Freight payments to foreign shipping agents are not subject to TDS where section 172 applies, following settled precedent.

Freight payments made to agents of foreign shipping companies were examined for tax deduction at source under section 195 of the Income-tax Act, 1961. The governing principle applied was that where the income recipient falls within section 172, the Indian payer cannot be fastened with TDS liability on such freight remittances. The analysis followed the settled position in Commissioner of Income Tax v. V.S. Dempo & Co. (P.) Ltd. and a later identical matter, leading to the conclusion that the disallowance for non-deduction of tax at source could not be sustained.

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Issues: Whether freight payments made to agents of foreign shipping companies were liable to tax deduction at source under section 195 of the Income-tax Act, 1961, and whether section 172 of the Act displaced such deduction liability.

Analysis: The appeal turned on a settled question already concluded by the Full Bench decision in Commissioner of Income Tax v. V.S. Dempo & Co. (P.) Ltd. and followed in a later identical matter. The governing principle applied was that where the recipient of the income falls within section 172 of the Income-tax Act, 1961, no liability to deduct tax at source can be fastened on the Indian company making the freight payment.

Conclusion: The question was answered in favour of the assessee and against the Revenue. The disallowance based on non-deduction of tax at source could not be sustained.

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