2020 (12) TMI 543 - AT - Income Tax

ITAT rules demurrage charges to non-resident shipping company not under Sec 195

Gokul Refoils & Solvent Ltd. Versus The Dy. CIT, International Taxation-2

The Appellate Tribunal ITAT Ahmedabad ruled in favor of the assessee, holding that section 195 of the Income Tax Act did not apply to the reimbursement of ... TDS u/s. 195 V/S 172 - Demand u/s 201(1) along with interest u/s. 201(1A) - assessee has made reimbursement of demurrage charges to Wilmar Trading Pvt. Ltd. ultimate beneficiary of such demurrage charges - HELD THAT:- ITAT Ahmedabad in the case of Steelco Gujarat Ltd. [2017 (1) TMI 1573 - ITAT AHMEDABAD] has held that as long as ship in respect of which freight payments are made is owned or chartered by non-resident or entity which is where provision of section 172 are applicable, provision of section 195 or 194C cannot be invoked. We consider that provision of section 195 are not applicable to the reimbursement of demurrage charges paid to the non-resident shipping company on behalf of the assessee by Wilmar Trading Pvt. Ltd. Further, it is clearly clarified by the CBDT vide circular no. 723 dated 19th Sep., 1995 that as long as the ship in respect of which freight payment is made is owned or chartered by non-resident the provision of section 172 are applicable and the provision of section 195 or 194C cannot be involved. We are not inclined with the decision of the ld. CIT(A) as provision of section 195 of withholding of tax on freight payment to non-resident shipping companies is not applicable as the same are covered by section 172 of the ACT. Therefore, the appeal of the assessee is allowed. Issues Involved:1. Interpretation of provisions under section 195 r.w.s. 201(1) of the Income Tax Act, 1961 regarding tax deduction on foreign remittance.Detailed Analysis:Issue 1: Interpretation of provisions under section 195 r.w.s. 201(1) of the Income Tax Act, 1961 regarding tax deduction on foreign remittance:The appeal before the Appellate Tribunal ITAT Ahmedabad concerned the decision of the CIT(A) confirming the assessing officer's directive for the assessee to pay a sum under section 195 r.w.s. 201(1) of the Act. The case revolved around a foreign remittance of Rs. 56,70,000 made towards demurrage charges, with the assessing officer asserting tax liability under section 195 of the Act. The assessee argued that the remittance was not taxable in India and hence not subject to tax deduction at source under sections 201(1) and 201(1A) of the Act. The assessee presented various documents and judicial precedents to support their contention, including a circular from CBDT stating that section 195 does not apply to payments made to non-resident shipping companies. The assessing officer disagreed, citing lack of evidence that the payment had been offered for taxation under section 172 of the Act by the shipping company, leading to non-deduction of TDS under section 195.Upon appeal, the CIT(A) upheld the assessing officer's decision, emphasizing the requirement for tax deduction under section 195. During the appellate proceedings, the assessee submitted additional evidence and argued that section 172, not section 195, was applicable as long as the ship was owned or chartered by a non-resident. The assessee relied on judicial decisions supporting their position and highlighted that the payment was a reimbursement of expenses to the supplier. The Appellate Tribunal, after reviewing the material on record, found that the reimbursement of demurrage charges to the non-resident shipping company was not subject to tax deduction under section 195. Citing CBDT circulars and judicial precedents, the Tribunal concluded that section 195 did not apply in this scenario, as the payments were covered under section 172 of the Act. Therefore, the appeal of the assessee was allowed, overturning the decisions of the lower authorities.In summary, the Appellate Tribunal ITAT Ahmedabad ruled in favor of the assessee, holding that the provisions of section 195 did not apply to the reimbursement of demurrage charges paid to a non-resident shipping company. The Tribunal emphasized that as long as the ship was owned or chartered by a non-resident, the provisions of section 172 governed such transactions, exempting them from tax deduction at source under section 195. The decision was based on a thorough examination of documentary evidence, circulars, and judicial findings, ultimately leading to the allowance of the assessee's appeal.