2007 (3) TMI 301 - AT - Income Tax

Non-resident shipping companies not liable for interest under Section 172 override; Section 154 rectification invalid.

The Tribunal held that non-resident shipping companies assessed under Section 172 are not liable for interest under Sections 234B and 234C, as Section 172 ... Interest Chargeable Issues Involved:1. Applicability of Sections 234B and 234C for interest levy on non-resident assessee under Section 172(7).2. Validity of rectification under Section 154 for levying interest under Sections 234B and 234C.3. Impact of CBDT Circulars No. 730 and No. 9 of 2001.4. Interpretation of Supreme Court's decision in A.S. Glittre D/5I/S Garonne v. CIT.Issue-wise Detailed Analysis:1. Applicability of Sections 234B and 234C for interest levy on non-resident assessee under Section 172(7):The Tribunal examined whether a non-resident assessee, opting for assessment under Section 172(7), is liable for interest under Sections 234B and 234C. It was noted that Section 172 provides a special mechanism for the assessment of non-resident shipping companies, overriding other provisions of the Income-tax Act. The Tribunal emphasized that Section 172 is a complete code in itself, with no obligation for the non-resident to pay advance tax under Sections 207/208, and thus, no liability for interest under Sections 234B and 234C arises. The Tribunal also highlighted that the option under Section 172(7) is for the benefit of the assessee and can be exercised at any point during the assessment year, negating the possibility of advance tax payment.2. Validity of rectification under Section 154 for levying interest under Sections 234B and 234C:The Tribunal discussed whether the rectification of the assessment order under Section 154 to levy interest under Sections 234B and 234C was justified. It was concluded that Section 154 could only be invoked to rectify a clear and apparent mistake, not for debatable issues. The Tribunal found that the issue of charging interest under Sections 234B and 234C involved highly debatable points, such as the applicability of advance tax provisions to non-resident shipping companies and the retrospective application of CBDT Circulars. Therefore, it was held that the rectification under Section 154 was not valid.3. Impact of CBDT Circulars No. 730 and No. 9 of 2001:The Tribunal analyzed the relevance of CBDT Circulars No. 730 and No. 9 of 2001. Circular No. 730 clarified that non-resident assessees under Section 172 were not liable for advance tax and, consequently, not liable for interest under Sections 234B and 234C. This circular was withdrawn and replaced by Circular No. 9 of 2001, which stated that non-resident assessees opting for regular assessment under Section 172(7) were liable for interest under Sections 234B and 234C. The Tribunal held that Circular No. 9 of 2001 was based on a misinterpretation of the Supreme Court's decision in A.S. Glittre D/5I/S Garonne and was not binding on the assessee. The Tribunal concluded that Circular No. 730 was correctly issued and should be given effect.4. Interpretation of Supreme Court's decision in A.S. Glittre D/5I/S Garonne v. CIT:The Tribunal examined the Supreme Court's decision in A.S. Glittre D/5I/S Garonne, which held that payments under Section 172(4) are treated as advance tax by legal fiction, entitling the assessee to interest on refunds. The Tribunal clarified that the Supreme Court did not hold that non-resident assessees were liable to pay advance tax under Sections 207/208. The Tribunal emphasized that the decision was misinterpreted by the Revenue and the CBDT Circular No. 9 of 2001. It was concluded that the Supreme Court's decision did not justify the levy of interest under Sections 234B and 234C.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the interest charged under Sections 234B and 234C, confirming that non-resident shipping companies assessed under Section 172 are not liable for advance tax and corresponding interest. The rectification under Section 154 was deemed invalid due to the debatable nature of the issues involved. The Tribunal dismissed the Revenue's appeal, emphasizing the correct interpretation of relevant provisions and judicial decisions.