ITAT sets aside summary assessment, directs comprehensive assessment under Section 172(7)

The ITAT allowed the appeal, setting aside the summary assessment under Section 172(4) and directing the A.O. to proceed with a comprehensive assessment under Section 172(7), considering the total income for the year and applicable DTAA benefits.

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Issues Involved:
1. Denial of benefit under Article VI of the Double Taxation Avoidance Agreement (DTAA) between India and Greece.
2. Applicability of Section 172(7) versus Section 172(4) of the Income Tax Act, 1961 for assessment of shipping income.

Issue-wise Detailed Analysis:

1. Denial of Benefit under Article VI of the DTAA between India and Greece:

The appellant argued that the Commissioner of Income Tax (Appeals) erred by not granting the benefit of Article VI regarding shipping income as per the DTAA between India and Greece. The appellant sought a 50% tax relief on the freight earned from India, which was denied by the Assessing Officer (A.O.) under Section 172(4) of the Income Tax Act. The A.O. contended that such benefits could only be availed during the final assessment proceedings under Section 172(7) and not in the provisional assessment under Section 172(4). This decision was upheld by the CIT(A), who stated that the non-resident company was engaged in occasional rather than regular shipping, thus denying the DTAA benefit by applying Clause 4 of Article VI.

2. Applicability of Section 172(7) versus Section 172(4) of the Income Tax Act, 1961:

The appellant raised additional grounds, arguing that the assessment should be conducted under Section 172(7) based on the annual return filed for the Assessment Year 2015-2016. The appellant claimed a refund due in respect of income from all three voyages carried out in the Financial Year 2014-2015, asserting the benefit of 50% tax relief as per Clause 4 of Article VI of the DTAA between India and Greece. This legal ground was admitted for adjudication based on the Hon'ble Apex Court's decision in National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383 (SC).

The facts reveal that the appellant, acting as an agent for a Greek freight beneficiary, filed a provisional return under Section 172(3) for a voyage on 17.09.2014, claiming a 50% deduction under the DTAA. The A.O. denied this exemption, stating it could only be claimed in the final assessment under Section 172(7). The appellant's counsel argued that since the return of income for the entire year was filed under Section 139(1), the provisions of Section 172(7) were applicable, necessitating a comprehensive assessment of the total income for the year. The counsel cited ITAT Rajkot Bench decisions in the cases of ITO (International Taxation) vs. CMA CGM Agencies (India) (P.) Ltd. and M/s. Albatross Shipping Limited, supporting their position.

The ITAT noted that Section 172 pertains to the liability to tax in special cases related to non-resident profits from occasional shipping business. The section was interpreted to provide a summary assessment method, taxing 7.5% of the freight received from India. However, Section 172(7) allows the owner or charterer to request an assessment of total income under normal provisions, treating any tax paid under Section 172 as advance tax. The ITAT emphasized that a summary assessment under Section 172(4) should be set aside if the assessee opts for a regular assessment under Section 172(7).

In the present case, the appellant had filed a return of income for the entire year under Section 139(1), thus invoking Section 172(7). Consequently, the summary assessment under Section 172(4) for the voyage on 17.09.2014 was set aside, and the A.O. was directed to conduct a final assessment as per Section 172(7).

Conclusion:

The ITAT allowed the appeal, setting aside the summary assessment under Section 172(4) and directing the A.O. to proceed with a comprehensive assessment under Section 172(7), considering the total income for the year and applicable DTAA benefits. The order was pronounced in the open court on 01-06-2022.

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