall intimate the details of voyage and freight in
respect of that foreign shipping company to the Assessing Officer issuing the
annual NOC.
10. The authorities concerned are requested to take
note of the above guidelines.
Certificate to be furnished by a Chartered Accountant
To
The Customs Officer
. . . . . . . . . . . . . Port
India
Subject : Verification certificate issued in terms
of Circular NO. 30 dated 26/08/2016 of CBDT.
This is to certify that the . . . . . . . . . . .
[Name of the Vessel) sailing from . . . . . . . . . . . [Name of the Port] on .
. . . . . . . . . . [tentative date of sailing] is carrying cargo belonging to
several foreign shipping companies, each of which is eligible for full relief
from taxation in India on shipping income under a Double Taxation Avoidance
Agreement (DTAA) of India. This certificate has been issued at the request of
the Master of the Ship . . . . . . . . . . . [Name of the vessel] and has been
given on the basis of the annual NOC issued to each such foreign shipping
company as detailed below:
Name of the foreign shipping company Date of issue of
NOC
Date :
(Signature)
Place :
Enclo : Copies of annual NOC
(The certificate should be on the letter head of
the CA firm and should be signed by the CA, and his membership number with ICAI
should be indicated.)
CBDT Circular : No. 9/2001, Dated 09.07.2001
Subject : Clarification regarding treatment of tax
paid under section 172(3)/(4) by a non-resident engaged in shipping business
1. The Board had earlier issued Circular No. 730
regarding treatment of tax paid under section172(3) by a non-resident engaged
in the shipping business. Under the provisions of section 172, every time a
ship belonging to or chartered by a non-resident makes a voyage from a port in
India, carrying passengers, livestock, mail or goods shipped at a port in
India, 7.5 per cent of the amount paid or payable on account of the carriage of
the passengers etc. is deemed as the income and tax is levied on such income at
a rate applicable to a foreign company. The assessment and the payment is to be
made before the ship is granted the port clearance. The exception is that, in
suitable cases the ship may be allowed to leave provided satisfactory
arrangements are made to ensure that the return of income if filed and payment
of tax is made within 30 days of the departure of the ship.
2. Under the provisions of section 172(7), the
non-resident owner or charterer is allowed an option to be assessed on his
total income of the previous year in accordance with other provisions of the
Act. When such option is exercised and an assessment is made accurately, the
tax already paid under the provisions of section 172(4) by the non-resident
owner or charterer would be treated as tax paid in advance for that assessment
year before determining the amount of tax finally due.
3. The question that arose for consideration of the
Board at the time of issue of Circular No. 730 was that when a regular
assessment is made under section 143(3), read with the provisions of section 172(7),
whether such an assessee would liable to levy of interest under sections 234B
and 234C or not. On the other hand, in case of a refund, the question of
entitlement of interest under section 244A would also rise. The Board, vide
Circular No. 730, dated 14.12.1995 clarified that the assessee, who exercises
his option under section 172(7) to get his total income assessed in accordance
with the other provisions of the Act, is neither liable to pay interest under
sections 234B and 234C, nor entitled to receive interest under section 244A of
the Income-tax Act, 1961.
4. This issue has subsequently been discussed and
decided by the Supreme Court in the case of A.S. Glittre D/5 I/S Garonne v. CIT
(1997) 225 ITR 739. It has been held that the payment of tax under section 172(3)/(4)
is at par with advance tax instalments. Hence, in case of a regular assessment
under section 172(7) the assessee is entitled to refund, as well as interest on
such refund.
5. The Circular No. 730 issued by the Central Board
of Direct Taxes on this issue is, under the circumstances, no longer legally
tenable and is, therefore, withdrawn. It is clarified that in case of a regular
assessment under section 172(7), the non-resident assessee is liable to pay
interest under sections 234B and 234C and also entitled to receive interest
under section 244A of the Income-tax Act, 1961 as the case may be.
CBDT Circular No. 732, Dated 20.12.1995
Subject : Whether
in cases where no tax is payable in India, the Assessing Officer shall be
competent to issue an annual ‘no objection certificate’, valid for a year, in
respect of taxation of shipping profits under section 172, after carefully
verifying applicability of relevant provisions concerning taxation of shipping
profits in double taxation agreement with country of which owner or charterer
is resident
1. Under the provisions of section172 of the
Income-tax Act, 1961 seven and a half per cent of the amount paid or payable to
the owner or charterer of a ship on account of carriage of passengers,
livestock, mail or goods shipped at a port in India, is deemed to be income
accruing in India to the owner or the charterer. The port clearance is granted
only after the return of the full amount to be paid is filed, evidence of
payment of tax on such income is produced before the Customs authorities, or
satisfactory arrangements are made to file the return and pay the tax within
thirty days of departure of the ship.
2. In cases where such ships are owned by an
enterprise belonging to a country with which India has entered into an
agreement on avoidance of double taxation, which provides for taxation of
shipping profits only in the country of which the enterprise is a resident, no
tax is payable by such ships at the Indian ports. Under such circumstances, a
'No Objection Certificate' is to be obtained by the master of the ship from the
concerned income-tax authority.
3. It has been represented to the Board that in
cases where no tax is payable in India, the procedure of obtaining a 'No
Objection Certificate' from the income-tax authorities before each voyage,
should be done away with.
4. The Board have considered the matter. It has
been decided that in such cases, the Assessing Officer shall be competent to
issue an annual NOC, valid for a year, in respect of taxation of shipping
profits under section172 of the Income-tax Act, 1961 after carefully verifying
the applicability of the relevant provisions concerning taxation of shipping
profits in the DTAA with the country of which the owner or the charterer is a
resident.
5. While examining the relevant Articles of the
DTAA, the Assessing Officer should ensure that the non-resident shipping
company is engaged in 'international traffic', a term which is invariably
defined in the DTAA itself. An undertaking from the non-resident company that
during the period of the currency of the NOC, no ship belonging to it will be
in any traffic other than 'international traffic', shall be obtained before the
issue of the NOC.
CBDT vide circular No. 723 dated 19.09.1995 has clarified that as long as the ship in respect of which freight payment is made is owned or chartered by non-resident the provision of section172 are applicable and the provision of section 195 or 194C cannot be involved.
CBDT Circular: No. 723, dated 19.09.1995.
Subject : Tax deduction at source from payment made
to foreign shipping companies
1. Representations have been received regarding the
scope of sections 172, 194C and 195 of the
Income-tax Act, 1961, in connection with tax deduction at source from
payments made to the foreign shipping companies or their agents.
2. Section 172 deals with shipping business of
non-residents. Section 172(1) provides the mode of the levy and recovery of tax
in the case of any ship, belonging to or chartered by a non-resident, which
carries passengers, livestock, mail or goods shipped at a port in India. An
analysis of the provisions of section 172 would show that these provisions have
to be applied to every journey a ship, belonging to or chartered by a
non-resident, undertakes from any port in India. Section 172 is a self-contained
code for the levy and recovery of the tax, ship-wise, and journeywise, and
requires the filing of the return within a maximum time of thirty days from the
date of departure of the ship.
3. The provisions of section 172 are to apply,
notwithstanding anything contained in other provisions of the Act. Therefore,
in such cases, the provisions of sections 194C and 195 relating to tax
deduction at source are not applicable. The recovery of tax is to be regulated,
for a voyage undertaken from any port in India by a ship under the provisions
of section 172.
4. Section 194C deals with work contracts including
carriage of goods and passengers by any mode of transport other than railways.
This section applies to payments made by a person referred to in clauses (a) to
(j) of sub-section (1) to any “resident” (termed as contractor). It is clear
from the section that the area of operation of TDS is confined to payments made
to any "resident". On the other hand, section 172 operates in the
area of computation of profits from shipping business of non-residents. Thus,
there is no overlapping in the areas of operation of these sections.
5. There would, however, be cases where payments
are made to shipping agents of non-resident ship-owners or charterers for
carriage of passengers etc., shipped at a port in India. Since, the agent acts
on behalf of the non-resident ship-owner or charterer, he steps into the shoes
of the principal. Accordingly, provisions of section 172 shall apply and those
of sections 194C and 195 will not apply.
CBDT Instruction No. 5203, Dated 21.01.1994
Subject : Liability of tax rate under section 172
Please refer to your letter D.O. No. CC.II/G(34)/1993-94
dated 16th July, 1993 addressed to the then Joint Secretary (FT&TR)
regarding taxation of shipping companies.
2. The computation of tax @ 7.5% of the freight
carriage should be so regulated that the total tax collected does not exceed
the said 7.5% of the payments made by the Indian exporter either individually
or collectively to the owners of the mother vessel and the daughter vessel for
carriage of goods etc. from an Indian port to the port of ultimate destination.
CBDT Instruction No. 5106, dated 17.11.1992
Subject : Allowability of deduction under section 172(2)
The short question which has been dealt with by the
CIT and the AC is whether the charges said by the non-resident owners of the
mother ships, carrying goods from intermediate ports to destination ports, to
the owners of feeder ships for carrying goods from Indian ports to the
intermediate ports can be allowed as a “deduction” in computing the income of
the mother ships under section 172(2) of the Act.
1. There appears to have been a change in the
pattern of shipping goods from and to Indian ports in the last few years when
large bulk carriers are being employed by the International Shipping Companies
who find it uneconomical to move the entire large ship to an Indian port to
deliver or to take in a considerably small quantity of cargo. These large ships
call on either at Singapore or at Colombo and smaller feeder ships operating
between Singapore/Colombo and the Indian ports like Madras, carry the goods
from such large ships to India or from India to such large ships calling at
Singapore or Colombo. The agent of the large mother ship contacts for the
transhipment between Madras and Singapore/Colombo. The agent of the mother ship
pays the charges to the agent of the feeder ship. A Bill of Lading is prepared
by the feeder vessel between Madras and Singapore/Colombo and showing the
freight earned. Tax is paid by the feeder vessel on this freight charges. The
agent of the mother ship also prepares a separate combined Bill of Lading
showing the names of both the ships and showing Madras and the ultimate
destination, say Tokyo and the freight charges for the entire transhipment from
Madras to Tokyo which is the sum of the charged for Madras to Singapore and for
Singapore to Tokyo. This Bill of Lading, it is believed, is designed by the
master of the mother ship and used for discounting etc. Since the feeder ship
pays the tax on the shipping charges received by it for transporting from
Madras to Singapore/Colombo, the agent of mother ship was originally declaring
the shipping charges between Singapore/Colombo and the ultimate destination as
receipts liable to Indian tax at 7.5%. The local Assessing Officers insisted
that they should declare the entire shipping charges shown in the combined Bill
of Lading and pay tax thereon irrespective of whether tax has already been paid
on a part of the freight charges shown in the service Bill of Lading relating
to the feeder ship. There can be no doubt that there is double taxation on the
freight charges paid for the transhipment between Madras and Singapore/Colombo.
2. If the freight paid to the feeder ship is seen
as a payment made or expenditure incurred by the mother ship, then as has been
rightly pointed out in the assessment order in the case of M/s. Evergreen
Marine Corporation enclosed to the petition, the income charged to tax under
section 172(2) of the Act is a deemed income, estimated at 7.5% of the freight
charges received or receivable in India by the Non-resident ship owner. As the
section stands today, there is no scope for allowing any deductions for any
expenditure or outgoing from such an estimated income. Unless the Act is
suitably amended, no such deduction can be made, since it has to be presumed
that while prescribing the rate at 7.5%, the Government had taken into account
all probable expenses and outgoings that would be reasonably incurred by the
non-resident Shipping Companies for the purpose of earning the income including
such "pre-shipping" expenses. In the circumstances the petitioner’s
request for a separate deduction of the freight charges paid by the non-resident
ship owners to similar owners of feeder ships cannot appear to be a permissible
claim for deduction.
However, if the entire issue is considered not as
one relating to allowing certain deductions from the freight charges earned by
the mother ship, then the nature of the issue changes considerably. The basic
principle underlying section 172 is to tax the freight charges earned from
transporting goods between say from Madras to the destination, say Tokyo, by
one or more ships. If one ship transports from Singapore to Tokyo the total
freight charges paid on the transported goods remain the entity but gets
apportioned for the two segments of shipping. If tax is collected on the first
segment of shipping from one ship, then the tax leviable on the second segment
of shipping should be only on that part of the freight charges apportioned and
paid to that ship. The second ship cannot be said to have earned any freight
charges than the one that is apportioned for the shipping between Singapore and
Tokyo. If the matter is viewed as one of apportionment in which the feeder ship
received certain freight charges and the mother ship receives certain other
freight charges, the total of which is shown in the combined Bill of Lading,
then the tax liability under section 172, can be cast only on the apportioned
amounts. For transporting say 1000 tons of iron ore from Madras to Tokyo,
involving total freight charges of say Rs. 100 lakhs, the tax leviable in India
cannot be Rs. 7.5 lakhs if one ship carries all through from Madras to Tokyo
and about Rs. 10 lakhs, if two ships carry, one upto Singapore earning 1/3 and
another from Singapore to Tokyo earning 2/3 of the total freight charges of Rs.
100 lakhs. If the issue is viewed as only one of apportionment of single freight
charges and not as deduction, then the Board can issue a classificatory
circular that taxes be levied under section 172(2) only on the actual freight
charges earned by each ship.
Agents act on behalf of non-resident ship-owners or
charterers, they would step into shoes of principal and hence, provision of
section 172 would apply and not provision of sections 194C and 195
Where agents act on behalf of non-resident
ship-owners or charterers, they would step into shoes of principal and hence,
provision of section 172 would apply and not provision of sections 194C and 195.
– (Related Assessment year : 2010-11) - [PCIT v. Bajaj Herbals (P) Ltd.
(2023) 148 taxmann.com 147 (Guj.)]
Shipping income taxable in Singapore on accrual,
not remittance basis; Rejects LoB plea
Rajkot ITAT allows Assessee’s appeal, rejects
invocation of Limitation of Benefits (LoB) clause in Article 24 and allows
benefit of Article 8 on all voyages carried out by the Assessee;
Holds that “the shipping profits derived by a Singapore resident shipping
enterprise from the operation of ships in international traffic shall be
taxable only in Singapore in accordance with Article 8(1) and the same does not
confer the Indian Authorities to the right to tax such profits.”;
Assessee is a company incorporated in Singapore and engaged in the
business of operation of ships in international traffic; During Assessment year
2017-18, Assessee earned freight income from such shipping operations in
India; Assessee’s agent filed provisional return under Section 172(3) in
respect of two voyages undertaken by the Assessee, declaring freight
income, against which NOC was granted under Section 172(6); However,
subsequently, after Assessee filed the final return, the Revenue observed
that the Assessee had remitted freight income to its agent in Denmark
and accordingly held that Assessee was not eligible to claim exemption under
Article 8 of India-Singapore DTAA, by invocation of Article 24; CIT(A)
dismissed Assessee’s appeal while ITAT remitted the matter with the direction
that fresh assessment order should be passed under Section 172(4)
following the provisions of Section 144C; Revenue, in the draft
assessment order passed pursuant to ITAT directions, held that the shipping
income for voyages performed by the vessels do not qualify for tax exemption in
India under the provisions of India-Singapore DTAA, because freight income was
not directly remitted to Singapore and the freight income was never subjected
to tax in Singapore; DRP dismissed Assessee’s objections and accordingly, final
assessment order was framed determining freight income of Rs. 3.55 Cr and
determined tax liability of Rs. 11.52 Lacs; Based on Article
24(1) of India-Singapore DTAA, ITAT notes that if the income in
question was taxable in Singapore on the basis of receipt or remission and not
by reference to the full amount of income accruing, Article 24(1) would apply
depending on the facts of each case, exemption as per Article 8 either in
whole or in part would be excluded; Takes note of letter from Inland Revenue
Authority of Singapore (IRAS) furnished by the Assessee, whereby IRAS stated
that: (i) Assessee derives shipping income from export voyages from
Indian ports, (ii) such income is reported by Assessee in its Singapore
Tax Return for Assessment years 2017 and 2018, (iii) Article 24(1) of
India-Singapore DTAA is not applicable to the chartered income derived by
the Assessee on the voyages from Indian ports, as the income is sourced in
Singapore and assessable to tax in Singapore on accrual and not on remittance
basis; Also refers to IRAS letter to Kandla Port Steamship Agents
Association wherein it is clarified that Article 24(1) does not apply to the
shipping income received by a Singapore Shipping Enterprises from Indian customers
and the shipping income is taxable in Singapore, when it
arises regardless of whether the shipping income is received in or
remitted to Singapore; Opines that “Since Article 24(1) is not applicable,
the provisions of Article 8(1) should apply without any limitation. As such the
shipping profits derived by a Singapore resident shipping enterprise from the
operation of ships in international traffic shall be taxable only in Singapore
in accordance with Article 8(1) and the same does not confer the Indian
Authorities to the right to tax such profits.”; Accepts Assessee’s reliance
on Chennai ITAT ruling in Bengal Tiger Line (P) Ltd. v. DCIT, coordinate
bench in Alabra Shipping (P) Ltd. (2015) 62 taxmann.com 185 (ITAT Rajkot),
Mumbai ITAT in APL Co. (P) Ltd. v. CIT (2017) 78 taxmann.com 240
(ITAT Mumbai) and Hyderabad ITAT in Far Shipping; Holds
that Revenue was not justified in denying benefit of Article 8 by invoking
Article 24(1) following jurisdictional High Court ruling in M. T. Maersk
Mikage v. DIT (International Taxation) (2016) 72 taxmann.com 359 (Guj.),
opines that Revenue’s exercise of co-relating the remittances and denying
the certificate issued by the Singapore Tax Authorities is not proper and also
that Revenue erred in not considering the Singapore Income Tax Returns filed by
the Assessee; Accordingly, sets aside Revenue’s order and directs Revenue to
allow the benefit of Article 8 to all the voyages carried out by the Assessee.
[In favour of assessee] (Related Assessment year : 2017-18) – [Maersk
Tankers Singapore Pte. Ltd. v. ACIT [TS-929-ITAT-2022(Rjt)]
– Date of Judgement : 30.11.2022 (ITAT Rajkot)]
Shipping co. eligible for normal tax provisions
with all related benefits on exercise of option under Section 172(7)
Rajkot ITAT allows Assessee’s appeal, sets aside
summary assessment order passed under Section 172(4), holds that where the
Assessee has exercised its right under Section 172(7) by filing his
return of income for the entire year then it ought to be assessed on
the return of income so filed as per the normal provisions, taking note of all
benefits and exemptions available; Assessee, an agent of the freight
beneficiary of Siena Transportation Special Maritime
Enterprise, Greece, filed a provisional return under Section 172(3)
computing tax payable on the freight earned from India and claimed that only
50% was taxable as per India-Greece DTAA; Revenue denied the benefit of DTAA
exemption holding that this benefit could be availed only in final assessment
proceedings under Section 172(7) and not in the provisional assessment framed under
Section 172(4), which was confirmed by CIT(A); ITAT relies on
jurisdictional High Court ruling in Arabian Express
Ltd. v. Union of India (1995) 82 taxmann.com 6 (Guj.) which was
followed by the coordinate bench ruling in ITO (International
Taxation) v. CMA CGM Agencies (India) (P) Ltd. reported in (2013) 55 SOT 61
(ITAT Rajkot) for explaining the expanse of Section 172(7); Notes
that for the impugned year, the Assessee had filed his return of income
declaring income for the entire year as per the provisions of Section 139(1),
accordingly sets aside the summary assessment orders passed under Section
172(4) on each voyage undertaken earning freight from India by relying on the
aforesaid ruling and directs Revenue to take such action as may be warranted in
terms of Section 172(7): [In favour of assessee] (Related Assessment
year : 2015-16) – [Interocean Shipping (India) Pvt. Ltd. v. DCIT
(International Taxation), Gandhidham
[TS-455-ITAT-2022(Rjt)] – Date of Judgement ; 01.06.2022 (ITAT
Rajkot)]
Rejects treaty benefit on freight not ‘remitted to’
or ‘received in’ Singapore as per Article 8 & 24 of DTAA
Hyderabad ITAT dismisses Assessee’s appeals,
upholds CIT(A) order restricting the benefit of Article 8 of
India-Singapore DTAA for taxability of freight receipts from operation of ships
to the extent such income was ‘remitted to’ or ‘received in’ Singapore in
accordance with Article 24; Assessee-Company, a resident of Singapore, earned
USD 642,663 on account of freight charges and claimed it as exempt
from tax in India under Article 8 of India-Singapore DTAA; Revenue
accepted that benefit of Article 8 is available to the Assessee but restricted
the benefit to the amount ‘remitted to’ or ‘received in’ Singapore in
the light of Article 24 of India-Singapore DTAA, thus, held that USD
22,493, which was not remitted to Singapore, was taxable in India by passing
order under Section 172(4), which was confirmed by CIT(A); ITAT observes that
as per Article 8, the profit derived by the enterprise of the 'Contract
State' from the operations of ships shall be taxable only in that state,
i.e. Singapore in the present case; Analyses Article 24 of India-Singapore DTAA
and observes that the relief bestowed upon by Article 8 is limited only to the
extent of amount which is ‘remitted to’ or ‘received’ in that other Contracting
State and does not cover the entire amount, explains that Article 8 cannot be
applied on stand-alone basis and the effect to Article 24 was required to be
given; States that the word “remitted to or received” in
Article 24 have to be interpreted literally and “By any stretch of
reasoning, the word “remitted” cannot be read as accrued for the purposes of
Article 24.”; Observes that there was short remittance of USD 22,493 on
account of commission, refers to invoices/ receipts submitted by the Assessee
which demonstrate that only USD 621,169 was remitted to the Assessee in its
Singapore Bank Account and the remaining amount of USD 22,493 was not remitted
but was allegedly adjusted towards the commission paid; Thus,
holds that the Assessee is only entitled to the benefit of DTAA for the
amount remitted or received that is USD 621,169, since the Assessee has neither
received nor accounted the remaining amount of USD 22,493, upholds
Revenue/CIT(A)’s order restricting the benefit under Article 8; Factually
distinguishes Assessee’s reliance on Rajkot ITAT ruling in Alabra
Shipping (P) Ltd. (2015) 62 taxmann.com 185 (ITAT Rajkot), where the income
was found to be taxable on accrual basis and not on remittance basis
and also Delhi High Court ruling in Emirates
Shipping Line, FZE v. ADIT (WP(Civil) No.9780 of 2009 dated 26.07.2012 which is
relevant for invocation of DTAA at the stage of Section 172(4) read with
Section 172(7); On maintainability of appeal, ITAT notes that the
CIT(A) had not dismissed the appeals on account of non-maintainability of the
appeals before him and decided the issue on
merit; Holds that the impugned CIT(A) orders falls within the
ambit of Section 253 against which the appeals are preferred; Relies
on Chennai bench ruling in case of ITO
(International Taxation) v. MSC Agency (India) (P) Ltd. I.T.A. No.
871/Mds/2010 and dismisses Revenue’s argument that the present appeals
are not maintainable before ITAT. [In favour of revenue] (Related Assessment
years : 204-15, 2015-16 & 2018-19) - [PACC
Container Line (P) Ltd. v. ITO (International Taxation), Nellore [TS-359-ITAT-2022(HYD)]
– Date of Judgement : 27.04.2022 (ITAT Hyderabad)]
Payment for time charter of ships made to
non-resident (NRs) not chargeable to tax in India
Rajkot ITAT dismisses
Revenue’s appeal, upholds CIT(A) order deleting disallowance under section
40(a)(i) for non-deduction of tax at source on ship hiring charges
paid to non-resident; Revenue, for Assessment year
2005-06, observed that Assessee-Company, engaged
in manufacturing of refined iodized salt and trade
in iron ore, paid non-residents for hiring of ship and
on weather report without
withholding tax, thus, disallowed the aforesaid expenses under
section 40(a)(i), which was deleted by CIT(A); ITAT notes Assessee’s submission
that no liability under section 195 arose since the payment was for time
charter of ships and not for carriage of goods, passengers, live
stocks etc. and in terms of Section 172, there is no liability
to pay tax on such receipts by the non-resident recipients, thus,
liability to deduct tax under section 195 did not arise; Rejects Revenue’s
submission that provisions of Section 172 are not applicable to the instant
case, states that “The Assessing Officer has not given any reason as to why
the chargeability of tax under Section 172 of the Act does not cover time
charter of ships for which payment is made to non-resident”; Opines that
Revenue totally ignored the NOCs allowing the ship for sailing in
the Indian Port as the payment was for time charter; Refers to
Section 172 and opines that the provisions not at all indicate that there is
any liability to pay tax on charter ships by the non-resident recipients, thus
upholds CIT(A) order deleting the disallowance; As regards disallowance of
weather report charges paid to a British company, notes that CIT(A) gave a
categorical finding that income received by the non-resident for giving weather
routing report in the form of analysis of data in tabular form/graphical
representation is not chargeable to tax under any provision including
various sub-sections of Section 9(1), opines that there is no need to interfere
with the findings of the CIT(A). [In favour of assessee] - [ITO v. Terapanth Foods Ltd. – Date of Judgement : 04.02.2022 (ITAT
Rajkot)]
Provision of section 195
would not be applicable to reimbursement of demurrage charges paid by assessee
to a non-resident shipping company and that same would be covered by section
172
The
solitary issue in the grounds of appeal filed by the assessee against the
decision of ld. CIT(A) in confirming the assessing officer's act on holding
that the assessee is required to pay of Rs. 2,32,319/- being aggregate on sum
deductible u/s. 195 r.w.s. 201(1) along with interest under section 201(1A) of
the Act.
the
case of the assessee was selected for verification of foreign remittance made
by the assessee during the Financial year 2015-16 pertaining to foreign
remittance of Rs. 56,70,000/- towards demurrage charges paid by the assessee to
the non-resident Wilmar Trading (P) Ltd., Singapore. The Assessing Officer was
of the view that the aforesaid payment made by the assessee to non-resident was
liable for tax under the provision of section 195 of the Act.
The
assessee has stated that provision of section 201(1) and section 201(1A) r.w.s.
195 of the Act are not applicable in respect of payment of demurrage charges to
Wilmar Trading (P) Ltd. as the same was the reimbursement of expenses to the
supplier of the goods. The assessee has also submitted that vide circular no.
723 dated 19.09.1995, CBDT has specifically clarified that provision of
sections 195 are not applicable to payment made by resident to non-resident of
shipping line or any other person and the provisions of sections 194C and 195
relating to tax deduction at source are not applicable. The Assessing Officer
has not agreed with the submission of the assessee stating that assessee has
not produced the supporting documents indicating that the payment has been
offered to tax under section 172 of the Act by the shipping company, therefore,
the assessee was treated to be in default for non-deduction of TDS under
section 195 of the Act on the said payment.
Held
: Provision of section 195 would not be applicable to reimbursement of
demurrage charges paid by assessee to a non-resident shipping company and that
same would be covered by section 172. [In favour of assessee] (Related
Assessment year : 2016-17) - [Gokul
Refoils & Solvent Ltd. v. DCIT (2021) 123 taxmann.com 298 (ITAT Ahmedabad)]
Pursuant to option being exercised
by assessee under section 172(7), if advance tax payment is in excess then
assessee is entitled to interest on refund and likewise, if there is shortfall,
Department can demand interest under sections 234A, 234B and 234C for such
shortfall as provided in statute
It is an assessee’s option not to
be assessed under section 172 in a summary manner and when such option is
willingly exercised under sub-section (7) then, provisions of section 172 cease
to have any effect and in such circumstance, overriding effect of provision by
reason of non-obstante clause also ceases to have any effect. Therefore, such
an option being exercised by assessee under section 172(7), if advance tax
payment is in excess then assessee is entitled to interest on refund and
likewise, if there is shortfall, Department can demand interest under sections
234A, 234B and 234C for such shortfall as provided in statute. [In favour of
revenue] (Related Assessment year : 1996-97) – [CIT, Cochin v. Norasia Lines
(Malta) Ltd. (2019) 416 ITR 271 : 110 taxmann.com 416 (Ker.)]
Income earned by Singapore based shipping company through shipping business carried out at Indian ports was held to be not taxable in Singapore but on basis of accrual
Assessing
Officer demanded tax on the amount received for each voyage under section 172(4)
which was affirmed by the CIT (A). On appeal Tribunal held that; as per
certificate issued by Inland Revenue Authority of Singapore, entire income
earned by assessee, a Singapore based shipping company, from shipping business
carried out at Indian ports was not taxable at Singapore on basis of remittance
but on basis of accrual, clause (1) of article 24 could not be applied to deny
benefit of article 8 to assessee. The shipping income is dealt with under
Article 8, which states that “profits derived by an enterprise of a contracting
state from the operation of ships ....................................... in
international traffic shall be taxable only in that state, i.e., resident
state.” An enterprise which is tax-resident of Singapore is liable for taxation
on its shipping income only in Singapore and not in India. Whence India does
not have any taxation right on a shipping income of non- resident entity, which
is exclusive domain of the resident state, there is no question of any kind of
exemption or reduced rate of taxation in the source state. It only envisages
territorial and jurisdictional rights for taxing the income and India has no
jurisdiction for any taxing right which are governed by Article. The shipping
income is to be exclusively taxed by the other contracting state once the
residence of the ship is established. Since there is no dispute with reference
to residence of the ship being that of Singapore, the jurisdiction to tax the
remittances specified therein under Article 8 lies exclusively with Singapore.
In view of that, the orders of the Assessing Officer and CIT(A) are set aside
and they are directed to allow the benefit of Article 8 to all the voyages
involved in [In favour of assessee] (Related Assessment year : 2014-15) – [Far
Shipping (Singapore) Pte. Ltd. v. ITO (2017) 166 ITD 321 (ITAT Hyderabad)]
Assessee made payments to shipping
agents without deducting tax at source, if payments made were covered by
provisions of section 172(8) and Circular No. 723, then relief was to be
allowed to assessee
Assessee made payments to shipping
agents and claimed that same were reimbursement and not liable to TDS. Assessing
Officer held that assessee was in default as assessee failed to deduct tax in
respect of said payments. It was noted that in assessee’s own case in earlier
assessment years Tribunal held that assessee would not be liable to deduct tax
on payments made to shipping agents of non-resident owners - Whether, thus,
following same matter was to be remanded to Assessing Officer to examine nature
of expenses and if payments made were covered by provisions of section 172(8)
and CBDT Circular No. 723, then relief should be allowed. [Matter remanded]
(Related Assessment years : 2006-07 to 2009-10) - [PMS Diesels v. Addl. CIT
(2017) 60 ITR(T) 466 (ITAT Amritsar)]
Shipping companies assessed under section 172 are not subject to TDS obligations under section 195
Where assessee’s case is covered by
section 172 dealing with levy and recovery of tax in case of any ship,
belonging to or chartered by a non-resident which carries passengers, etc.,
shipping at a port in India, there is no warrant in applying provisions of
Chapter XVII of Act for collection and recovery of tax and its deduction at
source vide section 195. [In favour of assessee] (Related Assessment year :
1999-2000) -
[CIT v. V.S. Dempo & Co. (P)
Ltd. (2016) 381 ITR 303 : 284 CTR 1 : 238 Taxman 91 : 66 taxmann.com 93 (Bom.)]
A foreign principal had accepted to be dealt with under section 172(7), jurisdictional Assessing Officer may verify position and take action in terms of section 172(7)
Assessee, an agent of freight
beneficiary of its foreign principal filed various voyage returns under section
172(3) for the freight beneficiary of its foreign principal without paying
freight tax. The Assessing Officer held that the principal was not engaged in
regular business of shipping and, thus, was not eligible for benefit of article
8 of Indo-UAE treaty. Further that since the principal did not own or charter
any of the vessels, the agency/freight beneficiary was not entitled to benefit
of DTAA. The Assessing Officer worked out the income and tax payable thereon as
under :
|
Total
amount of freight earned in Indian Rupees Which is including THC : |
Rs. 10,73,68,701/- |
|
Taxable
income i.e. 7.5% : |
Rs. 80,52,652/- |
|
Tax
payable on taxable income Income tax : |
Rs. 34,00,635/- |
|
Less
: double income-tax relief : |
NIL |
|
Tax
paid on final return dated : |
NIL |
|
Balance
tax payable : |
Rs. 34,00,635/- |
Arguments of assessee : Principal of assessee and its freight beneficiary were engaged in the regular shipping business and not in occasional shipping business and therefore, the provisions of section 172(4) were inapplicable to them.
Held : The principal has filed return of income for the assessment year 2010-11 with Dy. DIT, Mumbai. The said case has already been under scrutiny of the regular Assessing Officer of principal. This clearly indicates that principal has accepted the liability to be dealt with the provisions of section 172(7). The jurisdictional Assessing Officer may, therefore, verify the position and take such action as may be warranted in law in terms of section 172(7) to ensure that the income of the assessee from the 86 voyages does not escape assessment as per normal provisions of the Act. In view of the above, revenue's appeal was to be dismissed. [In favour of assessee] - [ITO (International Taxation), Gandhidham v. Albatross Shipping Ltd. (2013) 140 ITD 585 : (2012) 27 taxmann.com 253 (ITAT Rajkot)]
A vessel which cannot propel itself on its own due to a mechanical fault, does not become ‘goods’ under section 172 for purpose of being carried by a ship for purpose of trade
In order to invoke provisions of
section 172, it is necessary that a ship should belong to or be chartered by a
non-resident, it should carry passengers, live-stock, mail or goods and, such
cargo of passengers should be shipped at a port in India. Where section 172(1)
is not applicable, there is no question of computing and levying tax in terms
of sub-section (2) of section 172. A vessel which due to a mechanical fault,
that it has developed, cannot propel itself on its own, does not become ‘goods’
under section 172 for purpose of being carried by a ship for purpose of trade. There
is no ship which carries any goods shipped at a port in India. None of the requirements
of the section are fulfilled. If section 172(1) of the Act is not applicable
there is no question of computing and levying tax in terms of sub-section (2)
of section 172 of the Act. [In favour of assessee] (Related Assessment year :
1987-88) – [CIT v. Oceanic Shipping Service of M. T. Suhail (2011) 334 ITR 132 : (2012) 208 Taxman 166 :
18 taxmann.com 289 (Guj.)]
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