TaxTMI 
TaxTMI 
2012 (8) TMI 458
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....year 2002-03 to 2004-05 the Assessing Officer reopened the assessment under section 147 and issued notice under section 148 dated 16.03.2005. The assessee vide letter dated 25.04.2005 sought reasons for reopening the assessment. The Assessing Officer vide letter dated 1.12.2010 gave following reasons for the reopening of the assessment:- "The reason for reopening the assessment for the assessment year 2003-04 is given as under: TDS was not made under the head Dry docking Expenses to the tune of Rs.. 796.77 and needs to be disallowed u/s.40(a)(ia) of the IT Act. Also the assessee did not deduct tax on Charter hire payments to Foreign Shipping Company to the tune of Rs. 4962.72 lakhs. The same was not disallowed u/s.40(a)(ia) of IT Act, 1961." The Assessing Officer vide assessment order dated 27.12.2007 for the assessment year 2002-03 raised demand of Rs. 14,24,22,361/- including interest under section 234B. Similarly, for the assessment year 2003-04 and 2004-05, demand to the tune of Rs. 6,81,31,783/- and Rs. 4,56,65,387/- respectively were raised by the Assessing Officer on identical grounds. The assessee made payments towards hire charges for foreign shipping companies belong....
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....ls are as follows:- "1. The order of the CIT(A) is contrary to law, facts and circumstances of the case. 2. In terms of section 163(2) read with section 149(3) the notice u/s.148 ought to have been given before expiry of two years from the end of assessment year whereas in the instant case, the notice reached the appellant only on 4.4.2005 and hence issuance of notice u/s.148 is barred by time. 3. The CIT(A) erred in holding that the reopening of assessment u/s.147 to treat the assessee company as representative assessee of FSC is valid. 4. The CIT(A) erred in holding that the charter hire charges paid to FSC would constitute royalty under Explanation 2 to section 9(1)(iv)(a) and hence taxable in India.' 5. The CIT(A) erred in holding that assessee company was rightly treated as representative assessee u/s.163 of the Act since it did not deduct or withheld tax on hire charges paid to foreign shipping companies. 6. The CIT(A) failed to appreciate that in the present case the charter hire payments were added u/s.201(1) for failure to deduct tax u/s.195 and hence there is no income which escaped tax. 7. The CIT(A) failed to appreciate that the transaction/relationship of the as....
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....essee; He further submitted that OECD model does not apply to time 'charter agreement'. It only applies to "bare boat". An amendment to section 9(1)(vi) Explanation 2(iv)(a) was brought out only to bring it in line with OECD model. The counsel for the assessee submitted that time charter does not involve payment of "royalty". The payment is only for the services provided by the shipping company. To distinguish between the expression "used" and/or 'right to use', he relied on the judgement of the Hon'ble Madras High Court in thecase of State of Tamil Nadu Vs. Essar Shipping Ltd., reported as 47 VST (2009) (Mad). 8. With regard to grounds of appeal no. 5,7,8,9 and 11, the counsel for the assessee submitted that the department cannot take inconsistent pleas and once it has invoked the provisions of section 201, the department cannot invoke provisions of section 163 of the Act as well. If the department has considered the assessee as 'representative assessee', then the assessee is not liable to deduct tax at source. 9. With regard to submissions on ground no.2, the counsel submitted that notice issued for reopening of assessment is barred by limitation. He submitted that the departm....
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....." The DR submitted that the authorities below had passed a well reasoned and detailed order treating the assessee as 'representative assessee' under the provisions of section 163 of the Act. The DR further submitted that the CIT(A) has rightly held that the hire charges paid by the assessee partake the character of royalty and is thus liable to the taxed in view of the amendment to Explanation 2(4) of section 9(1)(vi) of the Act. The DR relied on the order of the Chennai Bench of the Tribunal in the case of West Asia Maritime Ltd., Vs. ITO in ITA Nos. 2376 & 2377/Mds/2005 decided on 19.05.2006 wherein "ship" is held to be an equipment and hire charges paid for its use are treated as "royalty" under the provisions of section 9(i)(vi) of the Act. 11. We have heard the rival submissions made by the parties and have also gone through the judgements relied on by the respective parties. The first submission of the assessee is that hire charges paid to foreign shipping companies do not partake character of royalty and thus are not covered by the provisions of section 9(1)(vi) of the Act. A perusal of the record shows that agreement entered into between the assessee and foreign shipping....
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....ch the ship owner is to do the agreed work. 13. From the perusal of documents on record, we have observed that notice under section 148 of the Act was issued to the assessee being the 'representative assessee' of the foreign shipping companies. The assessee/'representative assessee' had filed the returns of income on behalf of the foreign shipping companies under protest declaring Nil income. The special provisions with regard to taxation of shipping companies is under section 172 of the Act. According to which the following conditions have to be satisfied:- i) The assessee is a non-resident; ii) The assessee owns a ship or ship chartered by a non-resident; iii) Ship carries passengers , livestock, mail or goods shipped at a port in India; & iv) Non-resident may (or may not) have an agent/ representative in India. If all the above conditions are satisfied 7.5% of the amount paid or payable on account of such carriage to the nonresident shall be deemed to be the income of the nonresident. The said income shall be taxable in the same year in which such payment is made. In the present case, the assessee has paid hire charges for the services rendered by the foreign shipping co....
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....f section 195 against which the department has already initiated proceedings under the provisions of section 201 of the Act. The assessee cannot be allowed to take benefit of both the provisions of the Act to get away from the tax liability. The assessee cannot escape from liability of taxation by challenging the provisions of Act in different forums. We remit the matter back to the Assessing Officer to initiate proceedings against the assessee under one of the provisions of the Act in the light of the judgement of the Hon'ble Bombay High Court in the case of Premier Tyres Ltd. reported as 134 ITR 17 after disposal of the matter subjudice before the Hon'ble Madras High Court. 16. As regards submissions of the counsel for the assessee with respect to notice under section 148 being barred by limitation is concerned, notice was despatched to the assessee on 16.03.2005 which was alleged to have been received by the assessee after the expiry of the period of limitation of the two years. The D.R. has placed reliance on the judgements of R.K.Upadhyaya Vs. Shanabahi P.Patel, reported as 163 ITR 163(SC) and VIT Vs. Sheo Kumari Debi reported as 157 ITR 13 (Pat) and M/s. Jai Hanuman Trading ....