DTAA benefits - availment of exemption

[ASHISH DESAI]

we are making payment to a Non-resident shipping company of UK towards export freight,which is governed by S.172 of the Act. under DTAA between India & UK it is exempted & hence no withholding Tax liability on the part of Indian company. If we use the same services for domestic freight payments on regular basis & remit the freight charges to the same non-resident company for using their ships for domestic movements( say from Gujarat Port to Vizag Port), what will be the tax liability? are we governed by S.44B or still S.172? can DTAA benefits be availed & exemption can be claimed? if at all there will be the TDS liability, then whether export freight is exempted & only domestic freight is covered u/s 44B? pl. explain our tax liability under all three circumstances.

[Ravi Chopra]

since it is very technical query, beyond the scope of general discussion, I personally believe that once you pay for domestic movement of goods, once it is established that the income is accrued or arisen in India, there is no question of extension the benefit of exemption under DTAA. Obviously the provisions of section 44B would come into picture and make the transaction taxable accordingly.

[Anuj Gupta]

Well if for the rate purpose for domestic movements the rates under sec 44B and section 172 are same at 7.5%.DTAA doesnot cover any domestic movements hence the same shall be taxable at 7.5%. Kindly explain your query in detail for having a complete answer.

AI Summary

Indian Company Must Withhold Tax on Domestic Freight Payments to UK Shipper Under Section 44B, Not DTAA Benefits A query was raised regarding the tax implications of payments made by an Indian company to a non-resident UK shipping company for domestic freight services, in addition to export freight services, under the Double Taxation Avoidance Agreement (DTAA) between India and the UK. The concern was whether the domestic freight payments would be subject to withholding tax and governed by Section 44B or Section 172 of the Income Tax Act. Respondents clarified that DTAA benefits do not apply to domestic freight, which is taxable under Section 44B at a rate of 7.5%, unlike export freight, which is exempt.