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2017 (5) TMI 1359
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....on 195 of the Act, therefore, not liable for deduction of tax at source u/s 195 of the Act. 2. During hearing, the ld. Counsel for the assessee, Shri Ruturaj H. Gurjar, claimed that this issue is covered in favour of the assessee by the decision of the Hon'ble jurisdictional High Court in the case of CIT vs V.S. Dempo & Co. Ltd., Sesa Goa Ltd. vs CIT (2016) 381 ITR 303 (Bom.)(FB), order dated 05/02/2016. On the other hand, the Ld. DR, Shri Rajat Mittal, contended that this issue is covered against the assessee by the decision of the Tribunal for Assessment Year 2008-09 and 2009-10 (ITA No.4108, 6279 and 6229/Mum/2012), order dated 20/11/2015. 2.1. We have considered the rival submissions and perused the material available on record. We find that in the case of assessee itself, the Tribunal vide aforesaid order dated 20/11/2015 held as under:- "2. The only issue arising in these appeals is the maintainability or otherwise in law of section 40(a)(i) of the Act on the following expenditure incurred/payments allowed by the assessee: Sr. No. Nature of payment A.Y. 2008-09 A.Y. 2009-10 a) Freight Rs.3,13,54,353 Rs.2,40,09,150/- b) Commission Rs.1,41,00,556/- Rs.1....
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....enue's case is, again, two fold. Admittedly, the payments have been allowed without either deducting tax at source or obtaining a certificate from the A.O. as to non-deduction (or deduction of tax at a lower rate), as required u/s. 195(2) of the Act. As regards freight charges, the same is subject to tax in the hands of the shipping company u/s.172 of the Act, even as clarified in CIT vs. Orient (Goa)(P.) Ltd. [2010] 325 ITR 554 (Bom). The Hon'ble jurisdictional High Court in Orient (Goa) (P.) Ltd.(supra) has clearly held that deduction qua charges paid to non-resident (shipping companies) would be governed by section 40(a)(i) of the Act where no tax stands deducted thereon, and a disallowance u/s. 40(a)(i) is under such circumstances legal, proper and in accordance with the scheme of the Act. The same being, though, in the context of demurrage charges would be inconsequential in-as-much as per section 172(8) such charges assume the nature of receipt toward freight, i.e., are to be accordingly considered as part of the freight charges (income) of the shipping company. The Hon'ble Court considered the Circular No. 723 dated 19.9.1995 issued by CBDT. As regards the commission inc....
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.... as it is nobodys' case that no part of the freight charges is assessable as income in the hands of the shipping companies. Rather, the very plea of the same being covered u/s. 172, as found favour with the Tribunal in Orient (Goa) (P.) Ltd.(supra), admits of the same being chargeable to tax under the provisions of the Act. Section 172, falling under Chapter XVH, titled 'Liability in special cases', has been found by the Hon'ble jurisdictional High Court in Orient (Goa) (P.) Ltd.(supra) to operate in a field different from Chapter XVII, i.e., 'Collection and recovery of tax', under which Chapter section 195 falls. The assessee, accordingly, fails on its Grounds 1 & 2 for both the years." 2.2. It is noted that while coming to the aforesaid conclusion, the Bench considered the decision in the case of CIT vs Oreient (Goa) (P.) Ltd.(2010) 325 ITR 554 (Bom.) from Hon'ble jurisdictional High Court. However, the Hon'ble jurisdictional High Court (Full Bench) in a later decision, 05/02/2016, in the case of CIT vs V.S. Dempo and Co. Pvt. Ltd. and Sesa Goa Ltd. vs CIT (2016) 381 ITR 303 (Bom.)(FB) overruled the decision in the case of CIT vs Oreint (Goa)(P.) Ltd. (supra) and rel....
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....67,50,252/-. The main item of this is interest income on Bank deposits and others. The basic issue which arises is whether the entire interest income as claimed by the assessee could be said to be business income, to which explanation (baa) to section 80HHC, is applicable or whether the said interest income is income from other sources. The assessee also claimed income received from 'Lease income', 'income from transfer of vessels', 'Barge freight', 'proceeds from other services' and 'miscellaneous income', as gross receipts received in the course of its business and therefore there is no question of applying Explanation (baa) to it. The assessee also charged the demurrage charges under the head export expenses to profit and loss account on which no tax has been deducted during the year under consideration. The Assessing Officer held that in view of section 40(a)(i) r/w section 195, the amount paid as demurrage charges are liable for addition under section 40(a). The assessee also claimed miscellaneous expenses, which has been disallowed by the Assessing Officer. On scrutiny, the Assessing Officer passed an assessment order on 26th March, 200....
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....n law. ? (IV) Whether in the facts and in the circumstances of the case, the ITAT is right in law in taking into account the 'interest on bank deposits', 'interest on intercorporate deposits', 'interest on debentures', and 'interest from sister concerns' and 'other interest' is forming the part of the head "Profits and gains of business or profession"? (V) Whether the findings of the ITAT that the receipts on account of 'professional services' and 'proceeds electronic data processing' are not income falling within the exclusionary provisions of clause (baa) of Explanation to section 80HHC, is right in law ? (VI) Whether the findings of the ITAT, that 90% of the net income from receipts on account of 'stevedoring agency business' and 'travel agency business' are falling within the exclusive provision of clause (baa) of explanation to section 80HHC, is right in law ? (VII) Whether the findings of the ITAT, that only 90% of 'net' income from the 'transfer of vessel' and 'barge freight' has to be excluded for the purpose of computing profits of the business under clause (baa) of Expl....
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....rt in Orient (Goa) (P) Ltd.(supra) was as under : "(B) Whether on the facts and in the circumstances of the case, the assessee was entitled to claim deduction of the demurrage charges of Rs. 1,08,53,980/- paid to foreign company, without deducting tax on it, under s. 40(a)(i) of the IT Act, in view of the Circular No. 723 dt. 19th September 1995 [(1995) 128 CTR (St) 61], issued by CBDT?" 9. The above question arose for consideration by this Court on the following facts : (a) M/s. Orient (Goa) (P) Ltd. (assessee) had for A.Y. 1997-98 declared an income of Rs. 2.10 crores. It had paid an amount of Rs. 1.08 crores as demurrage charges to a non-resident shipping company viz. M/s. Mitsui & Co. Ltd. However as the assessee had not deducted tax at source on the demurrage charges paid, the Assessing Officer disallowed the expenditure of demurrage charges in view of Section 40(a)(i) of the Act. (b) In appeal, the CIT(A) held that demurrage charges had been paid by assessee. However in the hands of recipient M/s. Mitsui & Co. Ltd. it was in the nature of profits of a non-resident from occasional shipping business. Placing reliance upon the CBDT Circular No.723 and Section 172 of the ....
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....anything contained in the other provisions of the Act. Therefore, in such cases, the provisions of ss. 194C and 195 relating to TDS, are not applicable. The recovery of tax is to be regulated for voyage undertaken from any port in India by a ship, under the provisions of s. 172. In this view, these observations of the learned Vice President of Tribunal have no concern with the factual aspect that it is a case of occasional shipping, pleaded or raised by assessee. There is no dispute about interpretation of s. 172 or s. 195. Crucial point is as to how s. 172 applies to the facts of the present case wherein the respondent assessee is an Indian company, incorporated under the provisions of Indian Companies Act, 1956. In our view, the learned Vice President of the Tribunal has recorded a perverse observation/finding in para 3 regarding application of ss. 44B and 172 of the Act 1961." 11. We are unable to agree with the above view of this Court in Orient (Goa)(P) Ltd. (supra). This is for the reason that the respondentassessee placed reliance upon Section 172 of the Act in respect of payments made by it to a non-resident shipping company by way of demurrage charges. The tax which is d....
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....eral and, therefore, she would not be appearing before the Bench. Three weeks' time was sought for that purpose. 12. It is indeed unfortunate that when the Bench is constituted to resolve a conflict of opinion between two Division Bench judgments of this Court and answer a question of law that such requests are made by the Revenue. Since we had decided upon this date and with the consent of all the parties, it was not possible to reschedule the hearing and, therefore, this request was rejected. It is in these circumstances that we requested Mr. Mistri, learned senior counsel appearing for some of the assessees and desiring to address this Court that he must assist us in an overall manner. Meaning thereby, the perspective of both sides and on the legal provision and its interpretation ought to be placed before us. In all fairness, Mr. Mistri has taken us through the scheme of the Act and invited our attention to some of the judgments on the point. We are thankful to him. 13. The emphasis of Mr. Mistri was that section 172 of the IT Act is a complete code that applies to the non-resident Indians. Inviting our attention to section 40 of the Act, Mr. Mistri would submit that th....
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....nt of sections therein commencing from and divided into several Chapters would indicate that Chapter II titled "Basis of charge" is preceded by the preliminary provisions in Chapter I and which also contains some definitions. For the purposes of the Act and unless the context otherwise requires, the term "income" is defined in an inclusive manner. Section 2(24) contains that definition and the term includes all that is enumerated from section 2 clause (24)(i) to (xviii). The term "resident" is defined in section 2 clause (42) to mean a person who is resident in India within the meaning of section 6. The word "tax" is defined in section 2 clause (43) and in relation to the assessment year commencing on the first day of April, 1965, and any subsequent assessment means income tax chargeable under the provisions of this Act, prior to the aforesaid date. The term "total income" is defined in section 2 clause (45) to mean the total amount of income referred to in section 5 computed in the manner laid down in this Act. 17. Chapter II contains the basis of charge and by section 4 subsection (1), it is stated that where any Central Act enacts that income tax shall be charged for any asses....
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.... of such voyage, be determined in the manner and subject to such conditions as may be prescribed.] (2) A Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case except where during the year the control and management of the affair is situated wholly outside India. (3) A company is said to be a resident in India in any previous year, if, - (i) it is an Indian company; or (ii) its place of effective management, in that year, is in India. Explanation. - For the purposes of this clause "place of effective management" means a place where key managements and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made. (4) Every other person is said to be resident in India in any previous year in every case, except where during that year the control and management of his affairs is situated wholly outside India. (5) If a person is resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall be deemed to be resident in India in the previous year relevant to the assessment year in respect of....
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....and, therefore, from a reading of this section together with the explanations, it is apparent as to income which is deemed to accrue or arise in India may or may not include such income which is not attributable to the operations carried out in India. Therefore, various categories of non-resident Indians and the income that they derive or may derive by control or through somebody who is a resident of India is, accordingly, dealt with. The other part of this section is not relevant for our purpose. We are also not concerned with insertion of section 9A by the Finance Act 2015 with effect from 1st April, 2016. 19. By Chapter III, incomes which do not form part of total income are dealt with. In that appears section 10 and the clauses thereof do not include the income specified therein in computing the total income of a previous year of any person. Clause 4 deals with the case of a nonresident and the income by way of interest on such securities or bonds as the Central Government may, by Notification in the Official Gazette, specify in this behalf, including income by way of premium on the redemption of such bonds. Section 10(4) (4B) deals with the income by way of interest earned b....
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....) Act, 1947, cash assistance, drawback or some other form in which any duty of customs or excise is repaid or repayable. We have, therefore, several such incomes which are derived by Duty Entitlement Pass Book Scheme or otherwise. We also have several incomes which are generated in the form of any benefit or perquisite whether convertible into money or not arising from business or the exercise of a profession, any sum whether received or receivable in cash or kind under an agreement for not carrying out any activity in relation to any business or not sharing any know-how, patent, copyright, trademark, licence, franchise etc. Income generated by way of any arrangement or understanding as also derived by rendering of any service received under a Keyman insurance policy are all part of section 28. The income referred to in section 28 shall be computed in accordance with the provisions contained in section 30 to 43D. These provisions enable computation of income after deducting rent, rates, taxes, repairs and insurance for building repairs and insurance of machinery, plant and furniture, depreciation, investment allowance, investment deposit account, investment in new plant or machiner....
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....der Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid [during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200] : Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. The following proviso shall be substituted for the existing proviso to sub-clause (i) of clause (a) of section 40 by the Finance (No. 2) Act, 2014, w.e.f 1-4-2015 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation.-For the purposes of this sub-clause,- (A) "royalty" shall have the same meaning as in Ex....
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.... the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. [Explanation 1. - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.] [Explanation 2.- For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;] (iia) any sum paid on account of wealth-tax. Explanation.-For the purposes of this sub-clause, "wealth-tax" means wealth-tax chargeable under the Wealth-tax Act, 1957 (27 of 1957), or any tax of a similar character chargeable under any law in force in any country outside India or any tax chargeable under such law with reference to the value of the assets of, or the capital employed in, a business or profession carried on by the assessee, whether or not the debts of the bus....
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....ation to any partner who is a working partner, or of interest to any partner, which, in either case, is not authorised by, or is not in accordance with, the terms of the partnership deed; or (iii) any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is authorised by, and is in accordance with, the terms of the partnership deed, but which relates to any period (falling prior to the date of such partnership deed) for which such payment was not authorised by, or is not in accordance with, any earlier partnership deed, so, however, that the period of authorisation for such payment by any earlier partnership deed does not cover any period prior to the date of such earlier partnership deed; or (iv) any payment of interest to any partner which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as such amount exceeds the amount calculated at the rate of [twelve] per cent simple interest per annum; or (v) any payment of remuneration to any partner who is a working partner, which is authorised by, and is in....
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....n a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India], any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such association or body to a member of such association or body. Explanation 1.- Where interest is paid by an association or body to any member thereof who has also paid interest to the association or body, the amount of interest to be disallowed under this clause shall be limited to the amount by which the payment of interest by the association or body to the member exceeds the payment of interest by the member to the association or body. Explanation 2.- Where an individual is a member of an association or body on behalf, or for the benefit, of any other person (such member and the other person being hereinafter referred to as "member in a representative capacity" and "person so represented", respectively), - (i) interest paid by the association or body to such individual or by such individual to the association or body otherwise than as member in a representative capacity, shall not ....
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....year in which such tax has been paid. 23. Then section 40(a)(ia) refers to the thirty per cent of any sum payable on which tax is deductible at source under the same chapter as above and such tax has not been deducted or after deduction has not been paid. 24. We have reproduced the entire section for the simple reason that the amount mentioned in section 40(a)(i) shall not be deducted in case it is payable in India to a non-resident, not being a company or to a foreign company. Therefore, in the case of any assessee if any interest, royalty, fees or technical service or other sum chargeable under the Income Tax Act payable outside India or payable in India to a non-resident not being a company or a foreign company on which tax is deductible at source under chapter XVII-B, is covered. 25. Such tax has not been deducted or after deduction has not been paid, then, the deduction shall not be made in computing the total income chargeable. 26. It is for this reason that we have to refer to Chapter XVII- B. Chapter XVII deals with Collection And Recovery of Tax. It contains general provisions with regard to deduction at source and advance payment in section 190 and in section 191 ....
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....onsible for making the payment at the time of credit of such income to the account of the payee or at the time of payment in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct the income-tax thereon at the rate of five percent. Therefore, the tax is to be deducted at source, the manner of its deduction and the time are specified so also the rate. After section 194LC and 194LD comes section 195 which reads as under: "195. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest not being interest referred to in section 194LB or section 194LC or section LD or any other sum chargeable under the head "Salaries" shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force; Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only ....
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....ied therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation. (5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith. (6) The person responsible for paying to a nonresident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner, as may be prescribed. (7) Notwithstanding anything contained in subsection (1) and subsection (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the ....
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.... this subsection. (4) On receipt of the return, the [Assessing] Officer shall assess the income referred to in sub-section (2) and determine the sum payable as tax thereon at the rate or rates [in force] applicable to the total income of a company which has not made the arrangements referred to in section 194 and such sum shall be payable by the master of the ship. [(4A) No order assessing the income and determining the sum of tax payable thereon shall be made under sub-section (4) after the expiry of nine months from the end of the financial year in which the return under sub-section (3) is furnished: Provided that where the return under sub-section (3) has been furnished before the 1st day of April, 2007, such order shall be made on or before the 31st day of December, 2008.] (5) For the purpose of determining the tax payable under sub-section (4), the [Assessing] Officer may call for such accounts or documents as he may require. (6) A port clearance shall not be granted to the ship until the Collector of Customs, or other officer duly authorised to grant the same, is satisfied that the tax assessable under this section has been duly paid or that satisfactory arrangement....
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....responsible for paying to a non-resident, not being a company, or to a foreign company, any interest not being interest referred to in sections 194LB or 194LC or 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment in cash or by cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. 34. The question before us is if section 172 deals with shipping business of non-residents and contains a non-obstante clause and applies for the purpose of the levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident which carries passengers etc. shipping at a port in India, then, is there any obligation to deduct the tax at source in terms of section 195. 35. It is stated on behalf of the assessee that tax deducted at source is a recovery and, therefore, section 172(1) will prevail over the provisions of the Act. Reliance is also placed upon the Circular in that behalf. That Circular reads as under : "916. Clarification regarding treatment o....
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....that the payment of tax under section 172(3)/(4) is at par with advance tax instalments. Hence, in case of a regular assessment under section 172(7) the assessee is entitled to refund, as well as interest on such refund. 5. The Circular No. 730 issued by the Central Board of Direct Taxes on this issue is, under the circumstances, no longer legally tenable and is, therefore, withdrawn. It is clarified that in case of regular assessment under section 172(7), the nonresident assessee is liable to pay interest under sections 234B and 234C and also entitled to receive interest under section 244A of the Income-tax Act, 1961 as the case may be. Circular No. 9/2001, dated 9-7-2001." 36. It is vehemently contended that the Revenue cannot argue anything contrary to this Circular. This Circular even otherwise states the position in law correctly. It is then urged that the judgment in the case of Orient (Goa)(supra) does not lay down the correct law. 37. A closer look at the judgment is, therefore, necessary. 38. The appeal before this Court raised four questions which are reproduced hereinbelow : (A) Whether on the facts and in the circumstances of the case, the Income-tax Appellate....
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....ragraph 3 the contention of the Revenue was noted and it was urged that the assessee was under an obligation to deduct the tax in view of section 40(a)(i) in relation to the amount payable outside India. The assessee relied upon the non-obstante clause in section 172 (1) in meeting this contention. It was urged that this section is a code by itself. 41. The Division Bench noted that the contentions arise in the backdrop of a deduction of tax on a sum payable or paid on account of demurrage. The demurrage is payable to a nonresident company based in Japan. It was not disputed that no tax had been deducted on the amount of demurrage. When the assessee was called upon to explain why no tax had been deducted and, therefore, the claim as a whole should be treated as non deductible and the sum added back, it was urged that tax was not deducted in view of section 40(a)(i) of the Act. A contention was raised that the assessee being allowed such deduction as and when payment was made. The Assessing Officer recorded his agreement in the order that deduction would be admissible on the basis of actual payment of tax on the above demurrage. The First Appellate Authority referred to the releva....
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....has to establish a case of profits of non-residents from occasional shipping business. "Non-resident" is defined under section 2(30), as a person who is not a "resident" and for the purpose of Sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of Section 6. The respondent assessee is a company, incorporated under the provisions of Indian Companies Act, 1956, is fairly an admitted position. The assessee cannot be said to be nonresident. We have also taken notice of section 6 i.e. "Residence in India". In short, respondent assessee cannot be said to be non-resident. The present appeal pertains to the respondent assessee. In our view, in the facts of the present case, the respondent assessee cannot lay fingers on section 172, since we are not dealing with profits of non-residents. The other aspect is that such profits of non-residents should be from occasional shipping business. It is not the case that the respondent assessee has earned some profit from occasional shipping and is a non-resident. In our view, Section 172 does not have application in relation to the respondent assessee and in the facts and circumstances of the pres....
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....es pertaining to the Circular No.723 dated 19.9.1995 by CBDT (Annexure "C"). Section 119 empowers the Central Board of Direct Taxes to give instructions to subordinate authorities. We have considered Section 119 of the Act 1961. We have also perused the Circular Annexure C. This Circular seems to have been issued by the CBDT, clarifying the scope of Sections 172, 194C and 195 of the Act 1961. Advocate on behalf of the Revenue points out from para 4 of the Circular and submit s that Section 172 operates in the area of computation of profits from shipping business of nonresidents and there is no overlapping in the areas of operation of these sections. Learned Senior Advocate Shri Usgaonkar, appearing on behalf of the respondent assessee, also drew our attention to the Judgment of the Hon'ble Supreme Court in the matter of Commissioner of Sales Tax v. Indra Industries, reported in [2001] 248 ITR 338 (SC). It is a three Bench Judgment of the Honourable Supreme Court. It has been held by the Honourable Supreme Court that the circulars issued by Commissioner of Sale Tax not binding on assessee or Court, however, binding on the Department. In the case on hand, in our view, learned Com....
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....e amounts which cannot be deducted in computing the income chargeable under the head Profits and Gains of Business or Profession in the case of an assessee are set out in clause (a) and sub-clause (i) refers to any interest, royalty, fees for technical services or other sum chargeable under the Income-tax Act which is payable outside India or in India to a non-resident, not being a company, or to a foreign company on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or after deduction has not been paid. Section 172 has application to shipping business of non-residents and the provisions of that section have application notwithstanding anything contained in the other provisions of the Act for the purpose of levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident which carries passengers, livestock, mail or goods shipped at a port in India. Section 195 falling under Chapter XVII-B Collection and Recovery - Deduction at Source by sub-section (1) deals with any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the prov....
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....usiness of operation of ships, a sum equal to seven and a half per cent of the aggregate of the amounts specified in subsection (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession". (2) The amounts referred to in sub-section (1) shall be the following, namely :- (i) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods shipped at any port in India; and (ii) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India. Explanation.- For the purposes of this sub-section, the amount referred to in clause (i) or clause (ii) shall include the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature." 46. A bare perusal thereof would indicate as to how this provision covers the case of an assessee who is a non-resident and engaged in the busin....
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....on at source vide section 195. 47. To our mind, the Division Bench judgment in Commissioner of Income-tax v. Orient (Goa) Pvt. Ltd. seen in this light does not, with greatest respect, take into account the scheme and setting as understood above. There need not be apprehension because there is no escape from the levy and recovery of tax. The tax has to be levied and collected. The ship cannot leave the port or if allowed to leave any port in India, it must either pay or make arrangement to pay the tax. Hence, the apprehension of avoidance or evasion both are taken care of by the legislature. That is how advisedly the legislature cast the obligation to deduct tax at source on the person responsible to make payment to a non-resident in shipping business. 48. The resident assessee contended before the Division Bench in Orient (Goa) (supra) as well as the Division Bench which made the referring order that section 172 of the Income Tax Act has a bearing and an important one on the obligation to deduct tax at source. Therefore, it is the recipient's position and the perspective in which the recipient's income would be taxed will have to be borne in mind. The non-resident shipp....
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....s to ensure the levy and recovery of tax in the case of ships belonging to or chartered by non-residents. The section brings to tax the profits made by them from occasional shipping, by means of summary assessment in which one-sixth of the gross amount received by them is deemed to be the assessable profit. Before the departure of the ship, the master of the ship has to furnish to the Income-tax Officer a returnof the full amount paid or payable to the owner or charter on account of the carriage of passengers, goods etc., shipped at the port in India since the last arrival of the ship at the port. In the event that, to the satisfaction of the Income-tax Officer, the master is unable so to do, he has to make satisfactory arrangements for the filing of the return and payment of the tax by any other person on his behalf. A port clearance cannot be granted to the ship until the tax assessable under the section is duly paid or satisfactory arrangements have been made for the payment thereof. 4. The assessee in this case is the Aluminium Company of Canada which had time-chartered the ship and on whose behalf its shipping agent, the respondent, had executed the guarantee bond. Since the....
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.... of the Act, in a regular manner be made. Thus, a right is given to the assessee to opt for a regular assessment although a "rough and ready" or a "summary assessment" has already been made under Section 172(4) of the Act. It is a valuable right. If the assessee exercises the right conferred on him under section 172(7) of the Act, the Income Tax Officer is bound to make an assessment of the total income of the previous year of the assessee and the tax payable on the basis thereof "should be determined in accordance with the other provisions of the Act" and any payment made under the section (earlier) "shall be treated as a payment in advance of the tax" leviable for that assessment year and the difference between the sum so paid and the amount of tax found payable by him on such assessment, shall be paid to the assessee or refunded to him. The "ad hoc" assessment made under Section 172(4) of the Act is superseded and a "regular assessment" is made as per the provisions of the Act. In such a case, it is only proper and appropriate to hold that all "the provisions" of the Act in the determination of the tax liability including the ancillary or incidental or consequential matters pert....
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....employed in Section 172(7) of the Act and the scope of the legal fiction enshrined therein. The reasoning of the High Court is rather strained as the distinction drawn is without any substance or difference. Section 172(7) of the Act provides for a regular assessment, wherein all the provisions of the Act will apply. It is not a mere provision for adjustment. The High Court was swayed by the title used in the corresponding provision of the predecessor Act (Income Tax Act, 1922 - Section 44-C), wherein there was a heading to the section - "Adjustment". Section 172 of the Act contains no such heading. We hold that the Income Tax Appellate Tribunal was justified in holding that since the payment made under Section 172(4) of the Act is, by fiction, treated as advance tax, all the provisions in respect of the advance tax will apply and if on regular assessment made under Section 172(7) of the Act, there is any excess payment made by the assessee, then the assessee would be entitled to it and also interest thereon under Section 214 of the Act. We answer the question referred to the High Court in the affirmative, in favour of the assessees and against the Revenue. ....." 52. Lastly, in ....
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....ch payments cannot be regarded as income under the I.T. Act. 9. It may be noted that Section 195 contemplates not merely amounts, the whole of which are pure income payments, it also covers composite payments which has an element of income embedded or incorporated in them. Thus, where an amount is payable to a non-resident, the payer is under an obligation to deduct TAS in respect of such composite payments. The obligation to deduct TAS is, however, limited to the appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. This obligation being limited to the appropriate proportion of income flows from the words used in Section 195(1), namely, "chargeable under the provisions of the Act". It is for this reason that vide Circular No. 728 dated October 30, 1995 the CBDT has clarified that the tax deductor can take into consideration the effect of DTAA in respect of payment of royalties and technical fees while deducting TAS. It may also be noted that Section 195(1) is in identical terms with Section 18(3B) of the 1922 Act. ** ** ** 11. While deciding the scope of Section 195(2) it is important to note that the ta....
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.... in Section 195(1). Therefore, this Court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. 15. Section 195(2) is not merely a provision to provide information to the ITO(TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a nonresident. Therefore, Section 195 has to be read in conformity with the charging provisions, i.e., Sections 4, 5 and 9. This reasoning flows from the words "sum chargeable under the provisions of the Act" in Section 195(1). 16. The fact that the Revenue has not obtained any information per se cannot be a ground to construe Section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read Section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention o....
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....oever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words "chargeable under the provisions of the Act" to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, Section 195(2) provides a remedy by which a person may seek a determination of the "appropriate proportion of such sum so chargeable" where a proportion of the sum so chargeable is liable to tax. 19. The entire basis of the Department's contention is based on administrative convenience in support of its interpretation. According to the Department huge seepage of revenue can take place if persons making payments to non-residents are free to deduct TAS or not to deduct TAS. It is the case of the Department that Section 195(2), as interpreted by the High Court, would plug the loophole as the said interpretation requires the payer to make a declaration before the ITO(TDS) of payments made to non-residents. In ....
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.... It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage." 53. In the view that we have taken, it is not necessary to refer the judgment of a Division Bench of the Delhi High in the case of Emirates shipping Line, FZE v. Assistant Director of Income Tax reported in [2012] 349 ITR 493. Suffice it to note that the view taken by the Division Bench and particularly in paras 17 and 18 of this judgment accords with the conclusion reached by us. 54. The difficulty is presented only when provisions are not read together and harmoniously so also without bearing in mind the setting and placement thereof in the chapters. These chapters of the Income Tax Act cover several aspects in relation to imposition, levy, assessment, collection and recovery of tax on the income specified above. To the extent contrary to above, we overrule the view in Orient Goa's case (supra). The question referred is answered accordingly. Since the question above is referred to us, having answered it, let the Appeals be now listed for hearing before appropriate Division Bench." 2....
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.... & Co. (India) it held that Under Section 40(a)(i), inserted vide Finance Act, 1988 w.e.f. 1.4.89, payment in respect of royalty, fees for technical services or other sums chargeable under the Income Tax Act would not get the benefit of deduction if the assessee fails to deduct TAS in respect of payments outside India which are chargeable under the I.T. Act. This provision ensures effective compliance of Section 195 of the I.T. Act relating to tax deduction at source in respect of payments outside India in respect of royalties, fees or other sums chargeable under the I.T. Act. In a given case where the payer is an assessee he will definitely claim deduction under the I.T. Act for such remittance and on inquiry if the AO finds that the sums remitted outside India comes within the definition of royalty or fees for technical service or other sums chargeable under the I.T. Act then it would be open to the AO to disallow such claim for deduction. Similarly, vide Finance Act, 2008, w.e.f. 1.4.2008 sub-Section (6) has been inserted in Section 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. This p....
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....the provision of s. 195, falling under Chapter XVII, shall come into play. This, then, provides the legal basis to resolve the issue before us. The next question that confronts us is if any part of 'commission' income can be said to accrue or arise or deemed to accrue or arise in India. Toward this, the assessee's contention is that no services are rendered in India (the taxable territory). It is on this basis, as a reading of its decision in Toshoku Ltd. (supra) would reveal, that the Hon'ble Apex Court held that the non-resident selling agents having acted outside India, their commission earned cannot be deemed to have either accrued or arisen in India. Where the services are rendered in India (taxable territory), the income therefrom, to that extent, would surely accrue or arise in India, so that one may not be required to even travel to the deeming provision of section 9, which in a way seeks to extend and to definition the scope of accrual by and through the concept of 'business connection'. As explained in CIT vs. R. D. Aggarwal & Co. [1965] 56 ITR 20 (SC), which stands referred to in Toshoku Ltd. (supra), and continues to govern the field, business connection involves the ....
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....peal No. 4022 of 1999 dated 14.10.2008). The subsequent withdrawal of the said Circular is thus, under the circumstances, of little assistance to the assessee. In the facts of the present case, the assessee claims likewise, i.e., of no services having been rendered in India (taxable territory). There has been, however, no examination of the activities carried out by the nonresident agents, even as the Revenue claims the same to involve managerial and consultancy services, so that in nature and by definition the same would be fee for technical services, covered by section 9(1)(vii). The ld. AR, on being questioned in the matter, i.e., as to the nature and scope of the services rendered by 'selling' or, as the case may be, 'consulting' agents, conceded to the same, i.e., a complete absence of any examination in the matter. We consider both the assessee - who only states of there being no written agreements between the assessee and the agents, as well as the Revenue, to be responsible for this. The law could not be applied without examining and determining the facts. The law provides the guidelines, the frame work, applying which to the facts as found, the issues as arising are to b....
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....o infrequent changes - automobiles witnessing changes in design and models on a regular basis, or on account of changes in other variables impacting the terms of the trade, viz. fluctuations in foreign exchange market; the price of some imported or indigenous material, etc. which may require renegotiation. The exchange, thus, would be on a regular basis, across different buyers, each with its own set of requirements and issues. The assessee's view point on each aspect of the matter, and at each stage, has to be put across to the buyers, and vice-versa, constituting an effective dialogue between the two, which is the prime function of the agent as an intermediary. Why, it may also necessitate visits by either side, to another, besides by the Agent/s to India, apart from the regular exchange and flow of information through other modes of communication. How else, we wonder, the business take form and be undertaken? The ld. AR, on being questioned in the matter, i.e., as to the manner in which the business is undertaken, putting across this scenario, would fairly submit that the same is a distinct possibility, though he was not in a position to so affirm or commit in the matter. This i....